"The uncertainty about where neutral is today creates a challenge for policymakers." - Neel Kashkari, Minneapolis Federal Reserve President Last week was a volatile one for markets with big swings in stocks and bonds in a holiday-shortened week. The economic data didn't appear to be sufficiently out of the expected range to justify big moves but we got them anyway. [...]
Coming into last week's FOMC meeting, Jerome Powell was expected to be hawkish. I know that because numerous articles in the financial press told me so which makes me wonder if the articles themselves affected those expectations. Maybe. Bloomberg is now producing a Fed Sentiment index that is powered by a natural language processing algorithm trained on more than 60,000 [...]
Interest rates surged last week on the back of a hotter-than-expected inflation report that wasn't actually that bad (see below). Not that my - or your - opinion about these things matters all that much to the market. In the short run, all that matters is what the majority believes is the truth. What they believed last week was that [...]
The 10-year Treasury Note yield fell 13 basis points last week, a move that would not normally rate any mention whatsoever, but the path of that small decline does. From Monday to Thursday, the yield fell, from high to low, by 34 basis points, a move that added 1.3% to bond prices (Aggregate bond index) in four days. In a [...]
For the first time since March we are seeing a positive correlation between bond yields and reverse repos sold by the Fed. The change started during the last week of October and has continued throughout November. The correlation in March coincided with bank failures, mainly Silicon Valley Bank and Signature Bank. In between March and the end of October, the [...]
It's the residual of all the stuff we can't explain. It's not that our models are wrong, it's the dark matter that's out there. - Fed Governor Neel Kashkari, referring to the "term premium" in long term Treasury yields The curious task of economics is to demonstrate to men how little they really know about what they imagine they can [...]
So, is that it? Have rates peaked? Is the long bear market finally over? The market decided last week that interest rates have peaked for this cycle. And if rates have peaked then all the assets that have been pressured over the last two years can finally come up for air. Since October 18, 2021, over two years ago, investors [...]
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. - Warren Buffett, October 16, 2008, Buy American. I Am. , New York Times That was a month after the bankruptcy filing of Lehman Brothers, in the teeth of the Great Financial Crisis. At the beginning of the article he admits that [...]
Most strategic asset allocation strategies have produced negative returns over the last two years. A 60/40 allocation of Vanguard Total Stock and Vanguard Total Bond is down over 6%. John Bogle's 3-fund portfolio, a global approach that includes an allocation to Vanguard Total International is down nearly 9%. Morningstar has a diversified portfolio that includes 11 different ETFs and it's [...]
"Higher for longer." That's what the Fed says they intend to do with interest rates and investors finally decided to believe them last week. Bond yields, which have been stagnant since peaking last October, finally broke above the trading range they've been in for all that time. Short-term rates also moved higher but not as dramatically and the result was [...]
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