Don’t Doubt the Economy

Amidst the worries over some future Fed tightening, misplaced angst about inflation and chatter about the S&P 500 touching 2000, investors seem to be ignoring a few reliable economic indicators.  One of the more consistent signs is the weekly initial unemployment claims report – people applying for unemployment insurance.  The news is good and the economy is strong. The chart shows a four week moving average to smooth out a few bumps and some noise. The pattern is clear all the way Read more [...]

Mid-July Muni Minutes

Detroit: The anniversary of the city of Detroit essentially declaring bankruptcy by cancelling payments on $40 million of debt obligations last summer is not dragging down the state of Michigan. As observed by the S&P Municipal Bond Michigan General Obligation Index, the state’s debt is trading on par with the rest of the U.S. municipal bond universe.   Both Michigan G.O. bonds and the S&P Municipal Bond Index have annual returns between 6-7% with yields struggling to eclipse 3%. The Read more [...]

Treasury Curve Flattening Helps Long Duration; Investment Grade Bonds Continue to Perform

Last week’s performance saw the overall Treasury market as measured by the S&P/BGCantor US Treasury Bond Index return 0.03% and is now at 2.08% for the year.  Yields moved lower as the yield-to-worst of the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index is now at a 2.49% which brings it back down to level seen at the end of May.  The spread between 2s – 30s using the yield-to-worst of the S&P/BGCantor Current 30 Year U.S. Treasury Bond Index and the S&P/BGCantor Current Read more [...]

S&P 500 Pensions and OPEB: good for companies, not good for our retirement

S&P has released their annual S&P 500 Pension report (which is available on its website at www.spdji.com or directly at bit.ly/1jPIDiE ). The short bottom line is that, in aggregate, pensions and OPEBs have become an acceptable and manageable expense for S&P 500 issues with respect to their underlying assets, earnings and cash-flow. For individuals, the additional responsibility has been shifted from corporations to them for pensions, and is already well underway for OPEBs, with the Read more [...]

Climate Change May Destroy The Risk Premium

I fear the risk premium for agriculture and livestock may vanish sometime soon as climate change and El Nino drive up food prices. When investing in commodities as an asset class there are five components of return to be earned by using futures. While each component's contribution to performance varies through time depending on the environment, the risk premium is one of the most important sources of return.  It comes from the discount that commercial consumers demand from commercial producers Read more [...]

Weighing In: On Inflation

In my last post, I introduced a series called "Weighing In:" that includes comparisons of the effectiveness of the Dow Jones Commodity Index (DJCI) and the S&P GSCI to reach certain portfolio goals.  Although there are a number of reasons investors use commodities, diversification and inflation protection are the two most common. According to Blu Putnam, Managing Director and Chief Economist, of our partner, CME Group, it may be reasonable to expect inflation later this year or in early Read more [...]

Food Price Inflation and El Nino Possibility

Food price inflation is increasing sharply in the US. Only last December 2013, food prices were just 1.05% higher than the previous December. As of May 2014, food price inflation was running at 2.46% (year over year) and possibly heading above 4% by late 2014 or early 2015. Now, the Federal Reserve (Fed) prefers to target core inflation, which leaves out the volatile food and energy sectors. When food inflation is rising along with incremental increases in core inflation, however, the Fed can be Read more [...]

High Yield Gives Up Ground To Investment Grade

After having risen 19 basis points the first week of July, the yield on the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index dropped 20 basis points from the July 3rd 2.72% to its current 2.52%, offsetting the initial increase.  The move up in yield to start July was the largest weekly jump since last August (8/16/2013), while last week’s rally moving yields downward was the largest weekly move in yield since a 31 basis point rally back on June 1st of 2012.  Last week also brought news Read more [...]

Fed Policy and Congress: Janet Yellen Speaks

Fed Chair Janet Yellen testifies on Tuesday and Wednesday this week to House and Senate Committees as part of the Fed’s mid-year report on monetary policy.  Last week’s release of the FOMC minutes from the June 17-18 meeting set the stage for this week’s testimony and questions.   The big question -- when will the Fed begin raising interest rates – won’t get an answer from Mrs. Yellen.  The consensus guess is mid-2015; since the release of the minutes and the May employment report many Read more [...]

How Did The Chinese Bonds Perform in 1H 2014?

As the Chinese bond market rapidly expands, reaching almost CNY 30 trillion, it has gained an increasing amount of attention from global investors.  Tracked by the S&P China Bond Index, the total return of the CNY-denominated bonds rose 5.7% in the 1H of 2014. While the risk of default put downward pressure to the Chinese corporates in the beginning of year, the sentiment improved as the government strives to roll out financial reforms and promote growth. The S&P China Corporate Bond Read more [...]