The summer is here and we are looking for our portfolio to heat up in performance after a lackluster month. We saw some of the most conservative investments (i.e. bonds) trade down slightly lower as investors continue to put cash into the stock market rather than the bond market. In addition to the newly printed capital going into the stock market, we anticipate another interest rate hike in June. Implied odds show an over 80 percent chance of an increase in interest rates when the Federal Open Market Committee meets on June 14. This will be the third increase in the last six months, which is unprecedented for the past decade. These interest rate hikes put a little pressure on bonds overall, even though our bonds are short term in nature.
An upside to our debt investments is that we are starting to see substantial cash generation, which is always good. This gives us the flexibility to payout the interest and dividends for income needs or to to buy in to new, undervalued investment opportunities. We are currently monitoring about 15 to 20 investment opportunities as the prices move to a place where value is represented. Traditional bonds pay interest out every six months, while exchange traded bonds pay interest every three months; it therefore takes comparatively little time to generate cash from our bond investments.
We are also monitoring daily developments from the White House and Capitol Hill. We expect to see comprehensive tax reform and a new infrastructure plan in the future. However, as long as the current news cycles focus on investigations into Michael Flynn and, now, Jared Kushner, we expect delays in the aforementioned market‐improving events. If instability in the Presidential Administration should send the market into an abrupt downturn, we want to make sure that we are well protected. Republican Senator Richard Burr of North Carolina is probably one of the most powerful people in the markets right now. Every time he issues a subpoena to someone from the Trump Administration in connection with the Russia probe, the market notices.
In conclusion, as the stock market continues to see overall growth, we continue to diversify our portfolio to insulate from losses resulting from abrupt selling if and when the markets correct. The economy is strong and could see several supplemental improvements shortly from the new Administration. But continued delays and upsets could create additional concern from investors. This was most apparent recently when the Dow Jones Industrial Average lost almost 400 points in one day following the news that President Trump may have asked former FBI Director James Comey to back away from investigating former National Security Advisor Michael Flynn.
As always, we appreciate the trust that you show us with your estate’s capital. We will continue to monitor the full spectrum of current events and market developments, and the risks that come from these events as they occur. We are committed to you and your family!