Another holiday is upon us and your editor will be vacating the digital premises for some downtime with drinks, dinners and various diversions. The routine returns on Monday, November 30.
Happy Thanksgiving!
[...]Another holiday is upon us and your editor will be vacating the digital premises for some downtime with drinks, dinners and various diversions. The routine returns on Monday, November 30.
Happy Thanksgiving!
[...]“We have to be sure that the recovery is final, that domestic demand is self-sustaining and the peak in unemployment is on the foreseeable horizon,” Dominique Strauss-Kahn, managing director of the IMF, said yesterday in London yesterday in connection with a speech he gave at a British industry [...]
Today's release of second estimate of third-quarter GDP reveals that the economy expanded at a slower pace than originally reported. The initial 3.5% annualized real growth in the U.S. for Q3 was, we're now told, just 2.8%.
Meantime, corporate profits skyrocketed in Q3. As companies shed payrolls, the cost' [...]
Are the days of the jobless recovery numbered? Yes, according to the latest survey that was released today.
The Capital Spectator has obtained a copy of the full report. Among the highlights:
* NABE-member economists predict a moderately higher pace of economic growth for this year's fourth quarter [...]
Sovereign risk doesn’t usually dominate the headlines on any given day, but in the wake of last year’s financial cataclysm there’s a sharper focus on the fallout that flows from governments that mismanage their debt and economy.
The elephant in the room, of course, is the U.S. The discussion of America’s [...]
Everyone knows it’s coming, but when? Everyone recognizes that at some point it’s essential, but the associated benefits and risks are debatable.
One thing we can be reasonable sure of, as we discussed on Monday, is that central bankers are prone to misjudge the future. Indeed, there's plenty of [...]
There are no major economic reports scheduled today and so a day of the data vacuum awaits. That offers an opportunity to review the latest numbers in the dismal science in search of clues about where we’ve been in recent history and where we might be going.
First up is the [...]
Only in the hallowed halls of Congress could the notion of spending vastly higher amounts of money convince so many that the net result will be a reduction in spending. But such is the conceit with the new health care bill being hammered out these days.
The new legislation to [...]
The danger is not the past, but the future.
Today’s update on weekly jobless claims may be the warning sign. New filings for jobless benefits were unchanged last week, hovering at 505,000, matching the previous week’s tally. Although this number is down sharply from it’s recessionary peak of 674,000, set [...]
Definitive statements about the future are always suspect in finance and economics, but it’s reasonable to assume that the threat of deflation as a clear and present danger has passed. But we can’t say for sure. To the extent that a double-dip recession remains a possibility, so too will does [...]
Central bankers are a powerful lot and so it’s an easy to assume that they’re also prescient. When you’re making decisions that affect the livelihoods of millions of people—billions on a global scale—confusing people with their institutional authority can become habit forming. But central bankers are mortal, and therefore prone [...]
The news on new filings for unemployment benefits once again favors the idea that economic recovery is continuing. It’s a tenuous rebound, one ripe with caveats, including a big one we’ll discuss below. But it’s a rebound nonetheless.
The Labor Department today reports that initial jobless claims dropped to [...]
The world is filled with recommendations and research on what works best in the money game. But when you reduce the sea of study down to the essential lessons, we're left with rule number one—diversify within and across asset classes, i.e., asset allocation—and number two—rebalance.
There are other rules, of course,' [...]
One of the supporting pillars in the recent rally is the recognition that inflation isn't a problem. Last year's financial crisis knocked the stuffing out of the system's tendency to devalue the purchasing power of fiat currencies over time. The net result is an unusual level of economic cover for' [...]
Today's update on October's employment status is neither surprising nor encouraging. The U.S. economy is still bleeding jobs, but that's hardly shocking at this point. It's been clear for some time now that the risk of a jobless recovery is high.
Nonfarm payrolls shed another 190,000 positions last month, a [...]
Sometimes one comment says it all. That describes Jim O’Neill's observation that a fair amount of levitation work awaits central bankers the world over. Timing, of course, is unknown. Meantime, there's a few (or many) potholes on the road to economic salvation.
The chief global economist at Goldman Sachs Group in [...]
The first rule in the money game is recognizing that there are no silver bullets. Asset pricing is a black box. It's become somewhat less of a black box after a half century of analysis by financial economists, but what we don't know about how markets work still dominates by' [...]
