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Joseph Y. Calhoun III

Articles by Joseph Y. Calhoun III

Weekly Market Pulse: Welcome Back To The Old Normal

15 days ago

Stagflation. It’s a word that strikes fear in the hearts of investors, one that evokes memories – for some of us – of bell bottoms, disco and Jimmy Carter’s American malaise. The combination of weak growth and high inflation is the worst of all worlds, one that required a transformational leader and a cigar chomping central banker to defeat the last time it came around. Or at least that’s how it’s remembered. Whether the cigar chomping central banker was really important is relevant only because Jerome Powell is being asked if he can do what Paul Volcker did 4 decades ago, namely induce a recession to kill the inflation part of that equation. The stagflation scenario got a little more traction last week with the release of a negative Q1 GDP print on Thursday and hints of more inflation on

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Weekly Market Pulse: Time To Get Contrarian?

April 18, 2022

Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus your thinking has to be better than that of others – both more powerful and at a higher level. Since others may be smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss, or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others…which by definition means your thinking has to be different….
For your performance to diverge from the norm, your expectations – and thus your portfolio – have to diverge from the norm, and

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Weekly Market Pulse: What Yield Curve Inversion

April 10, 2022

Well that didn’t last long. I wrote last week about the inversion of the 10 year/2 year term spread as the yield of the 2 year Treasury note rose above the yield of the 10 year Treasury note. Using end of day data, the curve inverted on Friday, April 1st and stayed that way until….Monday April 4th. The spread closed last Friday, April 8th at 19 basis points. Hmm. The inversion happened on April Fool’s day, huh? Sorry, I couldn’t resist poking a little fun at all the pundits rushing to predict a recession last week. As I said in last week’s note, the fact that the inversion/recession connection is so well established and so widely known, makes me wonder if it will have the same predictive power it once did. With the inversion so widely known will companies and individuals now act in ways to

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Weekly Market Pulse: What Now?

April 4, 2022

The yield curve inverted last week. Well, the part everyone watches, the 10-year/2-year Treasury yield spread, inverted, closing the week a solid 7 basis points in the negative. The difference between the 10-year and 2-year Treasury yields is not the yield curve though. The 10/2 spread is one point on the Treasury yield curve which is positively sloped from 1 month to 3 years, negatively sloped from 3 years to 10 years and positively sloped again from 10 out to 30 years:

So, yes, parts of the yield curve are inverted but the short end of the curve remains fairly steep. That is an unusual situation with no recent comparable periods (back to the 1978 inversion). Typically, 10/2 inversions occur when the entire curve is flat with maturities shorter than 2 years going on to invert later at

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Weekly Market Pulse: All Clear?

March 21, 2022

Why did stocks sell off in recent months? Was it the emergence of the Omicron variant? That was a popular narrative right after Thanksgiving but that lasted less than a month before stocks decided to look past COVID make a new high right after the new year. Was the correction due to fears of the Fed raising interest rates and stopping QE? Was it the run up to and eventual start of the Ukraine war? Or was it just that stocks got too expensive and no one wanted to buy at nosebleed levels? The answer would seem important at first blush since if we could identify the cause, we could determine whether it has been resolved and whether the furious rally last week made any sense.
Unfortunately, there is no way to know the “right” answer. We can’t know what every trader/investor was thinking when

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Weekly Market Pulse: Oil Shock

March 7, 2022

Crude oil prices rose over 25% last week and as I sit down to write this evening, the overnight futures are up another 8% to around $125. Almost every other commodity on the planet rose in prices last week too, as did the dollar. Those two factors – rising dollar and rising commodity prices – mean the likelihood of recession in the coming year has risen significantly in just the last week. Rising oil prices, in particular, have been a regular feature of past recessions and while the US may be better suited to handle this shock than Europe and some other countries, that doesn’t mean it won’t have an impact. We own commodities – including gold – in our portfolios for exactly these types of situations and that has been helpful to our returns this year. But at some point, the rise in prices is

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Weekly Market Pulse: Well, That Was A Surprise

