The Capital Spectator: Investing, Asset Allocation, and Economic Insights

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    <p><strong><span style="color: #800000;"><a style="color: #800000;" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3758982">The Rising Toxicity of the U.S. Treasury Security Market</a></span></strong><br/>Scott E. Hein (Texas Tech University)<br/><strong>January 2, 2021</strong><br/><em><span style="color: #0000ff;">This brief research paper highlights that merely monitoring the rise in yields of conventional U.S. Treasury securities as an indicator of growing inflationary concerns in the U.S. is no longer sufficient. As the Federal Reserve aims to maintain short-term nominal yields near zero for an extended duration, the conventional Treasury yields fail to capture the full extent of growing inflation anxiety in financial markets. In today's monetary climate, yields on Treasury Inflation-Protected Securities (TIPS) have become a more accurate barometer of inflation fears. TIPS yields turned increasingly negative in absolute terms during the latter part of 2020. The persistent negative yields on TIPS indicate that Treasury investors should anticipate a decline in purchasing power while holding these securities.</em></p>
    <p> <a href="https://www.capitalspectator.com/research-review-26-february-2021-inflation/#more-15611" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/research-review-26-february-2021-inflation/" title="6:29 am" rel="bookmark"><time class="entry-date" datetime="2021-02-26T06:29:38-05:00">February 26, 2021</time></a>
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    <p>* Biden <a href="https://www.politico.com/news/2021/02/25/us-airstrike-syria-471685">ordered</a> a missile strike against Iranian-backed militia groups in Syria.<br/>* The federal minimum wage proposal faces a <a href="https://www.wsj.com/articles/senate-waits-for-minimum-wage-ruling-from-parliamentarian-11614266273?mod=hp_lead_pos6">roadblock</a> in the Senate.<br/>* Today's consumer spending report for January <a href="https://www.wsj.com/articles/consumer-spending-personal-income-january-2021-11614293378?mod=hp_lead_pos2">is expected</a> to reflect solid growth.<br/>* The 10-year Treasury yield briefly <a href="https://www.cnbc.com/2021/02/25/us-bonds-treasury-yields-rise-ahead-of-fourth-quarter-gdp-update.html">exceeded 1.6%</a> on Thursday, marking the highest rate in over a year.<br/>* <a href="https://www.ft.com/content/9ed5c0f2-5c2a-4a1f-98f6-e864f5d62e24">Pimco's chief investment officer predicts</a> that inflation will remain under control.<br/>* The U.S. GDP growth was <a href="https://www.cnn.com/2021/02/25/economy/us-fourth-quarter-gdp-revision/index.html">revised upward</a> to 4.1% for the fourth quarter.<br/>* Durable goods orders in the U.S. <a href="https://abcnews.go.com/US/wireStory/orders-us-durable-goods-climb-34-january-76107567">rose sharply</a> by 3.4% in January.<br/>* U.S. economic growth was <a href="https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/ads">raised</a> according to the Philadelphia Fed’s ADS Index.<br/>* U.S. jobless claims <a href="https://www.cnbc.com/2021/02/25/weekly-jobless-claims.html">declined</a> significantly last week, although they remain unusually high:</p>
    <p><a href="https://www.capitalspectator.com/wp-content/uploads/2021/02/claims.26feb2021.png"><img fetchpriority="high" decoding="async" class="alignnone size-full wp-image-15613" src="https://www.capitalspectator.com/wp-content/uploads/2021/02/claims.26feb2021.png" alt="" width="740" height="451"  /></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-26-february-2021/" title="5:56 am" rel="bookmark"><time class="entry-date" datetime="2021-02-26T05:56:34-05:00">February 26, 2021</time></a>
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    <p>The <a href="https://www.capitalspectator.com/reflation-today-inflation-tomorrow/">reflation trade</a> continues to thrive. Currently, it seems reasonable to regard this phenomenon as a return to conditions seen before the pandemic disrupted bond markets and reduced yields. The question that remains is whether the recent rise in rates is sustainable, indicating a trend beyond reverting to the "normal" of the pre-pandemic period. This remains uncertain, but forthcoming data, including four key metrics, will likely offer early indications of what to expect.</p>

