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SEPTEMBER 29, 2023


According to the latest Commerce Department’s report, consumer spending in the U.S. increased by 0.4% in August, contributing to more than two-thirds of the country’s economic activity. This growth surpassed the previously reported 0.8% increase in July, which was revised to 0.9%. The rise in spending was partially driven by higher prices, particularly in gasoline, which reached their peak in August at $3.984 per gallon. Moreover, inflation, as measured by the PCE price index, rose by 0.4% in August, following a 0.2% increase in July. In addition, on a year-on-year basis, the PCE price index increased by 3.5%, slightly below the 3.4% rise in July, and excluding food and energy components, the core PCE price index rose by 0.1% in August, after a 0.2% increase in July. These numbers suggest that underlying inflation pressures are easing, which is positive news for Federal Reserve officials.


The asset management company, Valkyrie, has recently made a significant move in the world of cryptocurrency, as it has obtained approval to convert their existing bitcoin futures exchange-traded fund (ETF) into a unique investment opportunity that includes both Bitcoin and Ether (ETH) futures contracts. By doing so, Valkyrie has become the first U.S. ETF to offer exposure to both of these popular cryptocurrencies under a single investment vehicle. With their updated strategy set to take effect on October 3, the ETF will be renamed to Valkyrie Bitcoin and Ether Strategy ETF. This development comes amidst a growing interest in ETH futures ETFs, with several other entities, such as Volatility Shares, Bitwise, VanEck, Roundhill, ProShares, and Grayscale, also filing for similar offerings.


Investors facing financial constraints due to their money being tied up in private equity funds are exploring a “net-asset-value” financing approach, which consists on borrowing against their stakes until the market conditions improve. This approach, has gained traction among private equity firms with sizable assets of around $4.8 trillion who are reluctant to sell their investments amid a sluggish market for mergers and acquisitions. In theory, this loan option presents a more appealing alternative for institutional investors, such as pensions, to raise capital without having to sell their fund holdings at unfavorable discounted rates. The loans can help generate liquidity for investors to pursue other investment opportunities and address their overexposure to private equity. However, it is important to consider the downsides, which include the high borrowing cost (with interest rates ranging from 8% to 10%) and the peril of significant losses if the value of their existing private equity assets diminishes, especially considering some of these assets are already heavily leveraged. Lenders such as 17Capital, Apollo Global Management, and Ares Management recognize the potential in tapping into this market by offering loans to these firms’ clientele, and despite the cons net-asset-value” financing approach has, alternative credit experts like Joel Holsinger from Ares Management anticipate further growth in this market as it offers investors another valuable tool to navigate the financial landscape. In fact, Ares Management has already engaged in talks with institutional investors about net-asset-value loans and other structured solutions, such as preferred equity, however, investors are adopting a cautious approach, waiting for potential improvements in the asset sale market and increased distributions before fully embracing these options.


In August, the National Association of Realtors reported a significant 7.1% decline in pending home sales compared to July, reaching the lowest level since April 2020. This dip is evidence of a struggling resale market, partially due to higher mortgage rates. Lawrence Yun, the chief economist at NAR, suggests that increased housing inventory and improved interest rates are necessary to revive the housing market. Unadjusted figures show a nearly 19% drop in pending home sales compared to the previous year. The high mortgage rates, coupled with soaring prices and limited inventory, have resulted in an increasingly unaffordable housing market. Homeowners are reluctant to list their properties due to these higher borrowing costs, leading to sustained high prices. The pending-home sales report is an indicator of existing-home sales, as homes typically go under contract a month or two before being sold. All regions experienced declines in August, with the South seeing the lowest levels since 2010 and the West posting its weakest reading since 2001.


Inflation in Europe experienced a significant decline in September, which brings hope for relief to consumers facing higher prices. According to Eurostat, the European Union’s statistics agency, the annual inflation rate dropped from 5.2% in August to 4.3% this month, and core inflation, which excludes volatile fuel and food prices, fell more than anticipated, measuring at 4.5% compared to the previous 5.3%. This decline in core inflation strengthens the belief that the European Central Bank (ECB) may not have to further restrict the economy by raising already-record high interest rates, however, it is important to highlight that the recent increase in oil prices presents a challenge in achieving the European Central Bank’s target of 2% inflation. Moreover, the drop in inflation is attributed to a 4.7% decrease in energy prices, although the inflation rate for food costs remains uncomfortably high at 8.8%. Different European countries experienced varying inflation rates, with Germany experiencing a drop in annual inflation from 6.4% to 4.3% in September, while Spain saw an increase from 2.4% to 3.2%.

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