February 28, 2022

Last week when I wrote this weekly piece, the S&P 500 futures were down 80 points as Russia appeared poised to attack Ukraine, which they ultimately did last week. Today I sit here to write again and the futures are once again down, this time around 100 points. What’s interesting is that the level this evening is well above last Thursday’s low. I said last week that I didn’t expect Putin to go the full-scale war route and I was obviously wrong about that. I also said though that taking Kyiv and holding it would be a very expensive proposition and I doubted the Russians could pull it off. That, at least so far, is proving correct. That and what the market considered some weak sanctions on Russia produced a higher close for US stocks last week. Call it a relief rally or an oversold bounce or

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Weekly Market Pulse: Are You Diversified?

February 7, 2022

There were some wild, unprecedented – frankly stunning – swings in some very large, high-profile stocks last week. The press concentrated on Meta, nee Facebook, and Amazon as the yin and yang, the negative and positive, of the market. Facebook (how long before Zuckerberg abandons Meta? I give it a year) managed to lose a quarter of a trillion dollars in market cap in the course of one trading day. Zuckerberg lost a cool $25 billion or so himself. All because the company reported earnings that were less than expected – but revenue higher than expected – due to spending on the shift to a metaverse company. Never before had any company lost so much in such a short period of time. Of course, there have been precious few companies in history that could lose that much and still be worth over

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Weekly Market Pulse: Are We There Yet?

January 30, 2022

I’ll just get this out of the way right at the beginning. The question in the title of this post refers to the end of the ongoing stock market correction and the answer is likely no. There are no sure things in this business so it isn’t an unequivocal no, but based on history, the odds favor more weakness. I know a lot of people liked that rally into the close on Friday and it was a nice way to end a wild week but it also shows that traders/investors are all too willing, able, and anxious to buy the dip. It is probably true, as I heard someone say last week, that with the Fed meeting over, the market will focus more on fundamentals now but that may just introduce a whole new set of problems.
We’re in the midst of earnings season and Q4 2021 is so far tracking as the 4th consecutive quarter

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Weekly Market Pulse: On Second Thought…

January 10, 2022

In individuals, insanity is rare; but in groups, parties, nations, and epochs, it is the rule.
Friedrich Nietzsche
The new year got off to quite a bang last week. It was almost as if someone flipped a switch and investors/traders suddenly decided that all that stuff they believed last year was just so passe. Growth stocks? Nah, who wants those? Crypto? Are you frigging kidding me? Inflation? No, that’s past its prime. Bonds? Not only no, but hell no. TIPS? Don’t need those anymore. REITs? With interest rates on the rise? I don’t think so. Of course, some things never change; gold is still lonely and unloved. The dollar still has some fans but they aren’t as rah, rah! as last year. More like just – sigh – rah. And energy, well, those guys are still the life of the party; the world may be

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SPECIAL REPORT: 2021 In Review

January 5, 2022

No one knows what the future holds. Not me, not you, and certainly not Wall Street. But while the future is impossible to see, the present is clear for anyone willing to listen to the story the market tells every day.  Here’s what it said in 2021:

Click here to download “2021 In Review: Year End Economic Assessment” (Sign-Up Required).

This report includes extensive, in-depth commentary by our President and CEO Joseph Calhoun, as well as a full review of major economic series and market indicators.

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Weekly Market Pulse: Discounting The Future

December 6, 2021

The economic news recently has been better than expected and in most cases just pretty darn good. That isn’t true on a global basis, as Europe continues to experience a pretty sluggish recovery from COVID. And China is busy shooting itself in the foot as Xi pursues the re-Maoing of Chinese society, damn the economic costs. But here in the US, the rebound from the Q3 slowdown is in full bloom. Just last week we had pending home sales, ADP employment, both ISM reports, jobless claims, Challenger job cuts, the unemployment rate, and factory orders all better than the pundits’ expectations. I didn’t list the official employment report (establishment survey) because the headline was less than expected but there were some obvious seasonal adjustment issues with that report. And there was a lot

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Weekly Market Pulse: This Again??!!

