EMA in the News

Let Us Not Rush to Judgement on the Yield Curve Inversion

August 16, 2019 -  EMA in the News, Our Press Room

By Herb W. Morgan, III, Efficient Market Advisors

The yield on ten-year US Treasury securities dropped below the yield on two-year US Treasuries August 14 prompting mass hysteria in both financial markets and macro-commentary. This event, commonly referred to as an “inversion” has happened four times in the last forty years. In each such occurrence, a domestic recession has ensued. However, making such a conclusion on four idiosyncratic events without a deeper dive into the unique circumstances of each inversion could be a rush to judgement. Continue Reading Here

The Fed, the Phillips Curve and Full Employment

July 31, 2019 -  EMA in the News, Our Press Room

By Herb W. Morgan, III, Efficient Market Advisors

The United States economy and macro-economic science are evolving to a critical point that seems destined to change how monetary policy makers view their role and execute on their mandates. At the center of it all is the Phillips curve. The Phillips curve, which has fairly accurately predicted the relationship between employment and prices is on its way out as a policy tool, thanks to the longest economic expansion in U.S. history. This expansion now boasts the tightest labor market on record without the higher inflation called for by the Phillips curve.

The Phillips curve comes from W.H. Phillips’ study of the correlation of employment and inflation, which studied data in the U.K. from 1861 to 1957. The work was a major milestone for the dismal science. While widely accepted as a powerful policy tool, it has been challenged over the years by the likes of Milton Friedman and others. Today, the U.S. jobs expansion which has produced positive results since Q4-2010, is providing a hard data challenge to long established orthodoxy. Unemployment has plummeted by every conceivable measurement. Job openings in the U.S. far exceed the number of unemployed, yet the expansion continues without any measurable amount of systemic inflation.. Continue Reading Here

Don’t Blame Investors for This Exaggerated Market Decline

January 7, 2019 -  EMA in the News, Our Press Room

By Herb W. Morgan, III, Efficient Market Advisors

Over the last two weeks, I have had dozens of conversations with investors, industry peers and colleagues about what caused equity markets to so aggressively decline. There is no shortage of theories ranging from theories about pending presidential impeachment to an imminent recession. The one theory that holds the most water is that electronic program trading has to be primarily to blame.

The genesis for what was an orderly market decline was no doubt the confluence of a myriad of factors. For starters, the US Federal Reserve is implementing two powerful tightening tools by simultaneously raising the Federal Funds Rate while pulling $50 billion of liquidity from the system each month through balance sheet run off. The European Central Bank (ECB) has announced the end of its bond-buying program, without implementing fiscal reforms to its structural deficiencies. China’s economy is downshifting while it is in the midst of a trade war with the world’s most powerful nation. Continue Reading Here

There is No Need for Further Fed Tightening

December 14, 2018 -  EMA in the News, Our Press Room

By Herb W. Morgan, III, Efficient Market Advisors

The probability of a rate hike at next week’s Federal Open Market Committee Meeting (FOMC) is now greater than 75%. Still, it has been a roller coaster of a ride with a range of 80% down to 65% during the turmoil of the last few months.

It would seem the voting members of the FOMC are keenly aware of the last two instances where the Fed arguably caused recessions by raising rates too aggressively. In both the 1999-2000 and 2004-2006 hiking cycles, the Fed killed the full employment master while feeding the price stability mandate. Continue Reading Here

Can Asset Prices Continue to Rise in the Absence of QE? 2018 is the Biggest Baton Pass in History

February 1, 2018 -  EMA in the News, Our Press Room

By Herb W. Morgan, III, Efficient Market Advisors

Like that party that just keeps going past midnight, it seems nobody told the equity markets 2017 has ended. At this writing, the S&P500 Index is up 6.3% in 2018, the MSCI EAFE Index is up a similar 6.5% and the MSCI Emerging Markets Index tops them all with an 8.7% return[1]. All of this, while echoes of Burns’ Auld Lang Syne are still rattling in our champagne-soaked heads. But soon the market’s momentum will meet the reality of the economic, corporate and geo-political developments of 2018. One cannot live on momentum alone. So, will the fundamentals ultimately deliver more upside or should investors be less sanguine? Continue Reading Here

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