New orders for durables goods, considered a leading indicator for the business cycle, slipped 0.1% last month on a seasonally adjusted basis. The slight decline follows a strong 4.1% jump in July. Given all the recent worries about rising recession risk, it’s a wonder that new orders didn’t fall further. The fact that this critical measure of economic activity managed to hold on to virtually all of July’s gains implies that the economy may continue to struggle but it will avoid a recession. That relatively optimistic view is strengthened after learning of the 1.1% rise last month in business investment (a proxy for capital spending, as measured by nondefense capital goods orders excluding aircraft).

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Volatility-responsive asset allocation
Bob Collie, et al. (Russell Investments) | Aug 2011
The use of fixed weights in strategic asset allocation policy does not result in a stable risk/return pattern over time, but rather leads to greater risk at times of high market volatility and to lower risk in unusually stable markets. For investors who are sensitive to volatility, a more consistent outcome can be achieved – both in terms of the volatility of returns and in terms of how volatile that volatility itself is – by adopting a dynamic, or volatility-responsive, approach… The principle that underpins volatility-responsive asset allocation is to reduce exposure to risky assets when volatility is high, and to increase that exposure when volatility is low. This might result in a portfolio that averages, say, 50% exposure to the equity market, but which has more than that at times of market stability and less during volatile markets.

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