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Our industry is one of constant change. Markets are a fascinating and complex space, reflecting evolutions in economics, policy, international relations, consumption, and so much more. In every corner of the office, our people have dedicated their professional lives to understanding how – and more importantly, why – markets are moving and how this impacts our work. This blog is a forum for our people to share what they are seeing in the marketplace, and how we are innovating in response. Please read our latest posts on relevant topics and ideas.  Scroll Down

FQ Reflections

YOUR MENTAL HEALTH'S VALUATION

May is Mental Health Awareness Month. You may respond, so what? Why prioritize mental health for a whole month? What value does it have,…
FQ Viewpoints

A CASE FOR ECONOMIC DIVERSITY, PART 1

Over the last 70 years, the economy has been rapidly becoming more complex and global, and its players more interconnected. The benefits have been…
FQ Viewpoints

70 YEARS OF QUANT: CELEBRATING THE BIRTH OF MPT

An auspicious anniversary appears to have passed unnoticed recently. 70 years ago, on March 26, 1952, Harry Markowitz’s seminal paper, “Portfolio…
FQ Studies

INTRO TO OPTIONS

Based on the SPX options market, April started with a fairly typical distribution, with both the shape and level of volatility close to normal. The…
FQ Viewpoints

THE TWO PMIs AND THE FED

The Purchasing Managers Index (PMI) is a measure of manufacturing activity that has become widely followed in the last five years or so. I’ve used…
FQ Viewpoints

FED POLICY: IS THE NEUTRAL RATE A MYTH?

The Fed and other central banks have now stated that they are raising rates to remove “accommodation.” Basically, they want to stop stimulating the…
FQ Viewpoints

BITCOIN ARE PORK BELLIES, NOT GOLD

Bitcoin proponents often refer to cryptocurrencies as “digital gold.” But aside from both having few practical uses, bitcoin and gold have little in…
FQ Viewpoints

WHEN A RECESSION IS NOT A "RECESSION"

In my last post, I noted that the definition of a recession is not as precise as people think. The rule of thumb is two quarters of negative GDP…
FQ Viewpoints

WHAT'S THE YIELD CURVE TELLING US?

There is much discussion about the inverted yield curve and what it means. Many are saying that an inverted yield curve, where short-term rates are…
FQ Viewpoints

FED POLICY AND "THE LOGIC OF FAILURE"

One of my favorite books is a small volume titled The Logic of Failure by Dietrich Dorner (Persus Books, 1997). Dorner studied decision-making under…
FQ Viewpoints

THE FED'S "MEET ME IN THE MIDDLE" STRATEGY

The Fed is meeting this week, and we already know what they’ll do this time because Fed Chair, Jerome Powell, has already told us. But the long game…
FQ Viewpoints

STAGFLATION IS BACK ON THE MENU

We’ve been discussing the possibility of stagflation as far back as June 2020, but it always seemed more of a remote threat. With the Ukrainian…
FQ Viewpoints

THE UKRAINE CONFLICT BOND RALLY: WHAT IS THE MOVE INDEX TELLING US?

Since Russia invaded Ukraine, stocks have declined while bonds have rallied in a manner often called “flight-to-quality.” The VIX has gone up as…
FQ Viewpoints

REACTIVE VS. ANTICIPATORY FED: "COOKING THE FROG"

Since 1992, the Fed has been changing rates in anticipation of inflationary pressures building. Alan Greenspan implemented this kind of strategy and…
FQ Viewpoints

WAR OR INFLATION: THE BOND MARKET CASTS ITS VOTE

Markets have been pulled between two global risks: war in Eastern Europe and inflation. The former is a geo-political risk with unknown economic…
FQ Viewpoints

CORRECTION OR BEAR MARKET: THE QUANTIFICATION OF JARGON

When I first entered the investment business in 1978, the use of quantitative techniques was the lunatic fringe of investing. Those of us who used…
FQ Viewpoints

INFLATION CHECKLIST: BACK TO THE FUTURE

I started in the investment business in May 1978, when I transferred to the investment department from the “data processing” department at the…
FQ Viewpoints

ARE CREDIT SPREADS "THE DOG THAT DIDN'T BARK?"

