ISM

Another year, another close tracking of US macro data, searching for any insights into where this is all going.

And the new orders data is pretty weak. The Fed is deliberately targeting such an outcome, it wants to see forward looking demand (new orders) and contemporaneous pricing indicators (literally survey answers to whether prices are going up or down) declining.

And, like much of the inflation data more broadly, they (prices, demand) are moving in the desired direction.

We kick off our portfolio summary with much the same tag line as of late 2022, namely that there are good reasons to be bullish (so have plenty of growth assets) and plenty of good reasons to be bearish (which means not thundering out of your fixed income, cash, alts and other defensives).

The only debate, as we see it, is whether your fixed income is short duration (e.g. floating rate, or floating rate credit for a bit of extra yield without the duration risk) or, takes the rate risk (again, with some spread duration thrown in).

Our view; we are comfortable with either. We think 10s settle at 2.5%-3%, which, at currently close to 4%, means duration likely makes money over time, but, the path to get there is wobbly, and if you see cash rates moving to 5%, you’ll likely wear pain on that trade in the short run, and hence depending on risk tolerance the floaters or bbsw + type strategies, are the better fit.

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