Today's income and spending report for September takes the shine off of yesterday's glowing GDP news. A closer look at what unfolded in the third quarter has now arrived in terms of the impact on consumer sentiment and the ongoing pain from the labor market. The upward momentum [...]
Today's update on new orders for durable goods reminds that the slash-and-burn of the Great Recession is over, replaced by the tedious business of rebuilding what's been lost.
Once again, the news is encouraging, if only because the deep pain of the recent past fades as an imminent threat. And [...]
The next round of economic releases is about to commence, ushering in the next phase of the post-apocalyptic financial crisis. Although we're likely to see a fresh batch of encouraging numbers, there's plenty of reason to remain humble on expecting salvation is imminent for one simple reason: the labor market' [...]
Twenty-first-century investing is all about predicting. But developing intuition about markets, asset classes and how they interact is too often overlooked if not ignored outright. That's a mistake for strategic-minded investing, albeit a mistake that's understandable in the crowd's rush for quick and easy profits.
It's hard to miss all the [...]
Yesterday's news on housing starts wasn't great, but neither was it bad. Perhaps we might label it a mildly positive yawn. More of the same is coming, we predict, in a range of economic indicators.
It's fun to forecast extremes. It makes the headlines; people pay attention when you scream' [...]
Is the stock market overvalued? Wolfgang Münchau says it is in today's FT. He cites some persuasive evidence, based on analysis by smart people: Professor Robert Shiller and Andrew Smithers. The U.S. stock market is overvalued by more than a third, we're told.
Our own work' [...]
The trend remains our friend in the land of initial jobless claims. The absolute level is still reflecting pain in the labor market, but there's no denying that the general ebb and flow of new filings for unemployment benefits is favorable.
As our chart below shows, new filings dropped again last [...]
Maybe it was Australia's decision to hike rates last week, the first monetary tightening among the G20 nations since the financial crisis began. Or perhaps it's just the recognition of economic fate. Whatever the catalyst, Fed chief Ben Bernanke is now talking openly of the "exit strategy."
"My" [...]
This morning's update on new filings for unemployment benefits suggests that the improving trend since the spring for this series remains intact. Initial claims for jobless benefits dropped 33,000 for the week through October 3, the Labor Department reports. That cuts initial claims to the lowest level since this [...]
In case you were wondering, 2009 is on track to be among the best years in the annals of the stock market. There's still nearly three months of trading left, of course, and so we shouldn't write anything into stone just yet. But as we write, it doesn't get much [...]
Someone had to be first. It turns out that it's Australia. The Reserve Bank of Australia raised its benchmark cash rate by 25 basis points to 3.25%. No longer are rates at a half-century low down under. And so the precedent has been set: the first central bank among the' [...]
It's becoming repetitive, but no one's complaining. September witnessed across-the-board gains in all the major asset classes. Again.
With some minor exceptions, the world's capital and commodity markets have been on a non-stop rebound since March. That's not exactly surprising, given the depth of the previous losses in almost everything. [...]
It's all about employment now. More of it would be better, although we may have to settle for losing it a slower pace for a bit longer.
The U.S. Labor Department will dispatch the official update for September nonfarm payrolls on Friday. Meantime, dismal scientists, pundits and fans of macabre labor [...]
Investment advice runs the gamut in the known universe of finance. Some of it's good, some of it's less so, but the majority of it is just plain misguided if not detrimental to the long-term interests of investors. It's an old story, but it's also a perennial, and therein lies [...]
If you're looking for a measure of the challenge that awaits, new orders for durable goods are a useful place to start.
Durable goods are arguably at the front line of economic activity. Purchasing big-ticket items, like cars and aircraft, take some degree of confidence in the near-term economic outlook as' [...]
Studying the election cycle and the stock market isn't new, but that doesn't stop inquiring minds from taking a fresh look at the numbers. CXO Advisory Group offers yet another perspective, albeit with middling results. As this research concludes,
"..there appear to be both long-term and short-term connections between the" [...]
In our previous post today we mistakenly wrote that inflation expectations were constant. Twenty lashes for your editor. We meant to say that inflation expectations, along with the reported level of inflation, are constantly bouncing around, as any review of the historical record will show. We've updated the offending passge.' [...]
