● Recession: The Real Reasons Economies Shrink and What to Do About It
Tyler Goodspeed
Interview with author via CNBC
Q: You say recessions are unforecastable. What does that mean? There are a lot of people who try to predict them.
A: In a nutshell, it means recessions are about shocks, and they are shocks we can neither fully anticipate nor effectively hedge against. We have tools to predict recessions, like the yield curve. But when you actually test these tools on the historical record, there are a lot of false positives and false negatives. I’ll admit, I still look at the yield curve just to take a look. I’m not a believer in astrology, but I still take a peek at my horoscope now and then.

● Investment Philosophies: Successful Strategies and the Investors Who Made Them Work (3rd Edition)
Aswath Damodaran
Summary via publisher (Wiley)
In the revised third edition of Investment Philosophies, Aswath Damodaran delivers a deep dive into a variety of investment philosophies, exploring the assumptions and beliefs that underlie each of them. You’ll explore the investment strategies that arise from each philosophy, as well as what you – as an investor – need to bring to the table to make the philosophy work in the real world. Rather than present one philosophy as the “one best” philosophy for all investors, the book presents a variety of choices, letting investors pick the one that best fits their personal beliefs about markets and personalities.

● The Wage Standard: What’s Wrong in the Labor Market and How to Fix It
Arindrajit Dube
Excerpt via Big Think
What determines the extent of employers’ wage-setting power? It boils down to how easily — borrowing Beyoncé’s phrase — you can “release your job” when pay isn’t good enough. But how simple is it for someone to quit Walmart if they are dissatisfied with their wage?
To answer this question, my collaborators Suresh Naidu and Adam Reich and I surveyed about 10,000 Walmart workers in 2019 using a Facebook-based strategy, similar to the Shift Project. As we saw previously, Walmart, the nation’s largest private employer, has long been associated with low pay. In 2019, its voluntary company-wide minimum wage stood at $11 per hour, lagging behind competitors like Target and Costco. If paying jobs were truly easy to replace, one would expect Walmart jobs to be among the easier to quit and move on from, or market pressure would already have pushed Walmart wages to match those competitors.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

The war with Iran started over a month ago, and could run for several more weeks, according to President Trump’s address to the nation last night. The short-term effects for markets have already been substantial, and more turbulence is potentially brewing for the near-term outlook. But even a month of war has yet to meaningfully change long-term expected returns for the major asset classes overall.

If financial markets continue to fall, at some point the decline will lift long-run performance expectations by more than a trivial degree. But in the context of our modeling for the long-term horizon (outlined below), last month’s slide in asset prices has been a marginal factor.

Today’s updated long‑term forecast for the Global Market Index (GMI) is relatively steady at a 7%-plus annualized total return. GMI’s projected long‑run outlook continues to run well substantially below its trailing ten‑year performance. It all adds up to a case for managing expectations down for performance relative to recent history – a shift that predates the war and, for now, doesn’t appear likely to change in the immediate future.

GMI is a market‑value‑weighted mix of the  major asset classes (excluding cash) via ETF proxies. The forecast is calculated as the average of three models (defined below). The current 7.2% annualized estimate for GMI is slightly below the previous estimate, and remains well below GMI’s trailing 9.0% annualized return for the past decade.

Roughly a third of GMI’s components are projected to generate weaker returns relative to their respective results over the past ten years (indicated by the red boxes in far-right column below). The same subpar performance applies to GMI, which is currently projected to earn a materially softer return compared with its realized performance for the trailing ten‑year window through March.

 

GMI represents a theoretical benchmark for the “optimal” portfolio that’s suited for the average investor with an infinite time horizon. Accordingly, GMI is useful as a starting point for customizing asset allocation and portfolio design to match a particular investor’s expectations, objectives, risk tolerance, etc. GMI’s history suggests that this passive benchmark’s performance will be competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.

It’s likely that some, most or possibly all of the forecasts above will be wide of the mark in some degree. GMI’s projections, however, are expected to be somewhat more reliable vs. the estimates for its  components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater variability compared with aggregating the forecasts into the GMI estimate, a process that may reduce some of the errors through time.

Another way to view the projections above is to use the estimates as a baseline for refining expectations. For instance, the point forecasts above can be adjusted with additional modeling that accounts for other factors and assumptions not used here. Customizing portfolios for a specfic investor, to reflect risk tolerance, time horizon, and so on, is also recommended.

For perspective on how GMI’s realized total return has evolved through time, consider the benchmark’s track record on a rolling 10-year annualized basis. The chart below compares GMI’s performance vs. ETFs tracking US stocks and US bonds through last month. GMI’s current return for the past ten years is a robust annualized 9.0%.

Here’s a brief summary of how the forecasts are generated and definitions of the other metrics in the table above:

BB: The Building Block model uses historical returns as a proxy for estimating the future. The sample period used starts in January 1998 (the earliest available date for all the asset classes listed above). The procedure is to calculate the risk premium for each asset class, compute the annualized return and then add an expected risk-free rate to generate a total return forecast. For the expected risk-free rate, we’re using the latest yield on the 10-year Treasury Inflation Protected Security (TIPS). This yield is considered a market estimate of a risk-free, real (inflation-adjusted) return for a “safe” asset — this “risk-free” rate is also used for all the models outlined below. Note that the BB model used here is (loosely) based on a methodology originally outlined by Ibbotson Associates (a division of Morningstar).

EQ: The Equilibrium model reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on the somewhat more reliable framework of using risk metrics to estimate future performance. The process is relatively robust in the sense that forecasting risk is slightly easier than projecting return. The three inputs:

* An estimate of the overall portfolio’s expected market price of risk, defined as the Sharpe ratio, which is the ratio of risk premia to volatility (standard deviation). Note: the “portfolio” here and throughout is defined as GMI

* The expected volatility (standard deviation) of each asset (GMI’s market components)

* The expected correlation for each asset relative to the portfolio (GMI)

This model for estimating equilibrium returns was initially outlined in a 1974 paper by Professor Bill Sharpe. For a summary, see Gary Brinson’s explanation in Chapter 3 of The Portable MBA in Investment. I also review the model in my book Dynamic Asset Allocation. Note that this methodology initially estimates a risk premium and then adds an expected risk-free rate to arrive at total return forecasts. The expected risk-free rate is outlined in BB above.

ADJ: This methodology is identical to the Equilibrium model (EQ) outlined above with one exception: the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. Momentum is defined as the current price relative to the trailing 12-month moving average. The mean reversion factor is estimated as the current price relative to the trailing 60-month (5-year) moving average. The equilibrium forecasts are adjusted based on current prices relative to the 12-month and 60-month moving averages. If current prices are above (below) the moving averages, the unadjusted risk premia estimates are decreased (increased). The formula for adjustment is simply taking the inverse of the average of the current price to the two moving averages. For example: if an asset class’s current price is 10% above its 12-month moving average and 20% over its 60-month moving average, the unadjusted forecast is reduced by 15% (the average of 10% and 20%). The logic here is that when prices are relatively high vs. recent history, the equilibrium forecasts are reduced. On the flip side, when prices are relatively low vs. recent history, the equilibrium forecasts are increased.

