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 (August 9, 2019)

by Asset Allocation Committee Since the end of WWII, there have generally been three factors that have caused recessions.  The first, and most important, is policy error.  Although fiscal tightening can cause recessions, major tax increases have become less common.  The usual source of policy error comes from the monetary side, where the central bank either… Read More »

Asset Allocation Weekly (August 2, 2019)

by Asset Allocation Committee As wages and other costs rise and pricing power appears constrained, there are reasonable worries about the path of corporate earnings.  We use purely top-down analysis to forecast earnings.  Essentially, we forecast the percentage of total S&P company earnings relative to GDP.  We use the nominal GDP forecast from the Philadelphia FRB’s… Read More »

Asset Allocation Weekly (July 26, 2019)

by Asset Allocation Committee How much attention is the FOMC paying to international factors?  It appears to be quite a lot.  We have documented that the financial markets are clamoring for a rate cut.  We have seen some of the more popular yield curves invert and the implied LIBOR rate from the Eurodollar futures market, two… Read More »

Asset Allocation Weekly (July 19, 2019)

by Asset Allocation Committee In his last testimony to Congress, Chair Powell agreed with Representative Ocasio-Cortez (D-NY) that the relationship between unemployment and inflation appears to have been broken.  This relationship, usually referred to as the Phillips Curve, suggests there is an inverse relationship between the two variables.  If one desires low inflation, then the tradeoff… Read More »

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 »

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