Stocks Benefit from Fiscal Irresponsibility

From 1970 through 1984, the return of the S&P 500 outperformed inflation by 1 percent per annum.   From 1985 onward, the S&P has outperformed CPI by 8 percent annually.  The expansion of government deficits and a falling personal saving rate go a long way in explaining the much-improved performance of the stock market.  The chart […]

A Tribute to Higher Interest Rates

The stock market and people looking to buy houses and cars are anxiously yearning for rate cuts, but this brief note is going to focus on the positive, the glass-half-full, side of higher rates.  Today’s high, by recent standards, interest rates make achieving longer-term investment success much more attainable and are a large benefit to […]

Options Prices Imply Calm Markets

Investment markets have been very calm this year, and the cost of buying insurance on the equity market with options has rarely been cheaper.  On the chart below, the blue line plots the historic implied volatility of S&P 500 options.   Higher levels of implied volatility equate to options being more expensive, and the current environment […]

Network Effects

The concentration of equity returns across a small group of companies creates challenges for asset allocators and opportunities for wealth creation for investors.  The AI-driven rally in Nvidia highlights the changing nature of equity growth and the importance of participating in it.  A phenomenon called the “network effect“ partially explains some of the exuberance around […]

Growth or More Certainty?

From 2011 through 2021, the earnings yield on the S&P 500 and the yield-to-worst of high yield fixed income had been at equivalent levels.  Today, high yield bond yields exceed S&P 500 earnings yields by 3.5%.  Higher interest rates are prompting consideration for substitution of equity exposure with high yield or other credit and direct-lending […]

Dot Plots and Fed Funds Futures

There are two primary sources for advanced predictions on the future path of short-term interest rates, the Fed Funds Futures market and the FOMC dot plot projections.  On December 13th, the FOMC updated its policy rate projection, lowering its year-end 2024 expected Fed Funds rate to 4.6% (three 25 basis point rate cuts) from the […]

Options Income Strategies

The promise of extra income is one of the most persuasive arguments to compel investors to consider a different investment.  Demand for income, along with tighter options spreads, lower commissions, and the introduction of zero-days-till-expiration options, have propelled explosive growth in options trading.  In 2019, there were 5.8 billion equity options contracts traded in North […]

Keeping More of High Yield’s Yield

The declining costs of investing is a boon for investors.  Even individual investors can own efficient cap-weighted portfolios of stocks and bonds for less than 5 basis points (bps).  Beyond major market exposures, competition between index providers is driving down investing costs in another market, high yield bonds.  Ten years ago, the average actively managed […]


There is an interesting debate about a contract between Chicago Bears rookie defensive lineman Gervon Dexter and an entity called Big League Advance Fund II (BLA). While a student at the University of Florida, Dexter signed a contract with BLA. In the contract, BLA agreed to pay Dexter $436,485 upfront, and Dexter agreed to pay […]


The past two years were challenging for bond investors, but there are reasons to believe that most of the pain from the rout is in the past. The bond market’s valuation, fundamentals, and capacity to handle negative events have all improved. When thinking about bond valuations, real yields, or expected yields in excess of inflation, […]

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