Research report

Q2 2024 3D Report: Prett-ay, prett-ay, prett-ay good

Ask an investor how they’re feeling and they’re likely to echo the wary positivity of Larry David’s famous line on “Curb Your Enthusiasm”—“prett-ay, prett-ay, prett-ay good.”

Read the report
May 2, 2024 | 12 minute read

Prett-ay Good”

—Larry David, “Curb Your Enthusiasm”

In a nod to the series finale of “Curb Your Enthusiasm,” I thought we would start with the iconic catchphrase from the show. While the phrase—delivered in response to Larry’s parents’ innocuous question “How are you?”—is nothing special on its face, Larry’s labored delivery is what makes it both funny and impactful.

I imagine most investors would say they are feeling “prett-ay good.” Risk-free yields are high, equity multiples and earnings have expanded globally, and credit spreads have contracted. In all, a Goldilocks outcome for asset allocators. As we discussed in our last piece, this is not an environment many investors have experience with, particularly post-WWII. We have a tight monetary policy: Real rates are 150bps–200bps into positive territory and the Fed continues to reduce its balance sheet holdings, traditionally a headwind for risk assets. We also have exceptionally loose fiscal policy, with an estimated 6% budget deficit as a percent of gross domestic product (GDP), an unprecedented number outside a crisis environment.

What happens in theory when tight monetary policy meets lose fiscal policy? Almost exactly what has occurred in practice. The U.S. dollar has strengthened, equities as a pass-through vehicle for nominal growth have done well, credit has cooperated and even commodities are now participating. As George Costanza and the bears would say, “Serenity Now.”

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Ryan Caldwell

Managing Director, FS Investments

Search our site