I became a Sherlock Holmes fan at 11 years old, when a helpful school librarian pointed me towards Arthur Conan Doyle’s stories of the great…
FQ Viewpoints

WHAT DO NEGATIVE REAL RATES MEAN?

Real intermediate- to long-term US bond yields have been negative since March 2020. While low real yields can be partially attributed to the Fed’s…
FQ Viewpoints

WILL THE FED PULL OFF A "SOFT LANDING" THIS TIME?

As 2022 begins, I’ve been reading a lot of commentary on the economy and Fed policy, which sounds like the old “soft landing” scenario. A soft…
FQ Viewpoints

FED POLICY: NOT EXACTLY "TIGHTENING"

The Fed has stated that it intends to “remove accommodation” in the coming months by reducing its bond buying program, then implementing a series of…
FQ Reflections

A HOLIDAY MESSAGE

First Quadrant wishes you and your families a joyous holiday season and a prosperous 2022.
FQ Viewpoints

CYCLICAL INFLATION AND THE "POWELL PIVOT"

Over the last week, the Fed has guided interest rate expectations higher. Much has been made of the “Powell Pivot,” but it has actually been a long…
FQ Viewpoints

BUBBLE CHECKLIST UPDATE: INCREASING MORAL HAZARD

In February, we published a stock market bubble checklist that I had developed after the tech bubble of the late 1990s. The original publication said…
FQ Studies

VIX FUTURES AND BLACK FRIDAY

Last Friday (”Black Friday”) featured a risk-off move as news broke of the Omicron strain of COVID-19. Global equities fell over 2%, global sovereign…
FQ Viewpoints

OMICRON POINTS TO AN INCREASINGLY FRAGILE MARKET

Last week, reports of a new, potentially more contagious variant of COVID-19, labeled Omicron, sent markets into a tailspin and government bond…
FQ Viewpoints

INVESTING FOR EVERYDAY PEOPLE

Earlier in my career, I was presenting to the board of a client, a large corporate pension plan. When I opened for questions, one trustee asked me, “…
FQ Reflections

RECLAIMING MY MORNING COMMUTE

When I began my first job, I dreaded the morning commute. As a grad student, I was used to creating my own schedule, to timing my drives to avoid…
FQ Viewpoints

TRUE UNCERTAINTY RISING: SCARIER THAN RISK

“About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.” -John Maynard Keynes…
FQ Viewpoints

GLOBAL PMIs MAY SIGNAL HALF-STEAM AHEAD

Purchasing Managers Indices (PMIs) continue to signal that global manufacturing remains in growth mode. But there are some notable issues. The good…
FQ Viewpoints

DO YOUR COMMODITIES HOLDINGS HAVE A NATURAL GAS LEAK?

Commodities are a very diverse asset class, and that diversification brings many expected benefits. Different sources of supply and demand across…
FQ Viewpoints

THE MONEY SUPPLY/VELOCITY TANGO

Last week, we received another bit of data that may explain the Fed’s reluctance to raise US rates, despite persistently high inflation. Milton…
FQ Viewpoints

BUBBLE CHECKLIST UPDATE: CRYPTOS CHECK ANOTHER BOX

In February, we published a stock market bubble checklist. Number 4 on the list dealt with mini-bubbles, and we mentioned cryptocurrency as an…
FQ Viewpoints

ARE UNIONS "CANARIES IN THE COAL MINE" FOR EXPECTED INFLATION?

Central banks in the developed world have been saying that while headline inflation is high, the level is temporary and inflation expectations remain…
FQ Viewpoints

NOT YOUR (GRAND) PARENT'S STAGFLATION

It’s beginning to look like the global economy is slipping into stagflation: low/negative growth, high inflation. This is going to be quite different…
FQ Viewpoints

ONE REASON FOR A MORE HAWKISH FED

The St. Louis Fed posts an alternative measure of inflation we’ve discussed in the past. This version of inflation divides PCE (personal consumption…
FQ Viewpoints

A US DEFAULT RISK PREMIUM?

