10 Jan 2022

The Fed’s Policy Pivot: Higher Rates Ahead

The big story last week was Federal Reserve’s hawkish tone. In fact, though, the Fed’s pivot started a few weeks ago, but last week solidified it through the release of the minutes from their December meeting. There are two key factors that investors are watching: what the Fed plans to do about their bond-buying program known as quantitative easing (QE) and their plans for short-term interest rates. Regarding short-term interest… Read More

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3 Jan 2022

The S&P 500 Doubled in Three Years. Now What?

I know I’ve said this before, but I’ll repeat again what Carly Simon sang in her 1971 hit Anticipation: “These are the good old days.” WE now have 96-years of high-quality market data, and a quick look at the numbers showed a few interesting things: The nominal change in the S&P 500 was in the 92nd percentile of all rolling three-year returns. Inflation annualized at 3.6 percent during that time,… Read More

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20 Dec 2021

Alternatives are Tough

I wrote a lot about inflation in 2021 for pretty obvious reasons. I also wrote that bonds are difficult investments to own right now because the expected inflation rate over the coming decade is more than the current interest rates. After receiving a lot of inquiries about bond alternatives like REITs, utilities, and the like, I wrote an article shooting down those too. This article is a variant on that… Read More

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13 Sep 2021

Inflation and the Price of Milk

The inflation that we all worried about earlier this year is showing up in the monthly numbers. It’s too early to say whether the higher readings are transitory, as the Fed would say, or here to stay. The most recent reading showed that inflation for the 12-months ending in July is 4.2 percent for ‘core’ inflation, and 5.3 percent for headline inflation. What’s core inflation? It’s the headline number but… Read More

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16 Aug 2021

What Kills a Bond Portfolio

Even if everything goes according to plan, we are probably stuck with zero percent on cash for the next few years. We’ve been in this situation for so long that it almost seems normal, and with some negative interest rates elsewhere around the world, sometimes zero even seems good (actually, it never does, but negative is just so bad). Earning nothing is so lousy that every once and a while,… Read More

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12 Jul 2021

When You Think One Thing, Think Again

Over the past few months, markets and investors were worried about the possibility of inflation coming back. And, there was and is good reason for concern: the economy is rebounding quickly, finding examples of labor shortages is easy, there is still massive monetary stimulus in place, and there are discussions of even more fiscal stimulus to come. I’ve personally been a little bit skeptical, mostly because I remember all of… Read More

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21 Jun 2021

Federal Reserve Changes its Tune

As noted above, the Federal Reserve took center stage last week as they signaled that change is afoot with short-term interest rates. While they did not change interest rates and did not adjust their $120 billion monthly asset plan purchases, they did indicate through their ‘dot plot’ that more members see interest rate hikes in 2022 and 2023. Although I don’t have a picture of the dot plot, I made… Read More

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17 May 2021

Inflation Data Spooks Market

Markets were caught off guard last week by several inflation data points last week, and the biggest surprise came from the core inflation rate which was expected to come in at 0.3 percent for the month but was 0.9 percent instead. Most of the time stocks and bonds move independently of each other, but stock and bond prices fell on the inflation news because it could prompt the Federal Reserve… Read More

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1 Mar 2021

Worried About Inflation?

Although some of the weakness was thought to be technical in nature, it is also the latest chapter in an ongoing tough market for bonds amid rising inflation expectations, a reasonably strong macro-outlook, solid corporate earnings, improving covid trends, and expectations for continued fiscal stimulus. Only energy posted a win for the week, up 4.3 percent. Utilities and consumer discretionary stocks were down -5.0 percent respectively, and technology fell by… Read More

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15 Jun 2020

Yield Curve Control

Last week, I noted that in the Q&A session following the latest Federal Reserve meeting that Chair Powell said that other monetary policy tools such as ‘yield-curve control’ were still under consideration. What is yield curve control, or YCC?  Good question. A little background first. Now that the Federal Reserve has lowered interest rates to zero (okay, near zero, but effectively zero), what tools does it have? We know that the… Read More

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