Book Bits | 22 July 2017

Rethinking the Economics of Land and Housing
By Josh Ryan-Collins, et al.
Summary via publisher (Zed Books)
Why are house prices in many advanced economies rising faster than incomes? Why isn’t land and location taught or seen as important in modern economics? What is the relationship between the financial system and land? In this accessible but provocative guide to the economics of land and housing, the authors reveal how many of the key challenges facing modern economies – including housing crises, financial instability and growing inequalities – are intimately tied to the land economy. Looking at the ways in which discussions of land have been routinely excluded from both housing policy and economic theory, the authors show that in order to tackle these increasingly pressing issues a major rethink by both politicians and economists is required.
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On The Road Again…

The Capital Spectator is traveling for the rest of the week. The usual routine may resume with Saturday’s Book Bits, definitely on Monday with the weekly wrap on the major asset classes. Meantime, stay cool.

US Business Cycle Risk Report | 19 July 2017

The recent run of soft economic data inspires some pundits to claim that a new recession is brewing. They could be right, but they could just as easily be wrong. Although some numbers published to date have been weaker than expected, a broad profile of economic activity still reflects low recession risk. Near-term projections tell a similar story. From a probability standpoint, betting that a recession has started or is about to start still stacks up as a long shot.
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Book Bits | 15 July 2017

Machine, Platform, Crowd: Harnessing Our Digital Future
Andrew McAfee and Erik Brynjolfsson
Review via The Economist
In 2014 Andrew McAfee and Erik Brynjolfsson of the Massachusetts Institute of Technology published “The Second Machine Age”. The book was a balanced portrait of how new digital technologies were poised to improve society, even as they increased unemployment and depressed wages. In their latest work, “Machine, Platform, Crowd”, the authors seek to explain the business implications behind these developments.
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Low-Volatility Stocks Are Having A Rough Summer

Stocks that exhibit low volatility are prized as a risk factor that’s expected to beat the broad market over time with a smoother rise, according to academic research and countless backtests. Real-world returns, however, reflect mixed results in recent years, based on representative ETFs. Meanwhile, some analysts have been warning in recent months that low-vol stocks climbed too far too fast and are vulnerable to a correction. The warning carries more weight these days in the wake of low vol’s stumble relative to equities generally and other factor strategies.
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Low Volatility Isn’t Limited To US Stocks

The US stock market’s ongoing run of low volatility has inspired a torrent of commentary as the crowd struggles to make sense of the trend. Analysts at JP Morgan, for example, recently wrote that “a very low supply of economic surprises currently is by itself enough to explain the low level of market volatility.” Meanwhile, a strategist at Wells Fargo Investment Institute advised that the slide in volatility isn’t particularly useful for developing insight into future market activity. Whatever an unusually calm stock market implies, or doesn’t imply, here’s one more fact to consider: low vol is widespread across the major asset classes.
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Will Low Inflation Delay Fed Rate Hikes?

Fed funds futures are currently pricing in a low probability that the Federal Reserve will squeeze monetary policy at any one of the next three FOMC meeting (Jul. 26, Sep. 20, Nov. 1). The Sep. meeting has recently been identified by some analysts as the most likely date for another rate hike. But the futures market estimates the probability at just 13% that the central bank will lift its target rate (currently at a 1.0%-to-1.25% range) on Sep. 20 (based on early trading on Jul. 12).
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A New (And Longer) Dataset For Modeling The Market Portfolio

The market portfolio, in theory, is a simple concept. Buy and hold everything in market-value weights. But the road from concept to implementation is rocky. Some asset classes are relatively illiquid and therefore difficult to own directly. There’s also debate about how to estimate weights. Minds, in other words, will differ on devising a market portfolio benchmark for use in investment analytics and/or real-world investing. And now there’s one more perspective to consider thanks to the arrival of a new entry in this niche: “Historical Returns of the Market Portfolio” by Ronald Doeswijk, an independent researcher, and two co-authors.
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