JD Straight Up - 18Aug25 - Moment of Truth

Moment of Truth

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 6448 – up 2% from 6307 two weeks ago

VIX at 16 – down 11% from 18 two weeks ago

10yr Treasury yielding 4.34% (up 3% from 4.22% two weeks ago)

Agg (US Aggregate Bond Index) at 98.79 – flat from 99.12 two weeks ago

Gold at 3379 per oz (down 1% from 3426 two weeks ago)

Crude Oil (WTI) at 63 per barrel (down 6% from 67 two weeks ago)

Bitcoin at 116k (up 1% from 115k two weeks ago)

JPM shares at 290 (down 1% from 293 two weeks ago)

Deutsche Bank shares at 36.53 (up 9% from 33.58 two weeks ago)

Truist shares at 44.12 (up 2% from 43.40 two weeks ago)

Blackstone shares at 170.40 (flat from 170.24 two weeks ago)

Magnificent 7 Index at 378 (up 4% from 363 two weeks ago)

US unemployment: at 224,000 in latest claims – up 3% from 218,000 two weeks ago

EUR at 1.17 USD (up 1% from 1.16 two weeks ago)

GBP at 1.35 USD (up 2% from 1.33 two weeks ago)

Macro Environment

US inflation is at 2.7% and core consumer prices in the US are up 3.1% year over year.  EU inflation is at 2.3%.  US continues to negotiate trade deals and to apply tariffs to its leading trading partners around the world.  War continues in Gaza with Israel moving to occupy it, and war continues in Ukraine with US and Russian presidents meeting to discuss paths to peace.  Pressure continues to mount on US central bank to ease money supply despite inflation and continued strength in employment.  US central bank independence is being tested.

Macro View

US monetary policy has enormous importance for global trade, economic welfare, growth, and equilibrium.  It is important to note that adjustment to the Fed Funds rate is just one of an assortment of tools the US central bank employs to control monetary policy.  Much is said about the criticality of rate cut adjustments for loosening money supply, but in the years since the dotcom crash, the Fed has employed multiple tools including open market purchases of treasuries and other securities and actions in the repo market amongst others.  It inflated a balance sheet counted in the hundreds of millions to one exceeding $9trn and now still tallying in excess of $6trn.  It has operating losses of more than $200bn and carried unrealized portfolio losses of more than $900bn.  The world waits with bated breath to see how the Fed will respond to the administration and to current macroeconomic factors as it sets a de facto monetary policy for a dollarized world.

Relevance

Is the Fed going to cut?  Is the administration going to find a way to replace the existing chair with a more friendly one?  Is the administration going to end the independence of central banks?  Are we going to return to an easy money policy despite the risks of inflation and moral hazard the likes of which have not been seen since the roaring twenties?  The moment of truth rapidly approaches and the suspense builds as central bankers convene in Jackson Hole.

The backdrop does nothing to diminish the suspense.  The April to August market run is one for the ages, but its sustainability is in question.  Can an S&P with a price-to-book in excess of 5 offer value?  A big bet on easy money, continued growth and increased productivity from AI is underway and is pricing securities with an expectation of a perfect environment.

Head Scratchers

1 - Is it really different this time?  Is this one of the times that happen 20% of the time that it really is different?  Or are we in the same cycle with the same animal instincts and same warnings that will all become obvious after the fact through reflection?  Can countries, consumers and companies carry more debt than historically?  Will AI change the entire landscape of productivity, discovery, and innovation?  Can loose money be left in place longer to spur growth without the traditional repercussions?

Drulard Family Capital Fund

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#23- 18Aug25