17 Apr 2017

The Fed’s Next Move

During the 2008 financial crisis, the Federal Reserved used a variety of tactics to stabilize the economy and financial system.  First they cut interest rates, but when they got to zero and couldn’t cut anymore, they started buying bonds in the open market in a process call quantitative easing (QE). The program was controversial because a lot of people thought that it would stoke inflation.  While that didn’t come to… Read More

13 Mar 2017

Meet the Fed’s FOMC

The Federal Reserve will obviously be in focus this week and we talk about the Fed and its members a lot and I suspect that not everyone quite knows how the Fed works.  Today is a quick primer. The Federal Reserve System was created by the Federal Reserve Act in 1913 to serve as a formal lender of last resort to banks during panics and times of a liquidity crisis…. Read More

19 Dec 2016

Bond Market Fascinations: An Interview

Since the election, interest rates have risen across the curve.  The Federal Reserve raised short term interest rates last week for the first time this year, but perhaps more importantly, longer term rates have also risen, which means falling bond prices. Right now, the Barclays Aggregate Bond index is still positive for the year, but the gains are muted, especially compared to the 5.8 percent gain that they enjoyed just… Read More

12 Sep 2016

The End of Summer Break

The end of summer was notably quiet, but summer is over and judging from Friday’s market reaction, it appears that volatility may be back. The chart below shows the expected volatility priced in to options as measured by the Chicago Board of Exchange (CBOE) Volatility Index (VIX). You can see the volatility was high at the start of the year when we suffered a 10 percent correction.  Expected volatility cooled… Read More

6 Sep 2016

Lower For Longer: The View from Tokyo

Several years ago, I was convinced that bond yields were likely to move higher simply because they were at historic lows.  As time went on and bond yields fell to even more historic lows, I changed my tune. People asked me how much lower they could go and while I didn’t really know the answer, I would simply quote the yields in Germany and Japan, which were lower. Then, I… Read More

29 Aug 2016

Yellen Speaks, Market Yawns

Yellen’s long-awaited speech delivered little in the way of surprises, but she did say that ‘the case for an increase in the federal funds rate has strengthened in recent months.’ Still, consistent with previous statements, she reiterated that the outlook remained uncertain and that Federal Reserve policy is not on a preset course. The bulk of her speech outlined the Fed’s current toolkit, which includes rate cuts, asset purchases (quantitative… Read More

22 Aug 2016

Awaiting a Positive Economic Shock

Last week, I attended a ‘first annual’ Wealth and Asset Management research conference held at Washington University’s Olin School of Business. The basic idea behind the event was to connect top tier academics with local practitioners, which seems obvious given Wash U’s stature and the fact that St. Louis has more people working in financial services than any other city outside of the big apple. I was drawn by presentations by… Read More

28 Jul 2016

Fed Seems Hawkish to Media, Not Markets

As expected, the FOMC left rates steady following its July meeting, noting that the labor market had strengthened since June and that economic activity had been expanding at a moderate rate. Ryan Craft noted that the media is talking as if the Fed was quite hawkish, but the markets didn’t behave that way.  He noted that yields were falling sharply, stocks were largely unchanged after the news and that fed… Read More

18 Jul 2016

Is Helicopter Money Coming to Japan?

The S&P 500 was up 1.49 percent for the week, which was actually the third straight weekly gain of more than one percent. The continued ramp up in policy support expectations was a widely discussed positive for the week.  Much of the focus was on Japan, where Prime Minister Abe’s ruling coalition scored a landslide victory in the upper house last Sunday. Abe ordered his ministers to immediately begin compiling an economic stimulus… Read More

5 Jul 2016

Why Did Stocks and Bonds Gain Last Week?

One of the interesting things about the stock rally last week is that bonds also rallied.  Over longer periods, stocks and bonds are lowly correlated, which means that they are generally independent from each other. Over very short periods, especially when there is a lot of activity, stocks and bonds are usually negatively correlated.  If you had told me that stocks would rebound sharply last week and gain 3.27 percent, which reversed most… Read More