US retail sales are expected to rise 0.6% in tomorrow’s June report vs. the previous month, according to The Capital Spectator’s median econometric forecast. The prediction represents a doubling in the rate of growth vs. the previously reported 0.3% gain for May.
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● Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance
By Cullen Roche
Q&A with author via The Reformed Broker (Josh Brown)
JB: You cite “Stocks for the Long Run” as a myth we need to get over as investors – and yet there is not a single twenty year period going back to 1926, an eight decade span, in which stocks have shown a negative return. In addition, stocks have returned something on the order of 5% per year during this period even after adjusting for inflation and taxes – bonds have shown something closer to 1% when adjusted for the same factors during this time. So, why not “stocks for the long run”? What am I missing?
CR: I am a hopeless optimist at heart as I think most Americans are, but I also know that we have to look at the bigger picture here and keep things in perspective. I say, be optimistic in the long-run, but not naively optimistic. While it’s true that stocks are generally a good long-term bet it’s also true that markets are comprised of irrational participants operating in a complex dynamical system. And that means this system is actually much more fragile than many presume. And that’s why we see prolonged periods of poor equity market performance such as Japan over the last 20 years, Greece, China, etc. The US economy and markets are a powerhouse, but I don’t think it’s prudent to assume that that powerhouse is impervious to sustained periods of poor performance as we’ve seen in many other global equity markets in recent decades.
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If you were already skeptical of the quarterly GDP reports as the basis for making informed decisions about investing and business strategy, yesterday’s article from Floyd Norris at The New York Times is sure to increase your suspicion that these figures are of dubious value. Norris digs a bit deeper into the strange case of a reported 2.9% contraction in Q1 while “employers hired more people than in any quarter over the last six years, signaling gathering strength in the economy.”
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Inflation is mounting a comeback. Not as an imminent macro threat, at least not yet. But as a topical subject for monetary policy and a relevant factor for looking ahead in economic and investment terms, the subject of inflation will likely resonate on a deeper level going forward. The source of this shift, of course, is the Federal Reserve, which is winding down its great experiment in monetary stimulus and laying the groundwork for reviving something approximating a “normal” policy regime.
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The US economic trend remained positive, settling at an average pace for the year to date through July 8, according to markets-based benchmark. The Macro-Markets Risk Index (MMRI) closed at +10.7% yesterday, or just slightly above the average of daily readings so far in 2014. The consistently positive numbers suggest that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
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Asset price volatility is a critical variable for the various flavors of dynamic asset allocation and related strategies. As a core input for developing risk management models, ignoring volatility is like trying to drive with your eyes closed. As a first approximation for dealing with uncertainty in finance, volatility’s an obvious resource. But volatility can be confusing if you’re not thinking clearly about what “high” and “low” vol regimes imply for expected risk and return. It doesn’t help that the vast pool of research in this area dispenses recommendations that are all over the map. Fortunately, the basic lessons can be sorted out with minimal effort.
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Trailing returns for the major asset classes continued to rise in June, a trend that’s left expected risk premium forecasts flat to slightly lower since last month’s update. The Global Market Index (GMI)–an unmanaged, market-value weighted mix of all the major asset classes—is projected to earn an annualized 3.9% risk premium (total return less the “risk-free” rate) in the long run, based on analysis of the data through June 2014. The forecast is unchanged from May’s estimate.
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● Understanding Alternative Investments: Creating Diversified Portfolios that Ride the Wave of Investment Success
By Stephen Todd Walker
Summary via publisher, Palgrave Macmillan
Using ground-breaking, never before seen data on alternative investments, Stephen Todd Walker explores how to apply new risk measurements to an alternative portfolio. Through his 20+ years of expertise in finance, the author explains how to go about carefully selecting the best alternatives for you and the right time to invest in them, including real estate, hedge funds, private equity, venture capital, and more. The book shows the merits of owning alternative investments and helps investors who want to create better, more diversified portfolios.
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IN CONGRESS, July 4, 1776.

The unanimous Declaration of the thirteen united States of America,

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
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Payrolls increased in June by substantially more than projected, the Labor Department reports. The economy added 262,000 private non-farm jobs last month vs. May, well above Econoday.com’s consensus forecast of 210,000 (or the Capital Spectator’s 235,000 median prediction). Good news, of course, but not quite a clear and unambiguous sign that the labor market’s growth is accelerating beyond the pace we’ve seen before the economy hit a speed bump earlier this year.
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