Taking Off the Training Wheels

Posted on Perspectives

• Abundant liquidity is poised to fade, monetary policies will tighten, and a drag from fiscal policy all means the coming year will be more challenging for growth and equity markets. What the receding tide of policy support reveals could create more uncertainty that will breed a year characterized by higher volatility. • The good news […]

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Stimulus & Supply Constraints at Record Highs

Safeguarding the Soul

Posted on Opinions

The sugar high of monetary stimulus has become ever sweeter as inflation has surged. Real Fed Funds rates have collapsed to a record low providing further stimulus to a robust economy already dealing with supply constraints. This is a policy stance that risks undermining their hard-won inflation credibility. For a central banker losing that credibility […]

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The Anatomy of Financial Repression

A Burst of Freedom

Posted on Opinions

Real interest rates are too low and if you believe this then you believe equity multiples are too high. On the eve of an accelerated taper by the Fed, it makes sense to take a deeper dive into recent history to see just how low rates really are relative to where they should be. We can […]

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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

Posted on Opinions

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

Posted on Opinions

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

Posted on Opinions

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

Posted on Opinions

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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Tip Toeing Past Peak Everything

Posted on Perspectives

•  Equity markets have begun to feel the weight of an historic run-up in prices. The transition to a post “peak everything” regime makes for a more challenging environment for fixed income and equities. •  The global economic recovery is on solid ground. However, as growth expectations are scaled back amid high inflation we hear […]

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