What to do about TINA

Posted on Opinions

TINA, the acronym for “there is no alternative” to buying equities has been a fixture of the financial landscape for some time as evidenced by the chart showing the real US 10Y yield (deflated by CPI) less the dividend yield on the S&P 500. The same picture can be demonstrated using most fixed income assets, […]

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Fed’s View of Inflation Risk

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Market expectations for Fed rate hikes in mid-2022 look misplaced unless this chart begins to change to the upside. Despite 5y breakeven inflation at record highs and constant chatter on underlying inflation risks by analysts and in the media (which we are sympathetic to), the underlying reality is that long term inflation expectations that have […]

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Why Robust Pricing Power Can Persist

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The attached chart supports the view that demand will remain strong despite surging energy prices and that business pricing power will also remain firm for the foreseeable future. That bodes well for operating leverage despite rising input costs from both labor and goods owing to well documented supply chain issues and higher commodity prices.  The […]

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A Not So Crazy Inflation Forecast

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Recent forecasts by the Fed’s staff in Washington has received much press of late in their expectations for inflation to decelerate back towards 2% in 2022. That feels like a heroic statement, almost foolish. However, it is not and as a former Fed economist, I have utmost respect for their forecasting ability. The key point, however, […]

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Mind The Rate Gap

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We expect the Fed to begin its long-awaited tapering process at the November FOMC meeting. When the central bank is buying $120B in securities a month a reduction to $105B or $110B may not appear to be significant. It is, however, a critical first step to tighter financial conditions. Fed Chair Powell suggests the full “taper” […]

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High Stakes in the Liquidity Game

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Global dollar liquidity surged in 2020 with the Fed’s $120B monthly bond buying program flushing the system with enormous sums of cash that facilitated the fastest post-recession gain in equities since WWII. All this liquidity needed to find a home and it did out the risk curve where investors remained giddy, paying a premium for […]

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Fed Tapering and Higher Real Yields

Posted on Opinions

The chart gives us a different way to view potential market adjustments once Fed tapering gets underway. It demonstrates the US needs a whole lot of financing owing to bulging fiscal and external account deficits (Twin Deficits) which together have surged to almost 18% of GDP. This demand for financing would have typically forced an […]

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