November 29, 2021

Here we go again. Or maybe, more accurately, here we go still. COVID has reared its ugly head again, this time in the form of a new variant called Omicron. The name surprised some folks because the next letter in the Greek alphabet was Nu, but the WHO thought that sounded too much like “new” so they skipped that one, as Greek speakers are generally confined to Greece these days. And the next letter was “Xi” which the WHO said was a common last name and that their policy required “avoiding causing offense to any cultural, social, national, regional, professional, or ethnic groups.” Well, goodness no, wouldn’t want to offend anyone, certainly not the most famous man with the last name of Xi. What I’m trying to figure out is if I actually slept through epsilon, zeta, eta, iota, kappa, lambda,

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Weekly Market Pulse: Growth Scare?

October 31, 2021

A couple of weeks ago the 10-year Treasury note yield rose 16 basis points in the course of 5 trading days. That move was driven by near-term inflation fears as I discussed last week. Long-term inflation expectations were and are well behaved. I wrote nearly 2000 words last week about that change in inflation expectations and I’m so glad you took the time to read it. And now you can forget it because over the next four days all but 2 basis points of the move in the nominal 10-year was reversed. And 10-year TIPS yields were actually up 2 bps last week so inflation expectations fell back to where they were. So, do we now have a growth scare instead? Maybe. Or maybe we’re just guilty of a little myopia.
The idea of a growth scare was reinforced by the release last week of some weak economic

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Weekly Market Pulse: Inflation Scare!

October 24, 2021

The S&P 500 and Dow Jones Industrial stock averages made new all-time highs last week as bonds sold off, the 10-year Treasury note yield briefly breaking above 1.7% before a pretty good-sized rally Friday brought the yield back to 1.65%. And thus we’re right back where we were at the end of March when the 10-year yield hit its high for the year. Or are we? Well, yes, the 10-year is back where it was but that doesn’t mean everything else is and, as you’ve probably guessed, they aren’t. In the early part of this year, the 10-year yield was rising as anticipation built for a surge in post-vaccination economic growth. The 10-year yield rose about 85 basis points from the beginning of the year to the peak in late March. 10-year TIPS yields, meanwhile, were also rising, a little more than 50

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Weekly Market Pulse: Perception vs Reality

October 17, 2021

It was the best of times, it was the worst of times…
Charles Dickens, A Tale of Two Cities
Some see the cup as half empty. Some see the cup as half full. I see the cup as too large.
George Carlin
The quote from Dickens above is one that just about everyone knows even if they don’t know where it comes from or haven’t read the book. But, as the ellipsis at the end indicates, there is quite a bit more to the line than the part everyone remembers.
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we

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Weekly Market Pulse: Inflation Scare?

October 10, 2021

Bonds sold off again last week with the yield on the 10 year Treasury closing over 1.6% for the first time since early June. The yield is now down just 16 basis points from the high of 1.76% set on March 30. But this rise in rates is at least a little different than the fall that preceded it. When nominal rates fell from April through July, real rates fell right along with them. The nominal bond yield fell by 63 basis points and the 10 year TIPS yield fell by 57. That means that the drop was driven by a change in real growth expectations not a change in inflation expectations. But the rebound has not been as uniform, as the nominal rate has risen by 47 basis points while the real rate has only climbed by 27. So, this rise has been driven more by rising inflation expectations than rising

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Weekly Market Pulse: Zooming Out

October 3, 2021

How often do you check your brokerage account? There is a famous economics paper from 1997, written by some of the giants in behavioral finance (Thaler, Kahnemann, Tversky & Schwartz), that tested what is known as myopic loss aversion. What they found was that investors who check their performance less frequently are more willing to take risk and experience higher returns. Investors who check their results frequently take less risk and perform worse. And that makes a lot of sense if you think about it. If you check the stock market every day, the odds of seeing a negative result are fairly high. There are more up days than down but the difference isn’t that great, say 53% up and 47% down. If you back out to monthly you see positive returns 63% of the time, quarterly 69% and yearly 74%. The

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Weekly Market Pulse: Not So Evergrande

