Tag Archive: Interest rates

Bi-Weekly Economic Review: As Good As It Gets?

2018-06-06

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2018-06-06

US Treasuries
In the last update I wondered if growth expectations – and growth – were breaking out to the upside. 10 year Treasury yields were well over the 3% threshold that seemed so ominous and TIPS yields were nearing 1%, a level not seen since early 2011. It looked like we might finally move to a new higher level of growth. Or maybe not.

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Bi-Weekly Economic Review: Growth Expectations Break Out?

2018-05-22

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2018-05-22

Economic Growth & Investment
There are a lot of reasons why interest rates may have risen recently. The federal government is expected to post a larger deficit this year – and in future years – due to the tax cuts. Further exacerbating those concerns is the ongoing shrinkage of the Fed’s balance sheet. Increased supply and potentially decreased demand is not a recipe for higher prices. In addition, there is some fear that the ongoing trade disputes may impact foreign demand...

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Bi-Weekly Economic Review: Interest Rates Make Their Move

2018-04-27

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2018-04-27

Economic Growth and Investment
How quickly things change in these markets. In the report two weeks ago, the markets reflected a pretty obvious slowing in the global economy. In the course of two weeks, what seemed obvious has been quickly reversed. The 10-year yield moved up a quick 20 basis points in just a week, a rise in nominal growth expectations that was mostly about inflation fears.

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Bi-Weekly Economic Review: Investing Is Not A Game of Perfect

2018-04-11

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2018-04-11

Economic Growth and Investment
The market volatility this year has been blamed on a lot of factors. The initial selloff was blamed on a hotter than expected wage number in the January employment report that supposedly sparked concerns about inflation – although a similar number this month wasn’t mentioned as a cause of last Friday’s selling. The unwinding of the short volatility trade exacerbated the situation and voila, 12% came off the market in a matter of days.

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Bi-Weekly Economic Review: Embrace The Uncertainty

2018-03-28

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2018-03-28

There’s something happening here What it is ain’t exactly clear There’s a man with a gun over there Telling me I got to beware I think it’s time we stop, children, what’s that sound Everybody look what’s going down There’s battle lines being drawn Nobody’s right if everybody’s wrong Young people speaking their minds Getting so much resistance from behind It’s time we stop, hey, what’s that sound Everybody look what’s going...

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Bi-Weekly Economic Review: The New Normal Continues

2018-03-14

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2018-03-14

There has been a lot of talk about the economic impact of the recent tax reform. All of it, including the analyses that include lots of fancy math, amounts to nothing more than speculation, usually informed by little more than the political bias of the analyst. I am guilty of that too to some degree but I don’t let my personal political views dictate how I view the economy for purposes of investing.

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FX Weekly Preview: Changing Fortunes in the Capital Markets or Long Overdue Correction?

2018-02-05

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2018-02-05

The chief development in the capital markets has been the sharp drop in equities after a significant rally since late last year and the rise in yields. The dollar had fallen alongside the exuberant appetite for risk assets. Anecdotal evidence supports the idea that the greenback was used as a funding currency to purchase those risk assets.

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Bi-Weekly Economic Review: A Weak Dollar Stirs A Toxic Stew

2018-01-16

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2018-01-16

We received several employment related reports in the first two weeks of the year. The rate of growth in employment has been slowing for some time – slowly – and these reports continue that trend. The JOLTS report showed a drop in job openings, hires and quits.

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Global Asset Allocation Update

2018-01-05

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2018-01-05

Moderate Allocation
There is no change to the risk budget this month. For the moderate risk investor the allocation to bonds is 50%, risk assets 45% and cash 5%. The extreme overbought condition of the US stock market persists so I will continue to hold a modest amount of cash. There are some minor changes within the portfolios but the overall allocation is unchanged.

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Bi-Weekly Economic Review: Animal Spirits Haunt The Market

2017-12-20

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2017-12-20

The economic data over the last two weeks continued the better than expected trend. Some of the data was quite good and makes one wonder if maybe, just maybe, we are finally ready to break out of the economic doldrums. Is it possible that all that new normal, secular stagnation stuff was just a lack of animal spirits?

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Bi-Weekly Economic Review: Who You Gonna Believe?

