Today’s report on industrial production for February deals another blow to analysts who insist that the US economy is in imminent danger of slipping into a recession or (even more dubious) that the business cycle has already slipped off the edge. Indeed, industrial output last month accelerated, rising 0.7% in February—the best monthly gain since November. The cyclically sensitive manufacturing slice of industrial activity also enjoyed a strong month, advancing 0.8% over January’s level. Is all this misleading us about the true nature of the trend? Perhaps, but the numbers suggest otherwise once you consider that the annual change in industrial production continues to chug along at a moderate pace, rising a bit faster at a 2.5% gain for the year through last month vs. the 2.3% year-over-year rate for January.

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The risk premium for a broadly diversified, unmanaged portfolio of asset classes is expected to fall in the years ahead. Can this trend be offset by working smarter and making better rebalancing decisions? In theory, yes. In practice, only a minority of investors can avail themselves of benchmark-beating results in the long run. True for individual asset classes, true for asset allocation. That’s the nature of the arithmetic of active management. But if there’s any chance for success on this front, most of the strategic intelligence for improving results will come from within your portfolio, as I discussed a few weeks ago. Carefully monitoring the fluctuations in your asset allocation doesn’t insure that you’ll earn a higher risk premium, but it’s a lot harder (impossible?) to enhance results if you don’t fully exploit this information for managing the portfolio.

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