Steven Ricchiuto
Interview with author via Yahoo Finance
Financial markets are being driven by excessive liquidity at a time when both bond and equity markets are expensive, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York. “As people come to the realization that the Fed is going to be higher for longer and we don’t yet know what the higher is, even if they pause I still think the next move is a rate hike, not a rate cut,” he said.
Research Review | 17 February 2023 | Risk Analysis
Submergence = Drawdown Plus Recovery
Dane Rook (Stanford University), et al.
February 2023
Drawdowns and recoveries are often analyzed separately – yet doing so can leave investors with a distorted view of risk. Indeed, this problem is so commonplace that there’s no consistently-used term for the joint event of a drawdown plus its subsequent recovery. We propose the term ‘submergence’ for such events, and present a new risk metric to help investors analyze them: submergence density. Submergence density overcomes pitfalls of existing metrics, and also allows investors to inject elements of their own risk tolerances, thereby ‘personalizing’ it to their own contexts. Submergence density also offers an alternative method for risk-adjusting returns (with multiple advantages over current methods, such as Sharpe ratios). We use our new risk-adjustment approach to study key markets, and show how it leads to novel diversification strategies. We compare these strategies with other defenses against submergence risk, and conclude that submergence-based diversification is likely the best way for most investors to handle the threat of drawdowns.
Macro Briefing: 17 February 2023
* Pentagon’s top China official is visiting Taiwan
* US mortgage rates rise for second week–average 30-year fixed at 6.32%
* Consumer sector in US showing new signs of resilience
* Will optimism in financial markets strengthen Fed’s hawkish monetary bias?
* US wholesale prices re-accelerate in January–new warning sign for inflation
* Philly Fed Manufacturing Index falls sharply in February
* US housing starts fall in January–lowest level since pandemic was raging in 2020:
Strong Rebound In Retail Sales Gives Fed More Room To Lift Rates
Economists were expecting a sharp recovery in US retail spending in January, but the actual number blew past even the most optimistic forecast. One month could be noise, but for the moment it appears that the Federal Reserve’s aggressive campaign to tame inflation by slowing economic activity is faltering.
Macro Briefing: 16 February 2023
* Embattled World Bank president, David Malpass, will resign early
* Homebuilder sentiment for US rebounds sharply in February
* US Q1 GDP nowcast revised up to +2.4% via Atlanta Fed’s GDPNow model
* US budget deficit set to deepen to 6.9% of GDP by 2033, CBO projects
* US may default in July if debt-ceiling standoff isn’t resolved, CBO warns
* NY Fed Mfg Index rebounds in February but remains in negative territory
* US industrial output flat in January, but rises 0.8% vs. year-ago level
* US retail sales surge in January, in nominal and inflation-adjusted terms:
10-Year Treasury Yield ‘Fair Value’ Estimate: 15 February 2023
US consumer inflation continues to ease, but less so than expected in January. Yesterday’s update suggests that the Federal Reserve will see the latest numbers as new sign that pricing pressure isn’t cooling fast enough. In turn, the case may have strengthened at the central bank for keeping interest rates higher for longer.
Macro Briefing: 15 February 2023
* China says it will ‘take countermeasures’ against US in balloon saga
* European Union bans sales of gas-powered cars starting in 2035
* ‘Earnings recession’ expected for US companies
* Small US business sentiment ticks up but remains below 49-year average
* Logistics managers warn of persistent inflation risk in supply chains
* Rally in emerging markets faces headwinds as US economy remains resilient
* Aggressive regulatory actions from US authorities rattle crypto markets
* US consumer inflation’s one-year trend continued to ease in January:
Foreign Stocks Are Hot Again. Will It Last?
Diversifying into global markets ex-US has been a frustrating choice for asset allocation for much of the past decade. Standard portfolio theory recommends holding an international mix of shares, but the advice has been a dud in recent memory as US stocks have dramatically outperformed broad measures of offshore securities. But the rally in foreign stocks so far in 2023 suggests the tide may finally be turning in favor of global investing strategies.
Macro Briefing: 14 February 2023
* Biden to name Fed Vice Chair Brainard as top White House economic adviser
* Fed will hold rates higher for longer, predicts Wells Fargo economist
* So-called supercore inflation will be in focus in today’s CPI report
* US consumers still spending despite higher inflation
* Japan’s economy expands 1.1% in 2022, down from 2.1% rise in 2021
* New head of Japan’s central bank announced, first change in a decade
* Ford will build $3.5 billion battery plant in Michigan for electric vehicles
* Policy-sensitive 2-year US Treasury yield ticks up to 3-month high:
Global Markets Post Widespread Losses Last Week
This year’s rebound in global markets hit some turbulence last week, with the exception of commodities, based on a set of ETFs through Friday’s close (Feb. 10).