    <p> <a href="https://www.capitalspectator.com/interest-rates-are-rising-will-it-last-four-key-metrics-to-watch/#more-15606" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/interest-rates-are-rising-will-it-last-four-key-metrics-to-watch/" title="7:25 am" rel="bookmark"><time class="entry-date" datetime="2021-02-25T07:25:58-05:00">February 25, 2021</time></a>
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    <p>* The Senate may <a href="https://www.politico.com/news/2021/02/24/democrats-covid-stimulus-budget-senate-471324">revise</a> the $1.9 trillion COVID aid bill in the coming days.<br/>* A concerning mutation of the coronavirus is <a href="https://www.nytimes.com/2021/02/24/health/coronavirus-variant-nyc.html">spreading</a> in New York, according to reports.<br/>* Moderna is <a href="https://www.statnews.com/2021/02/24/moderna-ready-to-test-version-of-covid-19-vaccine-aimed-at-worrisome-variant/">prepping to test</a> an updated vaccine for the coronavirus variant.<br/>* Fed Chair Powell <a href="https://apnews.com/article/financial-services-inflation-coronavirus-pandemic-jerome-powell-2eda8a7073c8652fe38cd7d0c1e2dfd8">informed</a> Congress that the central bank is not in a hurry to raise rates.<br/>* The rising 10-year Treasury yield poses a <a href="https://www.bloomberg.com/news/articles/2021-02-25/u-s-10-year-real-rate-breaches-post-election-november-high?srnd=economics-vp">headwind</a> for risk assets.<br/>* A bull market is <a href="https://www.wsj.com/articles/red-hot-stock-market-pushes-more-companies-to-go-public-11614249002?mod=hp_lead_pos6">helping</a> to reverse the two-decade decline in the number of new public companies.<br/>* Economic confidence in the Eurozone <a href="https://www.bloomberg.com/news/articles/2021-02-25/euro-area-confidence-improves-amid-optimism-on-vaccine-rollout?srnd=premium">has improved</a> thanks to vaccine optimism.<br/>* Watch for risk factors in the <a href="https://www.cnn.com/2021/02/24/business/nightcap-housing-market-frys-fed-disruption/index.html">booming housing market</a>.<br/>* New U.S. home sales <a href="https://www.bloomberg.com/news/articles/2021-02-24/u-s-new-home-sales-increased-in-january-by-more-than-forecast">rose</a> more than predicted in January, approaching a 13-year high:</p>
    <p><a href="https://www.capitalspectator.com/wp-content/uploads/2021/02/housing.25feb2021.png"><img decoding="async" class="alignnone size-full wp-image-15603" src="https://www.capitalspectator.com/wp-content/uploads/2021/02/housing.25feb2021.png" alt="" width="650" height="450"  /></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-25-february-2021/" title="6:03 am" rel="bookmark"><time class="entry-date" datetime="2021-02-25T06:03:09-05:00">February 25, 2021</time></a>
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    <p>In this issue:</p>
    <ul>
        <li><em>Is big oil the new tech? Although not quite, it is performing impressively in 2021 so far.</em></li>
        <li><em>Floating-rate bonds are experiencing a successful year.</em></li>
        <li><em>Will commercial real estate bounce back from the pandemic? Early indications are positive.</em></li>
    </ul>
    <p><a href="https://etfps.substack.com/p/the-etf-portfolio-strategist-24-feb"><em>Continue reading at The ETF Portfolio Strategist</em></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/the-etf-portfolio-strategist-24-feb-2021/" title="6:24 pm" rel="bookmark"><time class="entry-date" datetime="2021-02-24T18:24:11-05:00">February 24, 2021</time></a>
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    <p>The bond market is reacting to heightened <a href="https://www.capitalspectator.com/reflation-today-inflation-tomorrow/">reflation expectations,</a> affecting various segments disproportionately. However, there are also standout performers in the fixed income arena based on year-to-date returns for a collection of exchange-traded funds through February 23.</p>

    <p> <a href="https://www.capitalspectator.com/reflation-trades-winners-and-losers-in-the-bond-market-in-2021/#more-15596" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/reflation-trades-winners-and-losers-in-the-bond-market-in-2021/" title="7:15 am" rel="bookmark"><time class="entry-date" datetime="2021-02-24T07:15:25-05:00">February 24, 2021</time></a>
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    <p>* Biden announced that the U.S. and Canada will <a href="https://www.reuters.com/article/us-usa-canada-meeting-climate/biden-says-u-s-canada-to-work-toward-achieving-net-zero-emissions-by-2050-idUSKBN2AN2K2">cooperate</a> to achieve net-zero emissions by 2050.<br/>* Fed Chairman Powell stated that <a href="https://www.npr.org/2021/02/23/970522000/fed-chair-jerome-powell-warns-of-long-road-ahead-to-recover-millions-of-lost-job">recovering</a> lost jobs will take years.<br/>* Powell added that the Fed's easy monetary policy will persist until the economy fully recovers, according to <a href="https://www.wsj.com/articles/jerome-powell-sees-easy-money-policies-staying-in-place-11614092400">his statement</a>.<br/>* Academics suggest that the traditional rules of value investing are a thing of the past, as highlighted in an article <a href="https://www.institutionalinvestor.com/article/b1qpkh5f2n1lxm/Value-Investing-s-Old-Rules-Have-Outlived-Their-Usefulness-Academics-Argue">by researchers</a>.<br/>* Strong exports and construction activity <a href="https://www.reuters.com/article/us-germany-economy-gdp/strong-exports-and-construction-boost-german-economy-in-fourth-quarter-idUSKBN2AO0OI">bolstered</a> Germany's GDP in the fourth quarter.<br/>* Mid-Atlantic manufacturing <a href="https://www.richmondfed.org/research/regional_economy/surveys_of_business_conditions/manufacturing">continues</a> to expand during February.<br/>* The Consumer Confidence Index in the U.S. has <a href="https://conference-board.org/data/consumerconfidence.cfm">increased</a> in February.<br/>* U.S. home prices <a href="https://www.cnbc.com/2021/02/23/december-home-prices-rose-9-.html">rose by 10.4%</a> in December compared to the previous year, marking the fastest growth in seven years:</p>
    <p><a href="https://www.capitalspectator.com/wp-content/uploads/2021/02/fredgraph-2021-02-23T165132.370.png"><img decoding="async" class="alignnone size-full wp-image-15595" src="https://www.capitalspectator.com/wp-content/uploads/2021/02/fredgraph-2021-02-23T165132.370.png" alt="" width="650" height="450"  /></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-24-february-2021/" title="5:36 am" rel="bookmark"><time class="entry-date" datetime="2021-02-24T05:36:19-05:00">February 24, 2021</time></a>
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    <p>There is increasing evidence that the significant disinflation experienced following the onset of the coronavirus crisis in spring 2020 is fading, paving the way for a phase of reflation. While many associate reflation with inflation and assume that it inevitably leads to the latter, the relationship is not so straightforward.</p>

