A hot inflation figure on Wednesday would show we are in the grip of a structurally persistent crisis which has been underestimated in three of the last four quarters.
Already a subscriber?Speaking to investors out on the road over the last week, two of the biggest topics were whether folks should be loading up on fixed rate “duration” exposures and burgeoning controversies swirling around the private credit sector, which theWhile the US Federal Reserve has been foolishly railroading towards trying to ease policy in September, arguably in the name of offering a tailwind to Donald Trump’s opponents, its best-laid plans could yet be thwarted by the incoming...
Locally, we also get the crucial second quarter inflation data next week, when the Reserve Bank of Australia is expecting 0.8 per cent compared to Coolabah’s projection of 1.0 per cent to 1.1 per cent.If we are right, that would mean that core inflation has been expanding at around a 4 per cent pace over the first six months of 2024.
Whether that proves to be the case in practice, however, is an open question. If Martin Place was doing its job, it would immediately lift rates by 50 basis points to get its cash rate to 4.85 per cent, which is still below where most economic models, including those the RBA relies on, suggest the cash rate should have been raised to last year.Key peer central banks had increased their policy rates to 5-5.
Having said that, in my own portfolios I have averaged into fixed-rate bond exposures with a target of 75 per cent floating rate and 25 per cent fixed rate. Metrics co-founder Andrew Lockhart argues these issues include: a lack of resourcing within many private credit teams, which are staffed by tiny numbers that have not worked through a default cycle; the absence of portfolio diversification with funds often holding less than 25 loan exposures concentrated solely in real estate; poor credit assessment decisions due to a paucity of experience underwriting during interest rate shocks; claims to offer liquidity over funds that don’t have sufficient...
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