The document discusses four challenges facing the American economy: the Federal Reserve's large balance sheet from quantitative easing, historically low interest rates, a sluggish housing market, and growing government debt. It analyzes the implications of the Fed either maintaining or selling off its assets on interest rates and inflation. While higher rates could curb inflation, it may also slow the housing recovery and increase the cost of servicing government debt. The best approach is for the Fed to gradually raise rates through asset sales as the economy continues improving.
Our President is wrong to think like a macroeconomistStephanie Bohn
The document summarizes evidence from the past 30 years that contradicts the widely held belief that increasing interest rates leads to higher unemployment. It analyzes periods of rising and falling interest rates set by the Federal Reserve and finds:
1) Unemployment actually fell, on average, during periods of rising rates, contrary to expectations.
2) Unemployment rose, on average, during periods of falling rates, which is also contrary to expectations.
3) Even allowing for a one-year lag for monetary policy effects, there is little evidence supporting the link between interest rates and unemployment assumed by most economists.
This document provides an overview of monetary policy and the tools used by central banks. It introduces the monetary policy (MP) curve, which describes how central banks set nominal interest rates. It also discusses the Phillips curve and how it relates inflation to economic activity. Together, the MP curve and Phillips curve make up the short-run model used to analyze the effects of monetary policy. The document explains how central banks like the Federal Reserve use tools like open market operations and changing reserve requirements to target interest rates and influence aggregate demand.
The stock market has rallied recently even as the economy remains weak, similar to walking up a downward-moving escalator. Some signs suggest parts of the economy may be stabilizing, like improvements in manufacturing and services sectors. While employment and GDP numbers remain poor, consumer spending increased in the first quarter. Inventories fell sharply but this may help future growth. Other positive signs include rising consumer confidence and stabilizing housing. Many companies exceeded low earnings estimates, and rapid responses from corporations, consumers, and governments may help lead to eventual recovery.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
This chapter discusses debates around stabilization policy. It considers whether policy should be active or passive in response to economic fluctuations, and whether policy should be set by rule or allow discretion. Arguments for active policy include reducing economic hardship, while arguments for passive policy cite lags in policy effects. Rules are argued to increase credibility and avoid time inconsistency, while discretion allows flexibility. Overall there is no clear consensus from history on the best approach.
Signs of an impending stock market crashSwapnilRege2
Stock Markets Greed Fear market Pyschology Sotck market Fluctuations Signs of Stock market reaching the top Initial signs of bear market beginning Market fluctuations
Over the past thirty years the neutral real interest rate across developed economies has declined substantially. Evidence suggests that secular rather than transitory factors are driving its decline. A lower neutral interest rate implies that the cumulative amount of tightening required for monetary policy to become neutral is much smaller than previously thought.
Our President is wrong to think like a macroeconomistStephanie Bohn
The document summarizes evidence from the past 30 years that contradicts the widely held belief that increasing interest rates leads to higher unemployment. It analyzes periods of rising and falling interest rates set by the Federal Reserve and finds:
1) Unemployment actually fell, on average, during periods of rising rates, contrary to expectations.
2) Unemployment rose, on average, during periods of falling rates, which is also contrary to expectations.
3) Even allowing for a one-year lag for monetary policy effects, there is little evidence supporting the link between interest rates and unemployment assumed by most economists.
This document provides an overview of monetary policy and the tools used by central banks. It introduces the monetary policy (MP) curve, which describes how central banks set nominal interest rates. It also discusses the Phillips curve and how it relates inflation to economic activity. Together, the MP curve and Phillips curve make up the short-run model used to analyze the effects of monetary policy. The document explains how central banks like the Federal Reserve use tools like open market operations and changing reserve requirements to target interest rates and influence aggregate demand.
The stock market has rallied recently even as the economy remains weak, similar to walking up a downward-moving escalator. Some signs suggest parts of the economy may be stabilizing, like improvements in manufacturing and services sectors. While employment and GDP numbers remain poor, consumer spending increased in the first quarter. Inventories fell sharply but this may help future growth. Other positive signs include rising consumer confidence and stabilizing housing. Many companies exceeded low earnings estimates, and rapid responses from corporations, consumers, and governments may help lead to eventual recovery.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
This chapter discusses debates around stabilization policy. It considers whether policy should be active or passive in response to economic fluctuations, and whether policy should be set by rule or allow discretion. Arguments for active policy include reducing economic hardship, while arguments for passive policy cite lags in policy effects. Rules are argued to increase credibility and avoid time inconsistency, while discretion allows flexibility. Overall there is no clear consensus from history on the best approach.
Signs of an impending stock market crashSwapnilRege2
Stock Markets Greed Fear market Pyschology Sotck market Fluctuations Signs of Stock market reaching the top Initial signs of bear market beginning Market fluctuations
Over the past thirty years the neutral real interest rate across developed economies has declined substantially. Evidence suggests that secular rather than transitory factors are driving its decline. A lower neutral interest rate implies that the cumulative amount of tightening required for monetary policy to become neutral is much smaller than previously thought.
The document discusses Putnam's outlook on various fixed income asset classes in light of the Federal Reserve signaling that it may begin tapering its quantitative easing program. It finds that while interest rates may remain volatile in the near future, many spread sectors now offer attractive risk-adjusted returns. Specifically, it believes mortgage-backed securities, high yield bonds, bank loans, and select investment grade corporate bonds in sectors like utilities and energy provide opportunities for investors. While term structure risk from rising rates remains, security selection and tactical strategies can help add value.
