Research & News
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 »
Weekly Geopolitical Report – Venezuela: An Update, Part I (May 13, 2019)
by Bill O’Grady On May 10, 2018, Nicolas Maduro was reelected as president of Venezuela. However, there were numerous irregularities during the vote and, as such, the U.S. and the Organization of American States (OAS) refused to view the election as legitimate. Shortly after Maduro was officially inaugurated on January 10, 2019, the National Assembly, which… 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 »
Weekly Geopolitical Report – Reflections on Domestic Policy and American Hegemony: Part III (May 6, 2019)
by Bill O’Grady Part I of this report was a review of the reserve currency and the savings identity. In Part II, we showed how the Nixon and Reagan administrations used America’s hegemonic power to force some of the economic adjustment of U.S. policy onto foreign governments. This week, in the final segment of this report,… 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 »
Weekly Geopolitical Report – Reflections on Domestic Policy and American Hegemony: Part II (April 29, 2019)
by Bill O’Grady Two weeks ago, we introduced this report with a review of the basics of the reserve currency and the savings identity. This week, we will examine two important historical analogs, the Nixon and Reagan administrations. #1: The Nixon Analog As President Nixon prepared for the 1972 presidential campaign, he faced a number of… 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 »
Keller Quarterly (April 2019)
Letter to Investors The last half-year has demonstrated the day-to-day inscrutability of the financial markets, and with it the impossibility of predicting them. Suppose that last year on September 18 you had the misfortune of bumping your head and, in Rip Van Winkle fashion, fell into an unconscious slumber that lasted exactly seven months. On… Read More »
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 Quarterly (Second Quarter 2019)
The Federal Reserve shifted fully from its hawkish stance at the beginning of the year. We anticipate that the committee will maintain its newly dovish stance with the potential for further monetary accommodation. Though the employment/population ratio has improved, we find it still indicates slack in the labor force, blunting the full impact of wage… Read More »