EPB Macro Research

'Taper' Tantrum 2.0 Feb 22, 2021

Interest rates are rising with a speed that is being referred to as the "taper tantrum 2.0"
Are yields really rising due to an expectation of the Fed reducing the size of its balance sheet? No.
Yields are increasing because growth and inflation expectations are rising, combined with an uncertain regulatory backdrop adding fuel to an existing trend of higher interest rates.
The direction of interest rates (higher) is correct, but the speed is likely an overshoot, something...

Reflationary Momentum Has Not Subsided Feb 02, 2021

Cyclical equities continue to outperform large-cap "defensive" equities.
The Treasury curve is bear steepening as long-term yields rise and short-term yields remain flat-to-down.
Leading indicators of cyclical inflation pressure continue to point higher, which will pressure long-term bonds and support cyclical equities.
Corporate credit spreads highlight the exuberance and lack of caution in risk-assets.
While cyclical growth and inflation indicators remain higher, risk...

The Role Of Gold In Your Portfolio Feb 02, 2021

Gold plays a critical role in preserving wealth and should be considered in a context beyond a securities portfolio.
The long-history of gold and correlation to real interest rates makes gold a sound proxy on the price of money.
Gold also serves a separate role in a diversified securities portfolio, outpacing risk assets during large declines in real interest rates.
Investors should consider "linking" or "backing" a percentage of net wealth in gold, in addition to the...

Unintended Consequences Feb 01, 2021

Short-term interest rates are coming under pressure in a fashion that will require the Federal Reserve to defend the zero-lower-bound.
Rapid growth in total banking reserves will cause banks to lower the rate on some deposits to limit their balance sheet growth, which comes at a cost.
The demand for Treasury bills from money market funds and the Federal Reserve will outweigh the limited supply of new bills in 1H 2021 due to an overfunded TGA.
The Federal Reserve will be...

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