AQS Performance and Perspective - January, 2018


AQS| Asset Management for Insurers




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Corporate Issuance 12 months


 Corporate Issues Last 30 Days 

Maybe This Time?

Since July 25, 2012, there has been much prognostication as to when yields would rise a-la 1980s style bear market.  As this chart shows, they were right - for a while.  Rates worked their way up to 3% only to make a new low July 8, 2016.  But that's history.  


In June, 2017, the Fed agreed to begin in October, 2017 what we've termed UN-reinvestment essentially increasing supply.  That supply began at $6 billion monthly, increasing to $12b, $18b, $24b and $30b in each subsequent quarter - a total of about $250 billion in additional supply.


In December, 2017, the tax plan passed.  This is currently projected to increase the deficit to approximately $1.3 trillion (that's with a 't') - double the current supply.


Then the pace began to pick up.


On January 9, the Bank of Japan surprised markets with a cut in purchases of long-dated Japanese government bonds.


On January 10, a report surfaced that China viewed treasuries as 'less attractive'.  The Chinese later claimed that was 'fake news'.  Markets responded accordingly.


Earlier this morning, Mario Draghi, President of the ECB indicated 'very few chances of rate hike this year'.  


AQS vs. Select Barclay's Total Return Data



Treasury Secretary Mnuchin Delivers a Double Whammy

While the global elite gather in Davos to plot a course for the balance of humanity, President Trump began to take action on trade policy.

You will recall that in the early days of his presidency, Trump withdrew from the Trans Pacific Partnership and began the renegotiation of NAFTA. 
Just this week, the U.S. increased tariffs on solar cells and washing machines (China).

In conjunction with the new tariffs, secretary Mnuchin pointed out that
a weaker dollar is beneficial to U.S. trade while his debt management squad pointed out that U.S. debt sales will almost double from last year to about $1.3 trillion.



'Amazing Effect' on Negotiations Overseas? some (mostly those that sell TO the U.S.) bemoan the action as 'unfair', at least one executive, Dow Chemical CEO, Andrew Liveris, sees an 'amazing effect' on negotiations overseas .  


In what he calls a 'paradigm shift', nations now are concerned that if they don't give an American corporation "a shot," their companies could be denied opportunities in the U.S.

"It's had an unintended consequence, which is actually amazing," Liveris said. "And maybe that, at the end of the day, is President Trump's strategy."



Infrastructure too? at AQS have been looking for an infrastructure spending policy since the beginning of the Trump administration.  It is one of the few things on which Republicans and Democrats agree.


While it's premature to suggest as policy, the document, passed along (planted?) in a chat room provides a look at the principles of funding and principles for infrastructure improvements.


Item I, the Infrastructure Incentives Initiative, encourages state, local and private investment in core infrastructure by providing incentives in the form of grants and conditioned  on achieving milestones within an identified timeframe.  Yay!



End of the Raging Bull?


Maybe not so fast but it is a REALLY long-term trend.  AND Bill Gross declared (for like the 10th time in as many years) that the bull market in bonds is over.  It does give some background as to why the 'whammy' described above may have some traction.  NOTES:


1.  'Technicals' are good for timing but should be confirmed with fundamentals.  The graph below shows 'technicals'.

2.  'Technicals' are good for identifying reversals in trend.

3.  Fundamentals currently support the idea that a breakout (to the upside in yield) might be upon us.  But how high is up?

4.  Another fundamental, the equity market, will almost certainly reverse in a confirmed rising rate environment.  This puts money back into bonds.

5.  While this chart suggests an upper boundary in yield is upon us, it doesn't indicate that a breakout won't wander along in the 3% ballpark for the rest of our career.




NAIC 2 - 10 Year Spreads

Just off record tights

 Killing my eyes - make it bigger!

Mutual Fund and ETF Flows

All in flows - spells trouble?.

Killing my eyes - make it bigger!




Client results shown are calculated using SIA standard investment formulae for portfolios AQS has managed in excess of one year.  Each portfolio complies with governing investment statues, regulatory testing standards and metrics.  Results vary based on the client's specified investment policy, risk tolerance, profit objective and product mix.  AQS works with each client to develop a global understanding of objectives for income and surplus growth as well as product opportunities that represent synergies in terms of growth and diversification.