Most weekends, as a normal matter, 6-8 hours of podcasts are consumed. Catchup from the week! This weekends catchups mentioned an article that dropped during the week, “Great Moderation Era Drift(ing) Away” by Liz Ann Sonders and Kevin Gordon.
First writing about Liz Ann Sonders in 2009, here via a CFA Conference, her work is non-biased, informative and usually very much spot on.
The Podcast discussion rang out so well, the article was immediately found and read – Worth the time, hence the post here!
For those short on time – We know you guys like the Cliff notes – so here they are –
But we are entering an Era more liken to the prior thirty years – according to Sonders article
Sonders trial balloon on the subject was about three years, ago, but with more time under the belt, it looks to be a correct analysis.
Inflation volatility –
Unlike the last three decades, where virtually nothing pulled inflation off the canvas-
Bond/Rates and Stock Correlations
“….During the Temperamental Era, the 10-year yield tended to key off inflation, which meant rising yields were a reflection of higher inflation and therefore troublesome to equities. The opposite was the case when yields were falling. During the Great Moderation era, inflation was more subdued, which meant the 10-year yield tended to key off economic growth, which meant rising yields were a reflection of stronger growth (without attendant higher inflation) and therefore tended to be beneficial to equities. The opposite was the case when yields were falling….”
Less GEL (Good Energy and Labor) more Chop aka Volatility
“….economic forces were “GELing” together in the Great Moderation Era, made possible via abundant and cheap access to Goods, Energy, and Labor—courtesy of globalization, the U.S. shale boom, and China’s entry into the World Trade Organization (WTO)….”
No charts need repeating here, Good Energy and Labor are far more volatile post lockdown than the prior 2-3 decades – article has several good graphs.
Closing from the article “…Our conviction has been (and still is) that a new version of the Temperamental Era is not a bad one that lacks opportunities for investors—it’s just a different environment than what’s faced investors over the past quarter century. We continue to believe factor- and characteristic-based investing may suit investors well in a world of greater return dispersion…”
The fun part of our platform is the ability to point items of interest, such as this (and some conviction on our part too) but we also get to tag this “Forecast” and look back over the next 5-10 years to see just how true this change was, or was not!
We all want greater speed; Faster cars, faster computers, faster cell phones, and of course faster money movements, and as of late, faster AI – all of which come with their own possible issues.
Speed is good when going with us, but hit that slippery spot, fast spam popup or knee jerk Capital Market reaction, not so much!
Careful Diversification in order to gain a more conservative posture, along with more frequent adjustments to account for the speed are a necessary result!
Sorry for the heavy, but the information was just terrific, and one we have not come across before…
Have a Great “Moderation to Temperamental” Day!
John A. Kvale CFA, CFP
AI Content Authenticity: AI created the ocean image. All of the following text content has been completed by myself and has not been edited or created by AI. Occasionally we do use AI for images and will note when appropriate.
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