Degroof Petercam Asset Management's chief economist and asset allocator look into whether the reflation trade is for real and inflation is back in the cards.
U.S. equities continued their impressive advance, with
no significant declines during the quarter. In Europe, policy changes may function as an important tailwind for growth and market performance. Globally, M&A activity has been on the rise, giving a boost to equity prices across the market-cap spectrum. The current bull market has been significant — in terms of both length and magnitude.
The document discusses the Federal Reserve potentially raising interest rates and the impact on investments. It states that higher rates would signal economic strength and a return to normal rates after the Great Recession. While rates rising may cause initial volatility, historically the stock market has continued to perform well over longer periods as the economy strengthens. The document recommends staying invested in equities, as rates rising from very low levels are unlikely to significantly slow economic growth. Large cap stocks, international equities, and sectors like technology, finance and healthcare tend to perform well when rates rise.
As Fed tapering unfolds, we expect to see stronger growth from developed markets, while emerging markets in aggregate may experience further currency and capital market weakness. In the United States, declining labor participation continues to drive falling unemployment figures, and may harbor the beginning of a wage inflation surprise.
• We expect credit, liquidity, and prepayment risks will continue to
be rewarded by the market in the months ahead, while interestrate
risk remains unattractive due to its asymmetric risk profile.
The document examines several long-held stock market anomalies and legends, such as "sell in May and go away" and the January effect. While the data behind these anomalies seems compelling initially, the document notes that many do not hold up over the long-term or in recent years. For example, a portfolio reflecting "sell in May and go away" did not consistently outperform a simple buy-and-hold strategy. The January effect and January barometer also have not predicted market performance reliably in recent years. The conclusion is that investors should stay invested and consider multiple data sources and perspectives rather than relying on isolated anomalies.
As expected, the Federal Open Market Committee has embarked on another round of planned asset purchases. In its November 3 policy statement, the FOMC wrote that it expects to buy another $600 billion in long-term Treasuries by the end of 2Q11 ($75 billion per month), in addition to the $35 billion per month in reinvested principal payments from its portfolio of mortgage-backed securities. There has been much criticism of the move in the financial press. Certainly, there are risks in the Fed’s strategy. However, it’s hardly reckless or ill-advised.
This document provides an analysis and updated expectations for long-term capital market returns. It estimates that U.S. stocks will provide a total return of 6-8% over the long-term and bonds will return 3-4%. These estimates are based on reasonable assumptions about inflation, dividend income, dividend growth, and valuation shifts. The document examines historical returns and factors to derive its projections, which are meant to provide a guide for long-term financial planning.
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
Can Treasury Inflation Protected Securities predict Inflation?Gaetan Lion
We look at the spread between Treasuries and TIPS to figure out how effective such observations were in predicting actual inflation several years down the road.
An increase in the money supply leads to higher aggregate output and prices in the short-run. However, in the long-run only prices are affected, as output returns to potential output. This is because a rise in prices induces a leftward shift of the short-run aggregate supply curve over time, returning output to potential. Therefore, monetary policy can impact real variables in the short-run but is neutral in the long-run, with only nominal aggregates like prices being permanently affected.
The market volatility of late summer seemed to fade as markets hit new highs in November due to optimism around a trade deal and accommodative monetary policy. While overall earnings declined slightly in Q3 due to weaknesses in energy, materials, and tech, most companies still saw sales growth and expressed a positive outlook. Larger companies have seen stronger earnings growth. The Treasury yield curve flattened again in November after widening for months, which bears watching given past recessions have followed yield curve inversions. Most analysts anticipate an earnings recovery in coming quarters but will monitor trends closely given high market valuations.
The document discusses the unusually low market volatility seen in 2017 so far. It notes that historically there has typically been a 5% market pullback in 91% of years, yet 2017 has seen the market continue moving higher without significant corrections. It examines measures of implied market volatility like the VIX index, which is at record lows, indicating that options traders do not expect much price volatility. While low volatility has persisted for an extended period, the document concludes that over time markets typically return to having a normal range of up and down trends, and investors should avoid complacency and prepare for opportunities that market corrections may bring.
The document provides an overview of the market perspective in September 2017. It notes that while the markets have exhibited little volatility since the 2016 election, corrections of over 5% are actually quite common within a given year. The document also discusses factors like leading economic indicators and the current economic expansion that suggest a recession may not be imminent. It concludes by stating that most economists believe economic conditions remain reasonable, though ongoing monitoring of differences between corrections and bear markets is warranted.
Below please find a link to our monthly market perspective piece for February. This month, with the prospect for potential policy changes ahead, we take a deeper dive into the concept of inflation and what it means to investors.
Summary
Despite pockets of strength, stocks remain in consolidation mode
Elevated volatility of first half unlikely to ebb in second half
Sentiment at mid-year shows optimism and elevated expectations
Second-half pullback could provide strong foundation for continuation of cyclical rally
The document provides an analysis of market performance and the economic outlook from The Applied Finance Group. Key points:
- While some economic indicators have improved recently, the author believes stimulus programs are driving most of the gains and underlying growth remains weak.
- Easy profits have been made by simply investing in equities earlier this year, but picking individual stocks will be more important going forward as the market becomes less attractive.
- Challenges remain including high unemployment, problem banks, and uncertainty around the impact of expiring stimulus programs.
This document discusses the impact of loose global monetary policy on economic growth and equity markets since the 2008 financial crisis. Central banks around the world expanded their balance sheets significantly through measures like quantitative easing to stimulate their economies. This monetary expansion appears highly correlated with rising asset prices and market performance. However, as interest rates are expected to rise, the effects of tightening monetary policy on market volatility and asset price appreciation require careful portfolio positioning.
