The Federal Reserve has been trying to juice inflation higher for some time, and it appears that it’s had slight if precarious success over the past month. The market, at least, is pricing in slightly higher inflation for the decade ahead, based on the yield spread between the nominal and inflation-indexed 10-year Treasuries. As of yesterday, this inflation forecast was 1.78%, up a bit from 1.52% at the close of August, when worries of deflation were raging.
Monthly Archives: September 2010
RETHINKING A DOLLAR-HEAVY ASSET ALLOCATION
“Like it or not, significant dollar depreciation is more probable than most now suppose,” writes Simon Johnson, a professor at MIT’s Sloan School of Management, in a Bloomberg column today. The market seems to be discounting no less. Certainly the gold market is roaring higher in part because the odds that the dollar will fall in the months (years?) ahead look quite a bit better than even.
READING ROUNDUP FOR WEDNESDAY: 9.29.2010
►Cultivating the Chinese Consumer
Stephen Roach/NY Times
“On Wednesday, the House of Representatives is set to pass legislation that would allow trade sanctions to be imposed on China as compensation for its supposedly undervalued currency…The currency fix won’t work. At best, it is a circuitous solution that would address only one of the many pressures shaping the imbalances between our two nations; at worst, it would lead to a trade war, or risk jeopardizing China’s understandable focus on financial and economic stability.”
►Gold hits all time high, eyes on Fed’s next move
Lewa Pardomuan/Reuters
“Gold hit a lifetime high on Wednesday, its 10th record in 12 sessions, as the dollar dropped against a basket of currencies on expectations the Federal Reserve would take new measures to shore up the economy.”
PRICES WILL FLUCTUATE
So said J.P. Morgan one day when he was asked for a prediction about the stock market. The cagey banker gave us the only market forecast that’s always right. Prices bounce around a lot. They always do. Sometimes they bounce higher (or fall lower) than usual. When that happens, cries of market inefficiency and irrational investors take flight. The alternative view is that markets are simply repricing assets based on new expectations for risk and return. What’s the evidence that rational pricing prevails? One clue is that the underlying fundamentals of the market change in line with prices.
SOROS, BUFFETT, BETA & ALPHA
Who has more talent for minting alpha? Warren Buffett or George Soros? Nassim Taleb, author of The Black Swan
BOOK BITS FOR FRIDAY: 9.24.2010
● Running Out of Water: The Looming Crisis and Solutions to Conserve Our Most Precious Resource
by Peter Rogers and Susan Leal
Water: The Epic Struggle for Wealth, Power, and Civilization
by Steven Solomon
Bottled and Sold: The Story Behind Our Obsession with Bottled Water
by Peter H. Gleick
Review via Foreign Affairs
“Three new books about water agree that the world is facing serious water crises but have very different ideas about how to address them, especially when it comes to deciding what roles the public and private sectors have to play.”
ANOTHER DURABLE GOODS REPORT, ANOTHER ENCOUNTER WITH THE NEW NORMAL
New orders for durable goods fell 1.3% in August, the Census Bureau reported this morning. The drop more than reverses July’s 0.7% rise, which was the first since April. But the news isn’t quite as bad as the headline number suggests. Most of the decrease was due to a steep fall in orders from the volatile transportation sector. Excluding this group shows that new orders actually rose 2%. Meanwhile, new orders for capital equipment excluding aircraft jumped 4.1%, rebounding from the 5.3% drop in July. Corporate investment, in sum, rebounded last month.
THE RISING INFLUENCE OF BETA
The Wall Street Journal has an intriguing story today that highlights the case for thinking that macro forces are running the investment show these days. Or, to cite James Bianco of Bianco Research, as he opines in the article: “Stock picking is a dead art form. Macro themes dominate the market now more than ever.”
THE BEST GOLD QUOTE I’VE READ THIS YEAR…
“What makes the gold story so interesting is that bullion has so many different correlations — with inflation, with the dollar, with interest rates, with political uncertainty,” according to David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “This year, for example, gold has shifted from being a commodity toward being a currency — the classic role as a monetary metal that is no government’s liability.”
–Bloomberg News
JOBLESS CLAIMS RISE. A SIGN OF STRUCTURAL UNEMPLOYMENT?
Today’s update on new jobless claims for last week is a reminder that the labor market is still stuck in neutral. After a month of declines in new filings for unemployment benefits, the trend reversed last week. New claims jumped 12,000 for the week ending September 18, the government reported. That’s discouraging, but nothing’s really changed in terms of the broad trend this year. We’re still going nowhere fast in the labor market.