Friends

Last week for the markets were all about credibility. The bond market is questioning Treasury Secretary Bessent’s credibility with regards to the Federal deficit which caused interest rates to rise on the longer end of the yield curve. Also, the credibility of credit worthiness of the U.S. and governments around the globe is being questioned as our debt passed the $40 trillion dollar mark. 

This week, Fed Chair Kevin Warsh will give a very important speech at Jackson Hole which will let markets know how serious he is about dealing with inflation. A few weeks ago in the very hotel from where I am writing this in Sintra, Portugal the Fed Chair vowed to give markets less direction from the Fed, and to let markets figure things out for themselves. The Fed Chair’s credibility will be on full display at Jackson Hole.

Stocks have stumbled a bit, but nothing too serious at this point given the angst in the bond market. Corporate earnings continue to shine and the AI infrastructure boom continues to play out. 

A quick aside about the Federal debt. I’ve been an advisor since 1985 and I can’t ever remember a time when the federal deficit wasn’t seen as a catastrophic issue. The number has exploded higher over the years but the dread has never stopped. If I would have kept clients from investing because of the federal debt I would have missed out on decades of massive gains in the stock market. I’m often asked when will it matter and I reply- it will matter when the markets decide it matters.

And by the way, a nice steep yield curve usually is a sign of a strong economy. Remember we had an inverted curve for so long we got used to it and a slow growing economy. 

I will be watching from the road this week. Let’s see how things play out. 

Have a nice week everyone. 

Jim