Avg: This column is a simple average of the three forecasts for each row (asset class)

10yr Ret: For perspective on actual returns, this column shows the trailing 10-year annualized total return for the asset classes through the current target month.

Spread: Average-model forecast less trailing 10-year return.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

Markets took a beating in March, thanks to the war with Iran. Commodities surged and cash edged higher, but the rest of the major asset classes fell, in some cases sharply, based on a set of proxy ETFs.

The only place to hide was in raw materials. The iShares S&P GSCI Commodity-Indexed Trust (GSG) soared more than 24% last month, and is now the top-performer over several trailing windows. To the extent that a given portfolio strategy is ahead of its rivals, there’s a decent chance that a relatively high weight in commodities and/or cash explain the alpha.

Red ink dominated the performance ledger otherwise in March. Global property shares ex-US (VNQI) were hit especially hard, tumbling more than 12% last month.

Despite the widespread selling, all the major asset classes are posting gains in year-over-year terms and for the trailing 3-year window. With reports emerging that the war could soon end, the optimists are arguing anew that March could soon be viewed as another painful but temporary diversion in an ongoing bull trend.

Repair and recovery, when it does begin, will certainly be welcome after last month’s carnage. The Global Market Index (GMI) in March posted its biggest monthly decline in 3-1/2 years. For perspective, keep in mind that the benchmark had been running hot for an extended period before the war, posting 11 straight months of gain, the longest stretch of wins in nine years. Something had to give, and in this case the war was the catalyst.

GMI is an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETFs and represents a competitive benchmark for globally diversified, multi-asset-class portfolio strategies.

Federal Reserve Chairman Jerome Powell may be downplaying inflation risks, but the bond market is signaling skepticism about how quickly price pressures will recede.

“Inflation expectations do appear to be well anchored beyond the short term, but nonetheless, it’s something we will eventually maybe face the question of what to do here,” Powell said on Monday at a talk at Harvard University. “We’re not really facing it yet, because we don’t know what the economic effects will be, but we’ll certainly be mindful of that broader context when we make that decision.”

The bond market is already mindful that the risk calculus has changed since the war started. The 2- and 10-year Treasury yields, for example, have shot up since the war started on Feb. 28. Although both rates are still trading at middling levels relative to their ranges in recent years, the rapid jump is hard to miss and is likely driven by concerns that inflation risk at the headline level is rising.

In line with the shifting sentiment, short-term inflation-indexed Treasuries (STIP) are the top performer this year for a set of bond-market ETFs through yesterday’s close (Mar. 30).

Headline inflation will almost certainly pulse higher in the near term in the wake of the sharp runup in energy prices, but some economists predict that the rise will be short-lived.

“Risks to inflation should rise initially but then fall if the shock is large enough, due to demand destruction,” economists at Bank of America Research estimated last week. “Negative wealth effects from a sustained equity selloff would exacerbate downside risks to labor and limit the upside to inflation.”

Rate hikes are still considered unlikely for the near-term outlook, but so are rate cuts, based on the implied probabilities via Fed funds futures.

The Treasury market’s implied inflation forecast via 5-year maturities has been breaking higher relative to the 10-year maturities. The implication: the market expects any increase in inflation pressure to be relatively short-lived. Note, too, that the Treasuries’ inflation outlook has yet to decisively break above recent peaks, which suggests that the crowd is not yet fully convinced that inflation is a threat that will outlast the war’s end.

Meanwhile, the longer the conflict lasts, the less patience the bond market will exhibit for tolerating the Fed’s preference to leave monetary policy as is. In that sense, President Trump has acquired a degree of power to effectively run Fed policy by determining when the war ends. Whether this influence will satisfy his preference for rate cuts, however, remains in doubt for the foreseeable future.  

US economic growth in the first quarter is still expected to rebound from the sluggish rise in Q4, but macro storm clouds are gathering for Q2 as the war in Iran continues.

The current nowcast for Q1 indicates an annualized 2.1% increase, based on the median estimate from a set of nowcasts compiled by The Capital Spectator. On that basis, growth will recover some of the lost momentum in Q4, when the economy expanded by a weak 0.7%.

Today’s Q1 estimate is down slightly from the previous update (Mar. 16). Further downgrades are possible, if not likely, between today and April 30, when the Bureau of Economic Analysis publishes its initial GDP estimate for Q1. Most of the economic data for the first three months of the year are expected to reflect pre-war activity. Although it’s unclear how the war has affected output in March, the fallout will probably be limited.

PMI survey data, however, suggest a non-trivial headwind in March. The US Composite PMI Output Index, a GDP proxy, fell to 51.4 this month, an 11-month low that reflects a weak growth bias. “The flash PMI survey data for March signal an unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East,” says Chris Williamson, chief business economist at S&P Global Market Intelligence.

Joseph Brusuelas, chief economist at RSM, a consultancy, today writes: “Financial markets in the United States are pricing in a longer duration of the war in the Middle East. Our RSM US Financial Conditions Index, which has been decelerating since early February, has turned negative, implying a modest drag on growth.”

Deciding if a modest drag on growth deteriorates into something worse for Q2 will be determined by how the war evolves in the days and weeks ahead. Perhaps the only calculus that’s reliable at this point: the longer the conflict persists, the greater the economic damage.

The odds still suggest the US will avoid a recession starting at some point this year, according to Polymarket, a betting site. But this morning’s 37% chance of contraction by the end of 2026 has increased from 23% at the start of the war.

Some analysts say that markets are overreacting to the risks posed by the war. But with no sign of an end to the fighting on the immediate horizon, the potential threat to the global economy, with spillover effects for the US, will become harder to dismiss in the days ahead.

“Every recession since World War II, save the pandemic recession, has been preceded by a spike in oil prices,” Mark Zandi, chief economist at Moody’s Analytics, wrote last week. “Higher oil prices do not do the same economic damage as in years past, because the US produces as much as it consumes. But consumers still get hit hard and fast while producers invest and hire more only slowly, if at all, waiting to make sure the higher prices are here to stay.”

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

● The Great Global Transformation: The United States, China, and the Remaking of the World Economic Order
Branko Milanovic
Review via Compact
According to Milanović, our decaying neoliberal order is so globalized and over-extended that it has coiled back in on itself, leaving us to commodify even our own leisure time by becoming increasingly incapable of enjoying it if it is not shared and displayed through social media… he sees little prospect of “re-embedding” market institutions in renewed social democracies and welfare states. While he sees neoliberal globalization coming to an end, he expects this process to crumble back into what he calls “national market liberalism”: neoliberal institutions confined to nations in which the balance between state and market remains tilted in favor of market elites.

