Something that has garnered attention recently has been the decline in the real (headline CPI adjusted) US earnings yield. Based on the forward earnings yield less the headline CPI, the real yield is now zero. However, if we use the current trailing earnings yield (1/29 = 3.4% – 4.2%) the real yield is now negative by 80 basis points. In …

Following a rapid and emotional liquidation on Wednesday, there has been a solid recovery in the liquidity beneficiaries over the past 24 hours. As we noted yesterday, it is plausible that there has been a (tactical) peak in goods and commodity price inflation expectations. However, it is also our sense that the conditions for a secular rise in broad consumer …

As we often note, currencies are always a relative price. The focus over the past few days has been on the renewed weakness in the US dollar trade weighted index to new lows. However, from our perch, the recent wave of dollar selling has been driven less by domestic data and more by the relative trajectory of COVID amelioration and …

The current prevailing bias is pretty bullish on risk assets. While we don’t have a quarrel with the way price has responded to news, it is still a valid exercise to think about ways to manage downside risk or hedge portfolios if there was a correction in risk assets. A simple way to do this is to manage how much …

It seems like an obvious point today, but it is important not to confuse genius with leverage. Extreme leverage always seems to be a good idea when it works, but it clearly operates both ways. For years the Fed have denied the fact that super-abundant liquidity and financial repression could pose financial stability risks. In January this year Jay Powell …

The valuation of a growth market (or company) taken to its logical extreme can be almost infinite as the discount rate approaches zero. Of course, in the real world, risk premia do (and should) exist. While market leaders in some sectors have monopoly-like power, growth is eventually constrained by competition, new entrants, market size, regulation and available resources (unless we …

1. The Fed has upgraded its forecasts for growth, employment and inflation at the March FOMC 2. However, the Fed Funds Rate (policy rate) is projected to remain at 0.25% until end 2023 3. The key implication for markets is ongoing accommodation, reflation (positive for equity prices), yield curve steepening and USD weakness 4. As we have noted recently, inflation …

The good news overnight was that February US consumer price inflation showed little cause for near term concern. Of course, the base effects from the low prints in March and April 2020 will roll off the annual numbers over the coming two months. However, the big picture point is that current inflation and expectations are well below the level that …

The rise in US Treasuries and sovereign bond yields has started to garner some attention from investors. While the magnitude of the move is modest in the context of the hyperbolic rise in cryptocurrencies or the recent (weather-driven) move in energy prices, a disorderly increase in yields would likely be more disruptive for some risk assets given low risk free …