Category Archives: Strategy

Inflation or Why Raise Interest Rates

The minutes of the Fed’s April 26-7 meeting convinced almost everyone that the Fed will raise interest rates at its next meeting in June, but left them wondering why.  Most of the subsequent discussion centered on the labor market and how close the economy is to full employment. There was also some whispering about inflation. Read more […]

Don’t Blame Tight Supplies for Rising Home Prices

The S&P/Case-Shiller National Home Price Index shows prices of existing single family homes rising 5.3% annually in the last few months, well above the rate of inflation. Recent comments cite the low inventory of homes for sale as a leading factor in higher prices. Housing markets are local and some communities may be seeing house Read more […]

The Fed’s New Normal

Since the demise of Bear Stearns and Lehman Brothers in 2008, Federal Reserve policy has focused on containing market turmoil and disruption.  Current Fed policy built on a massively expanded balance sheet (first chart); the quantitative easing that inflated the balance sheet and the Fed funds rate glued to the zero lower bound (second chart). Read more […]

How Active Should Active Management Be?

Most active managers fail most of the time, at least if we take their underperformance of passive benchmarks as evidence of failure.  The evidence of this failure is so widespread, and so consistent, that even dyed-in-the-wool active managers no longer deny it. Instead, we often hear that the cause of unsuccessful active management is that it isn’t active Read more […]

Who’s Afraid of a Carbon Tax?

As far as equity investors might experience them, the risks of a potential “carbon tax” are more easily fathomed than the rewards.  Emissions data are available for most large companies and – taking basic assumptions on the likely form of taxation – we can easily examine which market segments face the greater risks. Estimating The Impact Read more […]

Unnaturally Negative Interest Rates

Negative interest rates – you pay for the privilege of keeping your money in the bank – are current monetary policy in Japan and some European countries.  Negative interest rates pose questions: Are they here? Why would anyone pay the bank to keep money?  Do they make economic sense? Why would a central bank set Read more […]

Who Fuelled the Oil Bonds Bubble?

It has become popular to blame passive investors and index funds for the recent rise (and fall) in prices for U.S. high yield bonds.  The thesis – placing passive investors as the culprit – goes as follows: There have been material, positive flows into passive bond funds, at the expense of active funds. Passive bond funds Read more […]

Expect more starting and stopping at the Fed on Interest rates.

Given the FOMC minutes released yesterday we expect to see two rate increases in 2016. The next move is likely to be in June, not at the April 27th meeting. Some analysts blame disagreements within the Fed for what they see as inconsistent and changing policy.  While it is difficult to anticipate short term market Read more […]

Necessary, but not sufficient

In the popular imagination, “big business” is responsible for climate change.  In fact, corporate emissions of greenhouse gasses are a small part of the problem; it is quite possible that corporations also provide our best hope for a solution. The current reality – what we know to be true – is that governments worldwide are shortly expected to commit to Read more […]

The Teleology of Smart Beta

As assets tracking factor indices grow, so does the attention paid to evaluating and promoting these so-called “smart beta” funds.  Even the nomenclature attracts attention.  Professor William Sharpe, famous among other things for introducing the concept of beta to academic finance, has said that the term “smart beta” makes him “definitionally sick,” and lesser lights than Read more […]