● The Quantamental Revolution: Factor Investing in the Age of Machine Learning
Milind Sharma
Summary via publisher (Wiley)
In The Quantamental Revolution: Factor Investing in the Age of Machine Learning, veteran quantitative investor and strategist, Milind Sharma, delivers a comprehensive discussion of factor investing, risk premia, smart betas, multi-factor models and the deployment of ML ensembles towards monetizing alpha in the hedge fund world. Sharma draws on 30 years of industry and academic experience to bring us up to date on the cutting edge of quantitative factor investing.

● The Insatiable Machine: How Capitalism Conquered the World
Trevor Jackson
Review via The New York Times
In 2003, the literary theorist Fredric Jameson wrote that it was “easier to imagine the end of the world than to imagine the end of capitalism.” Trevor Jackson seems to agree, but only to a point. In “The Insatiable Machine: How Capitalism Conquered the World,” Jackson says that the prevailing economic system has already gone a long way toward destroying our “finite planet.” He argues that if we don’t find a way to change course, the end of the world won’t be something we have to imagine; it will actually arrive.

● The Algorithm: The Hypergrowth Formula That Transformed Tesla, Lululemon, General Motors, and SpaceX
Jon McNeill
Review via ZD Net
The march to AI-driven technology development is hitting a wall — a wall of complexity. As AI increasingly becomes part of business, it is driving demand for well-designed infrastructure, resilient networks, and sophisticated software stacks that all demand human oversight and intervention.
That’s the word from Jon McNeill, CEO of DVx Ventures, former president of Tesla, and former chief operating officer of Lyft. McNeil is the author of a new book The Algorithm: The Hypergrowth Formula That Transformed Tesla, Lululemon, General Motors, and SpaceX. I recently had the opportunity to sit down with McNeill to discuss what IT professionals should consider and look for as they move into this new landscape.

● Expectations Matter: The New Causal Macroeconomics of Surveys and Experiments
Olivier Coibion and Yuriy Gorodnichenko
Summary via publisher (Princeton U. Press)
How do expectations about the future influence economic behavior? For decades, economists have known that beliefs play a central role—from how much households spend, to how firms set prices, to how central banks design policy. But figuring out exactly how expectations affect decisions has been one of the field’s most persistent empirical challenges. In this book, Olivier Coibion and Yuriy Gorodnichenko present a fresh empirical approach: using randomized controlled trials (RCTs) to study the causal impact of expectations. Drawing on more than a decade of their research, they show how targeted information treatments can generate experimental variation in beliefs—making it possible to measure how those beliefs influence real-world decisions. Along the way, they reassess the limits of the traditional rational expectations framework and offer a richer, evidence-based picture of how people form and act on their views about the economy.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

After the AI Crash: Bubble Burst or an Economy-Wide Crash?
Asad Ramzanali (Vanderbilt Policy Accelerator/Vanderbilt U.)
March 2026
Public concern about the level of AI investment is everywhere. While some compare today’s scenario to the dot-com bubble, the economy’s overreliance on AI investment, coupled with opaque financial engineering, means that a market correction could look more like the 2008 Great Recession, an economy-wide crash with systemic consequences. After such a crash, Congress will scramble to identify a reform agenda. In a rush, broader reforms that take time to formulate get shelved for quick action. It doesn’t have to be so. Instead of waiting for the crisis and hastily developing insufficient policies, lawmakers should prepare for this anticipated crisis now. Of course, a response depends on exactly how a crash comes to pass. But for meaningful reforms to have a chance, policymakers need to begin debating them. To that end, this paper describes how a crash might occur and outlines policies for Congress to consider in response.

Politics and Crash Risk
Kuntal Kumar Das and Mona Yaghoubi (U. of Canterbury)
March 2026
We examine whether firm-level political risk increases stock price crash risk and whether this effect varies systematically with firms’ political orientation. Using a large sample of U.S. publicly traded firms over an 18-year period, we find that political risk is a significant determinant of crash risk, but its effects are highly asymmetric. Firms led by Republican-leaning managers, firms adopting conservative financial policies, and firms operating in Republican-favored industries exhibit a markedly stronger sensitivity of crash risk to political risk than their Democratic-aligned counterparts. We further show that the impact of political risk is amplified when political signals are precise and informative and is concentrated among firms with low stock liquidity, consistent with information asymmetry and bad-news hoarding mechanisms. Together, our results link political polarization to financial instability and highlight the central role of ideology, information quality, and market microstructure in the transmission of political risk into extreme market outcomes.

Investor Sentiment and the Crash Risk of Anomalies
Timothy K. Chue and Katelyn Y. Hu (Hong Kong Polytechnic U.)
December 2025
We find that the return skewness of major stock market anomalies varies with investor sentiment. Following periods of low sentiment, these strategies exhibit significantly more negative skewness and greater crash risk, as evidenced by a more negative Conditional Value-at-Risk (CVaR). In contrast, these strategies display positive skewness following high investor sentiment. These findings contribute to the debate of whether it is risk or mispricing that explains anomaly returns. Our results suggest that left-tail risks cannot account for the higher returns earned by anomalies in high-sentiment states—taking tail risks into account in fact makes it more challenging to explain the state dependence of anomaly returns from a risk-based perspective. In contrast, our results are consistent with the mispricing perspective. If the extent of overpricing of the short side to an anomaly portfolio is indeed greater than the long side following high sentiment (as suggested by Stambaugh et al. 2012) and that crash risks are higher when investor sentiment and the degree of overpricing is high (as suggested by Baker and Wurgler 2006, 2007), the crash risk of the short side would also be greater than that of the long side—reducing the crash risks of the long-short portfolio during these times. Although diversification across anomalies enhances their Sharpe ratios, it fails to reduce their crash risks.

Speculative Growth and the AI “Bubble”
Ricardo J. Caballero (Massachusetts Institute of Technology)
December 2025
Are today’s high AI valuations a bubble? I argue the answer may be “both yes and no”-in a precise economic sense. Drawing on the speculative growth framework developed in Caballero et al. (2006), I claim that AI technology plausibly satisfies the conditions for multiple equilibria. The core mechanism in that framework is a funding feedback: as wealth accumulates, interest rates eventually fall, validating the high valuations that set the process in motion. AI technology reinforces this mechanism through a flat marginal product of capital region-arising from AI’s ability to substitute for labor across a broad range of tasks-which allows substantial capital accumulation without rapidly eroding returns. The concentration of AI gains among high-saving capital owners provides the funding feedback, while intermediate adjustment costs in building AI capacity allow asset prices to generate the capital gains that sustain an investment boom, while at the same time permit a rapid expansion in AI capital. When these conditions hold, the economy can sustain either a low-capital equilibrium with high interest rates, or a high-capital equilibrium with low interest rates, high market capitalization and, ultimately, high wages. Crucially, the transition to the highcapital equilibrium requires elevated valuations throughout: high asset prices finance the investment boom that ultimately validates the optimism. Yet this transition is fragile-a loss of confidence can trigger a self-fulfilling crash. The favorable outcome and high valuations are inseparable along the journey.

