Article Category: Inflation

The Implications of Quantitative Tightening

The secret's out. The Fed wants to shrink the size of its balance sheet, and they want to begin the process sometime this year. What does this mean for investors? And what does it mean for key variables such as interest rates, inflation and economic growth? Let's find out.

For those who may not recall, in the midst of the financial crisis the Fed embarked on a bond-buying spree known as quantitative easing. This process involved the purchase of trillions of dollars' worth of long-term Treasuries and mortgage-backed securities in an attempt to 1) suppress long-term rates, 2) inject liquidity into the financial system and 3) remove toxic assets from the balance sheets of public and private institutions.

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Posted in: Bonds Federal Reserve Inflation Interest Rates

Unrealistic Expectations

We all know that investing is a game of expectations. The market "prices in" certain information, and then we adjust our outlook and positions as those expectations change. A key operating rule of this "game" is that when the best that can be seen ahead is fully discounted, the market tops out.

A perfect example of this in action (on a micro scale) is the classic "beat and raise." When a company reports earnings, the best thing possible - at least for those who are long the stock - is for the company to beat earnings expectations for the prior quarter, then raise their guidance for subsequent quarters.

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Posted in: Bonds Earnings Economy Federal Reserve Inflation

What’s Driving this Complacency?

On Friday, both the S&P 500 and Nasdaq closed at new all-time highs, ahead of an election that could have had major consequences for the European union and the global economy. At the same time, the volatility index (also known as the fear gauge) remains near multi-decade lows.

To be sure, the outcome of the French election was widely expected, but it's still remarkable how complacent investors appear to be.

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Posted in: Bonds Federal Reserve Inflation Interest Rates Volatility

Finding a Balance

On Wall Street, more is always better. More revenue, more profit, more growth, more mergers, more IPOs, more money. But in the real world, more is not always better, and a rather unorthodox example of this is jobs.

First, let me state that yes, I too wish everyone who wanted a good-paying quality job could find one. In an ideal world, the unemployment rate would be zero and we'd all be holding hands and singing kumbaya. But this is not that world.

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Posted in: Economy Federal Reserve Inflation Interest Rates

What’s Driving This Rally?

Many of us in the U.S. have been swept up by what's come to be known as the "Trump Rally." The guise for this massive rise in stock prices over the past few months has been the promise of business-friendly tax reform, deregulation and infrastructure spending, among other "shareholder-friendly" initiatives.

The main theme has been one of "America First," which has elicited concerns about how far protectionist policies may go, and what the impact to our trading partners will be. Still others wonder how far asset prices will fall if and when the Trump administration runs into problems implementing their agenda - as we're starting to see.

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Posted in: Bonds Corrections Earnings Inflation Interest Rates Oil

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