The latest economic releases look wobbly in some corners–yesterday’s report on housing starts, for example. But the monthly comparisons for several indicators, although weak, appear to be noise at this time in terms of evaluating the business cycle. Indeed, reviewing macro conditions across a broad set of figures still points to growth. True, the outlook for expecting an acceleration in economic activity has fallen on hard times again. But the moderate expansion that’s prevailed lately will likely roll on, based on the August update of a diversified set of 14 economic and financial indicators.
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I’m off to Manhattan, where I’m a panelist at today’s 360 Exchange conference hosted by Bloomberg. My session focuses on volatility in macro and markets. My co-panelist is Dan Farley, chief investment officer for the investment solutions group at State Street Global Advisors. The usual routine for The Capital Spectator resumes tomorrow.

Housing starts are expected to decrease to 1.050 million in tomorrow’s update for August, based on The Capital Spectator’s median econometric point forecast (seasonally adjusted annual rate). The projection represents a marginal decline from 1.093 million starts in July.
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Volatility is starting to creep back into the markets. It’s not obvious from the 30,000-foot view, but a few corners of the global markets are becoming jittery. Exhibit A: US real estate investment trusts (REITs), which tumbled sharply in recent sessions, presumably on the fear that this interest-rate sensitive asset class is vulnerable if the Fed is getting close to hiking interest rates.
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When the dust clears from tomorrow’s Fed announcement, the crowd’s expecting that the slow but persistent pace of tapering will endure. While we’re waiting for Wednesday’s monetary statement, revised set of economic projections, and press conference, consider that the real (inflation-adjusted) year-over-year increase in the monetary base continues to decelerate. That’s not surprising at this point, but it’s a clear signal that monetary stimulus is still moving closer to normalization.
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The trend in recent years of securitizing more of the world’s market betas offers investors, in theory, better odds for enhancing risk-adjusted returns. Providing access to a broader set of assets with low/negative correlations moves us closer to the ideal of building optimal portfolios. In practice, however, juicing results is messy. One challenge is the grey area of developing reasonable expectations for relatively “new” betas that come down the pike. Tapping into a previously obscure market via an ETF, for instance, can be a good thing, but sometimes it’s unclear what to expect due to limited historical data. For some folks, that’s a reason to steer clear. But playing it safe comes with its own set of risks. The question, then, is how does one develop a comfort level with new products that don’t have a long track record as investable portfolios? The short answer: carefully, methodically, and with several techniques, including a bit of statistical modeling.
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US industrial production in August is projected to increase 0.3% vs. the previous month in tomorrow’s report from the Federal Reserve, according to The Capital Spectator’s median econometric point forecast. The expected gain represents a marginal deceleration in growth relative to July’s 0.4% advance.
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● The Shifts and the Shocks: What We’ve Learned–and Have Still to Learn–from the Financial Crisis
By Martin Wolf
Review (FiveThirtyEight.com)
For Freud, everything was about sex. For Marx, it was the struggle between capital and labor. These thinkers took their big idea and applied it relentlessly. Or, as the saying goes (sort of): They had a favorite hammer, so every problem looked like a nail.
For Martin Wolf, the chief economics commentator for the Financial Times and one of the world’s foremost writers on macroeconomics and international finance, his hammer is “global imbalances.” And many of the economic and financial problems of today are the nails.
His latest book, “The Shifts and the Shocks: What We’ve Learned — and Have Still to Learn — from the Financial Crisis,” was released Thursday in the United States. It’s a great read. The book will be unsettling to anyone who thinks the financial system is any more stable now. The financial sector in many high-income countries is still vulnerable to crises, and reforms put in place have not gone far enough, he argues.
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Spending on retail goods and services increased 0.6% in August, matching several consensus forecasts and strengthening the case for thinking that the US economy remains on a path for moderate growth. With the exception of gasoline sales and general merchandise stores, all the major categories posted higher sales last month. Overall, the August profile is a solid report that reflects a healthy pace of consumption. As an added boost for confidence: July’s initially reported flat performance was revised up to a 0.3% gain for the headline data.
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I’ll be a panelist at next week’s 360 Exchange conference (Thurs, Sep 18) at the Bloomberg headquarters in New York City for the 10:20am session on volatility in macro and markets. My co-panelist is Dan Farley, chief investment officer for the investment solutions group at State Street Global Advisors. In fact, there’s a great lineup of speakers and discussions about economics and finance throughout this day-long event. For details, take a look at the agenda below or visit the conference’s web site.
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