The disclosure dilemma: Industry distress and stock price crash risk
Chune Young Chung (Chung-Ang University), et al.
January 2026
This study examines how industry distress affects a firm’s stock price crash risk by altering managerial behavior. Drawing on the agency and disclosure theories, we hypothesize that managers in distressed industries may either hide or reveal bad news, thereby increasing or decreasing crash risk, respectively. Using industry short interest as an ex-ante measure of industry distress, we find that firms from more distressed industries are exposed to higher stock price crash risk in the future, especially when they demonstrate high information asymmetry. Our findings support the agency-motivated crash risk hypothesis that managers view negative industry shocks as threats and withhold negative information to obtain personal benefits.

Firm-Level Geopolitical Risk and Stock Price Crash Risk
Qingjie Du (University of Birmingham), et al.
January 2026
This paper constructs an innovative firm-level geopolitical risk exposure measure to explore the cross-firm heterogeneity. We find that higher firm-level geopolitical risk significantly increases future stock price crash risk. The effect of firm-level geopolitical risk on stock price crash risk is more pronounced for firms with greater product market competition, higher operational volatility, and higher financial constraints. But more experienced auditors help mitigate the detrimental impact. Our findings highlight the cross-firm heterogeneous exposure of geopolitical risk and show that high firm-level geopolitical risk affects corporate operation and incentivizes managerial information-hoarding, which ultimately increases the likelihood of stock price crashes.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

The benefits of diversifying across asset classes as a risk‑management tool are widely accepted, but what’s easily overlooked is that the relative benefits wax and wane over time. That doesn’t invalidate global asset allocation, but it does serve as a reminder that your mileage will vary.

There are several ways to measure asset allocation’s value for portfolio design and management. A useful first step is tracking how return correlations vary through time. In contrast with the popular approach of looking at a single snapshot and calling it a day, reviewing rolling numbers offers a more realistic profile of the dynamic nature of correlations, which in turn helps manage expectations for how global asset allocation will perform.

Let’s start with a top‑down review of the median correlation for all major asset classes using a rolling 1‑year window of daily data. The current reading is 0.42 (see chart below). As a recap, correlations range from –1.0 (perfect negative correlation) to +1.0 (perfect positive correlation). The latest value indicates a moderately low degree of positive correlation, which has fallen substantially from above 0.65 a few years ago. In other words, the implied benefits of diversification across major asset classes have strengthened. One could say that investors are getting more bang for the asset‑allocation buck lately.

Keep in mind that a range of correlations is the basis for holding multiple asset classes. If everything was perfectly correlated, there would be no point in holding more than one asset.

Back in the real world, the next chart focuses on how correlations have changed from the viewpoint of a US stock fund—in this case, Vanguard’s Total Stock Market ETF (VTI). The three lines compare VTI with equities in developed markets ex‑U.S. (VEA), emerging markets (VWO), and U.S. bonds (BND).

Drilling down further, the table below summarizes how correlations stack up over the trailing 5‑year window for all major asset classes. At the extremes, the results range from 0.02 for commodities (DJP) and U.S. bonds (BND) to 0.85 for government bonds in developed markets ex‑U.S. (BWX) and global corporate bonds ex‑US (PICB).

This type of analysis is just one piece of the puzzle, of course. A real-world plan might also consider expected returns for asset classes. Even more important: customizing the portfolio for the investor or institution to factor in the specific time horizon, risk tolerance, etc.

Correlations are a useful first step in designing a portfolio strategy, highlighting what’s available for risk management. Although the numbers will change, the concept of global asset allocation endures. Because the future is always unknowable, investing across asset classes is consistently beneficial. What isn’t fixed is the degree of the benefits on offer in any given period.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

Inflation worries have convinced markets that the odds are low for a cut in interest rates this year by the Federal Reserve. Rate hikes are still considered unlikely, but the possibility is back on the table, if only on the margins. The change in sentiment, courtesy of the war in Iran, which has sent energy prices soaring, is weighing on the bond market. The hope is that the conflict will soon end, allowing Middle East oil and gas exports to resume, and thereby tame inflation worries.

At the moment, much of the fixed-income market is underwater this year, based on a set of ETFs through Tuesday’s close (Mar. 24). The upside outliers are limited to floating-rate investment-grade bonds (FLRN) and short-term Treasuries of the nominal and inflation-linked variety. The rest of the field has lost ground so far in 2026. The deepest year-to-date loss: long-term corporates (VCLT) via a 1.4% decline, substantially deeper than the 0.5% drop for the US investment-grade benchmark (BND).

Relief in the form of rate cuts is now considered unlikely for the near term. The Fed funds futures market is pricing in essentially zero odds for easing through the October policy meeting, shifting to a slight chance for a cut in December. A hike is also given low odds, but futures aren’t fully discounting the possibility.

For some analysts, the writing’s on the wall. “The market is saying that the Fed is done for the next year or two. We went from talking about how much the Fed is going to cut to how long the Fed is on hold for. The narrative has completely shifted in terms of what the Fed will do this year,” predicts Brij Khurana, a portfolio manager at Wellington Management.

A possible joker in the deck is the policy-sensitive 2-year Treasury yield, which has spiked higher in recent days. Trading just below 4.0% yesterday (Mar. 24), this proxy for rate expectations is now meaningfully above the median effective Fed funds rate (3.64%) for the first time in three years. That’s a sign that this corner of the bond market is anticipating tighter policy at some point.

A drop in energy costs could quickly change the calculus back to a neutral or disinflationary outlook, but a sentiment shift will require robust signs that inflation risk is tamer than the war-related risk implies. That will take time, given that formal inflation data arrives with a lag and it’s uncertain how, when or if the war will affect prices generally.

Reviewing breakeven rates in the Treasury market – a proxy for inflation expectations – paints a mixed picture. These estimates have surged on the short end of the curve. For example, the 1-year breakeven (nominal yield less its inflation-indexed counterpart) recently rose above 5%–a sign that investors are demanding a sharply higher inflation premium for the near term.

Longer-term inflation estimates are still modest and remain in a range that’s prevailed in recent history, which suggests that any inflation risk will be temporary. The 5-year breakeven, for example, has increased lately, but only modestly and is currently at 2.55%. That’s up from the recent low of 2.22%, but slightly below the roughly 2.60% high point for the last several years.

But confidence about the near-term future is still fluid. Until the war ends, and markets have time to assess how the macro outlook has changed, expectations for bonds, inflation, and interest rates will remain dependent on the duration of the conflict and the outlook for energy prices.

