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The Fed has been and probably will be more hawkish than you think
Markets seem to think the Federal Reserve’s recent policy statement and Chair Yellen’s subsequent press conference comments were dovish. This is a misread that I believe will have a meaningful impact on fixed income markets. The big…
Yellen: The relationship between the slope of the yield curve and the business cycle may have…
The biggest takeaway from Chair Yellen’s press conference was her belief that there is “reason to think the relationship between the slope of the yield curve and the business cycle may have changed.” To me, this suggests that some Fed…
Minsky’s financial instability hypothesis and the Fed’s reaction function
As the Federal Reserve meets today to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. The risk of overheating was real. So let’s put some framing around…
As the Fed meets, expect expansion through 2018, but problems thereafter
Given where we are right now, I think this expansion will continue through the end of 2018. And I want to talk about what that means in the context of my last post and recent BIS warnings on financial markets.
We are in the most dangerous period in the business cycle
Why would I be writing about ‘danger’ when we are experiencing the first synchronized global economic upturn in over 8 years? It’s the business cycle.
No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing…
My model of interest rates and currencies says that long-term yields are just an amalgam of short-term yields with a term premium tacked on. There’s nothing there about money flows from people moving money to where yields are highest. I…
Places to avoid for commercial real estate investment
Recently I have indicated I see a lot of problems in asset markets despite the economic acceleration in Europe, Japan, and the US. Commercial real estate is a problem that I want to highlight briefly since I believe it will be a locus of…
Technology shares priced for perfection
Today’s Wall Street Journal shows that large-cap technology stocks are priced as if economic and earnings growth will continue for the significant future. However, this late in the cycle, the probability of a hiccup increases, making share…
Corporate tax cuts and monetary offset could mean recession
Tax cuts in the US will accelerate the Fed’s timetable and increase the potential of curve inversion and eventual recession.
Market jitters and fake liquidity in leveraged loans and high yield
With the US treasury yield curve flattening to almost 60 basis points between 2 and 10-year maturities, we need to ask where are the vulnerabilities in the market if this spate of good news ends. I believe we should look at high yield,…