US bond yields have been rising since last week’s Fed meeting. Consensus is that the prospect of the Fed tapering its bond buying program is the…
FQ Viewpoints

2008 REDUX?

Markets opened the week in retreat as a major Chinese property developer, China Evergrande Group, appeared on the verge of default. Many fear that…
FQ Viewpoints

INFLATION AND MONETARY POLICY: FITTING THE CURE TO THE DISEASE

Inflation has been on everyone’s mind these days. But inflation remains one of those unusual phenomena that we observe regularly without fully…
FQ Viewpoints

HOW HIGH CAN WE GO?

Folks have been concerned about rising yields (in particular, on the long end of the curve) for some time. Some of those fears have been realized, as…
FQ Viewpoints

VACCINE DISTRIBUTION

”Are vaccination rates a good proxy for future economic growth?”, is a question we are being asked frequently by our clients right now. The quick and…
FQ Studies

BACK TO NORMAL? Q2 OPTIONS OUTLOOK

The options market can shed light on how some market participants are viewing future market risks. At the start of 2021, the options data suggested a…
FQ Viewpoints

INFLATION: NOTHING TO FEAR BUT FEAR ITSELF

Inflation fear seems to be on everyone’s mind these days. Certainly, bond investors appear concerned, while other market pundits are expressing mixed…
FQ Reflections

REFLECTIONS AFTER A YEAR OF WORKING FROM HOME

Almost one year ago, in early March 2020, First Quadrant began to strongly encourage employees to shift toward remote work. Though California had not…
FQ Studies

CONGRESSIONAL GRIDLOCK AND THE MARKET

Last month, the US inaugurated a new Presidential administration and a new Congress. Though Democrats now control both the Executive and Legislative…
FQ Viewpoints

A STOCK MARKET BUBBLE CHECKLIST: ARE WE THERE YET?

Market pundits have been talking bubbles lately. The broad market appears to be overvalued by many measures. The recent volatility involving GameStop…
FQ Studies

OPTIONS OUTLOOK Q1: STEADY AS SHE GOES

The options structure can be a useful tool for identifying market participants’ outlook. In 2020, global equities followed a sharp V-shaped pattern…
FQ Viewpoints

PMI IS AT A TWO-YEAR HIGH! BUT DON'T BE FOOLED

The global economy has recently showed some signs of stabilization, particularly in the manufacturing sector. Unfortunately, there seems to be a…
FQ Studies

OPTIONS AND THE PRESIDENTIAL ELECTION

As everyone is well aware, the US will hold a Presidential election this November, which could have a pronounced impact on markets. To develop a…
FQ Viewpoints

THE FED FINE-TUNES ITS MANDATE

On August 27th, Fed Chairman, Jerome Powell, gave a speech specifying a change in the Fed’s monetary policy framework. After a two-year policy review…
FQ Studies

HISTORY MAY NOT REPEAT, BUT IT OFTEN RHYMES

Several attributes of the stock market today are reminiscent of the period near the end of the tech bubble twenty years ago. Growth has shot the…
FQ Viewpoints

IS THIS THE MOTHER OF ALL DEAD CAT BOUNCES?

Stock markets advanced in volatile trading in the second quarter, regaining much of the losses from the Q1 sell-off. Sentiment shifted frequently…
FQ Viewpoints

CURRENCY MARKETS: THE CANARY IN THE COAL MINE

The Chinese government has moved to introduce measures to assert greater control over Hong Kong, virtually ending the "one country, two systems"…
FQ Viewpoints

FRACTAL MARKET HYPOTHESIS

The world – and markets – look very different than they did at the start of 2020. In my 1994 book, I outlined the Fractal Market Hypothesis (FMH),…
FQ Viewpoints

RISK MITIGATION IS RISK MANAGEMENT

“Risk mitigation is risk management, and there is no point in time when we should stop managing our risks.” - Max Darnell Max recently participated…
FQ Studies

WHAT DOES THE OPTIONS MARKET TELL US ABOUT THE SPX RECENTLY?

It is hard to believe we are just over a quarter into 2020. As the COVID-19 pandemic escalated, markets experienced their steepest selloff in history…