President Trump’s announcement of a halt in the strikes on Iranian infrastructure sparked a rise in risk assets on Monday (Mar. 23). It’s unclear if this is a temporary lull or a diplomatic opening that leads to a ceasefire, but risk assets found some breathing room yesterday. Commodities are still the strongest year-to-date performer for the major asset classes, but 2026 results are a bit less lopsided through yesterday’s close, based on a set of ETFs.

Raw materials continue to dominate this year, but the outperformance has become less extreme in recent days. WisdomTree Commodity ETF (GCC) is up 9.6% in 2026 – a strong run, although down sharply from the near-16% peak year-to-date performance set earlier this month.

After commodities, the best performer: foreign stocks in developed markets ex-US (VEA), posting a 2.1% gain, followed by US real estate investment trusts (VNQ), which are up 1.1%. US stocks (VTI), by contrast, are down 3.3% — the deepest year-to-loss for the major asset classes so far this year.

The path ahead is still fraught due to a truckload of uncertainty. The main item on the agenda: Will a diplomatic solution emerge to end the war in Iran? There’s a glimmer of optimism following Trump’s announcement, but the fighting continues and Iran has denied that any substantiative negotiations are happening. Fake or not, the news triggered a hefty decline in oil prices on Monday. The US benchmark fell below $90 a barrel, the lowest in nearly two weeks.

Even if the war ended today, energy infrastructure in the Persian Gulf region must be repaired to boost oil and natural gas exports from the Middle East to ease the supply crunch. “It will take some time to come back to the normal days we had before the war was started,” said Fatih Birol, the executive director of International Energy Agency.

Meanwhile, markets are on the lookout for signs that the energy shock unleashed by the war will lift inflation for an extended period. Although formal inflation data arrives with a lag, several real time benchmarks are hinting a elevated pricing pressure. The Economist reports:

Alternative Macro Signals, a consultancy, analyses millions of news articles. Their global inflation index, which has proved to be a useful predictor of official numbers, has recently risen sharply. If historical patterns hold, by July monthly global inflation could be above 0.6%. That is more than 7% on an annualized basis.

Alternative Macro Signals is not the only worrying datapoint. Truflation, a consultancy, analyses prices in real time from a wide variety of sources. Its figures suggest that this month American year-on-year goods inflation has jumped from less than 1% to nearly 3.5%. This was almost entirely the result of rising petrol prices.

Hotter inflation is a near-term risk, but the jump is still expected to be temporary, based on the Treasury market’s implied forecast via the yield spread for the nominal 5-year yield less its inflation-indexed counterpart. The current estimate is 2.53%, which is modestly below the peaks over the past year.

Despite the relative calm for the Treasury market’s outlook, it’s premature to dismiss the potential for an inflation shock of some duration. Despite Trump’s announcement, the war continues, which means that the further upside inflation pressure may be brewing — a risk that markets have yet to fully price in.

“What makes this a fraught but intense moment is nobody can tell us what is going to happen on the ground in the conflict in the Middle East, and how long that lasts,” Chicago Federal Reserve President Austan Goolsbee said on Monday.

Until there’s a strong case for arguing otherwise, the near-term outlook for risk assets still looks wobbly.

The Iran war is now in its fourth week, with no sign that the conflict is nearing an end. Conditions for a stalemate or ceasefire may be brewing, but for now no one is blinking. Without even a hint of de‑escalation, the stock market will continue searching for a bottom. When a turning point for the market arrives, it will likely coincide with a sense that geopolitical risk has finally peaked.

US equities fell for a fourth week through Friday (Mar. 20), but the decline has been orderly so far. The slide is also mild compared with last year’s tariff tantrum. By The Capital Spectator’s reckoning, the current correction is roughly one‑quarter as deep as the dive in the spring of 2025, based on our standard estimate of overbought-oversold conditions for the SPDR S&P 500 ETF (SPY).

No one knows where full capitulation and maximum drawdown ultimately lie, but the conditions that accompany selling exhaustion will likely align with recurring signs of relative improvement.

Financial markets are forward‑looking pricing systems, continually scanning for indications that the future may diverge—however slightly—from current conditions. Discounting expected future outcomes is a messy business in real time, and the market often misreads the tea leaves. But the constant process of revising the outlook as new information arrives provides a steady recalibration of expected risk and return.

One challenge for investors searching for opportunities to buy stocks on the cheap (to boost expected return) will be distinguishing the absolute state of the war and its long‑term implications from the crucial shift toward relative improvement in the outlook. That change may be obvious or subtle, but at some point the tide will turn and sentiment will move from a sense that the crisis is deepening to one that is becoming slightly less bad.

An additional complication is that this ebb and flow has a short‑term cycle that can be misleading. But as the chart above suggests, the point of maximum pain may become increasingly obvious, in which case there will be several clues indicating that the market has fully priced in the risk at hand.

No one can identify the bottom in real time, of course, but using a set of analytics can help provide useful context for judging when the odds appear to have shifted to a net‑favorable state for the near-term outlook. The task is arguably easier when the decline is sharp and rapid, as was the case during last year’s spring correction. By contrast, longer, slower downturns are more challenging to analyze.

For now, current conditions—analytically speaking and based on the news flow—suggest that the market has yet to reach maximum pessimism. But keep in mind that behavioral biases are sticky and will keep us focused on the negatives, primarily informed by the rear‑view mirror.

Eventuallly, the backward‑looking influence will become far less useful from an investment perspective. We should remain open to the fact that markets continually look past what just happened and stay focused on the possibilities for tomorrow and beyond.

When the backward‑looking fear finally gives way to forward‑looking recalibration, the market will have already begun its turn. That pivot, subtle at first, is where recoveries are born.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

● Money Beyond Borders: Global Currencies from Croesus to Crypto
Barry Eichengreen
Review via Financial Times
The US dollar’s recent travails — it has fallen more than 10 per cent against other major currencies since the beginning of 2025 — have led to renewed questioning about its future. How long will it remain the world’s premier currency? What might it take to finally knock it off its perch? And, should it fall, what will replace it — a new dominant reserve currency, a basket of quasi-reserve currencies, perhaps even something from the cryptoverse? …
Eichengreen’s suspicion is that, if and when the US dollar in turn loses its mantle, the wounds will more likely be self-inflicted than exacted by a monetary foe. Among the possible fatal harms, he identifies heightened tariffs, America’s escalating fiscal woes, the undermining of Federal Reserve independence, more aggressive and widespread use of financial sanctions and a retreat from longstanding international alliances. The current US president has leaned — sometimes more than leaned — in all these directions.