This document provides a summary of 7 units from an academic coursepack on international academic writing. The first unit discusses essay writing basics like establishing a thesis, conducting research, organizing ideas, and planning. The second unit covers plagiarism, including how to properly cite sources. The third unit focuses on establishing a clear thesis. The fourth reviews grammar concepts. The fifth compares American and British English. The sixth discusses the Chicago style guide. The seventh provides guidance on academic writing for graduate students, covering topics, structure, and research papers.
Church history began around 30 AD in Palestine following the resurrection of Jesus Christ. By the third century, Christianity had become the dominant religion of the northern Mediterranean world. Over time, the church grew and faced periods of both persecution and acceptance from political powers. Important events and figures helped shape Christian theology through the early church, medieval period, Reformation, and modern era. Church history is an important lens for understanding the development of Christianity over nearly two millennia.
The document discusses Putnam's outlook on various fixed income asset classes in light of the Federal Reserve signaling that it may begin tapering its quantitative easing program. It finds that while interest rates may remain volatile in the near future, many spread sectors now offer attractive risk-adjusted returns. Specifically, it believes mortgage-backed securities, high yield bonds, bank loans, and select investment grade corporate bonds in sectors like utilities and energy provide opportunities for investors. While term structure risk from rising rates remains, security selection and tactical strategies can help add value.
Degroof Petercam Asset Management's chief economist and asset allocator look into whether the reflation trade is for real and inflation is back in the cards.
U.S. equities continued their impressive advance, with
no significant declines during the quarter. In Europe, policy changes may function as an important tailwind for growth and market performance. Globally, M&A activity has been on the rise, giving a boost to equity prices across the market-cap spectrum. The current bull market has been significant — in terms of both length and magnitude.
The document discusses the Federal Reserve potentially raising interest rates and the impact on investments. It states that higher rates would signal economic strength and a return to normal rates after the Great Recession. While rates rising may cause initial volatility, historically the stock market has continued to perform well over longer periods as the economy strengthens. The document recommends staying invested in equities, as rates rising from very low levels are unlikely to significantly slow economic growth. Large cap stocks, international equities, and sectors like technology, finance and healthcare tend to perform well when rates rise.
As Fed tapering unfolds, we expect to see stronger growth from developed markets, while emerging markets in aggregate may experience further currency and capital market weakness. In the United States, declining labor participation continues to drive falling unemployment figures, and may harbor the beginning of a wage inflation surprise.
• We expect credit, liquidity, and prepayment risks will continue to
be rewarded by the market in the months ahead, while interestrate
risk remains unattractive due to its asymmetric risk profile.
The document examines several long-held stock market anomalies and legends, such as "sell in May and go away" and the January effect. While the data behind these anomalies seems compelling initially, the document notes that many do not hold up over the long-term or in recent years. For example, a portfolio reflecting "sell in May and go away" did not consistently outperform a simple buy-and-hold strategy. The January effect and January barometer also have not predicted market performance reliably in recent years. The conclusion is that investors should stay invested and consider multiple data sources and perspectives rather than relying on isolated anomalies.
As expected, the Federal Open Market Committee has embarked on another round of planned asset purchases. In its November 3 policy statement, the FOMC wrote that it expects to buy another $600 billion in long-term Treasuries by the end of 2Q11 ($75 billion per month), in addition to the $35 billion per month in reinvested principal payments from its portfolio of mortgage-backed securities. There has been much criticism of the move in the financial press. Certainly, there are risks in the Fed’s strategy. However, it’s hardly reckless or ill-advised.
This document provides an analysis and updated expectations for long-term capital market returns. It estimates that U.S. stocks will provide a total return of 6-8% over the long-term and bonds will return 3-4%. These estimates are based on reasonable assumptions about inflation, dividend income, dividend growth, and valuation shifts. The document examines historical returns and factors to derive its projections, which are meant to provide a guide for long-term financial planning.
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
Can Treasury Inflation Protected Securities predict Inflation?Gaetan Lion
We look at the spread between Treasuries and TIPS to figure out how effective such observations were in predicting actual inflation several years down the road.
An increase in the money supply leads to higher aggregate output and prices in the short-run. However, in the long-run only prices are affected, as output returns to potential output. This is because a rise in prices induces a leftward shift of the short-run aggregate supply curve over time, returning output to potential. Therefore, monetary policy can impact real variables in the short-run but is neutral in the long-run, with only nominal aggregates like prices being permanently affected.
The market volatility of late summer seemed to fade as markets hit new highs in November due to optimism around a trade deal and accommodative monetary policy. While overall earnings declined slightly in Q3 due to weaknesses in energy, materials, and tech, most companies still saw sales growth and expressed a positive outlook. Larger companies have seen stronger earnings growth. The Treasury yield curve flattened again in November after widening for months, which bears watching given past recessions have followed yield curve inversions. Most analysts anticipate an earnings recovery in coming quarters but will monitor trends closely given high market valuations.
The document discusses the unusually low market volatility seen in 2017 so far. It notes that historically there has typically been a 5% market pullback in 91% of years, yet 2017 has seen the market continue moving higher without significant corrections. It examines measures of implied market volatility like the VIX index, which is at record lows, indicating that options traders do not expect much price volatility. While low volatility has persisted for an extended period, the document concludes that over time markets typically return to having a normal range of up and down trends, and investors should avoid complacency and prepare for opportunities that market corrections may bring.
