The efficient-market hypothesis (EMH) is a long-debated economic theory first introduced in nascent terms in the early 1900s, and advanced starting in the 1950s, which essentially suggests “security prices fully reflect all available information.” Although variations exist, the natural conclusion is that stock price movements are unpredictable; therefore “you cannot beat the market” and active portfolio management is a futile endeavor. While investable index funds first sprouted in the early 1970s, only recently has passive management taken a more prominent role – net inflows into U.S. actively managed funds, for all asset classes and including exchange-traded funds (ETFs), has been negative since 2006 while passive share has increased steadily since the early 1990s. Morningstar research shows $4.2 trillion of cumulative

Since August 27, when Michael Bauer and Thomas Mertens published their FRBSF Economic Letter titled Information in the Yield Curve about Future Recessions, the ten-year-three-month spread has gone from “nearly 1 percentage point away from an inversion” to low of 15 bps on January 3, 2019. Put another way, investors were willing to lend money for ten years for only 0.15% more interest than for three months, not exactly a ringing endorsement for the future. Why is this happening? On the short end of the curve, we have an FOMC that is trying very hard to (i) reduce the size of its balance sheet and (ii) normalize rates. While both are laudable goals, the pace/lack of calibration and thoughtfulness of

The US economy is still expanding albeit at a slower rate. The third estimate of Third Quarter GDP growth came in at 3.4%, compared to 2.8% for Third Quarter 2017, and the latest estimate for Fourth Quarter GDP growth from the Federal Reserve Bank of Atlanta is 2.8%. According to the Bureau of Labor Statistics, changes in total nonfarm payroll in the past three months were 312,000, 176,000 and 274,000, respectively, an average of 254,000, better than the average of 211,500 for the 12 months prior.  Despite the positive GDP and job growth the long end of the yield curve actually declined as the yield on the 10-Year Treasury Note went from 3.056% on September 30 to 2.686% on December

Image used with permission of Philadelphia Inquirer Copyright© 2018. All rights reserved. Amazon, Inc. sent hundreds of municipalities into frenzy in September 2017 when the e-commerce juggernaut announced plans to establish a second corporate headquarters in North America, uninspiringly dubbed HQ2. Nearly 250 cities responded to Amazon’s Request for Proposal (RFP), with hopes of adding 50,000 full-time, highly-paid Amazons (Amazonians?) to its tax coffers within 15 years, in addition to $5 billion of promised capital expenditures over a similar time period. HQ2 is also expected to have a halo effect, with the “winner” validated by one of the largest, most successful and fastest growing companies on earth – other employers and employees will desire a nearby presence, boosting economic growth

Make no mistake; the US economy is doing well. The third estimate of Second Quarter GDP growth came in at 4.2% compared to 3.0% for Second Quarter 2017 and the latest estimate for Third Quarter GDP growth from the Federal Reserve Bank of Atlanta is 4.2%. According to the Bureau of Labor Statistics, changes in total nonfarm payroll in the past three months were 134,000, 270,000 and 165,000, respectively, an average of 189,667 in-line with the average of 199,417 for the 12 months prior. With the Index of Small Business Optimism from the National Federation of Independent Business hitting an all-time high of 108.8 in August, is it any wonder that risk assets, at least in the US, are setting