The Federal Reserve is battling broad-based inflation and has indicated a willingness to cause some economic pain to restore price stability. Since the beginning of the year, financial conditions have been tightening as capital markets have internalized the Federal Reserve’s anti-inflation crusade. The tightening of financial conditions, including increased borrowing costs and rising U.S. dollar, amplify recession risk. While the magnitude of financial tightening remains short of recent cycles, the pace of tightening has been rapid, contributing to historically large swings in assets values.
Economic and Capital Markets Commentary
High levels of uncertainty remain for the levels of economic activity across all major markets. Risks continue to materialize, and worsening war in Ukraine, escalation of sanctions, a sharp slowdown in China, renewed COVID-19 flare-ups, and an inflation wave forcing central banks to raise rates complicate outlooks. The current environment risks further downward revisions of real economic growth. Though the correction in the first quarter reflected raising discount rates from extraordinarily low levels, the continued slide in equity markets now incorporates risks for more prominent cyclical headwinds and related earnings risks.
TWST: Please give us a snapshot of Luther King Capital Management, a bit about the company’s history and business today.
Mr. King: Luther King Capital Management was founded in 1979 by Luther King, after he had served for nearly a decade at Lionel D. Edie. He stepped out on his own to establish a firm here in Texas. The initial clients were from the Fort Worth and Dallas area. The requests from initial clients were for him to establish a firm based in Fort Worth and to focus on the investment research as opposed to marketing.