Book Bits | 25 April 2015

Simple Rules: How to Thrive in a Complex World
By Donald Sull and Kathleen M. Eisenhardt
Q&A with co-author via The Wall Street Journal
WSJ: Where, in the business context, might “simple rules” help more than a complicated approach?
Donald Sull: Well, a common decision that people face in organizations is capital allocation. In many organizations, there will be thick procedure books or algorithms–one company I worked with had an algorithm that had almost 100 variables for every project. These are very cumbersome approaches to making decisions and can waste time. Basically, any decision about how to focus resources—either people or money or attention—can benefit from simple rules.
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Mixed Economic Signals So Far For The US In Q2

The outlook for first-quarter US growth has been cut to the bone, according to the current estimate of the Atlanta Fed’s GDPNow data. But if the “wisdom” of the crowd is accurate this time, it’s only a temporary stumble. Most economists continue to expect a robust Q2 snapback. The Wall Street Journal’s survey data sees second-quarter GDP rising at a brisk 3.1% pace after a sharp deceleration in growth for Q1. The early clues on Q2 via April releases, however, offer a mixed batch of numbers. There’s a long way to go for digesting this month’s economic reports, but at the moment the data doesn’t look especially compelling for anticipating a strong kickoff to Q2. That could change, of course, but for the moment we’re off to a mixed start in the messy business of revising expectations for the current quarter.
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Initial Guidance | 24 April 2015

● US jobless claims edge up, but trend signals firmer labor market | Reuters
● PMI: US manufacturing output growth slows in April | Markit
● New-home sales in US tumble from 7-year high | MarketWatch
● US consumer confidence fell for 2nd week after close to 8-year high | Bloomberg
● Battle Between Strong Dollar and Cheap Gas: Strong Dollar Is Winning | NY Times
● German Ifo Confidence at 10-Month High as Stimulus Kicks | Bloomberg
● Nasdaq hits a new all-time high | San Jose Mercury News

Modeling Chaos & Stability In The Stock Market

Probing the link between financial markets and chaotic states, fractals, and related topics dates to the 1960s, when mathematician Benoit Mandelbrot effectively launched this line of research with his seminal study of cotton prices that documented “recurring patterns at every scale in data,” notes Wikipedia. The subject of chaos and how to exploit it for profit is an ongoing arena for study, albeit with mixed results. The Hurst exponent, for instance, attracted a lot of interest a number of years ago, in part due to an influential and widely read review of the indicator by Edgar Peters in his 1991 book Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility.
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Initial Guidance | 23 April 2015

● US existing home sales surge to fastest pace in 18 months | USA Today
● US Mortgage Applications Rise for Fourth Time in Five Weeks | ON
● PMI: growth in Germany slows slightly at the start of Q2 | Markit
● PMI: Eurozone growth edges lower at start of second quarter | Markit
● Eurozone Consumer Confidence Unexpectedly Weakens In April | RTT
● German consumer morale inches higher going into May | Reuters
● PMI: China Manufacturing activity edges down to one-year low | Markit
● PMI: Operating conditions worsen at Japanese manufacturers | Markit

Upbeat Forecasts For US Housing Sales In March

The Fiscal Times advises that the “the housing market is about to perk up.” One of the reasons for the optimistic outlook, we’re told, is the recent rebound in sales. This upbeat forecast is due for a stress test this week with the monthly releases on sales of existing homes (scheduled for later today at 10am eastern) and tomorrow’s report on new home sales. The stakes are higher than usual in the wake of recent economic reports that point to a sharp slowdown in US growth in the first quarter.
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Initial Guidance | 22 April 2015

● Greek bank shares slide as ECB considers pulling the plug | Telegraph
● Greek finance minister: Differences Narrowing in Creditor Talks | Bloomberg
● Italy retail sales dip in Feb; disappointing 0.1% y-o-y rise | Istat
● Italy Industrial Orders Rise In February | RTT
● Bank of England unanimous on rates, more upbeat on Eurozone | Reuters
● China Suffers First Default by State-Owned Company | WSJ
● UK trader in fraud arrest over US ‘flash crash’ | BBC

Initial Guidance | 21 April 2015

● US Economic Activity In March Brakes Hard As Manufacturing Weighs | IBD
● The U.S. Economy Keeps Disappointing | Bloomberg
● Fed’s Bill Dudley: alert to global liquidity storm, yet signals 3.5% rates | Telegraph
● ZEW: German economic outlook index dips in Apr–1st time since Oct 2014 | ZEW
● ZEW: Eurozone economic outlook index ticks higher in April | ZEW
● Hopes of Greek Riga deal fade | Reuters

Chicago Fed: Slowest US Growth In Nearly 3 Years

Economic activity in March slumped to the softest pace in 31 months, according to this morning’s update of the Chicago Fed National Activity Index. The three-month moving average of this business cycle benchmark (CFNAI-MA3) decreased to -0.27 last month from February’s -0.12 reading. Last month’s estimate is the lowest since Aug. 2012 for the CFNAI-MA3 data and another sign that the macro trend for the US has suffered in this year’s first quarter. Using this index as a guide, economic activity is well below the historical trend (i.e., below zero).
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