DFCF, LLC
Drulard Family Capital Fund (DFCF, LLC)
Credit Spreads
Drulard Family Capital Fund
Fortnightly Macro View
JD Straight Up:
S&P 500 at 6916 – up 1% from 6875 two weeks ago - all time highs
VIX at 15 – up 7% from 14 two weeks ago
10yr Treasury yielding 4.19% (up 1% from 4.15% two weeks ago)
Agg (US Aggregate Bond Index) at 100.03 – flat from 99.76 two weeks ago
Gold at 4465 per oz (flat from 4472 two weeks ago)
Crude Oil (WTI) at 58 per barrel (flat from 58 two weeks ago)
Bitcoin at 94k (up 5% from 89k two weeks ago)
JPM shares at 336 (up 4% from 322 two weeks ago) - all time high
Deutsche Bank shares at 39.63 (up 2% from 38.72 two weeks ago)
Truist shares at 50.83 (up 1% from 50.50 two weeks ago)
Blackstone shares at 163.32 (up 5% from 155.71 two weeks ago)
Magnificent 7 Index at 425 (down 1% from 427 two weeks ago)
US unemployment: at 199,000 in latest claims – down 11% from 224,000 two weeks ago
EUR at 1.17 USD (flat from 1.18 two weeks ago)
GBP at 1.35 USD (flat from 1.35 two weeks ago)
Macro Environment
US inflation finished 2025 with full year expected to tally 2.7%, GDP growth at 2% and unemployment of 4.6%. EU 2025 compares at 2.4% inflation, GDP growth of 1.4% and 6% unemployment. EUR to USD FX climbed from 1.03 to 1.17 during 2025 as the dollar weakened. 10yr government rates in Europe averaged 3.25% while 10Yr UST 4.3%. Inflation expectations and fiscal deficits are key influences on the disparity.
Ceasefire continues in Gaza while war persists in Ukraine. US forcibly removed Venezuelan president and maintains oil blockade.
US Fed ends QT and completes third rate cut to bring fed funds target rate from 4.25%-4.50% to 3.50%-3.75%.
US consumer confidence surveys continue to trend lower and inflation expectations higher.
Media reflects on the K-shaped economy in the US with wealthiest 1% of consumers accounting for 50% of consumption growth and poorest consumers falling further behind on debt payments.
Macro View
There is increasing dialogue considering whether 2% is the right inflation target for the US Fed and whether key economic metrics in the US can be trusted in the current environment. The US Treasury Secretary made note of 2.7% being on track towards the intended target. It is hard to see how it is on track unless it is on a downward slope rather than a plateau. It is certainly not close to target. Yes, it does have a "two handle", but it remains 35% above target. It is amazing how much that little sliver of .7% can do to prices through the magic of compounding when it is allowed to persist for a few years. Hence the 'affordability' headlines that continue to run.
Relevance
2026 is when we will see if there is any intention to address the growing fiscal deficit and the perpetually compounding federal debt in the US. That is arguably the reason that the US, despite its growth, new tariff revenue, and military and economic power in the world has to pay more than European countries to fund itself. The US Treasury should be the closest thing to the proverbial "risk free rate", yet investors continue to demand a yield premium. This credit spread should erode if investors can build any confidence in a US intention to resolve deficits and bring the debt to GDP trajectory back into control.
Head Scratchers
1 - Will the AI productivity dream come to fruition for the US companies leading the charge in capex and innovation? Will it be enough to provide any material boost to the denominator in the debt to GDP ratio?
2 - Will the froth boil off of the speculative pot (equities all time highs, crypto, credit, margin, levered ETFs) without doing any serious or lasting damage to capital markets or the economy?
More questions than answers, and limited certainty.
Happy New Year
Drulard Family Capital Fund
Drulard Family Charitable Fund
#33- 5Jan26