Research & News
Asset Allocation Weekly (August 16, 2019)
by Asset Allocation Committee As the 10-year T-note yield tumbles, we are reaching a point where the market looks overvalued based on current fundamentals. Our yield model uses fed funds and the 15-year average of the yearly change in CPI[1] along with the JPY/USD exchange rate, oil prices, the yield on 10-year German bunds and the… Read More »
Weekly Geopolitical Report – Weaponizing the Dollar: Part I (August 12, 2019)
by Bill O’Grady Weaponizing the Dollar: Part I In July 1944, 44 allied nations gathered at the Mount Washington Hotel in Bretton Woods, NH to develop the structure for the economic and financial systems for the postwar world. The Bretton Woods agreement established a system of fixed exchange rates. Exchange rates were pegged to the… Read More »
Asset Allocation Weekly (August 9, 2019)
by Asset Allocation Committee Since the end of WWII, there have generally been three factors that have caused recessions. The first, and most important, is policy error. Although fiscal tightening can cause recessions, major tax increases have become less common. The usual source of policy error comes from the monetary side, where the central bank either… Read More »
Weekly Geopolitical Report – Turkey Lashing Out (August 5, 2019)
by Patrick Fearon-Hernandez, CFA Here at Confluence, we write a lot about the rise and fall of hegemonic states – those great nations that develop enough power and influence to dominate the global economy, or at least some region of it. These superpowers use their extraordinary military might and other levers to impose order on… Read More »
Asset Allocation Weekly (August 2, 2019)
by Asset Allocation Committee As wages and other costs rise and pricing power appears constrained, there are reasonable worries about the path of corporate earnings. We use purely top-down analysis to forecast earnings. Essentially, we forecast the percentage of total S&P company earnings relative to GDP. We use the nominal GDP forecast from the Philadelphia FRB’s… Read More »
Weekly Geopolitical Report – The Economic Triangle: Part II (July 29, 2019)
by Bill O’Grady The Economic Triangle: Part II Last week, we referenced the basic philosophies of David Hume and Adam Smith and how their writings evolved into the economic theory of supply and demand. From there, we examined the weakness of supply and demand at the macro level and discussed an alternative model, the Economic… Read More »
Asset Allocation Weekly (July 26, 2019)
by Asset Allocation Committee How much attention is the FOMC paying to international factors? It appears to be quite a lot. We have documented that the financial markets are clamoring for a rate cut. We have seen some of the more popular yield curves invert and the implied LIBOR rate from the Eurodollar futures market, two… Read More »
Keller Quarterly (July 2019)
Letter to Investors I’m writing to you at the end of a week in which the Dow Jones Industrial Average crossed 27,000 for the first time ever and in which the S&P 500 crossed 3,000 for the first time ever. There’s something about these market averages reaching “all-time highs” that increases fears in the hearts… Read More »
Weekly Geopolitical Report – The Economic Triangle: Part I (July 22, 2019)
by Bill O’Grady In mid-August 2016, I published a two-part series titled “Thinking about Thinking” (see Part I and II). Occasionally, I will be asked which WGR is my favorite or most important. I generally refer readers to the aforementioned reports. One facet of that report is the three statements of knowledge—a priori analytic statements, a… Read More »