The Hudson Institute’s new “Survey of Leading Economics Bloggers” was published yesterday. Among the participants is yours truly. My contribution to inquiring how my blogging counterparts view the world of macro and related subjects these days is asking this esteemed group to rate business cycle risk over the next few months. Most of the responses fall into the range of “neutral/balanced probability” to “highly unlikely.” On that note, last month’s US Economic Profile on these pages estimated the risk closer to the “highly unlikely” category in the here and now (“nowcasting”), and nothing much has changed in my internal weekly updates (I’ll publish a new monthly profile next week).
Monthly Archives: September 2013
Frontier Markets ETFs: Similar In Name Only
So-called frontier markets—the smaller and less-liquid slice of emerging markets—are attracting a lot of attention these days, inspiring the question: Should I add this slice of the world’s equity markets to my asset allocation? Maybe, but a lot depends on how a fund defines “frontier.” No less important is the current structure of your existing portfolio.
Introducing The ETF Asset Class Performance Review
The Capital Spectator today is rolling out a new weekly research service: The ETF Asset Class Performance Review. The details on subscription information are available at CapitalSpectator.com/premium. This weekly newsletter reviews the performance trends of all the major asset classes and their principal subcategories through the lens of a representative list of ETFs. Take a look for yourself: the inaugural issue is free at: CapitalSpectator.com/premium. There’s also a dedicated link to the newsletter in the upper right-hand corner of The Captial Spectator’s home page under the “Premium Research” label.
Book Bits | 9.7.13
● Scarcity: Why Having Too Little Means So Much
By Sendhil Mullainathan and Eldar Shafir
Audio interview with co-author Sendhil Mullainathan via Marketplace
At first blush, there is little in common between a Harvard economics professor who’s very busy and a poor person from India, struggling to simply put food on the table. But according to Sendhil Mullainathan, the Harvard economist, what they have in common is an idea: Of scarcity. “Both of us are touching on the exact same psychology,” Mullainathan says. “There is actually something primitive that happens to the human brain when experiencing very little.” In a book he’s written, with Eldar Shafir, about this topic, called “Scarcity: Why Having Too Little Means So Much,” Mullainathan says that scarcity can focus the mind. “Everyone has had the experience of two weeks left to do something, and you doddle,” he adds. “One day left to do something, wow, you are focused.” He says this same focus applies to people with limited money. “They become incredibly focused on every little dollar, every little penny,” he says.
An Unexpectedly Weak Jobs Report For August, But Moderate Growth Trend Still Prevails
Private payrolls increased in August by 152,000 vs. the previous month, a gain that was unexpectedly low. Once again the latest macro data point dispensed a surprise, which is typical. This time it disappointed the crowd, and by more than a trivial degree. Some analysts will jump on the news as a dark sign. It may prove to be… in time. But the fact remains that private payrolls continued to rise by 2%-plus on a year-over-year-basis through last month. That’s in line with the annual pace we’ve seen in recent months. In fact, each of the last three monthly updates for private payrolls show annual growth rates of 2% or better—the best consecutive trio of annual changes since last year’s fourth quarter. In other words, nothing much has changed. The private sector is still creating jobs on a net basis and at the rate that’s prevailed for much of this year. If anything, the rate has improved a touch.
The Past-Performance-Is-Bunk Warning Isn’t Quite Right
The topic of past performance, and how to think about it, requires some clarification. There are a lot of folks who advise us that we should ignore historical performance. It’s worthless, they argue. Case closed. I understand the motivation to embrace this extreme form of skepticism since it springs from a crucial problem in the wider world. Indeed, many investors look at a hot hand for a mutual fund manager, for instance, and blindly assume that they can easily join the party and reap the rewards. All too often that’s an assumption that’s destined for disappointment. But that’s not the same thing as saying that historical returns provide no value for projecting, analyzing and modeling expected returns.
US Nonfarm Private Payrolls: August 2013 Preview
Private nonfarm payrolls in the US are projected to increase by 207,000 (seasonally adjusted) in tomorrow’s August update from the Labor Department, according to The Capital Spectator’s average econometric point forecast. The projected gain is substantially higher than the reported increase of 161,000 for July. Meanwhile, The Capital Spectator’s average August projection is well above a pair of consensus forecasts, based on surveys of economists.
More Of The Same For Private Payrolls: Moderate Growth
Private payrolls increased at a relatively slow pace last month, rising by a net 176,000 in August vs. the previous month, according to the ADP Employment Report. As expected, the August gain was below July’s revised 198,000 increase. Meanwhile, the Labor Department’s latest weekly update on initial jobless claims brings better news: new filings for unemployment benefits dropped 9,000, falling to 323,000 in seasonally adjusted terms, which is near a 5-year-plus low. Yes, it looks like a mixed bag for updates on the labor market today. In fact, the news is a bit better than it appears once we focus on year-over-year trends.
Mr. Market Reconsiders Disinflation/Deflation Risk
Inflation expectations have fallen moderately this year, but the stock market has trended higher. Is this a sign that the new abnormal is history?
Macro-Markets Risk Index | 9.4.2013
The US economic trend has weakened a bit in recent weeks, but remains well above levels that signal imminent danger, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 9.7% on Tuesday, September 3—a level that suggests that business cycle risk remains low. Although the latest 9.7% value is near the lowest readings of the year so far, it’s still well above the danger zone of 0%. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.