September 26, 2021

US stocks sold off last Monday due to fears over the potential – likely – failure of China Evergrande, a real estate developer that has suddenly discovered the perils of leverage. Well, that and the perils of being in an industry not currently favored by Xi Jinping. He has declared that houses are for living in, not speculating on, and ordered the state-controlled banks to lend accordingly. Evergrande is known as a real estate developer and it certainly is, but it is also a sprawling company with investments in multiple industries including, of course, an electric car company. Cutting off its financing isn’t just going to affect the Chinese real estate market. And real estate accounts for roughly 70% of household net worth in China so everyone in the country is going to take a hit. But is

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Weekly Market Pulse: Time For A Taper Tantrum?

September 20, 2021

The Fed meets this week and is widely expected to say that it is talking about maybe reducing bond purchases sometime later this year or maybe next year or at least, someday. Jerome Powell will hold a press conference at which he’ll tell us that markets have nothing to worry about because even if they taper QE, interest rates aren’t going up for a long, long time. That statement might have more credibility if the Fed had been right about just about anything over the last decade. But they haven’t, and we are left to wonder how exactly Jerome Powell will be wrong this time. Will the economy slow so quickly that he can’t even credibly start tapering? Or will the economy re-accelerate to such a degree that he has no choice but to stomp on the brakes? I’m not sure but I think there are reasons

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Weekly Market Pulse: I Have Questions

September 13, 2021

The wise man is one who knows what he does not know.
– Lao Tzu or Socrates or neither
It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.
– Mark Twain or Josh Billings or Artemus Ward or none of the above
Stocks are at all-time highs, credit spreads are as narrow as they’ve ever been, and someone just paid $24 million for some cartoons of apes:

LONDON, Sept 9 (Reuters) – A set of 107 non-fungible tokens (NFTs) representing images of cartoon apes sold for $24.4 million in an online sale at Sotheby’s auction house on Thursday, as the market for the niche crypto asset continues to heat up.
The images were part of the “Bored Ape Yacht Club” collection of NFTs – a set of 10,000 computer-generated cartoon apes, made by the U.S.-based

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Weekly Market Pulse: Windshield Investing

September 7, 2021

The economic slowdown we’ve been writing about for months officially arrived last Friday in the form of a particularly weak employment report. The number of new jobs created last month – or at least the WAG the BLS makes at such things on a monthly basis – was a mere 235,000 or roughly a cool half-million less than expected by economists who insist on trying to guess this random number on a monthly basis. There was hand wringing and pearl clutching all over the financial media as economic gurus tried to figure out what it all meant. Is the recovery over? Is this as good as it gets? Will this affect the timetable for the Fed’s tapering of QE? Will this affect the spending and taxing bill the current administration is trying to push through Congress? Oh, whatever does it all mean????

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Weekly Market Pulse: The Illusion of Control

August 29, 2021

Jerome Powell delivered his long anticipated speech at Jackson Hole last week. Well actually, I have no idea if he was actually in Jackson Hole since the speech was delivered electronically, another victim of the delta variant. The virus itself rated barely a mention in Mr. Powell’s remarks and I think that is probably as it should be. There has been some economic impact from the recent virus surge but nothing like previous versions. COVID may not be over, but we are learning to live with it as we probably will for some time to come. As for Mr. Powell’s speech I’d rate it as pretty boring based on my soporific reaction to it. Powell is an attorney and he proved it last Friday.
The market reaction to the speech was fairly muted but with a decidedly bullish tilt as most things are these

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Weekly Market Pulse: All or Nothing Investing

August 23, 2021

This week marks a change in our economic environment or at least our perception of it. Last year, post-COVID onset, we characterized the environment as one marked by a falling dollar and improving growth. To be exact, that is the environment the markets reflected; interest rates were rising, the yield curve was steepening and the dollar was falling. That changed somewhat at the beginning of the year when the dollar stopped falling and we shifted to a neutral dollar stance. Then, in the spring, interest rates peaked and started to fall and we shifted our view again, to one of falling growth and a neutral dollar. After the action in the dollar last week, I think we have to now shift our view once again. We now characterize the current environment as one of a rising dollar and falling growth.

