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At some point, that would put us in the position of having to quickly reverse course to slow the economy. That risks stalling the expansion and setting us back into recession. My goal is to keep the economic expansion on a sound footing that can be sustained for as long as possible.
The last thing any of us want is to undermine the hard-won gains we've made since the dark days of an when it seemed like the U. Therefore, we're in the process of normalization. And we announced that we expect that economic conditions will warrant further gradual increases in the future. These are not the words of a Fed President willing to let growth run. He is on the same page as Dudley. It is stunning that markets are not taking these words more seriously. I don't know if it was too many times crying wolf, but we have hit a point where markets are ignoring extremely hawkish rhetoric from Fed officials.
The Fed seems to have lost credibility, and I fear that when the market finally realizes the Fed might in fact follow words with deeds, an abrupt repricing of financial assets will be on deck.
Definition of Goldilocks principle in the keitaiplus.com dictionary. Meaning of Goldilocks principle. margins, as opposed to reaching extremes. When the effects of the principle are observed, it is known as the Goldilocks effect. The Goldilocks principle is derived from a children's story "The Three Bears" in which a little girl named. Dec 15, The Goldilocks effect is nothing new, and has been used in big marketing and sales campaigns for decades, sometimes with breath-taking results. Feb 12, In an April TED Talk, she discussed the Goldilocks Effect (too much, too little, just right) in terms of personal connections and relationships, wherein we keep our friends and family neither too close, nor too far away, but instead within just the right .
We do share our concerns with Kevin Muir, the Fed looks like it's getting serious about its "porridge" and the Goldilocks principle even though as of late US macro data such as the recently released May's preliminary durable goods orders tumbling 1. As we pointed out last weekend, you have been warned, and the Fed could mean business. In this week's conversation, we would like to reiterate our call to start playing defense credit-wise.
Credit in some segments of the market has moved in earnest from expensive to very expensive.
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Macro and Credit - In the current inning of the credit cycle stealing third base in High Yield isn't worth it. We continue to favor style over substance, quality that is, over yield chasing from a tactical perspective.
The relentless flattening of the US yield curve shows that in the current inning of the credit cycle, and with a Fed determined in continuing with its hiking path, from a risk-reward perspective, we believe long duration Investment Grade still offers support to the asset class and not only from a fund flows perspective with retail joining late the credit party. On another note, the "Trumpflation" narrative has now truly faded to the extent that the deflation trade du jour, long US Treasuries the long end that is is back with a vengeance, while inflation expectations have been dwindling on the back of weaker oil prices after all they still remain "expectations" from our central bankers perspective.
When it comes to us sticking our neck out and praising the Investment Grade long duration credit game, we were pleased to read that UBS in its recent Macro Keys note from the 21st of June entitled "Is the high-yield rally hitting a wall?
Fast forward to today and investors are downplaying the likelihood of fiscal stimulus. Global credit impulses have fallen sharply. Consumer delinquencies are rising, raising doubts about the health of US consumer balance sheets.
And further declines in oil are leading investors to question the state of global demand weakness, not only US shale oversupply. Yet credit is holding in, admittedly better than we anticipated, given an uptick in macro data disappointments. Investors have settled on the view that growth is still good enough to keep credit spreads stable and earn carry.
We still believe investors are more comfortable with credit risk than duration risk. But is this a prudent risk to hold?
Remember, investments should be judged by what is priced into markets and by the distribution of outcomes around what is priced.
