Federal Reserve policy

While it is easier to read the intentions of Federal Reserve policy
makers than it was several decades ago, their statements and
speeches can still be confusing, leading investors to make mistakes.
We will tell investors how to figure out what Federal Reserve
policy makers are doing as they are doing it, and we roll out
our favorite leading indicator of Fed policy. But one old adage is
still true—do not bet against the Fed. And do not doubt the policy
makers’ anti-inflation commitment. They would still rather
risk a recession than see a resurgence in inflation.

Price-earnings (P/E) multiples

now both these markets are assuming that inflation will be stable, with real rates and price-earnings (P/E) multiples
reflecting that stability. And you do not get to go to heaven
twice for winning the war against inflation—the “peace dividend”
is paid just once, as the victory occurs, not year after year
in its aftermath.

Credit investor

The investor can look further into the matter by examining the same
sort of detail considered for changes in payment rates. However, in this
case, the question is not what will cause borrowers to slow down repayment,
but cease it all together? As with all forms of default, it is a matter
of willingness and ability to pay. Though ability to repay (liquidity)
is not captured as a credit card variable, a proxy exists for willingness in
the distribution of the portfolio’s credit scores.
It is worth emphasizing one more time, however, that this simulation
assumes zero excess spread and no reserve account. In a more realistic
scenario, the monthly excess spread would dampen the accumulation of
losses by absorbing monthly loss fluctuations out

Inflation Questions in credit way

The Federal Reserve’s success on inflation is also a reason that
returns have shrunk in both the stock and bond markets. As the
Fed was winning the fight against inflation, it provided a one-time
opportunity for big returns in the bond market as interest rates
adjusted to new lower levels. There were even bigger returns in
the stock market as the prospect of declining inflation raised the
value of future equity earnings in line with falling interest rates,
and then some. But now both these markets are assuming that inflation will be stable, with real rates and price-earnings (P/E) multiples
reflecting that stability. And you do not get to go to heaven
twice for winning the war against inflation—the “peace dividend”
is paid just once, as the victory occurs, not year after year
in its aftermath.

What is may surprise about credits??

What may surprise you is that one of the reasons there will
certainly be future bubbles is that the Federal Reserve has done
such a good job of taming inflation and stabilizing the economy.
That environment, as it happens, is a perfect petri dish for the
kind of speculation that gives rise to financial bubbles. That’s one
of the unexpected downsides of the victory over inflation.

Biggest threat about American investors

We alweys look into what we think about credits and one is the biggest threat to the economy and American investors: the next economic downturn,
the next recession. There are two reasons a slump would be so
scary. One is that a slowdown, which can put downward pressure
on prices and inflation, could mean that deflation will become a
threat. The other is that it might be more difficult than usual for
the Federal Reserve, the nation’s central bank, to restart the economy
the next time it stutters because the housing market will be
so battered.