Author: Thomas Schleusener
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Quick Thoughts on Markets: May 24
Quick thoughts on where markets will be/are: Multiple expansion thru 2019; bull market to continue or trade sideways with lower earnings estimates, lower guidance. P/E forward and trailing, P/S, P/CapEx, all rising thru 2019 Small cap debt expansion as small business owners feel more wealthy when tax season comes around in 2019, combined with rising…
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Fall of Empires
Sir John Glubb wrote an essay regarding the rise and fall of empires and the corellaries between them. The essay, titled Fate of Empires, has a lot to digest so I won’t be able to cover all of it here. I highly recommend you read it and draw your own conclusions with what is happening…
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Knee Jerk Vol & the Fed
The Fed is now shrinking its balance sheet; they are no longer buying new securities as they mature. Below is a bit of analysis on if the Fed’s recent activities in shrinking its balance sheet is the cause of the recent rise in volatility. Quick note: Data is at a weekly tenor, from Jan.…
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Bogus Tweet Risk
Most financial media is focused on “tweet risk” or “trade wars”. To me, these seem like water under the bridge. It’s in China’s interest politically to retaliate to trade sanctions, but not in their interest to crash US markets. They hold a massive amount of US Treasurys, if they stop buying US bonds, rates…
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FX Dynamics
Two competing forces in FX markets: Interest Rate Parity and Hot Money Interest Rate Parity states that a lower yielding currency should appreciate relative to a higher yielding currency. According to the International Fischer Relationship, higher yielding currencies have higher inflation domestically. This inflation difference causes the high yielding currency to depreciate relative to a…
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Gotta Pay the Debt Collector
This entire rally is being fueled by credit, not real gains in productivity. A tweet: Let’s investigate. See: Three body problem. Tl;dr Good companies make good stocks, and high quality, trustworthy governments issue to low yielding, safe bonds. There is correlation, but as an investment strategy the relationship seems to be working less and less. Ben…
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So let me get this straight…
US Government Treasury bonds are the safest asset in the world today. They are implicitly guaranteed to get you your principal back at the maturity of your bond. Economists and investors commonly consider yields on Treasuries to be the ‘risk-free’ rate; meaning rates on Treasuries are the smallest amount of return an investment should provide.…
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Discretionary Recessionary Signals
Do you feel more optimistic than a year ago? Despite more negative headlines and political turmoil, bond markets are signaling more optimism surrounding future growth than a year ago. Nominal yields around the world are much much lower than their historical averages. We actually see negative rates in some European nations. That being said,…
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Why are Markets so Calm?
Valuations are stretched and economic data is cooling, yet markets are complacent. Why? The following are rationalizations of current market values. 1.) Massive movement from active management into passive strategies. Why pay someone to under-perform the S&P 500? Passive investing implies no trading, which means less volatility. 2.) Increased regulation has permanently caused a decline…
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Trouble in Yellen-Land
Bond markets and the Fed aren’t making sense. The Fed (“Yellen”) rose the Federal Funds Rate (FFR) last Wednesday, June 12th to a range of 1.00% to 1.25%. The Fed has two mandates: (1) to keep prices stable (i.e. keep inflation around 2%) and (2) to minimize unemployment. In other words, stabilize the economy by cooling…
fungible thoughts 
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