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 (June 21, 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 using commodity prices, initial claims and consumer confidence. The thesis behind this indicator is that these three components should offer a simple… Read More »
Asset Allocation Weekly (June 14, 2019)
by Asset Allocation Committee Establishing when “the” yield curve inverts is a bit of guesswork as there are a plethora of permutations one can use to calculate the spread. One yield curve we like is the same one the Conference Board uses in its index of Leading Economic Indicators, namely, the 10-year T-note less fed funds… Read More »
Asset Allocation Weekly (June 7, 2019)
by Asset Allocation Committee Monetary policymakers are facing divergent trends that complicate future policy actions. Financial markets are signaling that the policy rate needs to be cut immediately. The chart on the left shows the implied three-month LIBOR rate, two-years deferred, from the Eurodollar futures market. Last October, the implied rate was around 3.30%; it has… Read More »
Asset Allocation Weekly (May 31, 2019)
by Asset Allocation Committee There are three factors that tend to cause recessions—inventory misadjustments, policy errors and geopolitical events. The first in the series has become less of a factor over time. Inventory management has improved dramatically since the end of WWII, and excess inventory leading to falling output has become less of an issue. Therefore,… Read More »
Asset Allocation Weekly (May 24, 2019)
by Asset Allocation Committee How important have mergers, buybacks, etc. been to equity market performance? Several analysts have attempted to answer this question by focusing on buybacks alone. However, there is a more straightforward method of looking at this question and including all the factors that affect the number of shares available—the index divisor. This chart… Read More »
Asset Allocation Weekly (May 17, 2019)
by Asset Allocation Committee Foreign exchange economics has become something of a backwater in economic theory. There are four predominant valuation methodologies; if one were any good, the others wouldn’t exist! The four are purchasing power parity, real equilibrium theory, interest rate differentials and productivity equalization (unit labor cost equalization). The general idea is that under… Read More »
Asset Allocation Weekly (May 10, 2019)
by Asset Allocation Committee While the financial industry is rife with performance comparisons to selected benchmarks, the most important investing goal for the majority of clients is a return above inflation that avoids catastrophic losses. Although beating the S&P 500 is a nice goal, solely focusing on that outcome may lead an investor to accept more… Read More »
Asset Allocation Weekly (May 3, 2019)
by Asset Allocation Committee Covered interest rate parity is a basic concept that, at its heart, says all interest rates are equal after hedging exchange rate risk. It is one of the theories in finance that is beyond dispute—it works as long as capital markets are open (free of capital controls) and short-term money markets are… Read More »
Asset Allocation Weekly (April 26, 2019)
by Asset Allocation Committee One of the age-old problems of analysis is the problem of correlation versus causality. Correlations simply show the degree of relation; the range runs from -1 (perfectly negative) to +1 (perfectly positive). In any introductory statistics class, the instructor will discuss the difference between relation and causality. Here is an example: Although… Read More »