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 (July 12, 2019)

by Asset Allocation Committee The recent testimony from Chair Powell to Congress made it quite clear that the U.S. central bank is likely to cut rates at the end of July.  For the equity markets, the key issue is whether the shift away from tightening to easing will be enough to avoid recession.  If the rate… Read More »

Asset Allocation Weekly (July 5, 2019)

by Asset Allocation Committee Although it’s not official,[1] it appears the current expansion has reached a new record. This chart shows expansions by months since 1850.  The current expansion just reached 121 months, exceeding the 1991-2001 expansion, which was previously the longest. Part of the reason this expansion has lasted so long is because economic growth… Read More »

Asset Allocation Weekly (June 28, 2019)

by Asset Allocation Committee Gold prices have been strong recently, supported by perceptions of easing monetary policy and oblique statements from the White House hinting at supporting a weaker dollar.  Lower interest rates and dollar weakness are generally bullish for gold prices. Our coincident gold price model suggests the recent rally is merely “catching up” from… Read More »

Asset Allocation Weekly (June 21, 2019)

by Asset Allocation Committee In 2017, we introduced an indicator of the basic health of the economy and added it to the many charts we monitor to gauge market conditions.  The indicator is constructed using commodity prices, initial claims and consumer confidence.  The thesis behind this indicator is that these three components should offer a simple… Read More »

Asset Allocation Weekly (June 14, 2019)

by Asset Allocation Committee Establishing when “the” yield curve inverts is a bit of guesswork as there are a plethora of permutations one can use to calculate the spread.  One yield curve we like is the same one the Conference Board uses in its index of Leading Economic Indicators, namely, the 10-year T-note less fed funds… Read More »

Asset Allocation Weekly (June 7, 2019)

by Asset Allocation Committee Monetary policymakers are facing divergent trends that complicate future policy actions. Financial markets are signaling that the policy rate needs to be cut immediately. The chart on the left shows the implied three-month LIBOR rate, two-years deferred, from the Eurodollar futures market.  Last October, the implied rate was around 3.30%; it has… Read More »

Asset Allocation Weekly (May 31, 2019)

by Asset Allocation Committee There are three factors that tend to cause recessions—inventory misadjustments, policy errors and geopolitical events.  The first in the series has become less of a factor over time.  Inventory management has improved dramatically since the end of WWII, and excess inventory leading to falling output has become less of an issue.  Therefore,… Read More »

Asset Allocation Weekly (May 24, 2019)

by Asset Allocation Committee How important have mergers, buybacks, etc. been to equity market performance?  Several analysts have attempted to answer this question by focusing on buybacks alone.  However, there is a more straightforward method of looking at this question and including all the factors that affect the number of shares available—the index divisor. This chart… Read More »

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 »

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 »

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