● Ladder or Lottery: Economic Promises and the Reality of Who Gets Ahead
Gary A. Hoover
Summary via publisher (U. of California Press)
This book asks the reader a simple question: Is our economy a ladder or a lottery? Are people able to control their position on the economic spectrum by their actions? Some argue that, in our market-based economy, if you play by certain rules and make certain choices, you’ll achieve upward mobility no matter what economic position you were born into… Hoover shows how civil unrest is often directly related to broken society-level promises, exploring protest movements such as Occupy Wall Street, the Tea Party, the Arab Spring, and student debt forgiveness as case studies. He also predicts where future protests can be expected if results promised are not results delivered.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

The war in Iran is sending shockwaves across the globe, but the US economy has managed to stay remarkably steady so far. How long the relative calm lasts is unclear, and will likely be determined by the duration of the conflict.

Let’s start with the upcoming first-quarter GDP nowcast. The war’s effect on economic activity for the January-through-March period will be limited, but the economy’s momentum, or lack thereof, in the start of the year will be crucial because a tailwind of some degree will be helpful in minimizing the macro shock that may be brewing for Q2.

The good news: a moderate rebound is expected for Q1 growth following the weak increase in output in Q4. The Atlanta Fed’s current Q1 nowcast still reflects a 2.1% annualized rise in GDP. If correct, the economy will partially recover from Q4’s stall-speed 0.7% advance.

The Dallas Fed’s Weekly Economic Index (WEI) offers a more granular and current review, and on that score there’s no sign that the war has derailed the recent reacceleration of the trend. WEI’s current reading is 2.6% as of Mar. 14. Using this as a proxy for the year-over-year change in GDP suggests that economic activity is stable, and perhaps even strengthened through mid-March.

But these are still early days for assessing the war’s effects, for the US and the global economy. Three weeks into the conflict, the repercussions continue as the energy shock reverberates. Europe and Asia are more vulnerable, given their higher reliance on imported oil. The US, a net oil exporter, has a substantially higher level of immunity. But oil is priced globally. As I reported last week, “Oil is priced in a single worldwide marketplace, which means that shifts in supply, demand, and geopolitical risk spill across borders regardless of how much a country produces.”

Given the global aspect of pricing, it’s no surprise that the US crude oil benchmark (West Texas Intermediate) has risen sharply this year in line with the surge in the international benchmark (Brent).

Yet The Wall Street Journal’s new survey of economists highlights expectations for resiliency, at least so far: “Economists Don’t See a Recession Unless Oil Hits $138—and Stays There for Weeks.” WTI traded at roughly $95 a barrel on Thursday.

Predicting oil prices is challenging, to say the least, especially in the current environment. Presumably the war will end soon, but no one knows the timeline, except perhaps one man in the White House.

This much is obvious: the longer the attacks continue, the longer the energy infrastructure is degraded in the Gulf region, and the longer that oil and natural gas exports from the Middle East are blocked, the deeper the economic pain and the longer and slower the eventual recovery.

Surveying the disruption of exports through the Strait of Hormuz to date, Priyanka Sachdeva, senior market analyst at Phillip Nova, said: “The damage has been ​inflicted, and even if safe passage for tankers is somehow negotiated through Hormuz, reviving ​logistics fully fledged ⁠can take an awfully long time.”

Meantime, the risk of higher inflation and slower growth are likely creeping higher every day.

Writing on X yesterday, E.J. Antoni, chief economist at the Heritage Foundation, a conservative think-tank that’s closely aligned with President Trump, advised:

“If war is done in next few days, damage to energy infrastructure is minimal, and Iran lets ships transit strait unmolested, there’ll be minimal impact; but drag this on for months and destroy lots of infrastructure, then impact will be big; no one knows the future.”

The Federal Reserve has a deep pool of resources for analyzing the economy to support its mission to adjust monetary policy to match current and expected macro conditions. But sometimes a central bank’s vaunted research machine offers insights no sharper than whatever you’d get from chatting with a guy waiting at the bus stop. The present moment is one of those times, thanks to the uncertainty surrounding the ongoing war in Iraq.

Federal Reserve Chairman Powell admitted as much yesterday after the Fed announced that it left its key interest rate unchanged at a 4.50%-to-4.75% range.

“The thing I really want to emphasize is, nobody knows,” Powell said, citing the Iran war as the main source of indecision and uncertainty. “The economic effects could be bigger, they could be smaller, they could be much smaller, they could be much bigger. We just don’t know.”

No one does. One man in the White House holds the key for the war’s path, at least in terms of the US role. But with so many moving parts to the conflict, and an endless array of rapidly evolving economic and financial implications, the distribution of outcomes could hardly be much wider, or more shrouded in a fog of unknowing.

The main concerns from a macro perspective: the war could raise inflation, slow growth, or some degree of both – the dreaded stagflation scenario. The arrival of those twin challenges would be uniquely difficult for a central bank because the monetary toolbox tends to only work effectively on one problem or the other. That raises the difficult calculus that any decision could push one problem in the right direction while worsening the other. Tightening policy cools inflation but deepens unemployment, while easing policy supports hiring but fuels inflation.

The business of central banking goes on, of course, even if the best course of action in the current climate is to do nothing and wait to see what happens. .

One point of clarity for the market at the moment is that interest rate cuts are now considered unlikely any time soon. Before the war, the Fed funds futures market had been pricing in moderately high odds for a cut in June, but standing pat is now considered likely for the next seven policy meetings through Jan. 2027. Rate hikes aren’t expected, at least not yet, but in a sign of the times the crowd is now pricing in non-zero odds for the months ahead.

The Treasury market is also flirting with the possibility of rate hikes. For the first time in more than a year, the policy-sensitive 2-year Treasury yield (3.76%) is trading above the median effective Fed funds rate (3.64%), based on data through Wed., Mar. 18.

While the bond market is considering the chance that the Fed may have to raise rates at some point to combat a rise in inflation due to the war, the central bank’s collective outlook for the target rate is still expected to remain roughly unchanged or lower through the end of 2026, based on yesterday’s update of economic projections.

Commenting on the latest rate outlook by the Fed, Powell said: “If you notice, the median didn’t change, but there was actually some movement toward — a meaningful amount of movement — toward fewer cuts by people,” he noted in his press conference yesterday. “So, four or five people went from two to one, let’s say, two cuts to one cut.”  

It’s all a guessing game in the extreme at the moment, which Powell effectively acknowledged:

“In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy,” Powell said. “The thing I really want to emphasize is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just ​don’t know.”

That’s everyone’s mantra for the foreseeable future. No one knows, no one knows.

Sometimes the wisest move for a central bank is to stand still long enough to see whether the economy is actually moving or if inflation is rising. The danger, of course, is that waiting too long risks letting the inflation cat out of the bag. The Fed, presumably, learned that lesson during the inflation spike in 2022-2023.

It’s unclear if a repeat performance is brewing, or whether the central bank will have enough hard data to make an informed decision to minimize the risk. Like everyone else, the monetary gnomes will have to watch and wait, just like the rest of us.

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The pain isn’t equally distributed. It never is, as the fallout from the war in Iran makes clear. Since the attack began on Feb. 28, nearly every major asset class—aside from commodities and cash—has slipped into the red, with losses spreading broadly across global markets through yesterday’s close (Mar. 17).