2017-12-07

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2017-12-07

We’ve had a pretty good run of data recently and with the tax bill passing the Senate one would expect to see markets react positively, to reflect renewed optimism about economic growth. We have improving economic data on pretty much a global basis. It isn’t a boom by any stretch of the imagination but there is no doubt that the rate of change has recently been more positive.

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Bi-Weekly Economic Review: A Whirlwind of Data

2017-11-22

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2017-11-22

The economic data of the last two weeks was generally better than expected, the Citigroup Economic Surprise index near the highs of the year. Still, as I’ve warned repeatedly over the last few years, better than expected should not be confused with good. We go through mini-cycles all the time, the economy ebbing and flowing through the course of a business cycle.

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FX Daily, October 25: Sterling and Aussie Interrupt the Waiting Game

2017-10-25

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2017-10-25

Most participants seemed comfortable marking time ahead of tomorrow's ECB meeting, and an announcement President Trump's nominations to the Federal Reserve. However, softer than expected Australian Q3 CPI and a stronger than expected UK Q3 GDP injected fresh incentives. Australia reported headline CPI rose 0.6% in Q3.

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Bi-Weekly Economic Review: Yawn

2017-10-24

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2017-10-24

When I wrote the update two weeks ago I said that we might be nearing the point of maximum optimism. Apparently, there is another gear for optimism in this market as stocks have just continued to slowly but surely reach for the sky.

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FX Weekly Preview: Three on a Match: US Tax Reform, ECB and Bank of Canada Meetings

2017-10-23

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2017-10-23

Busy week of economic data and central bank meetings, and reaction to Spanish developments and Japan and Czech elections. Focus below is on the Bank of Canada and ECB meetings and tax reform in the US. The biggest challenge to tax reform is unlikely on the committee level but on the floor votes, especially in the Senate, in a similar way the stymied health care reform. US and German 2-year rates are diverging the most since the late 1990s and...

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It Was Collateral, Not That We Needed Any More Proof

2017-09-30

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2017-09-30

US Treasury, Jan - Sep 2017
Eleven days ago, we asked a question about Treasury bills and haircuts. Specifically, we wanted to know if the spike in the 4-week bill’s equivalent yield was enough to trigger haircut adjustments, and therefore disrupt the collateral chain downstream. Within two days of that move in bills, the GC market for UST 10s had gone insane.To be honest, it was a rhetorical exercise.

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Global Asset Allocation Update: Step Away From The Portfolio

2017-09-25

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2017-09-25

Moderate Allocation
There is no change to the risk budget this month. For the moderate risk investor, the allocation between risk assets and bonds is unchanged at 50/50. There are no changes to the portfolios this month. The post Fed meeting market reaction was a bit surprising in its intensity. The actions of the Fed were, to my mind anyway, pretty much as expected but apparently the algorithms that move markets today were singing from a different hymnal.

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COT Report: Black (Crude) and Blue (UST’s)

2017-09-15

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2017-09-15

Crude Oil, Jan 2006 - Jun 2017
Over the past month, crude prices have been pinned in a range $50 to the high side and ~$46 at the low. In the futures market, the price of crude is usually set by the money managers (how net long they shift). As discussed before, there have been notable exceptions to this paradigm including some big ones this year.

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Bi-Weekly Economic Review: Waiting For Irma

2017-09-11

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2017-09-11

This update will be a bit shorter than usual. I’m in Miami awaiting Hurricane Irma. As of now, it looks like the eye of the storm will make landfall near Key West and continue west of us with the Naples/Ft. Myers area at risk. Or at least that’s the way it looks right now. I’ve done a lot of these storms though – I lost a house in Andrew in ’92 – and you never know what these things will do. We are secure in a house that survived Andrew with barely...

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Deja Vu

2017-09-01

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2017-09-01

Central Bank Rate Decomposition
According to orthodox theory, if interest rates are falling because of term premiums then that equates to stimulus. Term premiums are what economists have invented so as to undertake Fisherian decomposition of interest rates (so that they can try to understand the bond market; as you might guess it doesn’t work any better). It is, they claim, the additional premium a bond investor demands so as to hold a security that much longer (more return to...

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