Fourth-quarter US GDP is expected to increase 2.0% in next week’s initial report from the government, according to The Capital Spectator’s average econometric nowcast. That’s up from the previous 1.6% nowcast published on January 7. The higher nowcast reflects several upbeat economic reports for December data that have been published over the last two weeks. The official Q4 data is scheduled for release on January 30, when the Bureau of Economic Analysis will publish its initial GDP estimate for the last three months of 2012. (All GDP percentage changes cited are quoted as real seasonally adjusted annual rates.)
Monthly Archives: January 2013
A New (Temporary?) Glitch In The Jobless Claims Data
The January economic data is starting to trickle in, and so far the signals are encouraging. Well, mostly encouraging. There’s a question about the year-over-year change in unadjusted jobless claims, which are posting an increase for the second week in a row. But the seasonally adjusted numbers are still trending positive, and so the warning in the raw data may be a statistical quirk rather than a genuine warning. Supporting the case for optimism for the first month of the new year so far is today’s strong gain in the Markit US Manufacturing Purchasing Managers Index (PMI) for January.
Debt & The Business Cycle: A Useful But Incomplete Explanation
Steve Clemons and Richard Vague tell us that it’s all, or at least mostly, about debt. The financial crisis and the Great Recession were “caused primarily by a massive private debt buildup,” they write in a recent white paper: “How To Predict The Next Financial Crisis.” The authors will be speaking next month at a conference on the topic at the Global Interdependence Center in Philadelphia and presumably they’ll lay out the evidence in some detail. They’re certainly on solid ground when they link debt with financial crises. History is quite clear on this point. But let’s be careful here. Citing debt as the main catalyst that routinely triggers recessions across time is surely going too far.
Two More Betas For The Global Market Index
The Global Market Index (GMI) is expanding its asset class horizons. Starting with the numbers as of December 31, 2012, GMI’s allocations will add foreign REITs and foreign high-yield bonds to the mix. Next week, when I publish the monthly update on asset class returns through January, these two betas will make their formal debut. (For new readers who are wondering what I’m talking about, here’s the latest monthly update of the major asset classes and GMI.) The reasoning behind this change is that the arrival of ETFs that track these markets makes it easy and cost-efficient to allocate to non-US REITs and high-yield bonds. Considering the history of these markets in context with other asset classes, there’s also a strategic/tactical argument for adding foreign REITs and foreign high-yield bonds to the investment opportunity set. The correlations between the new additions and the usual suspects is still fairly high, but it’s well short of perfect positive correlation. Accordingly, there’s opportunity in these betas for enhancing the rebalancing bonus, if only on the margins.
Chicago Fed Nat’l Activity Index: US Economy Ended 2012 With Modest Growth
The Chicago Fed National Activity Index (CFNAI) slipped marginally to a monthly reading of +0.02 in December from an upwardly revised +0.27 in November, the Chicago Federal Reserve reports. Today’s update translates to a three-month moving average (CFNAI-MA3) of -0.11, or comfortably above the -0.70 level that’s considered to be the tipping point for the onset of recessions. CFNAI, a weighted average of 85 indicators, is designed as a benchmark of US economic activity broadly defined.
Chicago Fed Nat’l Activity Index: December 2012 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decline incrementally to -0.21 in tomorrow’s December update, according to The Capital Spectator’s average econometric forecast. That’s virtually unchanged from CFNAI’s -0.20 three-month average for November. The consensus forecast of economists calls for a slightly higher reading of -0.09 in the December report. A value below -0.70 indicates an “increasing likelihood” that a recession has started, the Chicago Fed advises.
Book Bits | 1.19.13
● The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It
By Peter Temin and David Vines
Summary via publisher, Princeton University Press
The Leaderless Economy reveals why international financial cooperation is the only solution to today’s global economic crisis. In this timely and important book, Peter Temin and David Vines argue that our current predicament is a catastrophe rivaled only by the Great Depression. Taking an in-depth look at the history of both, they explain what went wrong and why, and demonstrate why international leadership is needed to restore prosperity and prevent future crises.
A Real-World Benchmark For Asset Allocation
There are two main channels for engineering successful outcomes for strategic-minded investors, but there are many ways to fail. To boost the odds that the former will work in your favor, it’s important to stay focused on key factors that will drive investment results, for good or ill. The first is asset allocation. It’s easy and inexpensive to diversify across asset classes on a global basis, thanks to the proliferation of ETFs and mutual funds. Why would you do that? Risk management. Rebalancing is the other big variable. The two together are a powerful combination. By holding a broad array of assets you’re in strong position to exploit price volatility, which is the raw material for earning a rebalancing bonus. But before you do anything, ask yourself one question: Are you confident that you can beat the pros by doing it yourself?
Housing Starts Rise Sharply In 2012’s Final Month
New residential construction in December rose substantially more than expected, posting a 12.1% increase last month (seasonally adjusted annual rate). Yours truly and several consensus forecasts were looking for a solid but considerably lesser growth rate of around 3.0%, as I noted yesterday. The key point, of course, is that the housing recovery remains on track, as today’s update reminds in rather convincing terms.
Research Review | 1.17.2013 | Asset Allocation
Strategic Asset Allocation: The Global Multi-Asset Market Portfolio 1959-2011
Ronald Doeswijk (Robeco), et al.| November 2012
The portfolio of the average investor contains important information for strategic asset allocation purposes. This portfolio shows the relative value of all assets according to the market crowd, which one could interpret as a benchmark or the optimal portfolio for the average investor. We determine the market values of equities, private equity, real estate, high yield bonds, emerging debt, non-government bonds, government bonds, inflation linked bonds, commodities, and hedge funds. For this range of assets, we estimate the invested global market portfolio for the period 1990-2011. For the main asset categories equities, real estate, non-government bonds and government bonds we extend the period to 1959-2011. To our understanding, we are the first to document the global multi-asset market portfolio at these levels of detail for such a long period of time.