Despite New Risks, Global Recovery Seen Gaining Strength
IMF World Economic Outlook | April 11
World real GDP growth is forecast to be about 4½ percent in 2011 and 2012, down modestly from 5 percent in 2010. Real GDP in advanced economies and emerging and developing economies is expected to expand by about 2½ percent and 6½ percent, respectively. Downside risks continue to outweigh upside risks. In advanced economies, weak sovereign balance sheets and still-moribund real estate markets continue to present major concerns, especially in certain euro area economies; fi nancial risks are also to the downside as a result of the high funding requirements of banks and sovereigns. New downside risks are building on account of commodity prices, notably for oil, and, relatedly, geopolitical uncertainty, as well as overheating and booming asset markets in emerging market economies. However, there is also the potential for upside surprises to growth in the short term, owing to strong corporate balance sheets in advanced economies and buoyant demand in emerging and developing economies.
Author Archives: James Picerno
Eyes On The Prize
It’s difficult to exaggerate the significance of estimating expected returns in the quest for long-term investment success. An obvious statement, perhaps, but the widespread evidence that many (most?) investors earn unecessarily low or even negative returns over time suggests that the focus on expected returns falls well short of practical necessity.
What’s Up With Oil Prices?
Oil prices in New York remain north of $110 this morning–the highest in three years. What’s behind the spike in prices? There’s no shortage of opinion, and it’s not necessarily in agreement. For some perspective, several oil analysts opine on what’s happening via a fresh round of interviews, courtesy of Integrity Research Associates.
Book Bits For Saturday: 4.9.2011
● The Big Secret for the Small Investor: A New Route to Long-Term Investment Success
By Joel Greenblatt
Summary via publisher, Crown Business/Random House
Let top hedge fund manager, Columbia business school professor, former Fortune 500 chairman and New York Times bestselling author, Joel Greenblatt, take you on a journey that will reveal the Big Secret for both individual and professional investors. Based on path-breaking new research, find out how anyone can beat the market, the index funds and the experts by following a new approach that relies on the principles of value investing, common sense and quantitative discipline. Along the way, learn where “value” comes from, how markets work, and what really happens on Wall Street. By journey’s end, small investors (and even not-so-small investors) will have found their way to some excellent new investment choices.
More Thoughts On Estimating Equilibrium Returns
Several readers responded to my post on estimating equilibrium returns by claiming that the concept is seriously and hopelessly flawed. But the notion that analytical techniques must be all or nothing is dangerous and more than a little impractical.
Weekly Jobless Claims Drop By 10k
Weekly filings of new jobless claims continue to drift lower, and that’s encouraging. But oil prices remain elevated and various global risks continue to bubble. That raises the question of whether the falling trend in new filings for unemployment benefits has legs. The recent strength in jobs creation is one reason for answering “yes,” although the fall in new jobless claims is beginning to look weak again.
Measuring Inflation
Economist Mehmet Pasaogullari at the Cleveland Fed reviews inflation from several angles. If nothing else, he offers a timely reminder that there’s more than one way to skin this statistical cat. Inflation comes in a variety of flavors. But while the numbers vary, there’s a common trend afoot, he reports, noting that “all measures of short-term inflation expectations we have looked at show an upward trend since last summer.”
Demystifying Monetary Policy (Again)
Ramesh Ponnuru of The National Review does a first-rate job of summarizing the counterintuitive nature of monetary policy and how it applies to recent history. In particular, he explains in clear and (mostly) non-technical terms how and why the Fed’s “passive tightening” in late-2008 helped turn what might have been a relatively modest recession into something much worse. He also outlines why the subsequent QE2 was necessary and how many commentators (primarily conservatives) have misunderstood the necessary monetary policy solution, along with the fact that low interest rates of late aren’t a sign of loose money.
A Brief Look At Estimating Equilibrium Risk Premiums
MarketWatch’s Robert Powell reports that “two legendary investors have conflicting points of views” on stocks and bonds. Rob Arnott is cautious on the outlook for equities and Bill Gross is anxious about expected returns for bonds. Putting the two together suggests it’s time to avoid stocks and bonds.
Will Mr. Market’s Asset Allocation Suffice?
The concept of a world allocation fund is a good one, although the “pickings are slim, so consider building your own,” Morningstar advises. Even if the menu was better, the case for designing and managing your own multi-asset class fund is still compelling. One reason is cost. You can probably build your own asset allocation strategy for less if you do it yourself. Another reason is that you can optimize the management of the asset classes according to the particulars of your financial profile. That’s sure to provide superior results compared with a one-size-fits-all strategy.