The expected risk premium for the Global Market Index (GMI) ticked higher last month, although it remains well below the trailing realized performance for the benchmark. Nonetheless, GMI’s projected 5.6% annualized return for the index over the “risk-free” rate is above the previous estimate and the year-earlier forecast.

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* CDC warns of “potential fourth surge of cases” in the US
* Sen. Elizabeth Warren unveils proposal for wealth tax on ‘ultra-millionaires’
* China closes a major bitcoin mining operation
* German retail sales fell sharply in January due to coronavirus lockdown
* US states lose far less tax revenue than expected due to coronavirus
* Global manufacturing activity rebounded to three-year high in February
* Wall Street is increasingly worried about stock market optimism
* Regional bank stocks are benefitting from higher interest rates
* US construction spending rose again in January, reaching another record high
* US manufacturing output in Feb grew at fastest pace since pandemic started:

Commodities led a rally in global risk assets in March. Bond markets, by contrast, suffered as interest rates rose. Overall, February was a mixed month for the major asset classes, echoing January’s return profile.

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* Iran rejects offer for US talks on reviving nuclear deal
* Myanmar security forces kill at least 18 protesters
* J&J vaccine approved by Centers for Disease Control and Prevention
* Central banks expected to tolerate higher inflation
* US bond market ‘radically oversold,’ says economist
* China factory growth slowed in Feb to softest pace since May
* Chinese investment in Australia down sharply in 2020
* Eurozone manufacturing activity grew at fastest pace in 3 years in Feb
* US consumer spending rebounded in January, driven by pandemic relief money:

The cautious stance of Global Managed Drawdown (G.B16.MDD) has been excessive in recent months, but the tide finally turned and a defensive posture paid off last week. Whether it continues to pay off is the question.

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● The Delusions Of Crowds: Why People Go Mad in Groups
William J. Bernstein
Review via Publishers Weekly
God, greed, and the yen for conformity reliably override reason, according to this sweeping survey of religious and financial manias. Neurologist and historian Bernstein (A Splendid Exchange) shares vivid accounts of several centuries of sectarian crazies, from the Anabaptists who took over the German city of Münster in 1534, imposing communism and polygamy and executing dissenters, to Branch Davidian messiah David Koresh and the Islamic State. On the finance front, he recaps the South Sea bubble in 18th-century England, the 1990s tech bubble, and other stock market frenzies. Bernstein lucidly deploys neurobiology, behavioral economics, and social psychology to explain why reason fails and other instances, noting, for example, that many people will believe two obviously unequal line segments to be the same length if other people say they are.

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In this issue:

• Red ink everywhere… except for broadly defined commodities
• Another week of losses for our portfolio strategy benchmarks

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The Increased Toxicity of the U.S. Treasury Security Market
Scott E. Hein (Texas Tech University)
January 2, 2021
This short research paper documents the fact that exclusively watching for rising yields on conventional U.S. Treasury securities to reflect increased inflationary fears in the U.S. is no longer appropriate. With the Federal Reserve seeking to keep short-term nominal yields near zero for an extended period, conventional Treasury yields have not shown the full extent of rising fears of inflation in financial markets. In this monetary environment, the yields on Treasury Inflation Protected Securities (TIPS) have been more reflective of rising inflation fears. TIPS yields have become increasingly negative in absolute terms during the latter part of 2020. The negative yields on TIPS further suggests that all Treasury investors should be expecting lost purchasing power when they hold onto such securities.

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* Biden ordered missile strike on Iran-backed militia groups in Syria
* Proposal for federal minimum wage proposal hits roadblock in Senate ruling
* Today’s consumer spending report for January expected to show solid growth
* 10-year Treasury yield briefly topped 1.6% on Thursday–highest in over a year
* Inflation will remain contained, predicts Pimco’s chief investment officer
* US GDP growth revised up slightly to 4.1% for Q4
* Durable goods orders for US rose sharply in January — +3.4%
* US economic growth revised up via Philly Fed’s ADS Index
* US jobless claims fell sharply last week but remain unusually high:

The reflation trade remains in high gear. For the moment, it’s reasonable to view this trend as a return to the pre-pandemic period, before the coronavirus crisis roiled bonds markets and slashed yields. The question is whether the recent rebound in rates has legs and indicates that there’s more to the trend than a return to the pre-pandemic “normal”? Unclear, but the answer is forthcoming in the data, including four key metrics that will likely provide early signals of things to come.

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