Our “Insights” seek to identify actionable investment themes and carefully articulate the logic behind why such themes are important and how they should evolve over time.
March 31, 2017: Makena Strategy Insights Letter
Shell Game: A Case for Active Management in Light of New Policy Proposals
The current proposals for a border adjustment tax (BAT) and disallowance of corporate interest expense deductions are being touted as boosters to the overall US economy. Our latest Strategy Insights letter explores how these policies will more likely represent a redistribution of wealth across sectors versus promoting any growth of the aggregate pie. With potentially large shifts in relative attractiveness across sectors, and more uncertainty than usual given the magnitude of proposed reforms, active management across sectors is poised to outperform.
January 31, 2017: Makena Strategy Insights Note
Inflation: Reasonably Strong Fundamentals + Trump = Higher Future Inflation in the US
With healthy underlying inflationary pressures in the US economy prior to the election, President Trump’s goal to reduce income inequality via the “confiscation” of assets that is implied by heightened inflation show the path for inflation may be even higher going forward. This represents a shift in the investing environment that few investors have experienced, the last inflation period dating from the 70s. As a result, a focus on real assets, currency, and domestically focused companies are likely important for return enhancement.
September 30, 2016: Makena Strategy Insights Letter
Policy and Rhetoric: Are The President-Elect’s Campaign Promises Achievable?
Many promises were made on the campaign trail by both candidates but only Donald Trump’s intentions matter now. The country may be grappling with a more challenged income distribution landscape but will the campaign rhetoric of the President-Elect correct these issues that propelled him into the White House? Digging into comments around fiscal expansion, tax rate restructuring, and a manufacturing revival, our latest Strategy Insights Letter reveals a difficult balancing act ahead.
June 30, 2016: Makena Strategy Insights Letter
Equity and Bond Markets: 60/40 Portfolio’s “Glory Days” May Be Nearing Their End
For the last 5 years, the 60/40 has returned almost 9% annually with very low volatility thanks to negative correlation of bonds and stocks during this period. However, with near zero bond yields and languishing equity fundamentals, is reliance on that negative correlation for protection still a safe bet? Our latest Strategy Insights Letter discusses the return profile of bond and equity markets in today's environment and examines the risk of a 60/40 portfolio going forward.
March 31, 2016: Makena Strategy Insights Letter
A Job or a Career: How Bifurcation of Incomes in the US May Lead to Lower Growth
As job creation continues, it is important to understand the quality of those jobs in terms of the income they provide. The following analysis will shed some light on why real disposable US household income growth has been subdued for nearly a decade, and what it means for economic growth.
December 31, 2015: Makena Strategy Insights Letter
Oil: A Buy for the Long-Run Investor
It is no secret that oil is down approximately 50% from its recent peak in the summer of 2015. But questions abound: how low can oil go? How big is the supply “glut”? And most importantly, what do the announced capex cuts imply regarding global oil demand if oil prices are to stay in the $30-$40/barrel range?
September 30, 2015: Makena Strategy Insights Letter
Emerging Markets: Finally Attractive Enough for a Significant Tilt?
While it seems unlikely that EM growth will accelerate to the levels witnessed during the early 2000s, such growth is not a prerequisite for EM assets to be attractive: relative growth differentials between EM and DM are sufficient to drive superior EM returns over the next several years.
June 30, 2015: Makena Strategy Insights Letter
The Rate Hike: Deeper Dive into the Impact on Equities
As far as we can tell, this will be the first time since at least the ‘80s that the Fed will be hiking rates in a situation where growth is not accelerating. A 100 bps instantaneous increase in the yield of 10-year treasury would lead to a 20% sell-off in the S&P 500, due to market participants essentially adjusting multiples in light of a new interest rate outlook.
March 31, 2015: Makena Strategy Insights Letter
Rates “Lift-Off”: How to Invest When History is No Longer a Guide
The impact of a rate hike could certainly be a catalyst for an equity sell-off but without history as a guide we are left with only deductive reasoning, which typically only provides relatively vague forecast ranges. The days of a predictable policy path are now behind us as the Fed has gone to reacting to economic data as it comes out. How does the long term investor navigate these more volatile times?
December 31, 2014: Makena Strategy Insights Letter
The ECBs Quantitative Easing Program: The Only Option Left, but Will it Work?
Many attempts at jump-starting the Eurozone economy and thereby generating inflation have left us with an alphabet soup of ECB policies: ZIRP (zero interest rate policy), NIRP (negative interest rate policy), OMT (outright monetary transactions), LTRO (long-term refinancing operations), asset purchase programs, etc. On January 22nd, the ECB announced its own QE program.
September 30, 2014: Makena Strategy Insights Letter
US Dollar Strength: What This Means for the Global Economy
Since the beginning of the summer, the trade-weighted US dollar has appreciated approximately 8%, or over 35% on an annualized basis. Because the US dollar remains the cornerstone of the international monetary system, such a change has important ramifications for trade, growth and income on a global basis.
June 30, 2014: Makena Strategy Insights Letter
Lower Growth is Here to Stay: Expect Subdued Returns
Lower Fed forecasts finally acknowledge a reality that is very hard to accept, that is the lower potential growth of the US economy, and indeed perhaps that of the global economy. Should growth be lower than historically was the case, then returns to capital will likely be lower as well.
January 31, 2014: White Paper
Europe: A Lost Decade Ahead?
The credit crunch under way now for five years in Europe may have already created permanent and irreversible damage to those economies. We ask the question: Is Europe on its way to a lost decade?
December 31, 2013: Makena Strategy Insights Letter
Wage, Income, Rates, Taxation, and Regulation: Why Growth Will Remain Below the Historical Trend
The divergence between high and low earners explains why we see seemingly contradictory macro data: how can unemployment fall while real disposable household income remains unchanged? This is yet another headwind to growth in addition to increasing rates, increasing taxation and increasing regulation – all reasons why we believe long-term potential growth for the US will remain below the historic potential growth trend.
April 31, 2012: White Paper
The Road Ahead for China
The Chinese growth “miracle” is enabled by a series of policies that purposefully distort input markets in order to facilitate industrial development. In order to transition to a consumer-led economy, China needs to dismantle the distortions it put into place that led to the Chinese growth boom. That is a tall order.