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Weekly Market Pulse: Happy Anniversary!

August 16, 2021

Today is the 50th anniversary of the “Nixon shock”, the day President Richard Nixon closed the gold window and ended the post-WWII Bretton Woods currency agreement. That agreement, largely a product of John Maynard Keynes, pegged the dollar to gold and most other currencies to the dollar. It wasn’t a true gold standard as only other countries that were party to the agreement could demand gold in exchange for their dollars, but it was at least a standard of some kind. Nixon didn’t intend to end Bretton Woods altogether but rather anticipated a negotiation that would result in some devaluation of the buck. A very tall future Fed Chairman named Paul Volcker, at Treasury at the time, did indeed try to negotiate a devaluation but it was never implemented. And since that day, the dollar and most

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Weekly Market Pulse: What Is Today’s New Normal?

August 9, 2021

Remember “The New Normal”? Back in 2009, Bill Gross, the old bond king before Gundlach came along, penned a market commentary called “On the Course to a New Normal” which he said would be:
“a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave.”
If you remember reading Bill Gross commentaries over the years you know the piece was his typical mess of weird metaphors and obscure references that really amounted to nothing more than his usual talking of

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Weekly Market Pulse: Trading Places

August 2, 2021

They’re out there panicking right now. I can feel it. They’re out there. They’re panicking. Look at them.
– Eddie Murphy as Billy Ray Valentine in Trading Places
I thought of that scene the other day when a good friend in the investment business told me that investors today are panicking into the market rather than out as they were last spring. I have to say, I find it hard to disagree with him but I think there are specific parts of the market where panic is more obvious than others. For instance, 10-year TIPS yields are trading at all-time lows. While I often describe real rates as an indication of real growth expectations, TIPS yields also represent demand for inflation protection. Right now, investors are willing to accept a negative yield of 1.15% just to have protection from

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Weekly Market Pulse: Buy The Dip, If You Can

July 26, 2021

If you were waiting for a correction in stock prices to put some money to work, you got your chance last week. The Dow Jones Industrial Average was down nearly 1000 points at the low Monday and closed down 725, a loss of a little over 2%. The S&P 500 did a little better but closed down 1.5%. It looked like the beginning of a beautiful correction, one for which we were way overdue. The reason everyone gave for the selloff was fear of the Delta variant, of which new cases and hospitalizations have been rising rapidly, especially in places where vaccine take-up has been weak. If that was indeed the case, the surge was apparently vanquished by Tuesday morning or at least fear of it. Stocks took off Tuesday on the news that building permits fell 5.1% in June and never looked back. The market

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Weekly Market Pulse: As Clear As Mud

July 19, 2021

Is there anyone left out there who doesn’t know the rate of economic growth is slowing? The 10-year Treasury yield has fallen 45 basis points since peaking in mid-March. 10-year TIPS yields have fallen by the same amount and now reside below -1% again. Copper prices peaked a little later (early May), fell 16% at the recent low, and are still down nearly 12% from the highs. Crude oil has recently joined in, falling 7% from its recent high. Energy stocks are in a full-blown correction, down 13% from the high set in June. Transportation stocks are also down more than 10%  and materials stocks are close to correction territory too. Small-cap stocks (Russell 2000) have been treading water since early February and are down about 8% from their high. So, yes, the markets – people – seem well aware

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Weekly Market Pulse: Is It Time To Panic Yet?

July 12, 2021

Until last week you hadn’t heard much about the bond market rally. I told you we were probably near a rally way back in early April when the 10-year was yielding around 1.7%. And I told you in mid-April that the 10-year yield could fall all the way back to the 1.2 to 1.3% range. The bond rally since April has been of the stealth variety, the financial press and market strategists dismissing every tick down in rates as nothing. It was a lonely trade to put on and yes, I think it was a trade, not the beginning of a bigger move. Heck, I expected a rally and still had a hard time benefitting from it. I did extend the duration of our bond portfolio in the spring but I didn’t go out and load up on the really long maturities that did the best as rates fell. Part of the reason for that is our

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