FQ Studies
INTRO TO OPTIONS
Based on the SPX options market, May started with both volatility and skew above normal on the back of disappointing earnings news and anticipated…
INSIGHTS
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FQ Viewpoints
THE FRACTAL MARKET HYPOTHESIS IN ACTION
Bloomberg recently featured an article titled “Lockstep Stock Market is Forcing Everyone to be a Macro Trader.”1 The article noted that the…
FQ Viewpoints
A CASE FOR ECONOMIC DIVERSITY, PART 3
In the first two articles, I discussed the origins of and issues with the just-in-time (JIT) production model, and the potential for economic…
FQ Viewpoints
“PEAK” INFLATION NOT CONFIRMED
When the Consumer Price Index (CPI) data was released a couple of weeks ago, there was a sentiment of relief. Headline CPI and Core CPI measures had…
FQ Viewpoints
A CASE FOR ECONOMIC DIVERSITY, PART 2
It is late 2019. The global economy is expanding, manufacturing is humming along, and equities are reaching historic highs. The sudden arrival of the…
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…