The Treasury market's inflation forecast has remained fairly steady since May, hovering in the 1.5% to 2.0% range. As of Monday's close, the current outlook for inflation is 1.80%, based on the yield spread between the nominal 10-year Treasury less its inflation-indexed counterpart.
As our chart below shows, this stability follows [...]
Today's weekly update on jobless claims shows another dip, which provides more evidence for thinking that the recession is over. But as we keep repeating, the technical end of the recession doesn't look poised to offer a quick, robust recovery this time. The qualification draws support from the uptick' [...]
We've been writing for months that the recession appears close to a "technical" finale but that the recovery would be slow, sluggish and generally vulnerable for an unusually extended period of time. Two stories in the latest news cycle echo our long-running commentary. In fact, the pair of stories makes' [...]
Today's update on retail sales certainly lends more credence to the notion that the economy is stabilizing and perhaps even poised for modest growth. Indeed, the 2.7% rise in seasonally adjusted retail sales in August was the highest monthly increase since January 2006.
Even better, a closer reading of [...]
It's been a long, strange trip in the nearly two years since October 2007, when the U.S. stock market peaked. The details of the journey have been dissected ad infinitum, on a tick-by-tick basis. But what of the big picture? How does a broad review of performance among the major [...]
This morning's update on initial jobless claims offers more encouragement for thinking that the economic contraction has bottomed out. That's still distinct from proclaiming the arrival of a recovery worthy of the name, as we've been discussing for months, including here and here. Nonetheless, the downward trend' [...]
It's not quite the proverbial canary in the coal mine, but it looks like one. Heck, when even Joe Sixpack's formerly obsessive spending habits are on the defensive you know something's changed. Such is the message that even gambling revenues from casinos and lotteries are facing a downfall for the [...]
The market's taking a beating lately, and we're not talking here about investment returns. Rather, the theory that market prices offer valuable information is on the defensive…again.
The latest assault came over the weekend in Paul Krugman's New York Times Magazine article "How Did Economists Get It So Wrong?"' [...]
It's getting better, or at least the pain is lessening. But no one will mistake the labor market as healthy at the moment. Nor is it obvious that salvation's coming any time soon.
Nonfarm payrolls dropped again last month. The good news is that the loss of 216,000 jobs in August [...]
August was another hot month for REITs. It wasn't even a contest relative to the other major asset classes.
The Wilshire REIT index soared in August with a 14.6% total return, building on a 10%-plus gain in July. For the year through the end of last month, REIT performance isn't quite [...]
As the world's original central bank, it's fitting that Sweden's Riksbank has become the first to breach the zero-bound line by lowering one of its key interest rates to negative 0.25% since July 8.
The drop in the price of money below zero is reportedly the first of its [...]
Personal consumption expenditures rose by 0.25% last month, which looks encouraging on the surface, in part because it's the third straight month of gains, albeit modest gains. The superficial message appears to be that the consumer is repairing his capacity and willingness to spend.But this is premature.
The [...]
Is today's update on new orders for durable goods a sign of an approaching V, U or W? Translated: Is the economy poised to rebound sharply and deliver strong growth—a V recovery? Or is a U-type future, with slow to negligible growth, approaching? Even worse, could an imminent rebound be [...]
Expectations are driven by many things, but recent history usual tops the list when it comes to the crowd's outlook on things to come. No wonder, then, that investors are feeling pretty good about the prospects for equity markets, which have been soaring this year.
As our chart below illustrates in [...]
Last week, The Wall Street Journal published a story explaining why Pimco, the behemoth bond fund manager, believes active management is preferable for running a portfolio of TIPS, or inflation-indexed Treasuries. According to the article, "Pacific Investment Management Co….says that while indexing may work wonders in the stock" [...]
The highest real (inflation-adjusted) yields in 15 years for Treasuries are boosting demand, Bloomberg reported at the end of last month.
Halfway through August, there's no reason to think otherwise. The 10-year's yield hasn't changed much in recent weeks, closing yesterday at roughly 3.59%. Meanwhile, inflation, as defined by the' [...]
We're swimming in it. Or maybe downing is a better term. Whatever the correct label, the digital supply of financial and economic data, information and analysis is exploding. We can't get enough of it. Or are we getting too much? More to the point, Is it helping?
The question for strategic-minded [...]
