April, 2017



Asset Management for Insurers




The Art of the Deal or No Deal


We wrote last month and visited with clients on the importance of the Trump administration getting something, anything through congress.  Failure to do so might question the future of the ambitious agenda that caused equity markets to swoon post-election.  The new healthcare bill was pulled without a vote on March 25.


Markets reacted predictably but with less follow through than might have been expected.  Geopolitical risk arose.


Syria, Afghanistan, Korea and TBAs....


The Trump administration didn't have to wait long to be tested by one of the simmering global hot spots.  The response was different too.  International armed conflict and the prospect of war, declared or otherwise, unsettles markets.  Predictably, interest rates fell as investors sought safe havens.  Equities were remarkably buoyant. A review of the known players to date.  The TBAs below keep the safe haven bid alive. 


The Fed - More Noise, Less Relevance


Much noise was made by FOMC vice chairman, Stanley Fischer about what he characterized as a muted response to meeting minutes suggesting the Fed may begin to reduce the size of its balance sheet this year. KC Fed, Esther George, was not so sanguine.  We take a dive into their thinking in this month's AQS Point of View


Scoll down.  We don't stop here.


The Global Tension TBATBA


Where to begin?  Any of these may flare up shortly.

Iran.  For those that remember the Iranian hostage crisis, being crosswise with whatever regime currently has power in Iran is a foregone conclusion. The Joint Comprehensive Plan of Action (JCPOA) is the 2015 nuclear agreement with Iran.  The agreement provides that Iran continues to receive sanction relief and can continue to develop nuclear 'energy' subject to limits specified by the JCPOA and subject to inspection.

On April 18 the Trump administration certified that Iran is in compliance with the deal but indicated the deal is under review.  The subtext of this 'compliance' is that the deal is so weak in Iran's favor they don't need to cheat to achieve their nuclear goals.

Cyber Attacks.  Russia's alleged hacking into various U.S. political institutions put the spotlight on cyber security. China and Iran also continue to develop cyber capabilities aimed at the U.S. Some cyber threats do not operate under a flag whatsoever.

Al-Qaida.  ISIS is under siege on all fronts.  The downfall of the caliphate will leave lots of jihadis available for Al-Qaida which has remained in the shadows while ISIS grabbed the attention of the world.  Badness never sleeps.

Chinese Provocations in the South China Sea.  China built some islands in the South China sea and claimed them.  When they armed these islands and began stopping traffic, it became a real threat.

Russian Military Expansion.  Russian build-up along the NATO border, Crimea, the Tartus (Syria) naval base and expansion into the arctic.







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Looking Forward


The FOMC Primer


In January, 2013, the FRB produced a document, "The Federal Reserve's Balance Sheet and Earnings: A primer and projections"


It provides insight as to the FOMC's intent and game plan for reducing the Fed's balance sheet and its impact on interest rates.

Fund flows have been strong since the beginning of the year.  Flies in the face of the reflation trade.  We think down-rate risk exceeds up-rate risk.  Click for larger image.


Crude Oil - Still a driver


Crude oil is holding a trend we believe gets to $60+ by the end of 2017.  Will global tensions push it higher?   A larger image here.  



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