The document provides an overview of the market perspective in September 2017. It notes that while the markets have exhibited little volatility since the 2016 election, corrections of over 5% are actually quite common within a given year. The document also discusses factors like leading economic indicators and the current economic expansion that suggest a recession may not be imminent. It concludes by stating that most economists believe economic conditions remain reasonable, though ongoing monitoring of differences between corrections and bear markets is warranted.
Below please find a link to our monthly market perspective piece for February. This month, with the prospect for potential policy changes ahead, we take a deeper dive into the concept of inflation and what it means to investors.
Summary
Despite pockets of strength, stocks remain in consolidation mode
Elevated volatility of first half unlikely to ebb in second half
Sentiment at mid-year shows optimism and elevated expectations
Second-half pullback could provide strong foundation for continuation of cyclical rally
The document provides an analysis of market performance and the economic outlook from The Applied Finance Group. Key points:
- While some economic indicators have improved recently, the author believes stimulus programs are driving most of the gains and underlying growth remains weak.
- Easy profits have been made by simply investing in equities earlier this year, but picking individual stocks will be more important going forward as the market becomes less attractive.
- Challenges remain including high unemployment, problem banks, and uncertainty around the impact of expiring stimulus programs.
This document discusses the impact of loose global monetary policy on economic growth and equity markets since the 2008 financial crisis. Central banks around the world expanded their balance sheets significantly through measures like quantitative easing to stimulate their economies. This monetary expansion appears highly correlated with rising asset prices and market performance. However, as interest rates are expected to rise, the effects of tightening monetary policy on market volatility and asset price appreciation require careful portfolio positioning.
This document provides a summary of 7 units from an academic coursepack on international academic writing. The first unit discusses essay writing basics like establishing a thesis, conducting research, organizing ideas, and planning. The second unit covers plagiarism, including how to properly cite sources. The third unit focuses on establishing a clear thesis. The fourth reviews grammar concepts. The fifth compares American and British English. The sixth discusses the Chicago style guide. The seventh provides guidance on academic writing for graduate students, covering topics, structure, and research papers.
Church history began around 30 AD in Palestine following the resurrection of Jesus Christ. By the third century, Christianity had become the dominant religion of the northern Mediterranean world. Over time, the church grew and faced periods of both persecution and acceptance from political powers. Important events and figures helped shape Christian theology through the early church, medieval period, Reformation, and modern era. Church history is an important lens for understanding the development of Christianity over nearly two millennia.
In this presentation I approach jewelry-making from the perspective of an arts integration teacher. I found a number of connections to math, science, English and social-studies. Additionally, I developed "educational empathy" by stepping into the shoes of being a student.
Xiomara Suarez Figueroa wakes up at 6:00 am daily, takes a shower by 6:10 am and has breakfast while brushing her teeth at 6:20 am. She washes dishes and cleans the kitchen by 7:00 am, does homework at 8:00 am, catches the bus at 12:00 pm for classes from 1:00 to 6:00 pm, walks her dog before dinner at 8:00 pm, and usually studies at 8:30 pm before listening to the radio at 9:00 pm.
Este documento describe los patrones orgánicos y geométricos, que son fundamentales en la arquitectura ya que permiten estructurar ideas y proyectos. Los patrones orgánicos se basan en formas naturales abstractas, mientras que los patrones geométricos se enfocan en formas repetitivas abstractas. El documento también explica cómo identificar estos patrones en planos y fachadas de edificios, y enumera los materiales utilizados para maquetas que ilustran estos conceptos.
Schizophrenia is a psychotic disorder that affects about 1% of people worldwide, deteriorating personal, social, and occupational functioning through strange perceptions, disturbed thought processes, unusual emotions, and motor abnormalities. It causes symptoms like auditory hallucinations, disorganized thinking, paranoia, delusions, and disorganized speech. Schizophrenia is diagnosed based on symptoms and can be of five main types, and both biological and psychological factors may contribute to its causes and treatment may involve medications and therapy.
Tom Marx presented on surviving and thriving in a consolidating world. He discussed common M&A scenarios like selling, acquiring, merging, and ownership events. He explained what to expect from these scenarios and how to not just survive but thrive through organizational adjustments, demonstrating leadership, and keeping focus on metrics. Marx emphasized the importance of retaining the best people, listening to different views, and building the team to shape the future of the combined business.
The document summarizes Putnam's fixed-income outlook for Q4 2013. It discusses:
1) The Fed surprised markets by not tapering its bond-buying program, keeping rates low for longer but also increasing rate volatility driven by economic data.
2) Putnam believes the decline in labor participation may be more structural than cyclical, potentially leading to rapid policy tightening in 2014 if unemployment falls quickly.
3) Securitized sectors like agency mortgage-backed securities and commercial mortgage-backed securities benefited from Fed policy and remained overweight positions.
The document provides an overview of recent interest rate movements and expectations for further rate hikes by the Federal Reserve. Short-term rates in the US have risen over 100 basis points in the past year, while longer-term rates remain lower, resulting in a flattening yield curve. The Fed projects stable economic growth and inflation through 2020 as it gradually raises rates, with market expectations that rates will peak at around 2.8% in 2019. Rising interest rates can slow economic growth over time as intended by the Fed to manage inflation, and an inverted yield curve has historically preceded recessions.
If U.S. politics do not derail the recovery, pent-up demand can drive faster economic growth. Fixed-income outflows appear likely to continue, pushing rates higher.
