Book Bits | 14 July 2018

Copycats and Contrarians: Why We Follow Others… and When We Don’t
By Michelle Baddeley
Summary via publisher (Yale University Press)
Rioting teenagers, tumbling stock markets, and the spread of religious terrorism appear to have little in common, but all are driven by the same basic instincts: the tendency to herd, follow, and imitate others. In today’s interconnected world, group choices all too often seem maladaptive. With unprecedented speed, information flashes across the globe and drives rapid shifts in group opinion. Adverse results can include speculative economic bubbles, irrational denigration of scientists and other experts, seismic political reversals, and more. Drawing on insights from across the social, behavioral, and natural sciences, Michelle Baddeley explores contexts in which behavior is driven by the herd. She analyzes the rational vs. nonrational and cognitive vs. emotional forces involved, and she investigates why herding only sometimes works out well.
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US Q2 Growth Set To Accelerate As Trade-War Risk Lurks

The trade war that appears to be escalating may bring headwinds in the second half of the year, but second-quarter US GDP growth remains on track to accelerate, based on several forecasts compiled by The Capital Spectator. The current median projection calls for real GDP growth in Q2 to rise 3.1% (seasonally adjusted annual rate) – a solid improvement over Q1’s modest 2.0% increase. The Bureau of Economic Analysis is scheduled to publish its initial GDP report for the second-quarter in two weeks (July 27).
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Macro Briefing: 13 July 2018

Trump: May is wrecking Brexit and US-UK trade deal is uncertain: The Sun
At NATO summit, Trump didn’t rule out ending military exercises: CNN
China’s trade surplus rose to record in June: Reuters
Annual US consumer inflation rate ticks up to 6-year high in July: MW
US jobless claims fell to 2-month low during July 4 holiday week: Bloomberg
Worldwide PC shipments increased in Q2 2018, first gain in years: C|NET
Will the Fed pull back from more rate hikes to avoid an inverted yield curve? MW
US 10yr-2yr Treasury yield curve sinks to new 11-year low — 25 basis points: Named A Top “Economics Influencer”

Focus Economics, a consultancy that focuses on macro topics, published a list of “50 Top Economics Influencers to Follow” and made the grade… just barely: we’re number 50. Whew! That was close. The academics, journalists, industry professionals, and central bankers that comprise the other 49 sources represent an impressive list and so it’s an honor to be included. If you’re looking for insight into all things macro and financial, here’s a great place to start. See for yourself by clicking here.

Major Asset Classes | Correlation Profile | 12 July 2018

Return correlations for the major asset classes have been ticking higher in 2018, based on the median of pairwise relationships for rolling one-year periods via a set of exchange-traded products. Although the median correlation is still well below levels reached last year, the upward trend this year is conspicuous, suggesting that diversification benefits generally may soften in the months (years?) ahead.
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Macro Briefing: 12 July 2018

Trump roils NATO meeting in Brussels: LA Times
Will Trump’s attacks on NATO help Russia’s Putin? CNN
Business groups, congressional Republicans have worries over trade war: The Hill
European Commission trims estimate for Europe’s GDP growth in 2018: RTT
Crude oil drops sharply over fears of falling demand, rising supply: MarketWatch
Morgan Stanely predicts US Treasury yield curve will invert in 2019: Bloomberg
The US-driven trade war has cost a typical American family $60 (so far): NY Times
Wholesale inventories for US revised up for May: Reuters
US wholesale inflation picked up to six-year high in June: MarketWatch

Excerpt, Part II: Quantitative Investment Portfolio Analytics In R

A couple of weeks back I published the first part of a full-chapter excerpt from my new book, Quantitative Investment Portfolio Analytics In R: An Introduction To R For Modeling Portfolio Risk and Return. Here’s the second half of this two-part excerpt of Chapter 5, which reviews the basics for factor analysis via R code. The chapter sample below focuses on additional analytics, including a primer on a close cousin to factor analysis: principal component analysis (PCA).  (Note: for a cleaner read, the footnotes that appear in the book have been removed for this web-based version of the chapter. For a complete list of the book’s chapters, see here. Keep in mind that all the code published in Quantitative Investment Portfolio Analytics In R can be accessed via a single file by way of a link that’s published in the book.)
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US Inflation’s Slow, Steady Rebound Looks Set To Continue

Thursday’s report on consumer inflation for June is expected to show that the recent firming trend will roll on. Analysts are looking for the year-over-year rate in headline prices to tick up to the fastest pace in over six years. It’s easy to overstate the rebound in pricing pressure, which appears dramatic after flirting with a mild degree of deflation as recently as 2015. But the rise from a low base still leaves inflation at a moderate rate relative to history. Nonetheless, the numbers clearly show that reflation is in progress — a trend that will increasingly ratchet up pressure on the Federal Reserve to tighten monetary policy.
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