Why Did Gold Prices Fall So Sharply?

Posted on May 6, 2013 by Paresh Upadhyaya

April’s sharp decline in gold got people’s attention. Plunging from $1,561 to $1,347/oz on April 12 and 15, it was a staggering decline of 13.7% the biggest 2-day drop since 1983. Is anything significant going on behind the scenes? We believe this price action is not a new phenomenon for gold, but a continuation of a much bigger trend that has been in place since the third quarter of 2011. (more…)

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The Sustainability of U.S. Interest Rates Rising

Posted on April 25, 2013 by Paresh Upadhyaya

Investors are growing concerned, with good reason, we think, that yields have bottomed for the 10-year Treasury and will surge as the economy gains strength. Prices, which move inversely to yields, would fall, and the question is whether rising rates in 2013 could trigger a bond bear market along the lines of the Great Bond Bear Market of 1994. We don’t think so. (more…)

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Why U.S. Interest Rates Will Rise

Posted on April 18, 2013 by Paresh Upadhyaya

Central banks have taken numerous measures to inject liquidity into their domestic economies. This has helped boost risk appetite and investor sentiment.

  • The European Central Bank’s stabilization programs have successfully reduced financial market and sovereign tail risk for banks.
  • Global growth troughed in Q2 2012, but has been on an upward trend since.
  • Market concerns over the U.S. debt situation are easing as the U.S. economy proved surprisingly resilient to many uncertainties.

As a result, investors are concerned that bond yields, which move inversely to prices, have bottomed for the U.S. 10-year Treasury and will surge, raising fears of a bond bear market along the lines of the Great Bond Bear Market of 1994. (more…)

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Will Resolution of the Fiscal Cliff Squelch Consumption?

Posted on January 24, 2013 by Paresh Upadhyaya

The U.S. averted the Fiscal Cliff with passage of the “American Taxpayer Relief Act of 2012” on December 31. Economists think resolution of the Fiscal Cliff will lead to a fiscal drag of 1% on GDP and adversely affect the mainstay of the economy: the American Consumer.

We’re not convinced this will happen and believe tax increases overstate the related negative consumption impacts. While we expect some weakness in consumption, it is likely to be transitory and confined in the first half of 2013, before recovering above-trend in the second half. (more…)

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FOMC Laying the Groundwork for an Exit Strategy? Investment Implications.

Posted on December 13, 2012 by Paresh Upadhyaya

Yesterday’s FOMC meeting was a surprisingly eventful one that injected some volatility into financial markets.  As expected, the Fed left its target rate of 0 – ¼ percent unchanged and implemented more quantitative easing (QE).  It announced additional monthly purchases of agency mortgage-backed securities of $40 billion per month and stated that “The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year at a pace of $45billion per month.”   (more…)

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Looming Danger: Market Complacency over the Fiscal Cliff

Posted on November 5, 2012 by Paresh Upadhyaya

After the elections, market attention will shift to the Fiscal Cliff – economist shorthand for the double hit of tax increases and spending cuts set to take place at the end of the year. We believe financial markets have severely underestimated the true impact of this looming potential debacle. The fiscal contraction that will occur is around $700 billion, of which only $80 billion is priced in, according to the only study that has attempted to quantify the impact. If Congress does not adequately address the Fiscal Cliff, the likelihood of a recession in the U.S. next year will be substantially increased. (more…)

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No Fed Action – Where it Leaves Us

Posted on August 2, 2012 by Paresh Upadhyaya

The Federal Reserve left the Fed funds target rate unchanged at 0.25%, in line with expectations. Contrary to expectations, the Fed kept its forward guidance unchanged by retaining the “keeping exceptionally low rates at least through late 2014” language. The Fed did not deliver a bond-buying “QE3”quantitative easing action as many had hoped it would. However, it clearly left the door open to QE3 with a strongly worded statement that it will “closely monitor incoming information on economic and financial developments and provide additional accommodation as needed.”

The Fed downgraded the economic outlook from its June statement in which it noted the economy “has been expanding moderately this year,” to saying “economic activity decelerated somewhat over the first half of the year” in yesterday’s statement.  So it’s a wait and see situation. (more…)

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Fed Delivers Twist But is it Enough to Satisfy Bulls?

Posted on June 21, 2012 by Paresh Upadhyaya

The Federal Reserve left the Fed funds rate unchanged at 0.25%, in line with expectations. As the market expected, the Fed extended Operation Twist, its bond buying program selling shorter-duration securities for longer ones, by declaring its intention to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less.

(more…)

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The Turning Point? How Rising Inflation Might Affect Fixed Income and Currency Exchange

Posted on June 5, 2012 by Paresh Upadhyaya

While markets are currently focused on the negative implications of a Euro breakup, causing Treasuries to rally strongly (as investors seek “safe havens”), let’s not forget that in March of this year Treasuries plummeted in value as investors grew anxious that the U.S. economy and inflation would test the Fed’s resolve to hold interest rates down. The most recent rally in Treasuries only increases our conviction that investors need to be positioning their fixed income portfolios for the return of inflation and the subsequent pressure it will exert on the yield curve. Indeed, we believe the odds are rising that the government bond market may be entering a long term bear market, based on a few key factors:

(more…)

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Revisiting Oil – The Case for Alarm Continues to Recede

Posted on April 23, 2012 by Paresh Upadhyaya

In a previous blog posted on March 2, we advised investors not to worry about the recent rise in oil prices. We discussed the forces behind the rise in oil prices, such as global liquidity, rising global demand, supply falling short and low inventory levels.  We debunked the widely circulated speculation theory that geopolitical risk was a key factor.  Most importantly, we highlighted that the wealth effect would help insulate the consumer from the rise in oil prices.

(more…)

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