The document discusses recent movement in fixed income markets, with interest rates declining dramatically over the past few months. This has significant impacts on both equity markets and the broader economy. The Federal Reserve reduced its expectations for 2019 GDP growth and inflation due to slowing economic indicators and lowered interest rates more rapidly than anticipated. Generally, declining borrowing costs allow economies to advance, so central banks are pushing rates downward globally.
US Fed rate hike in September 2015: Who will be the top 4 winners and losers?Aranca
The much hyped US Fed rate hike likely to be in September 2015 will mark the end of an era of free money. While it brings the good news that the most powerful economy of the world is back on track and can sustain a rate hike, there may be certain repercussions for the global markets. Here’s our take on who may win, and who may lose.
What recent and past actions have Canada and the US taken to counter.pdfmeejuhaszjasmynspe52
What recent and past actions have Canada and the US taken to counteract their exchange rates
with the economy in such distress over the past 10 years?
Solution
Since 2007, the world has experienced a period of severe financial stress, not seen since the time
of the Great Depression. This crisis started with the collapse of the subprime residential
mortgage market in the United States and spread to the rest of the world through exposure to
U.S. real estate assets, often in the form of complex financial derivatives, and a collapse in global
trade. Many countries were significantly affected by these adverse shocks, causing systemic
banking crises in a number of countries, despite extraordinary policy interventions. Systemic
banking crises are disruptive events not only to financial systems but to the economy as a whole.
Such crises are not specific to the recent past or specific countries – almost no country has
avoided the experience and some have had multiple banking crises. While the banking crises of
the past have differed in terms of underlying causes, triggers, and economic impact, they share
many commonalities. Banking crises are often preceded by prolonged periods of high credit
growth and are often associated with large imbalances in the balance sheets of the private sector,
such as maturity mismatches or exchange rate risk, that ultimately translate into credit risk for
the banking sector.
Crisis management starts with the containment of liquidity pressures through liquidity support,
guarantees on bank liabilities, deposit freezes, or bank holidays. This containment phase is
followed by a resolution phase during which typically a broad range of measures (such as capital
injections, asset purchases, and guarantees) are taken to restructure banks and reignite economic
growth. It is intrinsically difficult to compare the success of crisis resolution policies given
differences across countries and time in the size of the initial shock to the financial system, the
size of the financial system, the quality of institutions, and the intensity and scope of policy
interventions. With this caveat we now compare policy responses during the recent crisis episode
with those of the past. The policy responses during the 2007-2009 crises episodes were broadly
similar to those used in the past. First, liquidity pressures were contained through liquidity
support and guarantees on bank liabilities. Like the crises of the past, during which bank
holidays and deposit freezes have rarely been used as containment policies, we have no records
of the use of bank holidays during the recent wave of crises, while a deposit freeze was used only
in the case of Latvia for deposits in Parex Bank. On the resolution side, a wide array of
instruments was used this time, including asset purchases, asset guarantees, and equity injections.
All these measures have been used in the past, but this time around they seem to have been put in
place quicker (for detailed informatio.
- The Total Asset Partners portfolio returned 1.54% for Q3 and 6.27% year-to-date, outperforming fixed income but lagging the S&P 500 while maintaining lower volatility.
- The portfolio remains defensively positioned with 35% in equities, 45% in fixed income, and 19.4% in cash as valuations across asset classes appear expensive and economic growth remains weak.
- Key concerns include declining corporate profits, high debt levels, the risk of higher interest rates, deteriorating high yield credit fundamentals, and expensive equity valuations leaving little room for further expansion.
Both domestic consumption (higher debt service and cost of living, slower pace of asset price appreciation, low real income gains) and capital expenditure (higher debt service, elevated current spending vis-à-vis GDP, weakening domestic demand, external uncertainties) is expected to ease off, with the fiscal impulse peaking, financial conditions tightening, and negative impact of prior dollar strength. This should taper labour market gains and keep inflation pressures benign. The extent of slowdown will be dependent upon the resiliency of private sector balance sheet and the subsequent impact on demand. It is imperative that the Fed stays ahead in managing overall debt servicing costs (short-run implications on demand; longer-run may short-circuit the feedback from demand to capital spending and future productivity), and limit the negative impact of policy on overall growth.
We like rates structurally, both on adequate valuations and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle.
The document discusses the impending interest rate hike by the Federal Reserve. It analyzes key economic indicators like unemployment, wages, and inflation that the Federal Reserve uses to determine monetary policy. Based on strong recent economic data, the document predicts the Federal Reserve will raise interest rates in September for the first time since 2006. It recommends overweighting investments in the United States due to its stronger economy relative to other countries and the divergence in monetary policies globally. The interest rate hike will impact asset classes differently, with stocks expected to perform well and commodities dipping as the dollar rises.
What happens if the us credit rating is downgraded 7.22.2021 - Kurt S. Altric...Kurt S. Altrichter
1) The US government debt level of nearly $30 trillion poses risks even though low interest rates have kept debt servicing costs low currently. The upcoming expiration of the debt ceiling raises the possibility of a downgrade in the US credit rating or a technical default.
2) A credit downgrade or hitting the debt ceiling without a resolution could negatively impact risk assets, as occurred in 2011. Investors should take a longer term view and pay attention to weakening economic fundamentals rather than just focusing on record high stock markets.
3) The options available to address the growing debt problem like raising taxes or interest rates all carry risks for either the economy, financial markets or the US dollar. The government appears backed into a corner with
Cushman & Wakefield's white paper on the Feds decision Matthew Marshall
The Federal Reserve raised interest rates for the first time in almost 10 years, citing a strengthening labor market and economic growth as reasons for the rate hike. While inflation remains below the 2% target, job growth has rebounded in recent months. The rate increase is largely symbolic and monetary policy will remain accommodative. Commercial real estate prices are not strongly correlated with interest rates and are more influenced by economic growth and job creation. Continued economic expansion is expected to support further increases in commercial real estate values and rents.