    <p> <a href="https://www.capitalspectator.com/reflation-today-inflation-tomorrow/#more-15586" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/reflation-today-inflation-tomorrow/" title="6:38 am" rel="bookmark"><time class="entry-date" datetime="2021-02-23T06:38:21-05:00">February 23, 2021</time></a>
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    <p>* Officials from the Fed and Treasury report that the U.S. jobless rate is nearing 10%, significantly higher than the official rate.<br/>* The financial impact of the severe weather crisis in Texas is estimated at <a href="https://www.bloomberg.com/news/articles/2021-02-22/texans-will-pay-for-the-state-s-power-crisis-for-decades-to-come?srnd=premium">$50 billion</a>.<br/>* U.S. factories are <a href="https://www.wsj.com/articles/consumer-demand-snaps-back-factories-cant-keep-up-11614019305?mod=hp_lead_pos5">struggling</a> to meet the sudden surge in consumer demand.<br/>* Bond yields are <a href="https://www.cnbc.com/2021/02/22/market-nervousness-growing-over-powells-testimony-to-congress-this-week.html">rising</a> in anticipation of Fed Chairman Powell's testimony to Congress this week.<br/>* The Eurozone's core consumer inflation has <a href="https://www.bloomberg.com/news/articles/2021-02-03/euro-area-inflation-turns-positive-for-first-time-in-six-months">rebounded</a> to a five-year high in January.<br/>* The UK unemployment rate hit a <a href="https://www.bloomberg.com/news/articles/2021-02-23/u-k-unemployment-rate-rises-to-highest-in-almost-five-years">five-year high</a> in the fourth quarter of 2020.<br/>* The U.S. Leading Economic Index <a href="https://conference-board.org/data/bcicountry.cfm?cid=1">rose</a> in January, signaling a stronger growth outlook.<br/>* Growth in the Texas manufacturing sector <a href="https://www.dallasfed.org/research/surveys/tmos/2021/2102.aspx">accelerated</a> in February.<br/>* Overall U.S. economic activity showed improvement in January as noted by the <a href="https://www.chicagofed.org/publications/cfnai/index">Chicago Federal National Activity Index:</a></p>
    <p><a href="https://www.capitalspectator.com/wp-content/uploads/2021/02/cfnai.23feb2021.png"><img loading="lazy" decoding="async" class="alignnone size-full wp-image-15584" src="https://www.capitalspectator.com/wp-content/uploads/2021/02/cfnai.23feb2021.png" alt="" width="650" height="450"  /></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/macro-briefing-23-february-2021/" title="5:30 am" rel="bookmark"><time class="entry-date" datetime="2021-02-23T05:30:24-05:00">February 23, 2021</time></a>
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    <p>Last week, commodities and foreign junk bonds emerged as the only positive performers among the <a href="https://www.capitalspectator.com/major-asset-classes-january-2021-performance-review/">major asset classes,</a> based on a selection of exchange-traded funds. Conversely, the overall results for U.S. markets for the trading week ending February 19 were predominantly negative.</p>

    <p> <a href="https://www.capitalspectator.com/commodities-were-a-rare-bright-spot-last-week/#more-15577" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/commodities-were-a-rare-bright-spot-last-week/" title="6:33 am" rel="bookmark"><time class="entry-date" datetime="2021-02-22T06:33:51-05:00">February 22, 2021</time></a>
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