Over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. —Hyman Minsky, “The Financial Instability Hypothesis,” May 1992 Stability Is Destabilizing —Minsky T-shirt Over the past several years, one of the most interesting market developments has been the virtual…
In this edition of C|A Answers, two members of our research team debate the potential for persistent deflation in the United States. Sean McLaughlin: No. The recent dip into deflation for the “headline” US Consumer Price Index (CPI) is likely to be short-lived and does not significantly increase the likelihood of persistent deflation. Headline inflation…
The fast-growing but still limited liquid alternatives product suite is unappealing today for most institutional investors, when compared to the broader hedge fund landscape. In certain limited instances the strategies could have a role to play in some portfolios: For investors with small pools of assets that cannot access hedge funds directly, liquid mutual fund…
A subdued growth outlook and increased volatility for many asset classes mean investors should be cautious in 2015 We continue to have concerns about the Australian macro environment and expect muted growth and inflation in Australia. China’s rebalancing economy is a top concern for Australia, combined with uncertainties in the domestic economy. Fair valuations and…
New Zealand’s economy is well positioned compared to other major economies, and especially relative to Australia, but external factors will likely impact the local economy and markets New Zealand equities are within our fair value range, though they are getting more expensive. Investors should maintain neutral allocations and, in their foreign equity exposure, overweight European…
This year we’ve added new exhibits on asset-class level performance and outperformance versus policy benchmarks. We also closely analyzed “net flow rates,” a measure of endowment health, which incorporate investment performance, endowment spending, and inflows that come in as gifts, and other funds designated for long-term investment. As with the past year, this report also…
Talks between Greece and its Eurozone creditors to extend its bailout may again break down and thus trigger more volatility for local assets, but the potential for contagion to other asset markets is contained for several reasons. All involved parties have strong incentives to eventually reach an agreement. Even if they can’t, the fact that…
We maintain our neutral positioning for municipal bonds Though yields have moved below the 2% level that we previously viewed as a threshold for underweighting munis, other factors have changed the equation. Treasury yields have plunged as well, and ten-year Treasuries currently yield less than ten-year munis. Muni issuance remains quiescent, with new issuance at…
Enterprise Analysis and Endowment Performance The portfolio’s enterprise risk is the potential effect of portfolio volatility on the bottom line of your organization. For a given institution, the risk may be lower than Trustees think it is—or it may be higher. How does one measure this risk? How should it be dealt with when constructing…
A number of companies have blamed the strengthening dollar for disappointing fourth quarter and 2015 earnings guidance. With about 65% of S&P 500 companies having reported, headlines that around 75% of firms are beating expectations obscure the reality of forecasts that have steadily been marked lower. Growth for the quarter (year-over-year) is expected to be…