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 18, 2019)
by Asset Allocation Committee Why is inflation so low? The persistence of low inflation, despite the long expansion and the decline in unemployment, continues to befuddle policymakers. Standard economic theory suggests there is an inverse relationship between inflation and unemployment. When the unemployment rate is low, firms should be experiencing reduced excess capacity. As capacity is… Read More »
Asset Allocation Weekly (April 12, 2019)
by Asset Allocation Committee The employment data is closely watched by financial markets; although the data isn’t necessarily a leading indicator for the economy, it is probably the most important from a political and social perspective. Weak employment data is a worry for political incumbents and concerning to policymakers. However, beyond the headline data, there are… Read More »
Asset Allocation Weekly (April 5, 2019)
by Asset Allocation Committee Mortgage-backed securities have rather odd characteristics compared to Treasuries. At their most basic level, mortgages are bonds—prices are inversely related to yields. The pricing on mortgages assumes a certain level of refinancing activity. However, when yields rise, expected mortgage duration tends to extend because mortgage holders are less likely to refinance. When… Read More »
Asset Allocation Weekly (March 29, 2019)
by Asset Allocation Committee Long-dated Treasury bonds have enjoyed a strong rally in recent weeks. Fears about future U.S. economic growth, falling global economic growth and a reversal in monetary policy expectations have all conspired to lower yields. The question now is whether or not yields have fallen more than is justified by the fundamental factors.… Read More »
Asset Allocation Weekly (March 22, 2019)
by Asset Allocation Committee One factor we have been tracking is the recent behavior of retail money market funds. We have noted that households began building money market funds about the time that the equity market peaked and U.S. trade policy began to turn toward protectionism. In the coming months, money market funds continued to rise… Read More »
Asset Allocation Weekly (March 15, 2019)
by Asset Allocation Committee The Financial Accounts of the United States, formerly known as the Flow of Funds Report, was released last week. It is a plethora of information about the state of the economy. Below we discuss the charts we find most noteworthy. First, here is the saving balance by sector. The tax cut has… Read More »
Asset Allocation Weekly (March 8, 2019)
by Asset Allocation Committee The Federal Reserve is experiencing a crisis of sorts. For years, policymakers have used the Phillips Curve as a guide to policy. The Phillips Curve postulates that there is a tradeoff between inflation and unemployment. Essentially, to quell inflation policymakers need to raise rates to create unemployment. The basic idea is that… Read More »
Asset Allocation Weekly (March 1, 2019)
by Asset Allocation Committee Our cyclical position on foreign investing remains with a zero allocation; although the committee has not been negative on foreign, our work suggested that the risk/reward compared to small and mid-cap stocks warranted putting more assets in those areas. However, we are continuing to pay close attention to foreign as an area… Read More »
Asset Allocation Weekly (February 22, 2019)
by Asset Allocation Committee In 2017, we introduced an indicator of the basic health of the economy and added it to the many charts we monitor to gauge market conditions. The indicator is constructed with commodity prices, initial claims and consumer confidence. The thesis behind this indicator is that these three components should offer a simple… Read More »