In baseball, narrow wins and large losses reflect a manager’s efficiency and skill. The opposite is true in investing and finance. The most efficiently managed baseball team is one that generates the highest number of wins for a given number of runs scored and allowed. Bill James created the Pythagorean Winning Percentage formula which calculates […]
Default insurance premiums on U.S. Treasuries, the backbone of global collateral markets, are trading at levels that imply America is closer to a BBB+ risk than the official AA+ rating. Specifically, credit default spreads, the cost of insuring against a U.S. government default are trading between 40 and 50 basis points. Therefore, it costs $40,000 […]
When it comes to issuing debt, no entity surpasses the U.S. government. In 2024 the Federal government net issued $1.9 trillion in new marketable debt including over $1.3 trillion in bonds and notes eligible for the Bloomberg Aggregate Index. As the chart shows, Treasury bonds now represent 45% of the Bloomberg Agg Index, up from […]
One of the most popular datapoints in markets is the Fed Funds Futures estimate of the number and size of Fed interest rate hikes or cuts. The average estimate is about four rate cuts in 2025, with an expected year-end Fed Funds rate of 3.4%. This market-implied base case scenario is one that investors will […]
The three charts below show very different levels of concern about U.S. economic policy and higher tariffs. The amount of news coverage of the economic uncertainty surrounding tariffs exceeds that of 9/11 and rivals that of Covid and the 2008/09 Financial Crisis. To the contrary, investment markets seem unconcerned. Equity volatility and credit spreads have […]
There are some broadly believed misconceptions about stock trading. One is that stocks only trade on exchanges. Increasingly, institutional and retail stock orders are being executed on private networks colloquially referred to as “dark pools.” For the first time, stock trading volume in dark pools now exceeds the volume of shares traded on U.S. stock […]
One method we utilize to determine if an investment has illiquidity risk is to calculate its autocorrelation of returns1. . Autocorrelation is a measurement of the relationship of one period’s return to the prior period’s return. A large positive autocorrelation indicates that the prior quarter’s return is predictive of the next quarter’s return. This usually […]
In the late 1940s De Beers began using their iconic slogan, “A Diamond is Forever.” For almost the entire 20th century the De Beers monopoly controlled 80 to 90% of the supply of diamonds. Even though diamonds are not rare and among the most common gemstones, De Beers’ successful marketing campaign and limiting of supply […]
With a year-to-date return of 28% for the S&P 500, 2024 has been, thus far, a spectacular year for investors. Beyond returns, investors are starting to enjoy an environment of lower overall portfolio risk. As the year closes, the market’s biggest concerns around central bank policy and global elections have found clarity or resolution. This […]
Technology themes have been driving markets. Semiconductors were the first to benefit from the AI theme. Next was a second order effect, Utilities rallied as they benefit from the massive power demands of AI data centers. Broadening financial inclusion through mobile banking is another technology advancement that is improving the lives of people in developing […]