Asset Allocation Bi-Weekly
Confluence Investment Management offers various asset allocation products which are managed using “top down,” or macro, analysis. We publish asset allocation thoughts on a bi-weekly basis, updating the piece every other Monday.
Asset Allocation Weekly (April 24, 2020)
by Asset Allocation Committee As the COVID-19 pandemic continues to evolve, we are watching to see how the disease will affect the economy longer term. Of course, projections of this sort are highly probabilistic; factors could and will likely emerge that could render these projections irrelevant. At the same, ignoring potential long-term consequences of the virus… Read More »
Asset Allocation Weekly (April 17, 2020)
by Asset Allocation Committee The Federal Reserve’s aggressive expansion of its balance sheet has been in response to fears of systemic risk. The experience of the 2008 Great Financial Crisis has made it clear that systemic risk can occur from a myriad of different parts of the financial system, so the Fed has broadened its support… Read More »
Asset Allocation Weekly (April 9, 2020)
by Asset Allocation Committee One of the more controversial issues of the past bull market was the impact of share buybacks. The way we like to frame that issue is with the S&P 500 divisor. The divisor is a number that is used to smooth out the index; when stocks leave the index, through replacement or… Read More »
Asset Allocation Weekly (April 3, 2020)
by Asset Allocation Committee Earlier this year and late last year we recorded a series of podcast episodes that examined the issue of making decisions under conditions of uncertainty. Episode #5 discussed the issue in broad terms, offering a general framework for examining such decisions. In the end, the key to making these decisions comes down… Read More »
Asset Allocation Weekly (March 27, 2020)
by Asset Allocation Committee We continue to monitor the path of the economy and markets as our expectations for a recession loom. This week we will update our S&P 500 earnings forecast for 2020. We use two components to build our forecast for S&P per share earnings. First, we need to estimate GDP. Normally, we use… Read More »
Asset Allocation Weekly (March 20, 2020)
by Asset Allocation Committee During the recent market tumult, gold has performed rather well, until lately. This chart shows the nearest gold futures contract over the past year. From mid-January, when reports of COVID-19 began to circulate, gold prices marched steadily higher, making an intraday high of $1,704.30. Since then, this has declined by over $250… Read More »
Asset Allocation Weekly (March 13, 2020)
by Asset Allocation Committee Our baseline position has been that the COVID-19 virus would have a significant impact in terms of magnitude but be of limited duration and thus would probably not put the economy into recession. Over the past week, two events have occurred which put this position into question. The first is the oil… Read More »
Asset Allocation Weekly (March 6, 2020)
by Asset Allocation Committee In the turmoil caused by COVID-19, fixed income has performed remarkably well. Ten-year T-note yields have declined to record lows and, as we will show below, there is no evidence of severe stress in the credit markets. First, here is what we are seeing in Treasuries. This chart shows our 10-year T-note… Read More »
Asset Allocation Weekly (February 28, 2020)
by Asset Allocation Committee Since the end of the Financial Crisis, there has been a steady deterioration in investment-grade credit quality. This chart shows the percentage of investment-grade bonds rated at BBB. Since late 2018, this portion has represented half of outstanding investment-grade credit. This rating is the lowest end of investment-grade credit, so the dominance… Read More »