Monday’s update on US retail sales for June is projected to increase by 0.4% vs. the previous month, according to The Capital Spectator’s average econometric forecast. That compares with a 0.6% gain reported by the Census Bureau for May. Meanwhile, the Capital Spectator’s average projection for June is well below a consensus forecast based on recent survey of economists.
Author Archives: James Picerno
Jobless Claims Rose Last Week, But The Trend Is Still Favorable
New applications for unemployment benefits unexpectedly increased during the first week of July, although the pop is probably noise. July data tends to be distorted by so-called retooling activity in the auto sector, and so week-to-week comparisons at this time of year are suspect–more so than usual. Even if you take today’s number as gospel, there’s still plenty of room for optimism. Reviewing year-over-year comparisons, which strips out most of the seasonally volatility, suggests that moderate growth in the labor market remains intact and may even be set for something better in the months ahead.
Rebalancing Software For Financial Advisors
The July issue of Financial Advisor magazine carries a story–“The Final Frontier”–written by yours truly on the topic of asset allocation. The main takeway: look often for boosting the odds of finding optimal rebalancing opportunities. The target audience is financial advisors, who must grapple with the rebalancing challenges that come with overseeing dozens if not hundreds of portfolios in real time. That’s a job for one of the various specialized rebalancing software packages on the market these days. The good news for individuals is that an Excel spreadsheet and an Internet connection will do just fine, courtesy of the fact that it’s relatively easy to monitor one or two portfolios with technology circa 1985. Professionals managing other people’s money, by contrast, are increasingly held to a substantially higher standard when it comes to prudent oversight policies.
Jobless Claims: A Vital Number For Macro & Markets Analysis
Tomorrow’s weekly update on initial jobless claims will draw the usual crowd in search of clues on the outlook for the business cycle, but there’s another reason that new filings for unemployment benefits deserve careful scrutiny. Claims data provide another robust perspective on projecting the near-term outlook for the stock market.
Asset Allocation & Rebalancing Review | 9 July 2013
US stocks continue to impress in absolute and relative terms in 2013. For the year so far (through July 9), no other major asset class even comes close. Based on a proxy ETF, the total return for US equities in 2013 is nearly 17%. Using history as a guide, that’s the equivalent of earning nearly twice the long-run performance in six months. Enjoy it while it lasts. At the opposite end of the spectrum: emerging market stocks, which are deeply in the red by almost 14%.
Pondering Simplicity In Asset Allocation
“The biggest pitfall [for all investors who decide on an asset mix and invest accordingly] is behavioral, when people don’t want to rebalance,” Brad McMillan, chief investment officer at Commonwealth Financial Network, tells The Wall Street Journal. What’s the solution? The Journal article makes a case for simplicity in asset allocation, perhaps as few as three funds targeting US stocks, foreign stocks, and US bonds.
Book Bits | 7.6.13
● The Great Degeneration: How Institutions Decay and Economies Die
By Niall Ferguson
Excerpt via MSNBC
The voguish explanation for the Western slowdown is ‘deleveraging’: the painful process of debt reduction (or balance sheet repair). Certainly, there are few precedents for the scale of debt in the West today. This is only the second time in American history that combined public and private debt has exceeded 250 per cent of GDP. In a survey of fifty countries, the McKinsey Global Institute identifies forty-five episodes of deleveraging since 1930. In only eight was the initial debt/GDP ratio above 250 per cent, as it is today not only in the US but also in all the major English-speaking countries (including Australia and Canada), all the major continental European countries (including Germany), plus Japan and South Korea. The deleveraging argument is that households and banks are struggling to reduce their debts, having gambled foolishly on ever rising property prices. But as they have sought to spend less and save more, aggregate demand has slumped. To prevent this process from generating a lethal debt deflation, governments and central banks have stepped in with fiscal and monetary stimulus unparalleled in time of peace. Public sector deficits have helped to mitigate the contraction, but they risk transforming a crisis of excess private debt into a crisis of excess public debt. In the same way, the expansion of central bank balance sheets (the monetary base) prevented a cascade of bank failures, but now appears to have diminishing returns in terms of reflation and growth.
June Private Payrolls: +202k
Today’s payrolls report for June looks quite good—for several reasons. First, the private sector created a net 202,000 jobs last month, well above expectations. Second, payrolls increased by quite a bit more in April and May than initially estimated, the Labor Department reports today. May’s initially reported private-sector advance of 178,000 jobs, for instance, is now estimated as an increase of 207,000. Thirdly, the year-over-year pace of private payrolls growth is rising, which suggests that the positive momentum in the labor market is strengthening and will roll on for the near term.
Research Review | 7.5.13 | Portfolio Management
End the Charade: Replacing the Efficient Frontier with the Efficient Range
Meir Statman (Santa Clara University) and Joni Clark | July 2013
● Imprecise estimates are one source of gaps between optimized mean-variance portfolios and portfolios that investors prefer. Investor preferences beyond high mean and low variance is the other source. Both sources of gaps call for investor judgment.
● Harry Markowitz, who introduced mean-variance portfolio theory and its optimizer, noted that judgment plays an essential role in the proper application of mean-variance analysis.
● The charade of the efficient frontier involves “massaging” the estimates of the mean-variance parameters until they yield the efficient frontier and portfolios we prefer.
● This paper offers the “efficient range,” the location of portfolios that acknowledge imprecise estimates of mean-variance parameters and accommodate investor preferences beyond high mean and low variance, as a replacement for the “efficient frontier.”
US Nonfarm Private Payrolls: June 2013 Preview
Private nonfarm payrolls are expected to increase by 162,000 in tomorrow’s June update from the Labor Department, according to The Capital Spectator’s average econometric point forecast. The projected gain is moderately lower than the reported increase for May. The June projection is also slightly below a pair of consensus forecasts, based on two surveys of economists.