Global monetary easing and modest growth are creating a fairy tale story for investors. Their very high conviction in the outcome of that story, however, belies a number of serious risks.
The strong level of belief investors have in the Fed to assure positive market outcomes is belied by the diminishing room it has to maneuver policy. When this becomes obvious, an important market support will be removed.
Monetary authorities saved the day again in the first quarter, but over-reliance on them is looking to be increasingly risky for investors. The new boss is geopolitics and that is where investors should be looking for guidance.
The market has taken a one-sided view on inflation and the Fed's reaction to it, even though other very plausible explanations exist. This illustrates both the power of narrative and the vulnerability of the current consensus.
The quarter started off strong enough in July but gave up ground in both August and September. The total return of the S&P 500 was down 3.27% for the quarter.
The second quarter was characterized by a debt ceiling showdown (which perversely provided a boost to liquidity) and by a big spurt in tech stocks.
Just as it is getting ever-more important to anticipate changes in Fed policy, those changes are becoming more uncertain. One way to help resolve this dilemma is by explicitly incorporating political and public policy goals into the monetary policy calculus.
It's easy to take the wrong signal from recent market strength.
In the context of a rough year so far, it's a good time to review whether this is just a bump in the road or something more serious to prepare for.
The Fed's program of QT has flown under the radar for a lot of reasons. That low profile belies its importance, however. Not only is the Fed likely to persist in this program, but it will create a strong headwind for risk assets.
As investment conditions become more difficult, many investors remain paralyzed, still enthralled by the charms of the Fed's QE program. That relationship no long works for investors so it is time to break up and do something different.
With stocks down around 20% year-to-date, it is important for investors to know what kind of bear they are dealing with.
The market was tough in the first quarter. Find out what it means for long-term investors.
Rates have seemed lower than they should be for a long time. With inflation surging higher now, it is critical investors solve this puzzle so they can construct portfolios accordingly
After solid performance in both July and August, the S&P 500 was considerably weaker in September. It was more than just passing weakness, however. The stock market looked much less the cocksure prize fighter than the contender who took a shot to the jaw that wobbled his knees.
After a devastating selloff last year and a remarkable rebound since, it's as important as ever to have a good mental model of what is driving the market.
After a long period of disinflation and trending markets, emerging signs of inflation threaten to upend a lot of investment playbooks.
The trouble with bubbles is they prey on human weakness. They are also high impact investment events.
Passive investing continues to gain share at the expense of active. In doing so, however, it is also substantially increasing systemic risk.
After an extremely eventful first half of the year, the key to managing through is understanding what has happened and why.
The turbulence in the first quarter was more than just a nasty selloff. It represented a fundamental change in the market landscape that will favor perspective and preparation like never before.
With markets continuing their upward trajectory, it is easy to assume central banks are in control and things are going well. Some insights from how people interact with their environment in traffic reveal a very different perspective, however.
Several rumblings in the quarter raised concerns about an imminent market crash. Another distinctive possibility is that the bubble of "airy promises" and overly optimistic growth expectations is bursting.
The story of the first half of 2019 was the Fed reversing its position on raising rates. The gig of short-term fixes is almost up though and now is the time for investors to consider the longer-term implications for monetary policy.
The increasing presence of opposite extremes makes the investment environment far more uncertain. It also means investors will have to work harder to meet their goals.
The return of volatility in the fourth quarter should not be overlooked. The landscape has changed which will create opportunities for alert investors and downside risk for others.
Investors who view market opportunities exclusively through the lens of recent strong economic performance risk misreading a pivotal event. The tide of liquidity is turning and will bring asset prices down with it.
The complexion of the market changed in the first quarter as volatility spiked. Now is the time for investors to be very clear about what they get in return for committing capital to risky investments.
Although there are many superficial reasons to be enthusiastic that strong market performance can continue, most positives are overstated and many risks are underappreciated. In fact, today's investment environment entails such a high degree of uncertainty that most investors would be best served by simply minimizing their worst case scenario.
The widespread indifference to risk in the markets strongly suggests something is wrong. That something is “bad promises” and it has significant and widespread implications for investors.
After a long period of “riding the wave” of central bank liquidity, investors are now confronted with much more difficult decisions. Andrew Lo’s new book, Adapative Markets, provides an excellent framework from which to analyze the current situation, evaluate market risks and prepare for changes.
The persistence of exceptionally low volatility has created a perception that it will be “smooth sailing” for stocks. Evidence suggests just the opposite, however; now is the time to focus on protection.
The good news is that economic problems are fixable. The bad news is that they need to be properly diagnosed and treated first. Investors need to handicap the degree to which this will happen.
An investment landscape of increasingly binary outcomes requires fundamentally different involvement by investors. Importantly, those taking their cues primarily from the US economy are likely to be woefully unprepared.
One of the key insights revealed by the presidential election is that there has been a significant gap between perception and reality in regards to a number of economic issues. Resolution of these issues is likely to be messy and involve change that will affect investors in many ways.
It is easy to overlook public pension plans as a serious investment risk but the reality is that the level of underfunding is a threat to everyone’s financial health.
Weakening productivity growth poses serious risks to the economy and, by association, to stocks. One key piece to the puzzle is that productivity growth requires not just technological change, but also the diffusion of that change across the economy.
