Our Blog

DEFLATION...DEFLATION...DEFLATION

Rich Walls - Tuesday, January 19, 2016

The year-to-date stock market declines are the worst start for equities in recorded history. Pundits and guests on financial news networks have done a disservice to viewers by not speaking truth to what is, and what will likely continue to occur in capital markets, and our country, for the foreseeable future. Has anyone dared to utter the word “deflation”? Global central banks have flooded their respective countries with cheap money, and have vowed to continue their devaluation… except for ours! Our Federal Reserve has raised short term rates while simultaneously lowering their GDP estimates for our country. Why? Good question. The only two logical answers are that they are either politically motivated, unlikely, or that they are basing their decisions solely on only one of their two mandates prescribed by congress... unemployment. Leaving their other, and much more significant mandate of price stability (inflation) not only ignored, but shunned. This could not be more of a mistake in our view. Basing Fed policy decisions on a headline 5.0 unemployment rate, which is not reflective of what our actual unemployment/underemployment rate is, is a dangerous route for determining macro-economic policy.   Read More

All About the Dollar

HDM Admin - Friday, November 13, 2015

After enjoying a strong October following a disappointing Q3, equity markets are presently focusing on currency markets, specifically the U.S. dollar. With global central bankers currently easing monetary policy and the expectation that our Federal Reserve will tighten policy next month, the U.S. dollar has risen dramatically in the past few weeks. As the dollar index is now approaching the Spring highs, the markets have presently stalled as they factor in the negative earnings consequences resulting from a stronger dollar. Should the U.S. currency stabilize or decline in the coming weeks, our equity markets will take comfort in this development; it is all about the dollar.  Read More

Greece, Puerto Rico, Chicago, et al.

Rich Walls - Friday, July 17, 2015

In the July 16th, 2015 edition of the WSJ, columnist Greg Ip states it perfectly: “sovereign defaults are like cockroaches – there is seldom just one.” Spain, Italy, and Portugal, which share the Euro currency with Greece, face the same daunting task of paying down their enormous debt obligations in a time of economic stagnation. A country can reduce its large debt several ways: austerity, economic growth, and low real (inflation-adjusted) interest rates. “More common than appreciated, is the more radical step of restructuring debt by reducing interest, lengthening the maturity, or slashing the amount owed to creditors”, Ip says. In exchange for potential debt restructuring, creditors (like the IMF dealings with Greece) will require debtors to engage in pro-growth economic policies, fiscal belt tightening, and policies favoring low real interest rates. The massive global debt service requirements will continue to force central bankers to keep interest rates at extremely low levels for a very long period of time. This “financial repression” will likely be accomplished under the guise of prudential governmental regulations that require banks and pension funds to hold increasing quantities of governmental debt despite the paltry yields.  Read More

Fed Thoughts

Rich Walls - Friday, June 19, 2015

On Wednesday the Federal Reserve announced it was leaving unchanged its 0-.25% Federal Funds target at this time. While noting the improvement in Q2 economic data from the disappointing Q1, interestingly the Fed reduced its 2015 GDP growth forecast from the previous range of 2.3-2.7% to the new projection of 1.8-2.0%. If stronger economic data supports it, the Fed will likely initiate one or two quarter point increases in the Fed Funds rate before year-end. Read More

Dodd - Frank: Bad To The Bond(holders)

Rich Walls - Friday, June 05, 2015

With the implementation of the 2010 Dodd-Frank Act being enacted, although not completely written, there have been many negative unintended consequences coming to light. The overarching intent of this Act, specifically the Volcker Rule, was to reduce the scope and limit the amount of risk that Systemically Important Financial Institutions (SIFI’s) could take in not only the capital markets in general, but more explicitly in their proprietary trading accounts. The Act details numerous benchmarks that must be met by the SIFI’s in order to remain compliant with various governing bodies, including a significant increase in capital requirements. Over the past few months, and even weeks as discussed in earlier blogs, the enormous moves in both foreign and domestic bond yields have been nothing short of breath-taking. The reasons for these massive swings may be attributed to the unintended consequences of Dodd-Frank. Read More

"Unch'd" Since November

Rich Walls - Friday, May 08, 2015

Prior to today’s spike higher on the back of a better than expected US jobs report, the S&P 500 has traded essentially flat since late November of last year. We have experienced extreme volatility during the past five and a half months, which makes for terrific headlines; however the market has gone nowhere. In late November the S&P 500 was trading around 2070, the same levels seen two days ago. Using 2070 as a benchmark, since 11/24 we have been in a 7% trading range.  Our low was experienced on December 16th at 1972, a 4.7% decline, and our high was set on 4/24 at 2117, a 2.3% increase. This narrow trading range defines a “hurry up and wait” period for US investors.  Read More

Flat Week, ENORMOUS Moves

Rich Walls - Friday, May 01, 2015

Despite a relatively unchanged US equity market, this week was anything but flat for key global data points. We saw a massive move in the FX market as the EUR/US Dollar spiked from 1.08 to 1.12, nearly a 4% rise. West Texas Intermediate (WTI) Crude Oil rose from $56 to $60, over a 7% increase, before settling around $59. The German Bund, mentioned in last week’s blog, has had an even more impressive sell-off this week. The yield on the 10y Bund, which had doubled last week, from 0.07% to 0.15%, has more than doubled again this week, from 0.15% to currently 0.357%. Our own US 10y Bond had a dramatic sell-off as well causing a rise in rates from 1.89% to currently 2.12%, an increase of 12%. These tectonic shifts in asset classes are something we actively monitor. Read More

Markets Grind Higher

Rich Walls - Friday, April 24, 2015

Despite generally lackluster earnings, the S&P 500 index rose more than 1.7% during this past week and closed at an all-time high. The upside move in domestic equities comes on the heels of rising global sovereign bond rates. Most notably, the sell-off in the 10yr German Bund caused the yield to more than double, from under 0.07% earlier in the week to 0.15% presently. This move in sovereign rates may prove significant in the deflation fight taking place in the EU and signal that pro-growth policies, coupled with European Central Bank action, are beginning to spur economic expansion in Europe.  Read More

Continued Market Volatility

Rich Walls - Friday, April 17, 2015

Today’s big sell-off in stocks brings the market averages back to basically unchanged for the year with considerably more volatility than investors have experienced in recent years.  Read More


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