The Financial Times – Janet Yellen refuses to be derailed by low-inflation mystery Ms Yellen and her committee spent the spring and summer digesting a series of oddly sluggish readings that have taken their preferred measure of core inflation to just 1.4 per cent after it crested at 1.9 per cent, just shy of the… Continue reading Where’s The Inflation?
Bloomberg Business – The Hot New Hedge Fund Flavor Is ‘Quantamental’ Fundamental and quantitative investing used to be the hedge-fund versions of oil and water: They didn’t mix. Those in the fundamental camp do analysis the old-fashioned way, evaluating investments based on research and instinct, with humans calling the shots. Quantitative money managers turn to sophisticated… Continue reading The Hottest Trend In Finance: Quantamental Investing
Bloomberg – Bitcoin Isn’t Crazy Enough Yet The stronger argument against digital currencies is not that they’re going to zero — it’s that they don’t make a good hedge at all. Since 2010, gold and Treasury bonds have a negative correlation with the S&P 500; bitcoin, on the other hand, has a positive relationship, multiple… Continue reading Arguing Against Bitcoin Again
Bloomberg Gadfly – America Takes On the World (in Oil, Anyway) This is a marked shift upward from a month ago; and, as I wrote here, that $50 level tends to be a threshold above which U.S. E&P firms start to hedge future production — which could inject renewed impetus into production growth. That, more than anything,… Continue reading The Brent/WTI Spread
Handout, mp3 replay and webcast replay for our conference call titled What to Expect From Balance Sheet Normalization on September 21, 2017. The handout can be found here (starts with the second post). Mp3 replay can be heard below: Webcast replay below:
Comment For Treasuries the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month. For agency MBS the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over… Continue reading The Mechanics of Balance Sheet Normalization
The chart below shows the Goldman Sachs U.S. Financial Conditions Index with bands indicating prior Fed tightening campaigns. The sustained loosening of financial conditions is unique to this tightening campaign. Driven in large part by persistently strong equity market returns and a weakening dollar, this behavior has confounded markets and Fed officials. … Continue reading Growing Risks from Fed’s Focus on Financial Conditions
Comment The great unknown is when other central banks will join the chorus. Hawkish rhetoric is on the rise outside U.S. borders. But, action speaks louder than words… The direction of equity returns have remained dictated by economic growth, however insulation to negative developments and a positive beta to positive developments have very likely been provided… Continue reading Balance Sheet Reduction, Who Else Will Join the Chorus?
Summary U.S. inflation expectations should continue to rebound in the event economic data surprises (beats) make a triumphant return. History suggests TIPS breakevens widen with great frequency after a period of extreme data misses. Comment Inflation remains the dominant topic for the Fed and market participants. The chart below shows the percentage of T.V.… Continue reading U.S. Inflation Expectations Rebounding with Economic Surprises
Summary Stronger gains in inflation are being found near technology hubs like San Francisco, likely where job markets and wages are improving most. Consumer demand for discretionary goods and services have yet to rebound as much as non-discretionary, durable goods. The jobs market is still upbeat, which we hope will finally lead to wage pressure.… Continue reading Consumer Behavior Not Yet Reflecting Stronger Wages/Inflation
The Financial Times – Fed set to press the button to unwind quantitative easing Nearly 10 years after starting stimulus, move will be a sign of confidence in the recovery The move, which comes as a range of central banks plan to rein in their stimulus, will gradually start reducing the size of the US central… Continue reading Will Yellen Double Down?