Soft CPI is helpful, but it’s still a bear market

Preface: Explaining our market timing models  We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.   The Trend...

How inflation is a game changer for portfolios

In light of the dismal performance in the first nine months of a 60/40 portfolio in 2022, it's time to ask, "What's changed and what adjustments should investors make to their portfolios?"     The answer is inflation, and it's a game changer. The correlation between stocks and bond increasingly rise as inflation rises. In...

A 2022 inflation tantrum investing roadmap

In the wake of the hot January CPI print, I have had a number of discussions with readers about the most advantageous way of positioning an equity portfolio in a rising rate environment. The most obvious strategy is to use an allocation similar to the Rising Rates ETF (EQRR) is to tilt towards value and...

The inflation challenge

Inflation fears have been rising in the wake of the hot October CPI report. Barry Ritholz, the CEO of Ritholz Wealth Management, recently issued an open challenge to the inflationistas.     Which side of that bet would you take?     Rising inflation concerns Inflation concerns are becoming widespread. FactSet reported the highest number of...

How to engineer inflation

Both the June CPI and PPI came in hot and well ahead of expectations. There was the inevitable debate about the transitory nature of the price increases. Looking longer-term, however, the conventional models for explaining inflation have been unsatisfactory.   Notwithstanding the numerous failures by Japanese policymakers, consider the US as another example. Let's begin...

The inflation red herring

Rising inflation fears are all over the headlines. From a top-down perspective, inflation pressures are clearly rising.     The Transcript, which monitors earnings calls, documented companies reporting rising inflationary pressures from supply chain bottlenecks and commodity price strength, which have the potential to create margin squeezes.   “…the inflationary pressures, particularly surrounding some of...

The sum of all fears: Inflation! Inflation!

The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market.     Are these worries overblown? How will these concerns affect asset prices?     How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...

60/40 resilience in an inflation age

The fiscal and monetary authorities of the developed world are engaged in a great macroeconomic experiment. Governments are spending enormous sums to combat the recessionary effects of the pandemic and central banks are allowing monetary policy to stay loose in order to accommodate the fiscal stimulus. Eventually, inflation and inflation expectations are bound to rise....

Will rising yields sideswipe equities?

Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...

In search of the elusive inflation surge

US bond yields began to settle down last week when Fed Chair Janet Yellen stated in her Congressional testimony that the neutral rate for Fed Funds is roughly the inflation rate, which is much lower than market expectations. In addition, she allowed that the Fed is likely to re-evaluate its tightening path in light of...