June performance through 6/27/13 is estimated at (1.8%). Year-to-date performance is estimated at 15.7%.
On Wednesday, June 19 2013 Federal Reserve Chairman Ben Bernanke clarified his vision for the stimulus unwind. The asset purchase unwind could start in the Fall of 2013 and complete during the middle of 2014, IF all goes according to the Fed's economic growth projections. The asset purchase unwind would correlate with a 7% unemployment rate and 2% forward annual inflation expectations. The Fed funds rate is not expected to rise until 2015, correlating with a projected 6.5% unemployment rate or better and 2% forward inflation expectations.
The US stock markets began to discount the effects higher interest rates will have on corporate profits. In addition, the US stock markets are grappling with the affects higher interest rates will have on US consumers; state, local and Federal borrowing and the US economy in general.
We've experienced a sharp spike in US Treasury interest rates. Theses higher interest rates have created a sense of urgency for borrowers, and there is concern that the supply from companies and governments trying to refinance could overwhelm demand. There is also concern that the Fed could become overwhelmed by bond market selling.
However, unless we see an uptick in the global economy, which could be forthcoming, and a coincident uptick in inflation, I do not see an interest rate death spiral as the most likely scenario. We will be watching for signs of a paradigm shift as a result of years of money printing around the globe. The next time the world is in trouble there could be a run away from government debt.
Our view today is that the world bond money has to go somewhere, and with all major nations around the globe showing lackluster growth at the moment, long dated US Treasuries nearing 4% could become attractive for bond investors thereby keeping interest rates in check.
We are mindful of the US debt, the US deficit and US unfunded liabilities, but a growing US economy with moderate inflation can cure a lot of these ills. (But not all, the US still needs sound fiscal policies).
We will be monitoring the data for a continuation of US and world GDP growth, inline inflation projections, positive global employment trends and moderately higher interest rates unfolding over the next several years. So long as this data continues to progress along with expectations, we prefer to own great US businesses.
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