New residential housing construction bounced back in July. Although the consensus forecast was looking for a handsome rebound, the actual results were substantially better than expected. Housing starts revived to a 1.093 million annualized rate last month, which is well above the revised 945,000 pace for June. Newly issued building permits also posted a strong improvement in July. The bottom line: the worst fears for the housing sector have crumbled in the wake of today’s release from the US Census Bureau.
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Making informed choices about active managers has never been anyone’s idea of a picnic, but ongoing developments in R packages eases the burden. Consider the essential work of factor analysis, which is a statistical technique for identifying the sources of risk and return in a portfolio through an objective prism. If nothing else, performing this task is the antidote to marketing hype that permeates the world of investment management. The gold standard for analyzing equity portfolios is regressing the returns against the Fama-French data set (FF), which is updated regularly at Professor Ken French’s web site. In the old days, the chore of downloading FF data, copying it into Excel, and running the analysis was quite tedious and time consuming, as this 2001 how-to article by Bill Bernstein reminds. If you had a deft hand in spreadsheet analysis, maybe you could slice and dice a fund’s history in ten minutes. Fast forward 13 years and you’ll find that factor analysis has become a snap. Using the R code I’ve written below, we can download the necessary data and run the analysis in less than ten seconds for each fund.
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Phil DeMuth at Conservative Wealth Management (and the author of several finance titles, including The Affluent Investor) just posted a Q&A at Forbes.com with yours truly on a topic that receives slightly more than average attention at The Capital Spectator: the business cycle. A sample of the discussion follows below. For the full interview, jump over to Forbes.
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The benchmark 10-year Treasury yield closed under 2.35% last week, the lowest in more than a year. Oil prices are soft as well these days, with the spot price for West Texas Intermediate slipping into the mid-$90 range for the first time since early February. Some pundits are also pointing to last week’s flat retail sales report for July as a signal for arguing that the US economy is headed for trouble. The New York Post over the weekend “reviewed” the numbers and decided to invoke the “R” word, advancing this gem of empirical analysis to drum up fear on Main Street: “During recessions and weak growth, energy prices do fall.”
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Housing starts are expected to total 937,000 in tomorrow’s update for July, based on The Capital Spectator’s median econometric point forecast (seasonally adjusted annual rate). The projection represents a moderate increase vs. the previously reported 893,000 for June.
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The Capital Spectator is sneaking out this afternoon for one final summer holiday for the remainder of the week. The usual fun resumes on Monday, August 18. Meantime… cheers!

The last decade or so has witnessed a productive run of research on the ever-topical issue of detecting market bubbles in real time. Quite a lot of attention has recently been focused on a series of research studies by an academic team that includes Peter Phillips, Jun Yu and others, and rightly so. Last year’s working paper “Testing for Multiple Bubbles 1: Historical Episodes of Exuberance and Collapse in the S&P 500”, for instance, breaks new ground with econometric testing, outlining what appears to be a powerful system for detecting the arrival of irrational exuberance in asset pricing. As Fulcrum Asset Management noted earlier this year in a review of revised bubble analytics: “Recent advances in econometric methodology allow us to detect explosive dynamics in asset prices.”
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US industrial production in June is projected to increase 0.3% vs. the previous month in Friday’s release (Aug. 15) from the Federal Reserve, according to The Capital Spectator’s median econometric forecast. The expected gain represents a slightly faster pace of growth relative to June’s previously reported 0.2% advance.
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US retail sales are expected to rise 0.2% in the July report (scheduled for release on Aug. 13) vs. the previous month, according to The Capital Spectator’s median econometric forecast. The prediction matches the previously reported 0.2% gain for June.
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Worrying about risk witnessed a revival last week amid a mix of heightened concerns on geopolitical and economic fronts. But the US stock market, although off its recent highs lately, remains a leading source of strength in absolute and relative terms. Upbeat economic news in recent weeks has been a key reason, although the macro trend for the US will be tested anew in the days ahead with updates scheduled for retail sales (August 13) and industrial production  (August 15). Meantime, US equities remain firmly in the lead among the major asset classes, based on the trailing 250 trading-day total return (a rough proxy for one-year performance) via our usual set of proxy ETFs.
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