"Kee" Points with Jim Kee, Ph.D.

  • Stocks
  • Bonds

Every so often I prepare brief speaking points to send ahead of speaking events to groups or the media. Here’s what I sent out last week:


“Surprising growth, disappointing returns” described the first two quarters:

  • Part of that was “prices (stocks) lead quantities (GDP), and markets had moved in advance of the economy.
  • Part was trade angst, with US Small Cap > US Large Cap > International Large Cap > International Small Cap. Second half could see that move in reverse if trade negotiations with Canada, China, and Europe move forward as they have with Mexico. However, rising Italian interest rates (though just over 3% for the government 10-year), which signal political/budget concerns there, could continue to weigh on Euro-area (and even global) assets.
  • Mid-term elections tend to produce range-bound markets going into elections, with strong rebounds in November/December. Shocks (like impeachment trials) tend to produce transient sell-offs that don’t dictate the markets overall trend. That is, bull markets continue to be bull markets, and bear markets continue to be bear markets.
  • Flexible exchange rates provide a buffer from Emerging Market turmoil

Expected but not Predictable: That is how to think about pullbacks, corrections, bear markets, recessions, etc. It’s also how to think about a value stock (versus growth stock) rebound, so always own some value stocks. 

Things that take your eye off the ball: That is how I would describe a lot of high frequency data (daily/weekly/monthly) and perhaps even widely telegraphed events like Fed policy.


  • What hasn’t changed: You are still not getting paid much for taking credit risk and/or interest rate risk. Investors are finally getting paid, i.e. enjoying higher rates, at the short-end; longer-term (7-8 year) tax-exempt municipal bonds are also attractive.
  • Yield Curve: Forecasting information is in the short yields, not the long-term rates (Boston Fed); 10-year minus 3-month is the most useful term-spread for forecasting the economy (San Francisco Fed). Yield curve signals are akin to a light switch, not dial, so an actual inversion (long rates lower than short rates) is more important than just flattening (Dallas Fed). The Federal Reserve’s impact on the economy has been waning over time.