Let’s start with the upside outlier: commodities. A broad measure of raw materials (GCC) has surged 4.7% since the war began, sparked by soaring energy costs as the conflict restricts oil and natural gas exports from the Persian Gulf region — a supply shock that’s spilled over into other commodities.

In stark relief with the singular rise of commodities since the war’s start, there are many losers. Foreign property shares are posting the deepest decline so far: Vanguard Global ex-US Real Estate (VNQI) has shed 8.5%.

That compares with a 2.4% drop in U.S. stocks (VTI) and a 1.3% slide for U.S. bonds (BND) during the war’s blowback to date. Notably, inflation-indexed Treasuries (TIP) are posting the strongest relative performance (excluding commodities). The near-flat performance for the iShares TIPS Bond ETF is likely a market reaction to concerns that the war could spark higher inflation for some period of time.

A Consensus Economics poll last week reports that analysts have lifted their inflation forecast for this year for most of the G7 and Western European countries compared with estimates in February, the FT reports.

The main question for investors: when will the war end? The optimistic view is that energy costs will fall sharply once the fighting stops and blocked exports of crude oil and natural gas start flowing again. But with no sign of an endgame in sight at the moment, the war’s trajectory remains foggy, which in turn will keep markets guessing about the near-term outlook for risk assets.

Some experts think this could be over soon, perhaps days, if diplomacy kicks in or Iran keeps losing steam. But the US is reportedly planning for the conflict to run through the late summer or even fall, so a longer fight in some form is on the table as a possibility, however remoted. The raw calculus boils down to how much more Iran can take, how long the US and Israel want to keep at it, and whether everyone can agree on a deal before things get too expensive and messy.

The key dynamic is bound up with how the S and Iran view the conflict, and how that will influence decisions on the war’s duration.

“The United States and Israel want a quick and decisive victory,” says Mehran Kamrava, Professor of Government at Georgetown University in Qatar. “For Iran, simply resisting and surviving is victory.”

“What we see are two different logics at work here,” he adds. “The United States and Israel measure success through visible military damage. Iran sees this as a prolonged conflict. It is a war in which, over time, Iran would grind down American and Israeli resolve. The question is who is going to blink first.”

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
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By James Picerno

Estimating the timeline for the end game for the war in Iran remains a slippery task. Gaming out the costs, by contrast, is relatively straightforward. Each day the war continues, the outlook turns a bit murkier, and the risk ticks higher for economic harm.   

No one doubts that an end to the fighting would immediately relieve stress for the global economy. An end to hostilities would quickly lead to a resumption of energy shipments through the Strait of Hormuz, which represents roughly one-fifth of the world’s crude oil consumption. But as the war drags on, the potential for collateral damage that lingers is mounting.

Some analysts are starting to consider the effects of a prolonged war. “If the conflict is prolonged, financial amplifications could magnify the macroeconomic impacts,” said Hyun Song Shin, head of the economics and monetary department at the Bank for International Settlements. “A spike in interest rates could put pressure on rich asset price valuations. Rising financing costs for governments and the need to issue more debt could undermine fiscal sustainability given already strained public finances in many countries.”

The bond market, however, remains calm, at least for now. The US 10-year Treasury yield, for example, has increased since the war started, but the benchmark rate continues to trade at a middling range relative to its history over the past year.

But an extended war is no longer considered beyond the pale, which is starting to motivate thinking about the implications.

“In my view, markets are underestimating the risk of a prolonged war,” said Frederic Schneider, a senior fellow at the Middle East Council on Global Affairs. Pondering another month of war and ongoing increases in energy prices, he predicts the blowback for the global economy could be harsh. “The worst-case scenario would be an economic slump combined with an interest rate hike to curb inflation.” 

The war’s effects are starting to move central banks to adjust monetary policy. Australia’s central bank today lifted its benchmark policy rate for a second straight time, raising it to their highest level in nearly a year. The Reserve Bank of Australia cited the war as a factor in its decision:

The conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations have already risen. As a result, the Board judged that there is a material risk that inflation will remain above target for longer than previously anticipated.

The Federal Reserve, by contrast, is expected to keep rates steady for the foreseeable future. Fed funds futures are pricing in no change to the Fed’s target rate for the next four meetings through July, and a slight possibility of a rate cut in September.

But with the war continuing, and the potential for surprises front and center, forecasting interest rates, inflation and economic activity is becoming increasingly challenging these days.

By some accounts, a return to “normal” will take time, which raises the possibility that stagflation risk could persist. Even if the war ended tomorrow, “lingering geopolitical uncertainty and the inevitable delays in getting shut-in oil wells back online could keep oil prices elevated for months,” advise analysts at the Chicago Council on Global Affairs.

Unfortunately, the odds still appear low for an imminent end to the fighting, which is still putting upward pressure on oil prices.

“Mixed messages are coming from the Trump administration on the war’s duration, as the market focuses more on the actions on the ground that remain escalatory,” said Saul Kavonic, head of energy research at MST Marquee.

Economic output for the first quarter is expected to partially recover from the stall‑speed pace of Q4, but the threat of an energy shock is looming as the war in Iran continues.

The blowback from surging energy costs is only just beginning to affect the broader economy, suggesting that the impact on Q1 will be limited. The current nowcast for Q1 points to an annualized 2.3% increase, based on the median estimate from a set of nowcasts compiled by The Capital Spectator. If accurate, growth will regain some of the momentum lost in Q4, when the economy expanded by a sluggish 0.7%.

The Bureau of Economic Analysis is scheduled to release its initial Q1 estimate on April 30. With the war still raging, and no immediate end in sight, that leaves a long stretch for macro surprises between now and then. The basic calculus: the fallout from soaring oil prices is expected to create stronger headwinds for global economic activity the longer the conflict lasts.

The US economy remains exposed to oil shocks, but its role as a major energy producer gives it more resilience today than in previous decades, even though rising prices still strain consumers and raise inflation risk.

Europe and much of Asia, by comparison, are more exposed due to their reliance on imported oil from the Middle East. China, Japan, and South Korea are heavily dependent on imported fuel, for example. The US, by comparison, is the world’s leading energy producer and has become a net oil exporter in recent years.

To counter the macro blowback for the global economy, the International Energy Agency announced Wednesday that its 32 members will release 400 million barrels from emergency reserves—an unprecedented drawdown equal to about one‑third of the agency’s total strategic petroleum reserves. In another effort to ease prices, the US last week issued a temporary waiver allowing the purchase of sanctioned Russian oil and petroleum products.

The damage to US economic activity in Q1 will likely be relatively muted, or so current nowcasts suggest. But as the war enters its third week, the potential for slower growth and higher inflation is mounting for Q2.

“Underlying inflation pressures were already rising ahead of the war in the Middle East and are set to intensify,” said Diane Swonk, chief economist at KPMG.

