Splitting Straws on Recession

I've been paying close attention to the US Treasury yield curve since last year because it is, historically, a reliable bellwether for economic conditions. After threatening an inversion for months, the 2-10 year curve finally did so in late March. The inversion was short-lived, however, lasting only days. Figure 1: 2-10 Year Treasury Curve It … Continue reading Splitting Straws on Recession

Q2 2022 Update

QUARTER IN REVIEW Q1 was a bumpy ride for investors. Global equity market prices (MSCI ACWI) swung from being down almost -13% to only down about -6% for the quarter. However, the negative returns were broad. All major equity regions and even the US bond market were down YTD. Figure 1: Global Markets YTD MACRO … Continue reading Q2 2022 Update

Potentially Potential

The latest inflation numbers came in at 6.8% year-over-year (headline CPI). That's the highest since the 1980s. What's more, the Federal Reserve capitulated from its "transitory" position and has signaled an acceleration of taper and interest rate hikes. Figure 1: US Inflation Unfortunately, this is the scenario I did not want to see but have … Continue reading Potentially Potential

Much Ado About Something

The last two months have been choppy for stocks. The S&P 500 is down about 8% and has given up its gain for the year. Emerging markets have outperformed since October, relatively speaking, but remain the biggest loser YTD, down about 16%. As usual, the financial media is searching, desperately, for something to fear. Does … Continue reading Much Ado About Something

Japan’s Footsteps

After improving economic prospects earlier this year, Japan has abruptly reversed course.  A third-quarter annualized GDP reading of negative -.8% puts Japan back in a technical recession (defined as two quarters of negative GDP growth). Following stimulative policies (aka "Abenomics") by Prime Minister Shinzo Abe and a blossoming recovery from 2014's technical recession, many assumed … Continue reading Japan’s Footsteps

Has Janet Lost Her Patience?

Speculation has been rampant about when Janet Yellen and the Federal Reserve will finally begin raising interest rates.  Last month all the buzz was focused on whether Yellen would drop the word "patient" (with respect to rate increases) from her scheduled Fed policy statement.   She did, and ever since strategists and traders all up … Continue reading Has Janet Lost Her Patience?

A Complicated Relationship

Many people talk about how interest rates can affect bond prices.    However, rates can also affect stock prices.  Here's a quick summary of the reasons behind that relationship Interest Expense: Interest rates represent an expense for any company that uses credit. As interest rates rise so do the costs of borrowing. All else equal, … Continue reading A Complicated Relationship

Dangers of High Yield Hunting

Fixed income investors that were accustomed to earning 5% on a portfolio of government bonds are now getting 2% for the same securities. The steep drop has interest starved investors hunting for yield. As usual, the easiest way to increase yield has been to increase risk, and investors have taken the path of least resistance. … Continue reading Dangers of High Yield Hunting