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 (February 15, 2019)
by Asset Allocation Committee The pullback in equities in Q4 coincided with a sharp drop in long-duration Treasury yields. However, the recovery seen in early 2019 has not led to a rise in yields. This chart shows the S&P 500 (left axis) and the 10-year T-note yield (right axis). Note that yields and the equity markets… Read More »
Asset Allocation Weekly (February 8, 2019)
by Asset Allocation Committee Gold is considered by some to be a commodity, but we treat it as a non-liability-backed currency. In other words, gold isn’t created because someone makes a loan. Instead, it is created by mining. In addition, most commodities are consumed but much of the gold refined through the ages still exists. In… Read More »
Asset Allocation Weekly (February 1, 2019)
by Asset Allocation Committee In our analysis, both small caps and mid-caps are undervalued relative to their large cap cousins. These charts compare mid-caps and small caps to large cap stocks. We log-transform the data and use a time trend to scale the transformed indices as well. The lower line on both charts indicate that small… Read More »
Asset Allocation Weekly (January 25, 2019)
by Asset Allocation Committee One of the important unknown factors for 2019 is whether slowing global growth will have a negative impact on the U.S. economy. Or, put another way, can the world lead the U.S. into recession? For the most part, history suggests the answer is no—the U.S. can bring down the world but the… Read More »
Asset Allocation Weekly (January 18, 2019)
by Asset Allocation Committee Equity markets struggled in 2018; although new highs were achieved twice during the year, volatility was elevated compared to 2017. This is a chart of the CBOE VIX index, a measure of implied volatility from the equity options market. An elevated VIX means implied volatility is high, which implies a wider dispersion… Read More »
Asset Allocation Weekly (January 11, 2019)
by Asset Allocation Committee Does the Federal Reserve adjust policy for asset prices? This is perhaps one of the most controversial topics in U.S. monetary policy. Alan Greenspan faced this issue in the early 1990s. Both Volcker and Greenspan wanted to focus monetary policy on containing inflation. But, Larry Lindsey, a Fed governor at the time,… Read More »
Asset Allocation Weekly (January 4, 2019)
by Asset Allocation Committee Quantitative easing (QE) was an element of unconventional monetary policy that emerged from the Great Financial Crisis. When the Federal Reserve lowered the fed funds target to zero (known as the “zero interest rate policy,” or ZIRP), policymakers decided that taking the policy rate below zero would not further stimulate the economy. … Read More »
Asset Allocation Weekly (December 21, 2018)
by Asset Allocation Committee (N.B. This is the last Asset Allocation Weekly for 2018. Have a Merry Christmas and Happy New Year. The next report will be published January 4, 2019.) The U.S. economy is performing in line with the rest of the world. This chart shows the yearly change in U.S. and world ex-U.S. GDP. … Read More »
Asset Allocation Weekly (December 14, 2018)
by Asset Allocation Committee Equity markets have come under pressure this autumn. The weakness has gained momentum in recent weeks. This chart shows the yearly change in the S&P 500 Index on a monthly average basis. We have added recession shading; in general, recessions tend to trigger bear market declines of 20% or more. In fact,… Read More »