The Productivity Promise
By John C. Howe, Founder & CEO, Old Hill Partners Inc.
The period since our last update has seen the Trump Bump persevere. Equity and bond markets continue to rally, despite the inherent difficulties faced in implementing the new administration’s aggressive tax, regulatory and healthcare reforms, as Trump’s pro-business agenda augurs well for U.S. economic growth. U.S. monetary policy will continue to normalize this year, although geopolitical concerns and a looming fight in Congress over the debt ceiling in September may slow the pace of Federal Reserve interest rate increases to 50-75 basis points over the next twelve months. Geopolitical concerns notwithstanding, the Fed will need to be wary of the ability of a rapidly reflating economy (and the markets that discount it) to vault ahead of a policy timetable, as that is when monetary accidents can happen. In the meantime, business conditions, confidence levels, and a looming reversal in productivity continue to support the growing demand for prudently structured, asset-backed private debt transactions within the small- and medium-sized segment of the economy. The seismic shift in macro rate trend underway since December 2015 continues to move very slowly, ensuring the global hunger for yield will not be addressed in the near future, which in turn assures alternative lenders like Old Hill Partners of an environment in which attractive, uncorrelated risk-adjusted returns can be further enhanced by the illiquidity premiums possible in the transactions we structure.