Some said it was dead. Others claimed it was misleading. Many simply ignored it, in good times and bad. But asset allocation is hardly dead. In fact, it couldn't be any more relevant.
The mistake that many investors make is comparing a multi-asset class portfolio to something riskier, such as any' [...]
The trend is still our friend when it comes to initial jobless claims, a valuable leading indicator for assessing turning points in the business cycle. (For some background, see our analysis published in March.) But increasingly it's the lagging indicators that worry us. Topping the list of concerns [...]
The recession continues to take its toll on the American consumer, new government data released today advises. Disposable personal income dropped a hefty 1.3% in June, reports the Bureau of Economic Analysis. On the other hand, consumer spending rose 0.4% in June. Alas, the pop in Joe Sixpack's willingness [...]
The financial gods were kind again to the major asset classes in July. Everything was up, and mostly with strong gains.
As our table below shows, it was hard to lose money last month, a.k.a. a refreshing change from the recent past. Of course, if you were sitting mostly in [...]
It's official: the economic contraction slowed dramatically in the second quarter. By that standard, the government can claim a victory. But now comes the hard part, and progress won't come easily or quickly.
For the moment, however, there's reason to cheer. The annual real change in GDP in this year's second' [...]
Today's update on initial jobless claims reminds that the threat of economic contraction isn't vanquished. There's been progress, but the dark forces of decline are still lurking.
For the week ending July 25, the advance figure for seasonally adjusted initial claims was 584,000, an increase of 25,000 from the' [...]
There’s been some good news lately, including the encouraging signs in real estate. New home sales rose last month, posting the third straight monthly increase. For some, the writing is now on the wall. “Recession is over, economy is recovering,” declared John Silvia, Wells Fargo’s chief economist, in a [...]
Your conventionally minded editor isn't used to seeing a Federal Reserve chairman take his monetary policy show on the road. Then again, we're from the old school, and we're not used to seeing pigs fly either. But we're obviously out of touch in the 21st century.
Ours is a world [...]
Investing is complicated, but it begins rather simply. How it ends is the question.
There are infinite possibilities for reassembling the major asset classes. The challenge is finding the one that satisfies your particular set of expectations, risk tolerance and financial situation. The basic choices boil down to choosing some combination [...]
There are many ways to model expected returns. Unfortunately, not one is even close to being foolproof, which inspires looking at multiple measures of market activity. That includes monitoring relative returns through time among the major asset classes, one of several analytical tools employed in the search for strategic perspective [...]
The ascent in the yield on the 10-year Treasury Note during this past spring took a breather after rising to nearly 4.0% by mid-June. That prompted some to claim that the underlying source for the rise—worries about future inflation—were overbaked.
Perhaps, but we beg to differ, and have for some time. [...]
It's been a long-time coming, but my upcoming book—Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor (Bloomberg Press) is now available for pre ordering on Amazon.com. The scheduled release date is February 2010.
We'll be discussing the book in more detail in the coming weeks and months.' [...]
We've been there before only to end up disappointed. Could this time be different?
One day the recession will end and we'll put a floor on the economy's deterioration. Are we there yet? This week offered several reasons to cautiously answer "yes," or perhaps it's better to say "maybe."
Today's news certainly [...]
Another update on new filings for jobless claims, another reason to keep the faith.
The Labor Department reports today that initial jobless claims fell 47,000 for the week through July 11 to 522,000, the lowest since early January. The decline is all the more encouraging because it suggests that the [...]
Every economic report these days seems to dispense a crucial piece of the puzzle for deciding what comes next, and this week promises (threatens?) to offer no less.
The question now is whether the stability of recent months is in danger of giving way, pushing the economy once again toward the [...]
Forecasting is tough, especially about the future, runs the old joke. But the dark art of prognosticating these days is no laughing matter.
Case in point: the burning question at the moment is whether the so-called green shoots of economic recovery turning brown? It's getting harder to answer "no" these days.' [...]
You can't generate robust forecasts of risk premia by looking only at the past, but you can certainly learn a lot about how the capital markets fluctuate.
With that in mind, we present a cursory look at recent history. In particular, the chart below compares the Global Market Index to a' [...]
The case for seeing equities as one global beta is compelling if you're looking out over very long time frames. But in the shorter term, perhaps even as long as 10 or 20 years, the rationale for making geographic distinctions is persuasive. Why? The answer begins by recognizing that valuations' [...]
