Alice and the White Queen

By | 2017-07-17T12:21:17+00:00 June 9th, 2017|Global Market Update|

Is the market trying to believe impossible things? Illustration: John Teniel. Source: Wikipedia A classic “children’s” book – that isn’t really for children – is Lewis Carrol’s Through the Looking Glass, his sequel to Alice in Wonderland. In the book, Alice and the White Queen have this exchange: “There’s no use trying,” Alice said. “One can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, [...]

Dissent and Dysfunction?

By | 2017-07-17T12:21:42+00:00 September 22nd, 2016|Global Market Update|

Does the Federal Reserve need to do some team-building? Federal Reserve “Dot Plot.” Source: Federal Reserve As expected, the Fed did not increase their interest rate target. Instead, they decided to wait for further progress in the economy. In her prepared remarks, Janet Yellen emphasized that their decision doesn’t reflect a lack of confidence in the economy. Rather, she noted, the pace of hiring in the labor market seems to have slowed, and inflation is still running below 2%. In their projections for economic [...]

The Irrelevant Federal Reserve

By | 2017-07-17T12:21:55+00:00 June 16th, 2016|Global Market Update|

What if they had a Fed meeting and nobody cared? Janet Yellen at her press conference. Source: Federal Reserve The FOMC had been trying to talk up rates for the past two months. Some notable policy doves were commenting that the market had it wrong—that interest rate expectations were too low, and that we should expect two or three rate hikes this year. Even Chair Yellen got in on the act. In May, she noted that long as the economy continues on-track, the Fed [...]

Pension Problems

By | 2017-07-17T12:22:07+00:00 March 4th, 2016|Global Market Update|

What’s wrong with our retirement system? State pension funding ratios. Source: It used to be that firms offered pensions as an employment benefit. They were structured to reward employee loyalty—the longer you stayed at a company, the higher the payout ratio when you retired. Then came the ‘70s and ‘80s, with massive restructuring and layoffs. What good was loyalty when the firm wasn’t loyal to you? Workers lost a good deal of their benefits, through no fault of their own. So pensions and [...]

Interest Rates, Janet Yellen, and The Bard

By | 2017-07-17T12:22:19+00:00 December 17th, 2015|Global Market Update|

What did the Fed just do? Narrowly considered, the Fed simply changed the wording in their periodic statement, announcing that the range for inter-bank interest rates—Fed Funds—would go from zero to .25% to .25% to .5%. In other words, the rate will move from “essentially zero” to “almost zero.” Practically, if a bank borrows $1mm from another bank overnight, they’ll have to pay $13.89 rather than $6.94. You could almost call this the “Macbeth” interest rate move: full of sound and fury, signifying—nothing. But [...]

“We Have Liftoff”?

By | 2017-07-17T12:22:19+00:00 December 7th, 2015|Global Market Update|

“We Have Liftoff?” What happens when the Fed starts to raise rates? Photo: Kim Shiflett. Source: NASA Many investors are worried about the value of their bond portfolios. When interest rates rise, bond prices fall. It’s simple mathematics: bonds have a contractual future payment stream, and that payment stream isn’t worth as much when the discount rate rises. With the Fed now poised to raise rates, their portfolios may be at risk. As a result, many investors have shifted to short-term bonds, because short-term [...]

Money for Nothing Forever?

By | 2017-07-17T12:22:26+00:00 September 23rd, 2015|Global Market Update|

Why are interest rates so low? Source: Morguefile It’s easy to see our ultra-low interest rates and blame the Fed. After all, they set short-term rates; they’re the ones managing the money supply; they’re the ones that oversee the banking system. But interest rates are low everywhere—not just in the US. And real interest rates—the difference between interest rates and inflation—have been falling for decades. Well before the financial crisis, long-term bond yields around the world began falling from 4% above inflation to roughly [...]

Going Negative

By | 2017-07-17T12:23:04+00:00 February 4th, 2015|Global Market Update|

What’s up with negative interest rates? Source: CNN Temperatures aren’t the only thing below zero these days. Around the world bond yields have gone negative. It started a few years ago in the US, when ultra-short Treasury Bills would go negative right around quarter-end. That was understandable as a combination of the Fed’s Zero Interest Rate Policy and institutions needing Treasuries for collateral on swap contracts. […]

Carry On, Mister Trader

By | 2017-07-17T12:23:07+00:00 January 14th, 2015|Global Market Update|

Why are bond yields so low? Source: Daily Telegraph One of the most surprising market moves of 2014 was the persistent rally in US Treasury Bonds. It wasn’t supposed to be this way. Starting in April of 2013, rates were supposed to normalize. That’s when Ben Bernanke signaled that the Fed would gradually end its bond-buying program known as Quantitative Easing. […]

Getting it Right

By | 2017-07-17T12:23:08+00:00 December 29th, 2014|Global Market Update|

What did people get wrong in 2014? Source: Wikipedia By far the most popular wrong-headed call last year was on interest rates. In late 2013 almost all market-watchers predicted that a stronger US economy and more restrictive Federal Reserve would lead to rising bond yields. Boy, was that a mistake. A year ago 10-year Treasury Notes yielded almost 3%. Now they yield 2 1/4%. So while the stock market in the US has grown by 15% this year, treasuries have risen 5%, corporates 7%, [...]