The Central Bank Effect

The Central Bank Effect

As 2018 ended, it appeared as if the Federal Reserve was intent on further interest rate hikes (after 4 in 2018).  In addition to interest rate hikes, the Fed had hinted that the reduction in its balance sheet would continue, and was basically on “auto-pilot”.  Both of these policies made investors fearful that the Fed would over-tighten monetary policy and cause the economy to contract sharply, with a distinct possibility of recession.

This year, one of the reasons the market reacted so strongly to the January Fed meeting was the abrupt pivot that the Fed signaled with respect to rate hikes.  In a fairly dramatic change of tone, the Fed indicated in January that further rate hikes were “on hold”, and that at current levels the fed funds rate was nearing their “neutral” target (whereby monetary policy is balanced).
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From QE to QT

From QE to QT

Investors will be glad to say goodbye to 2018, and especially the final month of last year, which turned out to be the worst December for the stock market since 1931.  December is usually a solid month for the market historically, which is probably why so many investment managers were caught off balance by the swiftness of the downdraft that occurred.  We had been discussing the prospect of getting more defensive in our portfolios, but believed it would be a task for 2019.
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Mid-term Election Jitters

Mid-term Election Jitters

Investors will recall that 2017 was a year characterized by an extreme lack of volatility in the stock market relative to historical norms. Coming into the current year, we said that investors should expect a pickup in volatility, and that the markets were overdue for a correction. Moreover, mid-term election years have historically exhibited greater volatility than the average year. Read More..

The Financial Crisis: Then and Now

The Financial Crisis: Then and Now

Today, we can look back and glean important insights from the financial crisis that began with the U.S. housing market and culminated with a full-blown global credit crunch that affected many countries around the world. This crisis, known as the Great Recession, is the worst recession in the United States since the Great Depression. The start of the crisis is often marked by the bankruptcy of investment bank Lehman Brothers on September 15, 2008. Read More..

What U.S. Blues?

What U.S. Blues?

What U.S. Blues?

The U.S. economy continues to show exceptional strength and resilience in the face of myriad negative headlines, as well as slowdowns in several parts of Europe and Asia. As the chart below shows, U.S. GDP growth bottomed in Q2 2016 and has risen sequentially in every quarter since. This trend is expected to continue for Q2 and Q3 of this year. Confidence also remains strong, with consumer confidence near its highest levels since 2000 and small business confidence at multi-decade highs.
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Of Tariffs and Trade Wars

Of Tariffs and Trade Wars

When economists studied the Great Depression after the 1930s, one of the things that was cited as worsening the economic decline and prolonging the recession was the Smoot-Hawley tariffs.  This protectionist trade policy was signed into law in 1930 and raised the tariffs on over 20,000 imported goods to the U.S.  Despite nearly 90 years passing since then, whenever the term “trade war” surfaces in the media, folks immediately cite the mistakes from the 1930s and warn against repeating them.
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