As we approach the halfway point of 2018, some things are looking very different from last year. Although it has been a bumpier ride compared to last year, US stocks are on track to have another good year as the S&P 500 is up more than 4.5 percent and the Russell 2000 Index is up more than 10 percent. But unlike last year, international stocks have effectively been flat, flipping… Read More
On February 5th, Jerome ‘Jay’ Powell was sworn in as the 16th Chairman of the Federal Reserve, following Janet Yellen, who served one term starting in 2014. Powell’s first day on the job was the sharpest day of the recent stock market selloff, when the S&P 500 lost more than four percent. I don’t think that the market fell because of the new Fed Chair, but I have read a… Read More
Last Thursday night, I attended a Financial Planning Association (FPA) meeting here in Chesterfield presented by William Emmons, an economist from the Federal Reserve Bank of St. Louis. His presentation, titled Recession Risk in 2018 is Greater Than You Think, was fascinating. Despite what people say about government workers and folks from the Federal Reserve, I thought Mr. Emmons was smart, fair and thoughtful – important traits for an economist. Mr. Emmons… Read More
According to reports Friday, President Trump is expected to announce his choice for Fed Chair sometime next week. Sources in the White House say the list of candidates has been narrowed down to three, current Fed Chair Janet Yellen, Fed Governor Jerome Powell and Stanford University economics professor John Taylor. The “Taylor Rule”, named after the same Taylor who is being considered by President Trump, was first introduced in an… Read More
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
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
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
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
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
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