The Goldilocks principle is named by analogy to the children's story "The Three Bears", in which a little girl named Goldilocks tastes three different bowls of porridge and finds that she prefers porridge that is neither too hot nor too cold, but has just the right temperature. The concept of "just the right amount" is easily understood and applied to a wide range of disciplines, including. Aug 10, Not too much, not too little. Just the right amount. A large scale study published in the journal Psychological Science has found that the relationship between digital screen-time and teen wellbeing is complicated. Just as Goldilocks in the fairytale Goldilocks and the Three Bears finds that moderation (in porridge (not too hot, not too cold), and beds (not too hard, not too soft)) is. Goldilocks Effect is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to keitaiplus.com
Here, our view remains that US high-yield continues to price-in too much good news. Put simply, US high-yield spreads relative to US investment-grade spreads imply a stable mid-cycle environment, akin to or However, underlying credit signals we track remain moderately weaker than those in prior periods, in terms of higher credit-based recession probabilities, weak economy-wide corporate earnings, and initial signs of non-bank liquidity tightening.
There are perhaps nascent signs of fatigue already building. High-yield spreads are effectively unchanged since February. This is in contrast to an equity market that continues to register new highs. HY energy spreads have widened as lower oil prices increase default risks.
What should investors do? We recommend investors take advantage of underpriced credit risk to rotate further into longer-duration US investment-grade over US high-yield. Absolute returns for US IG will not be as strong going forward, as declines in Treasury yields may have moved too far, too fast.
But we expect relative outperformance vs. US high-yield.
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We also recommend buying put options on HY ETFs, as short-dated implied volatility has collapsed to near record-lows.
How could we be wrong? An increase in US tax reform odds could be an upside surprise, given a market underwhelmed with Washington politics. Lastly, a new source of demand from US insurance companies due to changes in capital requirements could boost high-yield further. This latter factor is significant enough to matter and has not received enough attention in our view.
Hence we address this upside risk to credit specifically in the third section of our piece.
US high-yield spreads are bps, a mere bps wider than US investment-grade spreads of bps Figure 2. This difference is near the tights of the post-crisis period, implying a lack of fear over credit risks. This is a rare occurrence in credit markets and reflects still excessive fears of duration risk relative to credit risk.
But we believe this pricing is misguided. Concerns over the impact of a Fed balance sheet roll off should be mitigated by recent performance; year Treasury yields have fallen 10bps since the Fed suggested a faster balance sheet contraction than expected last Wednesday. Meanwhile, shorter-duration assets could struggle as the market has effectively priced little future Fed hikes, despite easy financial conditions and booming asset prices.
It appears to us that short-duration high-yield is more vulnerable than long-duration investment-grade credit.
Hence, we recommend investors take advantage of under-priced credit risk to rotate further into US investment-grade over US high-yield. Our preference for 7- 10 year US IG credit has been a decent trade for us since the beginning of the year.
While absolute returns will surely be less for both markets going forward, relative returns for US investment-grade will be stronger as credit risk underperforms. Aside from moving into US investment-grade credit, investors should look to hedge risk by buying put options on high-yield ETFs.
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This is yet another example of a market that has grown far too complacent with credit risk. While a precise market-moving catalyst is difficult to find and timethere is no shortage of risk factors that keep one cautious on credit. While HY spreads relative to IG spreads are priced for a mid-cycle environment, Figure 5 shows how several fundamental variables we track are much weaker today.
Perhaps surprising to most investors, weaker corporate earnings are the culprit. To reiterate, we look at US aggregate non-financial corporate profits from the US GDP report, which is a broader measure of pre-tax earnings than that from common equity or credit market indices. Shop Furniture.
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Jun 27, No matter how the Goldilocks principle has played out for some thanks to the "Wealth Effect", it seems that US Corporate Pensions shifted away from "risky" assets into fixed income with the. Dating According to the "Goldilocks Principle" I've been talking to some of my patients lately about their adventures in on-line dating, and they've been complaining about two different but related phenomena: men who come across as insufficiently interested right at the beginning and men who seem far too interested from the get go. A Goldilocks economy exists when growth is neither too hot, causing inflation, nor too cold, creating a keitaiplus.com has an ideal growth rate of percent, as measured by gross domestic product growth, and has moderately rising prices, as measured by the core inflation rate. The Federal Reserve has set this target inflation rate at 2 percent.