Both Presidential candidates’ fiscal plans are likely to result in continued increases in the U.S. debt-to-GDP ratio, necessitating increasing amounts of debt monetization in order to prevent bond yields rising. Biden’s proposals in particular would require extraordinary amounts of money printing to finance and real GDP growth would likely be further undermined by increased government…
Deflation is seen by economists as a threat to economic growth as falling prices undermine aggregate demand as consumers hold off purchases in anticipation of lower prices. However, deflation is simply the mechanism by which equilibrium is restored amid the reduced availability of money or increased availability of goods due to economic growth. Depending on…
Mainstream economists use the word demand as a stop gap in lieu of a more detailed understanding of the dynamics driving increases and decreases in output. While individual consumer preferences determine which goods are produced, how much consumers are willing and able to spend has virtually no impact on economic output as a whole. Rather…
There is a widespread lack of understanding among economists and investors regarding what actually drives changes in inflation rates over the short and long term. In this article, we hope to provide clarity on the subject, explaining a number of important concepts. In particular, the importance of money demand and how it helps explain the…
The combination of dollar weakness, much more attractive valuations, and expectations of a recovery in revenues should see international stocks recover relative to the U.S. Positive announcements on the vaccine front have provided the trigger for recent international equity outperformance. The VEU tracks the FTSE All World Ex-U.S. and represents a low-cost option for investors…
The goldilocks election reaction, with stocks rising and inflation expectations declining, provides an opportunity to sell U.S. stocks and position for rising inflation in the ProShares Inflation Expectations ETF. The RINF tracks 30-year breakeven inflation expectations and offers all the upside potential from increased money printing with fewer downside risks in the event of contracting…
The FTSE100 offers a high dividend yield and scope for strong dividend growth, suggesting leveraged long positions are warranted amid the backdrop of deeply negative real bond yields. From a historical perspective the current dividend yield of 4.0% is consistent with 10-year total returns of over 10% annually. A repeat of such a performance looks…
Current market conditions share numerous similarities with major market peaks of the past, with added headwinds in the form of deteriorating long-term growth prospects and the potential for civil unrest. We believe investors should expect little over 2% annual real returns over the long term should valuations remain at current levels. For real return prospects…
Energy sector weakness over recent years rivals the crashes seen Tech in 2000-2002 and Financials in 2007-2009. Energy’s share of the overall market has declined 87% since the 2008 peak. Current dynamics are in stark contrast to 2008/09 when peak oil supply and rising oil demand were widely expected to drive oil prices higher and…
The link between equity prices and monetary and fiscal policy is often misunderstood, with investors currently focusing only on the direct positive effects and ignoring the indirect negative effects. All else equal, reduced interest and tax payments and higher inflation tend to lift nominal earnings while the former provides support to valuation multiples. However, such…