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 (December 7, 2018)
by Asset Allocation Committee The election of Donald Trump has been characterized as part of a populist uprising. In the president’s inaugural address, he talked about the “forgotten” that would have a voice in his administration. At the same time, we work under John Mitchell’s dictum of “watch what we do, not what we say.”[1] In… Read More »
Asset Allocation Weekly (November 30, 2018)
by Asset Allocation Committee As the FOMC raises rates, there are increasing concerns about the credit markets. After a long period of low rates, credit spreads are starting to widen, raising fears of financial stress. In this report, we will look at these concerns. First, here is what we are seeing with credit spreads: This chart… Read More »
Asset Allocation Weekly (November 16, 2018)
by Asset Allocation Committee (NB: Due to the Thanksgiving holiday, the next report will be published on November 30.) Last year, 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… Read More »
Asset Allocation Weekly (November 9, 2018)
by Asset Allocation Committee In light of rising interest rates, this week we will take a look at credit spreads. But, before doing that, it makes sense to examine overall Treasury valuation. This chart is our 10-year T-note model. It incorporates fed funds, the Japanese yen exchange rate, German sovereign 10-year yields, oil prices, the fiscal… Read More »
Asset Allocation Weekly (November 2, 2018)
by Asset Allocation Committee In light of the recent pullback in equities, there has been rising speculation that the FOMC might not increase rates as much as projected. Although possible, we are not seeing much evidence to support this position. This chart shows the fed funds target along with the implied three-month LIBOR rate, two years… Read More »
Asset Allocation Weekly (October 26, 2018)
by Asset Allocation Committee One of the earliest lessons taught in statistics is that “correlation does not equal causality.” Any relationship that exists between two variables usually rests on a myriad of conditions; if any of these conditions change, correlations can break down rapidly. This doesn’t mean that correlation isn’t a useful tool but it show… Read More »
Asset Allocation Weekly (October 19, 2018)
by Asset Allocation Committee The accompanying notes to the release of the FOMC minutes on October 17th indicated expectations from a majority of members to eventually push fed fund rates above the level that they would otherwise view as neutral. In the most recent projections, the average of members’ estimates for the neutral level by 2021… Read More »
Asset Allocation Weekly (October 12, 2018)
by Asset Allocation Committee Politics is usually an uncomfortable topic for financial market analysts. The subject is fraught with high emotion, and being overly concerned about a specific political outcome can sometimes cloud judgement. At the same time, political trends offer insight into future policy changes that can affect financial market performance. For example, we have… Read More »
Asset Allocation Weekly (October 5, 2018)
by Asset Allocation Committee As the unemployment rate declines, there is a worry that wage growth may accelerate and lead to a wage-price spiral, forcing the FOMC to raise rates rapidly. Although possible, the key issue is slack in the labor market. Based on the unemployment rate, there would appear to be little; based on the… Read More »