The document discusses whether the U.S. economy has achieved "escape velocity," which refers to a self-sustaining economic recovery that allows the Fed to end its bond purchase program. It notes that many economists believe the U.S. will reach escape velocity in 2014 due to broad economic strength and reduced fiscal drag. However, inflation remains below the Fed's target and further tapering will depend on economic data. The document also examines factors like China's economic transition and the implications for commodities.
This analysis focuses on measures much beyond PE ratios. And, it concludes that the Stock Market is actually really cheap vs. bonds. But, it appears quite overvalued when focusing on inflation measures.
The document discusses potential reasons for persistently low interest rates in the United States despite signs of economic recovery. It explores several theories for determining interest rates, including the Federal Reserve's actions to maintain low rates through quantitative easing programs. A liquidity trap and expectations of continued low rates helped keep long-term rates lower than usual. Federal Reserve Chair Janet Yellen also signaled her view that low rates would still be needed to support further economic growth.
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In a recessionary and deflationary framework, the discretionary monetary policy cannot be optimal when the interest rate is already near zero and cannot decrease anymore. Indeed, when the Zero Lower Bound is binding, a negative demand shock implies a decrease in the current economic activity level and deflationary tensions, which cannot be avoided by monetary policy as the nominal interest rate can no longer decrease. The economic literature has then often recommended to target an inflation rate sufficiently above zero in order to avoid the dangers of this Zero Lower Bound (ZLB) constraint. On the contrary, provided the ZLB is not binding, monetary policy can efficiently contribute to the stabilization of economic activity and inflation in case of demand shocks. The variation in interest rates is then all the more accentuated as interest rate smoothing is a more negligible goal for the central bank. The contribution of our paper is to provide a clear analytical New-Keynesian framework sustaining these results. Besides, our analytical modelling also shows that even if the ZLB is currently not binding, the central bank should take into account the dangers of a potential future binding ZLB. Indeed, the interest rate should be decreased the fastest as a negative demand shock and the possibility to reach the ZLB is anticipated for a nearest future period. Our paper demonstrates the necessity of such a ‘pre-emptive’ active monetary policy even in a discretionary framework, which has the advantage to be time-consistent and to be in conformity with the empirical practices of independent central banks. We don’t have to make the strong hypothesis of a commitment monetary policy intended to affect private agents’ expectations in order to demonstrate the optimality of such a pre-emptive monetary policy.
Below please find a link to our monthly market perspective piece for December. This month we examine the impacts of the rapidly changing low interest rate environment.
The document provides a quarterly review by Seaport Investment Management. It summarizes the volatile market conditions in Q1 2016, with global equities rebounding from losses to end barely positive. It discusses ongoing economic slowing and downward revisions to growth forecasts. Seaport's portfolio returned 2.2% in Q1 through a defensive structure that has buffered volatility while providing stable income. The portfolio remains defensively positioned across asset classes like equity, credit, and mortgage to balance upside potential with downside protection.
1. Boston College
Four Challenges at the Core of the American Economy
Investigating the Federal Balance Sheet, Low Interest Rates, Housing
Market and Government Debt
Ana Grisanti
Matthew Mikrut
Tyler Shelepak
2. In the wake of the 2008 recession, The Federal Reserve—the central bank of the United
States—instituted some unorthodox monetary policy in order to maintain stable prices and high
employment. Interest rates were lowered to an all-time low, and they have not risen since.
Specifically, the asset-purchasing program of Quantitative Asset, and increased regulatory role
of the Fed has been relatively successful, and many European countries are now instituting. The
United States has experienced a slow, yet noticeable, recovery since the financial crisis of 2008;
however, many problems still persist. In our report, we will focus on four particular issues: the
Federal Reserve’s large balance sheet, historically low interest rates, a lethargic housing market,
and the federal debt. Quantitative easing may have ended, but the size of the balance sheet still
remains an issue. The choice to sell or hold these assets would then affect nominal interest rates.
Regarding the housing market, we will analyze reasons why it is lagging and the effect of
possibly higher interest rates. Lastly, the Fed must decide what it can do to help ease the burden
of the federal debt. We will show the ramifications of these through various economic models
and reasoning. The Federal Reserve must use all of the tools at its disposal in order to solve these
issues and promote high employment, stable prices, and moderate long-term interest rates. First,
we will delve into how to address the size of the Fed balance sheet.
The Balance Sheet and Interest Rates
After stopping quantitative easing, the Fed has two choices regarding the size of its
balance sheet: either maintain the current size, or sell its acquired assets. What would be the
aftermath of each case? We will represent this aftermath in terms of the IS-LM and AS-AD
models. The IS-LM model represents the interaction of the goods market (IS curve) and the
financial market (LM curve), to form the full impact of aggregate demand (AD curve), which
later interacts with aggregate supply (AS curve) in the full AS-AD model. The IS-LM model is
3. represented with graphs that show the effect of output (Y) on interest rates (i), and the AS-AD
model is plotted on graphs that show the effect of output on price (P). As the Fed has been
buying bonds and securities on the market, nominal money (M), and real money stock (M/P)
have increased. This has shifted the LM curve (M/P= L(i,Y)) to the right, as seen in Graph 1 in
the Appendix, which has decreased interest rates and increased output. This also leads to a
rightward shift of the AD curve (Y= Yd (M/P, G, T, Z)), increased output, and higher prices
(Graph 2). Now that the Fed has stopped quantitative easing, the curves will stop shifting while
the Fed remains inactive, so the current conditions will remain in the short run.
