Asset Allocation 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 weekly basis in a special section within our Daily Comment report, updating the piece every Friday.

Asset Allocation Weekly (June 22, 2018)

by Asset Allocation Committee Cycle studies are common in analyzing markets.  Such studies can be quite useful in some markets that are affected by seasonal factors, such as commodities.  We all know it gets cold in the winter and rains in the spring, and measuring the timing of when market participants discount these events can offer… Read More »

Asset Allocation Weekly (June 15, 2018)

by Asset Allocation Committee The last topic in our series on secular trends is the dollar.  It is arguable as to whether or not exchange rates are actually an asset class.  In our asset allocation, we don’t treat it as one.  On the other hand, the behavior of the dollar affects most of the other asset… Read More »

Asset Allocation Weekly (June 8, 2018)

by Asset Allocation Committee This week, we examine commodities in our fourth installment on secular trends. Commodity prices challenge the notion of “secular.”  This chart shows a trend model for real (inflation-adjusted) commodity prices, represented by the Commodity Research Bureau (CRB) commodity index, deflated by CPI.  We prefer this commodity index for its long history (over… Read More »

Asset Allocation Weekly (June 1, 2018)

by Asset Allocation Committee Last week, we discussed secular cycles in the Treasury market.  This week we will discuss equities.  The rule for secular cycles in equities is rather simple: the price/earnings (P/E) is the critical factor.  In general, profits tend to rise over time.  Driving the secular trend in equity markets is what investors are… Read More »

Asset Allocation Weekly (May 25, 2018)

by Asset Allocation Committee Last week we discussed the general idea of secular versus cyclical trends.  This week we will look at these concepts with regard to longer duration fixed income. The goal of theory is always to simplify.  Theorizing is all about taking complex phenomena and reducing it to basic elements that can guide us… Read More »

Asset Allocation Weekly (May 18, 2018)

by Asset Allocation Committee In our asset allocation process, we focus on cyclical trends; that doesn’t mean we pay no attention to secular trends but it isn’t our primary emphasis.  The lack of clarity around what these terms mean can lead to confusion.  And so, over the next few weeks, we will examine the difference between… Read More »

Asset Allocation Weekly (May 11, 2018)

by Asset Allocation Committee Recently, U.S. equities have outperformed emerging market equities. The chart above shows the relative performance of emerging market equities against U.S. equities.  A rising line indicates that foreign equities are outperforming.  Questions are being raised as to whether this recent decline is the end of what has been a strong relative uptrend… Read More »

Asset Allocation Weekly (May 4, 2018)

by Asset Allocation Committee The continued rise in long-term interest rates, with the 10-year T-note breaking above a 3.00% yield, is becoming the focus of financial markets. Here is our updated 10-year T-note model. The model’s core variables are fed funds and the 15-year moving average of inflation, which we use as a proxy for inflation… Read More »

Asset Allocation Weekly (April 27, 2018)

by Asset Allocation Committee In our recent rebalance, the Asset Allocation Committee added a position in gold.  There were two reasons behind the decision.  First, we estimate that gold prices are undervalued compared to relevant fundamental factors. The chart on the left is our gold valuation model.  It uses the balance sheets of the Federal Reserve… Read More »

Asset Allocation Weekly (April 20, 2018)

by Asset Allocation Committee The Trump administration has made it a key policy goal to reduce the trade deficit.  The reasoning is that reducing the trade deficit will boost jobs in areas that have been adversely affected by foreign competition.  Although this might be true (trade is very complicated), the risk is that trade restrictions will… Read More »

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