Estimates for inflation have changed materially since March, and even May:
Investment income was up 40% from the prior year quarter, once again on the back of timing mismatches from the prior year and rotation from lower yielding investments. I estimate gains in income from the prior year to quickly level off to 19% for 3Q23 and 0% for 4Q23. Overall this year is trending to be 22% higher than the prior year, and it likely 2024 ends nowhere near such gains in income. The hope is to outpace inflation.
Certain moves were made to trade away from hospitality and alternatives towards insurance and consumer credit. Adverse M&A pushed us out of one prior red list position. Of the other three prior red list positions, one is a private shopping center that is in a marketing process, one is a hotel with no real timeline on exit, and one was a financial that has now since moved off the red list.
While there are still plenty of pockets to find yield in today’s market, even on a tax adjusted basis, the combination of an upward trending market paired with the recent home purchase make debt pay down above the $750K mortgage interest deduction cap, attractive.