Among the more harmful effects of the COVID-19 pandemic has been the unprecedented inflation that has accompanied the recovery. The confluence of supply-chain issues and acute demand catalyzed by incessant monetary easing and fiscal spending has exacerbated rising prices, exhibited by the string of sharp increases in the Consumer Price Index. The unrelenting inflation coupled with the velocity at which interest rates have risen have wreaked havoc on markets this year.
The 10-year U.S. Treasury yield is so close to the dividend yield on the MSCI World High Dividend Yield Index, is equity income worth the risk? Why even bother with equities when bond yields are finally offering an alternative source of income? We see two reasons:
With a possible recession on the horizon, many investors are probably looking for investment opportunities that could help provide security in a difficult market environment. U.S. municipal bonds are one possibility. The U.S. seems intent on accelerating infrastructure spending, and if that happens, the market for municipal infrastructure bonds could become even more robust.
As we write this article in mid-August, authorities across the Rocky Mountains are issuing flood warnings. Monsoon rains have drenched deserts and mountains in Arizona, Nevada, Utah, Colorado, and Wyoming, with eight million Americans significantly affected. These extraordinary conditions belie an even more severe and longer-term challenge: the intense drought crisis throughout the western U.S.
Last April, the California regulatory agency that oversees air quality announced its plan to encourage the sale of electric and zero-emission vehicles while phasing out the sale of gasoline-powered vehicles by 2035. If approved by the California Air Resources Board, 35% of new passenger vehicles would be required to be powered by electricity or hydrogen by no later than 2026, with 100% compliance to follow 10 years later.
You think that because you understand “one” that you must therefore understand “two” because one and one make two. But you forget that you must also understand “and.”
— Donella Meadows, Thinking in Systems, 1990
On May 4, the Federal Open Market Committee is expected to announce a 50-basis-point (bp; 100 bps equal 1.00%)—0.50%—increase in its target for the federal funds rate. It’s also likely to announce it will start shrinking its balance sheet. What will the balance-sheet reduction look like, and what might it mean?
The Federal Reserve (Fed) and the money markets seem to agree that it’s time for the Fed to shore up its inflation-fighting credentials. As economic data continued to come in hot over the past few months — showing a tight labor market and inflation not seen for generations — the prospect of accommodation removal in its various forms moved from a distant event to one likely to begin soon. The Fed has signaled it will raise rates at its March meeting; the main question over the past month or so has been whether the first increase would be 25 basis points (bps; 100 bps equal 1.00%) or 50 bps.
A little background
Russia launched military attacks against Ukraine. That was after Russian President Putin recognized two regions of Ukraine as separate and sovereign territories. Putin’s actions were almost universally condemned as an unprovoked act of war and a violation of international law. The U.S., the U.K., and the European Union were quick to impose sanctions against individuals connected to Putin and Russian banks.