First-quarter US GDP is expected to increase 3.2%, according to the latest update of The Capital Spectator’s average econometric nowcast. That’s virtually unchanged from the previous 3.1% nowcast, published on March 19. (GDP percentage changes are quoted as real seasonally adjusted annual rates.)
Monthly Archives: April 2013
Book Bits | 4.6.13
● The Alchemists: Three Central Bankers and a World on Fire
By Neil Irwin
Q&A with author via The New York Times/Economix blog
Q: Americans generally view the financial crisis as a domestic event, and it’s already fading from memory. A central message of your book seems to be that it was primarily a European event, and it’s not over yet.
A: If history teaches one thing, it is that when a severe global financial panic sets in, it can easily bend and warp and metastasize. That’s how what we once quaintly called the subprime crisis came to have such varied effects as banking collapses in Iceland and Ireland and Cyprus, a lost decade for the British economy, and a series of events that nearly unraveled 60 years of progress toward a united and peaceful Europe. At its worst, those types of unpredictable domino effects can lead to some very bad places, of which the Great Depression and World War II are the prime examples. Fortunately nothing nearly that bad has happened this time. But as catastrophic as the 2008 experience was for the U.S. economy and millions of Americans, it was closer to the start of the crisis than the end.
How Should You Customize Your Asset Allocation?
Everyone (or nearly everyone) agrees that investment portfolios should be customized, based on an investor’s risk tolerance, objectives, time horizon, and so on. Where minds differ is deciding how to customize. There are two basic paths. The first, which is the overwhelmingly popular route, is building portfolios from the ground up, security by security, fund by fund. Peter Betenstein called this approach the “interior decorator fallacy” in Capital Ideas
Nonfarm Payrolls’ Growth Slows Sharply In March
Private payrolls increased by 95,000 in March, but the net gain is the smallest since last June, the Labor Department reports. Today’s update represents a sharp slowdown from February’s revised 254,000 advance. Even more troubling is the hefty deceleration in the year-over-year trend: private payrolls rose by just under 1.8% for the year through March—the slowest pace in nearly two years.
Macro-Markets Risk Index | 4.05.2013
A markets-based profile of economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (April 4) at 12.3%–well above the danger zone of 0% and within the 10%-to-15% range that’s prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.
Jobless Claims Take Another Turn For The Worse
Today’s jobless claims update looks troubling. It’s premature to make definitive claims about what comes next, but the number du jour doesn’t make it easier to maintain the rosy glow that’s defined the macro outlook of late. Here’s the problem: Last week’s sharp rise in new filings for unemployment benefits is the third increase in a row, and the biggest of the three. As a result, claims have jumped to the highest levels since last November, when the blowback from Hurricane Sandy had temporarily elevated new filings. But you can’t blame the weather this time. It’s unclear if the rise in recent weeks is noise, albeit in somewhat more extreme form from what we’ve seen lately, or the start of something darker for the business cycle. But for now, the outlook looks a bit cloudier in the wake of this morning’s update.
US Nonfarm Private Payrolls: March 2013 Preview
Private nonfarm payrolls are expected to post a monthly increase by 160,000 for March in tomorrow’s update from the Labor Department, based on The Capital Spectator’s average econometric forecast. The projected gain is sharply lower vs. the reported increase for February and below a pair of consensus forecasts for March.
Portfolio Risk Management & Analysis With Monte Carlo Simulations
The future’s uncertain, which is why it’s so essential to consider what could happen, or not, from a variety of perspectives. Every attempt at modeling and forecasting is wrong, of course. That’s the nature of the prediction beast. But different methodologies are wrong in different ways. That doesn’t mean that we should refrain from guesswork. Au contraire. More is better, up to a point, and assuming that that we diversify out toolkit and remain humble with regards to expectations. You can’t get blood out of a stone and no methodology under the sun can offer certainty on what may be lurking around the corner. But if you don’t spend time considering the possibilities, you’re more vulnerable than necessary when it comes to estimating and managing risk and minimizing the surprise factor.
Asset Allocation And The Negative Selection Factor
Some investors labor under the delusion that the realm of asset allocation and its influences don’t apply to their portfolios. At a recent conference, for instance, I found myself in a casual conversation with a fairly wealthy individual who told me that asset allocation was to be avoided at all costs. He talked a good game, but he didn’t realize that he could no more escape decisions on asset allocation than he could walk the earth and avoid gravity.
Manufacturing Growth Slowed In March… Maybe
The manufacturing sector’s growth slowed in March, according to the Institute for Supply Management. The composite reading for ISM’s Manufacturing index dropped to 51.3, down from 54.2 in February. Values above the neutral 50 mark indicate growth. New orders for manufactured goods also declined, according to ISM data, slumping to 51.4 from 57.8 previously.