25 Bps… No takebacks! Ooh it was a mistake.

by | Aug 12, 2019

“The system of unlimited liability is that which fosters the most speculative management.  It is a system which makes bankers out of men who have nothing to lose…”

– Walter Bagehot, "Bagehot, The Life and Times of the Greatest Victorian", p. 138, James Grant, 2019

Having opined in the past about the Fed’s role in causing recessions, I won’t be blaming restrictive monetary policies if a recession is on the horizon.  The Fed’s takeback of 25 bps at their last meeting was labeled preemptive, but it seemed as though the markets (both bond and equity) were exerting greater influence on the rate cut decision than seemed necessary. 

Former Fed Chair Alan Greenspan once revealed that the last rate hike in a tightening cycle is “usually a mistake”, but last December’s increase of 25 bps certainly seemed warranted based on what we knew then or at least what the data was telling whoever it is that looks at the data.  But looking at the funds rate in real terms, at the peak last month the rate was 2.4% and year-over-year CPI was only 1.9%.  This means the real funds rate was 0.5%.  This is hardly restrictive and not even close to the level of real rates that have triggered previous recessions. 

What’s to worry about when monetary policy is less restrictive?  Plenty with an economy on solid footing.  Asset price bubbles, inflation, and confidence that the Federal Reserve Board is acting independently within their mandates, not under the influence of any group, public or private. 

If we want better performance for our economy, then help for the manufacturing sector is needed and achieved by solving our trade issues.  The tail that wags the dog need not be a 6% drawdown in our equity markets, nor a yield curve that reflects the poor policies of the rest of the world.

As you consider the information provided with the Salt Creek Investors Asset Allocation Platform (the “Program”), please review the following:

The information and descriptions provided about the Program are for educational and information purposes only and should not be used or construed as investment advice, an offer to sell, a solicitation of an offer to buy, a recommendation for any security, or suggest any course of action. LaSalle St. Investment Advisers (“LSIA”) does not guarantee that the information or descriptions supplied about the Program are complete or timely. LSIA makes no warranty with regard to any results obtained from the Program or its deployment. LSIA is not responsible for any direct or incidental loss incurred by relying on information provided about the Program. The allocations presented herein are illustrations and completely hypothetical. None reflect actual investments or investment results and do not reflect allocation of any individual portfolio. Asset allocation and its results vary over time. Other allocations or asset investment categories not offered in the Program may have characteristics similar or superior to those illustrated. Past performance of any model or allocation is no prediction of future results. Neither the Program nor any system/model can predict the future of any market or price movement in a market. Diversification and asset allocation do not guarantee against the risk of investment loss, including risk of loss of principal. Information provided regarding the Program is as of the date of publication and may change at any time without notice. Information has been included which was obtained from third parties and is believed to be reliable and complete. LSIA does not warrant the accuracy or completeness of such information. LSIA is a registered investment advisor and does not provide tax, accounting or legal advice ‒ the information and/or descriptions provided do not constitute such advice. More information regarding LSIA and its investment strategies can be found in the LSIA brochure, ADV Part II, which is available online or through LSIA. Asset allocation may not be suitable for all investors. Before deciding to invest, potential participants should consult with an investment adviser to determine an appropriate investment strategy and methodology which meets the investor’s specific financial needs, objectives, goals, time horizons and risk tolerance. The information and description provided herein has been made without consideration of any investor’s particular suitability for investing in the Program. Asset allocation also involves investment in various asset classes which are not insured by the government. Investing in fixed income and/or high yield securities involves additional concerns including interest rate risk, credit risk and reinvestment rate risk. Investing in securities outside the United States may entail greater risk than investing in domestic U. S. markets. These risks typically include political and economic uncertainty of foreign countries as well as currency exchange fluctuations, including foreign currency exchange rates, political risks, different methods of accounting, financial reporting and foreign taxes. The prospectus accompanying a security should carefully be reviewed before investing. The services described herein are available to persons residing in any state where they would otherwise be contrary to local law or regulation.


Copyright © 2019 LaSalle St. Investment Advisors, LLC., All rights reserved.