Perspectives & Commentary

Avalon produces a variety of investment commentaries.

Our perspectives and quarterly commentary are issued throughout the year and cover a range of investment-related topics.

Monthly Note

July 2017


July proved to be an intriguing month for markets. The U.S. dollar slid to levels not seen since early 2016¹ even as the Federal Reserve signaled its intention to begin shrinking its balance sheet “relatively soon”. Real gross domestic product growth rebounded in the second quarter to 2.6%, but inflation remained tepid. Slow inflation raised the specter of the Fed, slowing its current tightening cycle. Globally, the current increase in economic activity appears to have taken hold with some staying power as Europe, China and Japan continue to expand. In general, the economies are performing well. Growth is far from robust, but steady and stable is a positive. The rancor in Washington D.C. has not (yet) become a hindrance to growth.


The U.S. dollar continued to slide in July as both data and Fed policy pushed it lower. This as inflation, the most important number for the future of Fed policy, was weak. And the weakness was spread across a range of items. The June "core" inflation figure (which excludes energy and food) increased 1.7%, the same as the May reading and not too far off the 2% target. Inflation is not the Fed’s friend. Meanwhile, nominal GDP growth (GDP before subtracting out inflation) accelerated from 3.3% to 3.6% in the second quarter. That is an acceleration, but, if anything, it is disappointing. The expected nominal growth rate was closer to 4%. This signals a rather tepid acceleration in fundamental economic activity.


Despite the slower growth, the Fed believes that “[fed funds] would not have to rise all that much further to get to a neutral policy stance." This means removing accommodation, but not tightening monetary policy, a delicate stance.  Currently, this neutral rate is estimated to be between a 1.5%-2% fed funds rate. This is the reason the Fed believes it can get its 2% inflation and raise rates too. Until the neutral rate moves higher, the Fed may actually be slowing the rate of hikes.


The recent developments (both news cycle and healthcare) in Washington have pushed expectations for tax reform into 2018. This is a reasonable timeline, but the shift in consensus introduces some risk of a positive surprise in terms of timing. This has not been the case for some time. Risks remain that it will be disappointing (temporarily or not as significant as hoped), but the timeline is now more in line with the speed of Congress than it has been.


Global growth remains steady as China, Japan and Europe continue their recent growth trajectories. In Europe, the growth is robust, particularly in Germany and France. Japan and China are more tepid, but growing. The takeaway from better U.S. data surprises, and a stable global economy?  Maybe the global economy is finally in a position to handle less stimulus. The Fed is set to roll-off the balance sheet and there are even rumors that the European Central Bank will lay out its taper plan in October. It has been quite some time since there was less stimulus in the system.
































Sources: Bloomberg




 ¹According to the Bloomberg Dollar Index








Sam Rines


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The Federal Reserve's Anti-Volcker Inflation Revolt

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Why the Fed Needs to Raise its Inflation Target

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Is the Rest of the World Ditching America to Trade with China?

August 3, 2016

Has the Federal Reserve Become Congress's Golden Goose?

July 20, 2016

The Fed Must Avoid the 'Credibility Trap'

June 21, 2016

Why the Fed Needs to Make a Policy Error

May 18, 2016

The Fed Faces Its 'Anti-Volcker Moment'

May 9, 2016

The Fed's Critical Global Mandate

April 29, 2016

Why the Federal Reserve Is All Talk

April 26, 2016

Is the Global Middle Class Really Here to Stay?

April 12, 2016

Quarterly and Monthly Notes

Quarterly Note

Third Quarter, 2018

Quarterly Note

Second Quarter, 2018

Monthly Note

May 2018

Monthly Note

April 2018

Quarterly Note

First Quarter,  2018

Monthly Note

February 2018

Yearly Outlook


Monthly Note

November 2017

Quarterly Note

Third Quarter,  2017

Monthly Note

August 2017

Monthly Note

July 2017

Quarterly Note

Second Quarter,  2017

Monthly Note

May 2017

Monthly Note

April 2017

Quarterly Note

First Quarter, 2017

Monthly Note

February 2017

Monthly Note

January 2017

Quarterly Note

Fourth Quarter, 2016

Monthly Note

December 2016

Monthly Note

November 2016

Quarterly Note

Third Quarter, 2016

Monthly Note

August 2016

Monthly Note

July 2016

Quarterly Note

Second Quarter, 2016

Monthly Note

May 2016

News | Press

Avalon Advisors, LLC Announces new Co-Chief Investment Officer

October 2, 2018

Avalon Advisors, LLC Named to 2018 Financial Times 300 Top Registered Investment Advisers

June 28, 2018

Avalon Advisors Announces San Antonio Expansion

December 21, 2016

Avalon Advisors Announcement

December 16, 2016

Sam Rines

April 11, 2016

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