Low interest rates should stimulate investment, even in the medium run, which in the
long run would increase capital and thus the level of output per worker. This long run effect is
run through expectations of a higher future output, which would make the public optimistic and
shift the AD curve even further right in the short run, thus increasing output further and lowering
prices. Since the U.S. has been slow to recover from the recession of 2008, keeping interest rates
low might be beneficial as it stimulates the economy. However, there is some doubt of this
because investment has not been as responsive to the low interest rates as expected. This can be
seen in the table at the end of the appendix from a database of Harver Analytics. Gross domestic
investment as a percentage of GDP has been growing slowly since its 2009 level of 18%. At the
end of 2013, it was still only at 19% of GDP, which is much lower than the 23% of 2006.
Nevertheless, there has been some recovery in the economy and thus the AD curve has
shifted right even if slightly, increasing prices. If the Fed decides to keep its large balance sheet
and low interest rates in the medium run, prices in the next 3 to 5 years would increase further as
price expectations adjust, and the AS curve (P=Pe (1+m) F(1- Y/L, z)) would shift left (Graph 3).
Output would thus go back down towards the original level of output – where it ends up exactly
4. depends on how much the AS curve shifts. The possible locations of the AS curve are
represented in Graph 3 of the appendix. Prices increase considerably in either possibility, so this
course of action could potentially bring a high rate of inflation, something that the Fed should try
to avoid. Although the Fed reported on its website that “inflation has continued to run below the
Committee's longer-run objective” (Press Release) in recent times, the daunting possibility of
high inflation still lingers in our horizon with these low interest rates, as shown in the theory
explained above. Although in the long run these policies would bring output growth by
increasing investment and thus capital, the Fed might want to be more orthodox in its decisions.
To avoid this potentially high inflation, the Fed could decide to start selling bonds after
its next meeting, thus increasing nominal interest rates. Selling an amount of bonds equivalent to
a more than 1% increase in interest rates would decrease real money stock, and in the short run,
the LM curve would shift left – lowering output as well (Graph 4). The AD curve would also
shift left from a decrease in real money stock, lowering both prices and output (Graph 5).
Expectations of a lower future output from decreases in investment would also shift the AD
curve left even further, thus again lowering output. Selling bonds would thus cause some
unemployment in the short run as output decreases. Some may say, that considering
unemployment is at a current low rate of 5.7%, fighting inflation has precedence over lowering
it. However, this number might be an understatement of the hardships in the economy, as it is
influenced by a fall in the labor force participation rate “to a three-decade low of 62.7%” in
September of 2014 (Wall Street Journal). The Fed must take this into consideration when
deciding whether or not this is the right time to raise interest rates and combat inflation.
Nevertheless, in the medium run of 3 to 5 years price expectations would adjust down
from their level above real prices. This would shift the AS curve to the right over time, allowing
5. output to slowly increase towards its original pre-policy level, while lowering prices even further
(Graph 6). Thus in the medium run, output and unemployment would not be affected, and the
risk of high inflation would be mitigated. The Fed should consider raising interest rates in the
next meeting because the effects of this policy, in the medium run, would be quite beneficial.
The Housing Market
Considering the low interest rates, one would expect the housing market in the United
States to be much stronger than it currently is. Under the IS model, home purchases fall under
the investment in the equation Y = C(Y-T)+I(Y,r)+G – which itself is a function of output and
the real interest rate. Given the current monetary policy, one would expect inflation to be higher
because of the lower interest rate, higher output, and higher prices; however, it has not risen to
the expected level due to less lending by banks. This problem may be outside the scope of
monetary policy; rather, the onus is on banks to begin lending more money in order to stimulate
investment. Also, one reason for the current low unemployment is the large number of
discouraged workers dropping out of the work force. Based on the Phillips curve relationship, [π-
πt-1
=-α(U-Un)] if the unemployment rate cannot be reliably measured, the Phillips curve cannot
be used to reliably measure the change in inflation.
In order to exemplify this, imagine an economy in medium run equilibrium with a natural
unemployment rate of 5%, a previous inflation rate of 3%, and Phillips curve coefficient of 1. In
the United States, the unemployment rate in this economy is currently 5.8%. Using the Phillips
curve equation, the inflation rate is calculated to be 2.2% (2.2% - 3% = -(5.8% - 5%)). If we
account for the discouraged workers, the unemployment rises to 7.5%. Using this number, the
inflation rate is calculated to be .5% (.5% - 3% = -(7.5% - 5%)). The later scenario produces
higher real interest rates because you are subtracting a smaller number from an exogenous
6. nominal interest rate. If this is a more reliable representation of unemployment, then the real
interest rate should be higher than what it actually is. Assuming that the United States is
currently above the natural rate of unemployment, the higher actual value of the real interest rate
could be what is deterring investment.
It is unclear how raising interest rates in the future would affect the housing market.
Interest rates have been at historically low rates, and though the Fed has not explicitly stated as
such, one could expect the Fed to raise interest rates in the future (see shifts in Graph 5).
Considering the Lucas critique, the public can expect these higher interest rates if the central
bank is credible. As stated above, housing investment depends on the real interest rate, but there
is generally a direct correlation between nominal interest rates and real interest rates. In the short
run, both nominal and real interest rates will rise given contractionary monetary policy; however,
in the medium run, contractionary monetary policy has no effect on real interest rates because
nominal interest rates change one-to-one with inflation due to the Fisher effect. Depending on
how consumers adjust their expectations from the short to medium run, housing investment
could increase or decrease. This shows that increasing nominal interest rates will have an
unknown effect of the housing market.
