Is it really necessary to remind folks not to spend the rent (or college) money on the slot machines? And if someone is actually engaging in such obsessive and self-destructive behavior, is a casual comment to do otherwise from a stranger on TV likely to make a difference? Apparently the President of the United States thinks so. Maybe he’s right. In that case, let me remind everyone to be sensible and avoid the following: driving with your eyes closed, investing every last dime of your life savings in out-of-the-money options and expecting that politicians will focus (and speak) on the priorities du jour.
Author Archives: James Picerno
ADP REPORTS A (SMALL) JOB LOSS FOR JANUARY PAYROLLS
ADP’s estimate of nonfarm payrolls for January shows a 22,000 decline. That’s in contrast with the consensus view of economists, who collectively expect a small rise of 13,000 in the official jobs report from the U.S. Labor Department, which is scheduled for release on Friday.
THE TROUBLE WITH MICRO-CAP STOCK INVESTING
Microcap stocks soared last year, even by the inflated standards of the broad market. The CRSP Decile 10 Index (the smallest of the small in micro-cap land) surged more than 80% last year vs. a bit more than 26% for the S&P 500.
Why didn’t investors in funds targeting this slice of equities reap the lion’s share of the rewards? Rick Ferri of Portfolio Solutions explains the gap (hat tip to Mebane Faber’s World Beta blog). Ferri argues that microcap index funds “don’t exist, because micro-caps are too small for index funds and ETFs to invest in.”
We’ll have more to say on the subject in the near future in terms of what it means for multi-asset class investing. Meanwhile, you can read Ferri’s article at Forbes.com.
JOBS, JOBS, JOBS
Friday’s nonfarm payrolls promises (threatens?) to be a critical update on the labor market. Basically the question is, If not now, when?
THE CHALLENGE OF CHOICE
Yesterday’s Wall Street Journal warned that a “a treacherous landscape of potential trading problems” harasses the world of ETFs. Most of these problems are associated with liquidity. Some have it, some don’t. Identifying the haves, and the have-nots, is prudent way to start looking at ETFs. But the task is daunting, at least in the beginning of your search, because of the sheer number of products to review.
Sifting through the potential list of choices takes more time with each passing month. There are more than 900 ETFs, according to Morningstar Principia, and the list keeps growing. That’s good news–lots of choices. It’s also bad news because you have to sort through the list in search of investor friendly products. There are also hundreds of index mutual funds to consider, if you’re so inclined. Most of these choices aren’t worth your time for reasons including high expense ratios, insufficient liquidity, high tracking error and poor overall design, to name a few.
TIDBITS FROM THE WORLD ECONOMIC FORUM
Did you attend Davos this year? No? Neither did I. Next year, perhaps. Then again, maybe we’re not missing all that much by staying home. Why suffer airports and rubber chicken lunches in the digital age? Well, it’s true you can’t have a quiet chat with Mr. X over a scotch and soda via the web with the Swiss Alps in the background. On the other hand, everyone can afford the out-of-pocket expense for taking a peek as a long distance web voyeur.
A FORK IN THE ROAD…
The December update on personal income and spending isn’t terribly informative. Disposable personal income rose 0.4% in December, modestly above the monthly average rise during 2009 (0.3%). Meanwhile, personal consumption expenditures increased 0.2% in December, or slightly below average based on the monthly average for last year (0.3%). It all rounds out to a yawn in terms of what one month’s numbers tell us. Par for the course.
THE AGE OF NUANCE
January was a rough month for risky assets. For the first time since the financial crisis raged in late-2008, the red ink that spilled was broad and deep across the broad asset classes on a calendar-month basis. Bonds generally held their own in January, but stocks, REITs and commodities suffered sizable retreats.
A CONTINENTAL QUESTION
Unemployment in Europe is now at 10%, matching the jobless rate in the U.S. Does this undermine the argument in favor of European-style bigger government that’s more proactive in trying to minimize the perceived limits of capitalism? One response is that Europe didn’t do as much as the U.S. to mitigate the recession. For instance, the European Central Bank didn’t cut interest rates as quickly or as deeply as did the Fed. If the problem was a slow and weak monetary response, maybe the so-called friendlier face of capitalism in Europe isn’t all that helpful after all in the grand scheme of economic cycles. In that case, perhaps the lesson is that it’s best to let free markets bloom and intervene only when and if it’s necessary during financial panics a la Bagehot’s lender of last resort doctrine.
Q4 GDP SURGES. WILL THE LABOR MARKET FOLLOW?
First, the good news. This morning’s release of the government’s initial estimate of fourth-quarter GDP is a blow-out number: +5.7%. That’s the highest annualized quarterly real (inflation-adjusted) rise in GDP since 2003 and it’s also up sharply from Q3’s 2.2% rise. In addition, the Q4 number exceeded what most economists were expecting, and most were predicting a healthy increase.