The pundits are shocked, shocked to learn that jobs are still being lost. But there's really nothing surprising in today's jobs report for June, released this morning by the Bureau of Labor Statistics. Recessions have a habit of doing that, and for longer than the crowd expects. Disappointing and [...]
The weather in June was cool and rainy in the New York region, and something similar prevailed over the capital and commodity markets last month as well.
As our table below shows, June was a month of mixed messages, ranging from a healthy rally in high-yield bonds to loss in REITs. [...]
It's been a tough year for value stocks. Is that surprising? No, although it reminds that Mr. Market prices certain slices of the equity market differently throughout the business cycle.
For the year through June 26, the rebound in equities has been powered mostly by growth stocks, according to Russell indices. [...]
One day we'll look back on 2009 and wonder what all the confusion was about. All will become clear and we'll know when the recession ended, when the bull market began anew and how and why the cycle turned. Meanwhile, we're wondering if the data du jour can be trusted.
Judging' [...]
The Capital Spectator will be taking a few days off, returning to what passes as normal around here on Friday, June 26.
[...]Another former Fed club member weighs in today on how/when/if the Fed unwinds the massive monetary stimulus it's created over the past year. Frederic Mishkin, a former FOMC member, summarizes the problem and the potential in today's Wall Street Journal, observing that there's good news and bad news embedded [...]
Last month, Alan Blinder warned that the main risk in monetary policy was pulling away from the stimulus too soon. We responded by pointing out that there was also a danger of letting the liquidity surge roll on too long. The challenge is finding a balance between the two, [...]
Nirvana for investing is getting tomorrow's news today. Impossible, of course, which leaves strategic-minded investors to search for the next best thing. That boils down to hard work.
Estimating expected return and risk is at the heart of intelligent investing. We still can't peer into the future with a high' [...]
New York Times columnist Paul Krugman writes today that it's too early to begin removing the monetary stimulus engineered by the Federal Reserve.
"A few months ago the U.S. economy was in danger of falling into depression," he notes in his column. "Aggressive monetary policy and deficit spending have," [...]
Arthur Laffer advises in today's Wall Street Journal that it's time to "Get Ready for Inflation and Higher Interest Rates." The market's been telling us no less, as we've been discussing now for some time. Although the deflationary risk has been front and center since the financial crisis erupted' [...]
The world lost one of its foremost financial historians and analysts on Friday, when Peter L. Bernstein died in New York.
As an author, editor and investment strategist, Bernstein forged an analytical template for what is now common in the blogosphere, mainstream media and virtually everywhere else that assigns [...]
In early March we asked: When Will It End? At the time, we argued that watching the weekly squiggles of new filings for jobless benefits was a productive effort for estimating when the cycle would turn.
The reasoning is that a careful study of history shows that initial jobless [...]
Inflation's still not a risk but arguably neither is deflation. We're not quite ready to officially claim that the D risk has been vanquished, but we're close. As it turns out, we're not alone.
The bond market is increasingly inclined to turn the page on the fear that a deflationary spiral' [...]
Today's update on personal income and spending deserves a closer-than-usual inspection. The devil, along with the government's stimulus program, is in the details.
First the good news, such as it is: disposable personal income rose a strong 1.1% in April, the Bureau of Economic Analysis reports. That's a gain worthy [...]
This may be the worst recession since the 1930s, but that doesn’t preclude spectacular runs of bullish behavior in the capital and commodity markets. In fact, the economic context of late probably inspires strong bouts of buying.
But let’s not become complacent about supersized gains in beta. It’s been a great [...]
What should we expect from Mr. Market? The answer's always in doubt, but strategic-minded investors should run through the numbers anyway.
It's hard to overrate the value of taking a hard look at investing assumptions. By continually putting an expected price on risk, we become better investors. There are no [...]
Is it an ominous sign, or just another step on the journey back to normalcy?
For the moment, the jury's out, but there's no question that the benchmark 10-year Treasury Note's yield is upwardly mobile these days. Yesterday's jump to 3.71% elevated the yield to its highest since last November. [...]
It's been 17 years since the professors Eugene Fama and Ken French penned the first of several papers that identified small-cap value as a separate equity beta worthy of special consideration. The basic idea is that stocks that are generally shunned by the crowd, as indicated by a low price-to-book [...]
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