It’s a rough morning for US economic news. Initial jobless claims jumped sharply last week and housing starts in April suffered the biggest monthly decline in six years. Overall, it’s pretty ugly, but it’s not yet fatal for the business cycle, or so a broad review of indicators still suggests. We could be slipping over the edge, but we could just as easily be stuck in another one of the temporary slow patches that’s plagued the recovery from time to time since the Great Recession ended. Clarity is coming, even if it’s tempting to assume the worst in the wake of today’s updates. But before we do anything, let’s take a closer look at the data.
Monthly Archives: May 2013
Now It’s Really Time For A Flat Tax
If the scandal over monitoring political groups that forced the acting commissioner of the IRS to resign this week doesn’t inspire dismantling the tax-collecting agency and introducing a flat tax, nothing will. It won’t happen, of course. But it should. There are easier, more efficient ways to collect taxes than allowing bloated bureaucracies to act with near impunity as a quasi-government within a government. If that’s not painfully clear at this stage, if it’s not obvious that the IRS is too big, too powerful, and oversees an impossibly convoluted set of tax laws, it’s hard to imagine that we’ll ever engage in meaningful reform of the US tax system, which is in dire need of reforming.
Industrial Output In April Slumps The Most In Eight Months
Industrial production fell more than expected last month, sliding 0.5% in April. That’s a bit deeper than economists projected, and it’s an even bigger drop relative to the modest gain that my econometric modeling suggested. But based on today’s release, it’s obvious that April was a rough month for the industrial sector. The worst, in fact, since last August. The manufacturing component of industrial activity didn’t fare much better, slipping 0.4% last month. That’s the second consecutive monthly retreat for manufacturing, according to this series. It’s also the first time that manufacturing in this data set slumped for two months running since 2009.
US Housing Starts: April 2013 Preview
Housing starts are expected to total 1.013 million in April in tomorrow’s update, based on The Capital Spectator’s average econometric forecast (seasonally adjusted annual rate). That’s a modest decline vs. the previously reported total of 1.036 million for March. Meanwhile, The Capital Spectator’s projected gain for April is well above the numbers in several consensus forecasts drawn from surveys of economists.
Surprising Asset Allocation Results That Really Aren’t Surprising
Monday’s article on the average to above-average results that usually describe a passive allocation to all the major asset classes brought charges of foul play from some quarters. A few critics said I was cherry picking the data; one claimed that I was intentionally manipulating the numbers so as to engineer a favorable result for a benchmark of broad asset allocation vs. the universe of its actively managed equivalent. How, they wondered, could a passive strategy that holds everything compare so favorably on a regular basis? In fact, it would be surprising—impossible, in fact—if the results were otherwise.
US Industrial Production: April 2013 Preview
Tomorrow’s report on industrial production for April is projected to post a 0.2% gain, based on The Capital Spectator’s average econometric forecast (seasonally adjusted). The expected increase represents a modest slowdown vs. March’s 0.4% rise. Meanwhile, the Capital Spectator’s average projection for April contrasts with expectations for a drop in industrial production via consensus forecasts from economists.
Retail Sales: Slow Growth In April
Whenever a key economic indicator shows weakness in the latest monthly update, the usual worries arise. No explanation required in the current environment and so today’s retail sales report for April will draw a fresh round of dark predictions from the usual suspects. And perhaps they’ll be right this time. But for now, it’s still premature to argue that the modest growth train has derailed, even if it looks that way by focusing on the latest data point.
Boring, Diversified, And (Still) Tough To Beat
Most investors suffer high fees and earn low returns. There are no sure-fire solutions, at least for the second problem, although playing defense by way of investing in a broadly diversified portfolio across the major asset classes with low-cost index products is a good start. This isn’t a silver bullet, but history suggests you can do quite well with this simple strategy. And if you add in a bit of rebalancing, you’ll probably do moderately better still. Not tomorrow, necessarily, but through time the odds usually stack up in your favor with this strategy. This basic advice drives the financial industry crazy because it sounds incredibly easy and doesn’t cost much. It’s hard to charge a lot for a strategy that requires no skill or forecasting prowess. But the results speak for themselves.
Book Bits | 5.11.13
● Political Bubbles: Financial Crises and the Failure of American Democracy
By Nolan McCarty, Keith T. Poole & Howard Rosenthal
Excerpt via publisher, Princeton University Press
By political bubble, we mean a set of policy biases that foster and amplify the market behaviors that generate financial crises. Political bubbles are procyclical. Rather than tilting against risky behavior, the political bubble aids, abets, and amplifies it. During a financial bubble, when regulations should be strengthened, the political bubble relaxes them. When investors should hold more capital and reduce leverage, the political bubble allows the opposite. When monetary policy should tighten, the political bubble promotes easy credit.
Macro-Markets Risk Index | 5.09.2013
A markets-based profile of US economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (May 9) at 16.3%–well above the danger zone of 0% and within the 10%-to-16% range that’s prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.