Asset Allocation Bi-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 bi-weekly basis, updating the piece every other Monday.
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 »
Asset Allocation Weekly (April 13, 2018)
by Asset Allocation Committee One of the great unknowns in this recovery and expansion is the proper measure of economic slack. Although it’s a term that is rather easy to understand in the abstract, actually defining it is difficult. The Congressional Budget Office (CBO) produces an estimate of potential GDP but it is, at best, a… Read More »
Asset Allocation Weekly (April 6, 2018)
by Asset Allocation Committee Recently, the three-month T-bill/Eurodollar spread (TED spread) has widened, raising concerns about financial stability. In this report, we will offer a primer on the spread and discuss its recent rise. The TED spread has two components; it’s a direction-of-rate spread and a flight-to-quality spread. Eurodollars (also known as LIBOR) represent dollar borrowing… Read More »
Asset Allocation Weekly (March 29, 2018)
by Asset Allocation Committee After peaking at 2872.87 on January 26, the S&P 500 has been in a corrective phase. The index fell just over 10% and has been range bound ever since, well below the aforementioned high. Here are the primary reasons equities have struggled: Valuations became a bit stretched: The P/E, as we calculate… Read More »
Asset Allocation Weekly (March 23, 2018)
by Asset Allocation Committee Last week, the Federal Reserve published its Financial Accounts of the United States report, formerly known as the Flow of Funds report. The report is a storehouse of important financial information. In this most recent report, a few things emerged that raised concerns. The first issue is net saving. Net saving is… Read More »
Asset Allocation Weekly (March 16, 2018)
by Asset Allocation Committee Last week, we discussed the fact that the generally strong economy should be supportive for equity markets as economic growth will tend to support earnings. However, the other important element of equity valuation is what multiple investors put on those earnings. The most common valuation metric is the price/earnings ratio (P/E). Our… Read More »
Asset Allocation Weekly (March 9, 2018)
by Asset Allocation Committee Last year, we introduced an indicator of the basic health of the economy and added it to the many charts we monitor in gauging market conditions. The indicator is constructed with commodity prices, initial claims and consumer confidence. The thesis behind this indicator is that these three components should offer a simple… Read More »