Whether the expected Q1 recovery holds will depend on how long the world can outrun the energy shock now gathering force.

“Energy prices are back at the wheel,” advises Jeremie Peloso, a strategist at BCA Research. “The disruption level is global.”

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● The Alibi of Capital: How We Broke the Earth to Steal the Future on the Promise of a Better Tomorrow
Timothy Mitchell
Review via Publishers Weekly
Political theorist Mitchell (Carbon Democracy) offers a paradigm-shifting critique of the logic that underlies the modern economy. Today is “an age in which extraordinary wealth seems to arrive from unfathomable sources,” Mitchell writes, noting that even critics of the current system seem unable to reckon with the vast and concentrated wealth “conjured… out of thin air” by speculative financial markets. To fully reckon with this “mode of acquiring unearned wealth” that is “the defining feature of our contemporary form of life,” Mitchell argues that one must understand what capital actually is. Capital, he asserts, is foremost “a practical means of consuming the future.”

● Good Money: Six Steps to Building a Financial Life with Purpose
John Coleman
Essay by author via Harvard Business Review
In my book, Good Money, I argue that the traditional retirement model—40 years of work followed by decades of withdrawal from it—is out of step with modern life and with what we know about human flourishing. Americans now live longer lives than any generation before them, as do others around the world, and many can expect 15-20 years or more of retirement. Yet research repeatedly shows that leaving work entirely can sometimes lead to poorer physical health, cognitive decline, and even increased mortality if handled poorly. This is perhaps not surprising given that full retirement can lead to decreased physical activity, lower community engagement, and loss of a sense of purpose and direction.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

The 10-year Treasury yield was close to its “fair value” estimate in February, based on the average of three models. Before the start of the war in Iran on Feb. 28, the fading market premium in recent months was expected to continue, and perhaps slide to a discount in the near future. The outlook has been upended due to the ongoing military conflict, which is sending shock waves through the world economy.

The 10-year yield in March has jumped more than 30 basis points since last month’s close, rising to 4.27% on Thursday (Mar. 12). A key driver in the yield’s rebound: increasing concern that the surge in energy costs related to the war will lift inflation for some period of time.

The counterview is that the war’s end will ease inflation risk, but it’s unclear how long lingering effects from the disruption to energy supplies will reverberate. The general consensus: the longer the war lasts, the greater the risk that inflation will rise well into the future.

Using the 10-year yield as a proxy, the market appears to be repricing inflation risk, albeit moderately so far. The 10-year rate’s rise so far this month leaves it at a middling level relative to recent history. A decisive and sustained move above 4.30% (the previous peak), however, would signal increasing concern that energy-related risk for inflation won’t quickly fade when the war ends.

Heading into the war, the market premium for the 10-year yield was roughly 20 basis points in February, according to CapitalSpectator.com’s ensemble model. That’s in line with recent months, which reflects a sharp slide from the high premium that prevailed over the past several years.

It’s unclear if investor sentiment will demand a higher premium – again – in the months ahead. The key variable is how the war in Iran unfolds in the days (weeks?) ahead, and how the conflict influences energy costs.

For now, the bond market is pricing in higher reflation risk, albeit moderately so far. The question is whether energy costs normalize after the war. Some analysts are skeptical of a quick return to pre-war prices.

“Too much geopolitical risk has been exposed,” says Blerina Uruçi, chief U.S. economist at T. Rowe Price. She forecasts that it’s unlikely that oil will soon trade below $80 per barrel, much less return to the pre-war $60 range.

“I don’t think that’s going to normalize anytime soon.”      

The US crude oil benchmark, West Texas Intermediate, has pulled back from its intraday peak of roughly $120, but Thursday’s $96 reminds us that a return to “normal” still doesn’t look imminent.

The war in Iran has roiled the outlook for financial markets and the global economy, but commodities are clearly benefiting from the turmoil as prices rise for energy and other raw materials.

The shift in leadership for the major asset classes has turned sharply in favor of a broad measure of commodities, based on a set of ETFs through yesterday’s close (Mar. 11). The WisdomTree Enhanced Commodity Strategy Fund (GCC) is up 15.3% year to date, far ahead of the rest of the field.

Running at a distant second place this year: foreign stocks in developed countries ex-US (VEA), which is up 5.4% in 2026. VEA had been the year’s top performer, but in line with equities just about everywhere, the war has triggered selling in risk assets. To date the retreat has been moderate, but the extent of the damage to the risk appetite remains unclear as long as the war continues.

Commodities are the exception. Energy is the main beneficiary of the fighting, which has disrupted oil exports from the Gulf region. The interruption of energy flows has spilled over into other areas that are affecting supply chains in some agricultural sectors, for example.

Various metals are also in the crosshairs. “The Gulf is a major supplier of aluminum, and disruptions could tighten supply chains for advanced manufacturing,” said Tony Pelli, practice director of supply chain security and resilience at BSI Consulting, a global risk management firm. “Aluminum prices are already rising, and further disruption could increase input costs for automotive, aerospace, and construction manufacturing in the US and Europe.”

Soaring energy prices will likely fall once the war ends, but as of this writing the odds still appear low that the conflict will cease in the immediate future. Meanwhile, energy markets continue to price in a worst-case scenario. Oil prices rose in early trading on Thursday despite a coordinated announcement the day before from world leaders to release 400 million barrels of oil from their strategic reserves.

Economists are struggling to estimate the breadth and depth of the war’s effects on the global economy, but you don’t need sophisticated models to recognize that the negative consequences will continue until the hostilities end.

“If this disruption goes on longer, we will see faster drawdowns [of existing oil supplies],” said Amin Nasser, head of state-owned oil giant Saudi Aramco. “There would be catastrophic consequences for the world’s oil market, and even more drastic consequences for the global economy.”

There’s never a good time for war, but the current crisis comes at a time of pre-existing macro challenges for the US economy. Economists at Wells Fargo sum up the situation in a research note published on Wednesday:

Independent of the oil price spike, employment growth has effectively stalled over the past year, with payroll levels treading water amid weak hiring outside a handful of industries (Figure 2). At the same time, real personal income excluding transfer payments—a metric closely watched by the National Bureau of Economic Research recession dating committee—has lost momentum as wage growth has slowed and inflation has remained sticky. A renewed rise in energy prices would likely push inflation back above 3% in the near term, mechanically eroding real income and placing additional strain on households, particularly the lower- and middle-income households that tend to allocate a greater share of spending to fuel costs.

The good news is that the repair and recovery will likely start as soon as the conflict winds down. Unfortunately, that point doesn’t appear imminent.  

“If the hostilities wrap up in relatively short order, we see little reason for investors to expect a lasting market impact,” predict strategists at Alliance Bernstein. “That’s largely because the economic impact wouldn’t be lasting either. But geopolitical conflicts are complex and unpredictable. If things drag out, the situation—and our assessment of the impact—could change. Time will tell.”