The Government Debt/Deficit
Another issue beleaguering United States is facing right now is the Federal Budget. The
United States is currently, according to the St. Louis Fed, 17.6 trillion dollars in debt, and it has
been running a trade deficit since the Clinton Administration. The Congressional Budget Office
projects debt held by the public– “representing the amount that the federal government has
7. borrowed in financial markets”– would be equal to 74% of our GDP by the end of 2014 (The
Long Term 9).
In the case interest rates remain where they are, it will be easier for the United States to
repay their debts since the interest rates are nearly zero. The currently low interest rates
incentivize the government to pay back their debt while they incur less interest on it. In terms of
fiscal policy, according to the CBO the deficit will increase, ceteris paribus, in upcoming years
as we have an aging population because social security costs will increase. As the CBO correctly
states, increased borrowing from the federal government will actually crowd out private
investment in the long run as “the portion of people’s savings used to buy government securities
is not available to finance private investment.” Therefore, there would be a lower rate of savings,
which would result in a smaller capital stock, which will decrease output (The Long Term 72).
Thus, in the long run, lower interest rates would be inimical to output growth if there were a
deficit.
If the interest rate were to increase now, it would be much more difficult for the United
States to pay back its loans. To put it into perspective, if annual interest rates were to go up just
by 1% and we are 17.6 trillion dollars in debt, this will add a whole 176 billion dollars to the
deficit. This could be mitigated by increased government revenues—which have increased from
$3.3 trillion to almost $4 trillion in 2012—but they are unlikely to reach a level to completely
augment the additional debt given higher interest rates (OECD Statistics). This repayment of
debt would not increase government spending as it is financing money the government funded
previously. Thus, an increase in the interest rate would have a very adverse effect on the
economy. The increased interest rate would also, as described in previous parts of the report,
decrease output and employment in the short run.
8. However, the deficit has been gradually decreasing in the last couple years. In 2011 the
deficit was 1.3 trillion dollars, 2012 at 1.1 trillion dollars, and in 2013 at 680 billion dollars
(Sahadi). Therefore, this gradual decreasing in the deficit could boost up expectations for the
future. People and companies would spend more, believing this trend would continue and that
the government will not crowd out their investment, which would keep the savings rate constant.
So, if this example shows anything, the onus is on the government to change the deficit. If the
deficit is reduced, the people and investors will think optimistically about the future, which
would reduce the adverse effect of increasing the interest rate.
Therefore, changes to the national debt and deficit are better rooted in fiscal policy.
However, if the Fed were to increase interest rates now, it would increase debt payments greatly
in the short run. But if Fiscal Policy were changed, paying back debts would be less of a concern.
If no changes were made to Fiscal Policy in the long run, budget deficits could continue to
increase which would decrease the savings rate, and consequently decrease the capital stock and
output.
Keeping Interest Rates Low
After analyzing the current state of the economy and the implications of different
policies, the Fed may not yet want raise interest rates for three reasons. Firstly, although the
economy has been slowly recovering, studies suggest that it is nowhere near reaching its pre-
crisis growth state. The data about investment as a percent of GDP published by Harver
Analytics clearly supports this. Next, a slow growth rate in wages suggests that in the near future
the economy is not in danger of high inflation. Average hourly earnings “have risen 2% over the
past year” (Job Growth Rebounds), which only matches the Core CPI inflation rate of 1.8% of
9. 2014, published by Barclays Capital. The wage-price spiral concept suggests that we are thus not
yet at risk of ever accelerating inflation. Lastly, the current low unemployment rate might make
it seem like the economy has recovered, but as explained above, this number is skewed by a
decrease in labor participation, not an increase in employment.
Increasing Interest Rates
The best course of future United States monetary policy would be the steady rising of
interest rates by selling off our current assets. With unemployment on a steady decline and
output growing (the Real GDP has increased by $1.8 billion between the first quarter of 2009
and the second quarter of 2014) (Real Gross), it would seem that conditions are favorable for a
shift towards more traditional monetary policy. In order to combat the expected inflation that
could arise from overly expansionary monetary policy, the Fed needs to raise interest rates. By
selling bonds, the central bank decreases the nominal money supply, which increases interest
rates and decreases output. This decrease in output should not be too severe because we are
merely increasing interest rates – at a steady rate – away from the current extreme policies. A
rightward shift of the expectations-augmented IS curve, due to high expected future output based
on current trends, will mitigate any decrease in output. Unfortunately, both shifts of the IS and
LM curves lead to higher interest rates, which could lead to less investment and capital
accumulation in the medium and long run. Nevertheless, it is ultimately in the best interest of the
United States to engage in contractionary monetary policy in order to sell off their assets, and
steadily increase interest rates to a more typical level
10. Conclusion
Economic conditions have certainly improved since 2008, so we believe that the central
bank should begin selling off its assets in order to increase interest rates. Although the
unemployment rate may be skewed lower due to a drop in the participation rate, but this is
expected with an aging population. Overall, the climate is much more favorable for workers.
Selling off assets shifts the LM curve to the left, which increases interest rates and decreases
output. However, given the improving conditions, one could expect future output to increase
which shifts the expectations-augmented IS curve to the right—making up for any lost output.
These policies could lead to inflation in the future; however, implementing an increase in interest
rates gradually should mitigate this effect.