Last week’s update of the Capital Spectator Recession Risk Index (CSRRI)—a simple but revealing diffusion index based on a broad spectrum of economic and financial indicators—suggested that the probability was low that July will mark the start of a new recession. A broad review of recent history can reveal quite a lot about the business cycle, but it’s only a beginning. In an effort to peek ahead by projecting CSRRI’s readings for the next several months, modern econometric modeling techniques can help.
Category Archives: Uncategorized
A Brief Pause In The Usual Routine….
The Capital Spectator will go dark for a few days. Hey, it’s (still) summertime, right? The normal schedule of fun resumes on Monday, August 20. Cheers!
Another July Upside Surprise: Industrial Production
Industrial production grew at a substantially faster pace in July vs. June, the Federal Reserve reports. The encouraging news comes on the heels of yesterday’s better-than-expected retail sales report for July. Considering these data points in context with a broader read on economic conditions strengthens the case for expecting economic growth in the near term.
A Surprisingly Strong Retail Sales Report For July
If July is supposed to be the tipping point, when the business cycle succumbs to gravity, it’s not obvious in today’s update on retail sales. Spending rebounded strongly last month, the U.S. Census Bureau reports. The advance estimate of U.S. retail and food services sales for July, seasonally adjusted, popped 0.8%. That’s the highest monthly gain since February’s 1% surge. Economists generally were projecting a gain of roughly 0.3%, Bloomberg notes.
Tactical ETF Review: 8.13.2012
Looking for an excuse to rebalance your portfolio? Here’s one: all the major asset classes, including my somewhat subjective list of proxy ETFs below, are sitting on gains this year, as of Friday, August 10.
Book Bits | 8.11.2012
● The Clash of the Cultures: Investment vs. Speculation
By John Bogle
Excerpt via publisher, Wiley
When I entered this business in 1951, right out of college, annual turnover of U.S. stocks was about 15 percent. Over the next 15 years, turnover averaged about 35 percent. By the late 1990s, it had gradually increased to the 100 percent range, and hit 150 percent in 2005. In 2008, stock turnover soared to the remarkable level of 280 percent, declining modestly to 250 percent in 2011.
Think for a moment about the numbers that create these rates. When I came into this field 60 years ago, stock-trading volumes averaged about 2 million shares per day. In recent years, we have traded about 8.5 billion shares of stock daily—4,250 times as many. Annualized, the
total comes to more than 2 trillion shares—in dollar terms, I estimate the trading to be worth some $33 trillion. That figure, in turn, is 220 percent of the $15 trillion market capitalization of U.S. stocks.
Research Review | 8.10.2012 | Portfolio Strategy
Dynamic Portfolio Choice
Andrew Ang (Columbia Business School) | July 2012
The foundation for a long-term investment strategy is rebalancing to fixed asset class positions, which are determined in a one-period portfolio choice problem where the asset weights reflect the investor’s attitude toward risk. Rebalancing is a counter-cyclical strategy that has worked well even during the Great Depression in the 1930s and during the Lost Decade of the 2000s. Rebalancing goes against investors’ behavioral tendencies and is also a short volatility strategy. When there are liabilities and asset returns vary over time, the long-term investor’s optimal portfolio consists of (i) a liability-hedging portfolio, (ii) a market (or myopic demand) portfolio that reflects optimal short-run asset positions, and (iii) an opportunistic (or long-term hedging demand) portfolio that allows a long-run investor to take advantage of changing investment returns.
Weekly Jobless Claims Remain Near Four-Year Low
Today’s weekly update on initial jobless claims tells us that nothing much has changed. That’s a good thing when it comes to evaluating the business cycle at the moment. This leading indicator fell modestly by 6,000 last week to a seasonally adjusted 361,000, the Labor Department reports. That’s near a four-year low, a sign that recession risk is low.
A Familiar Sight: Higher Equity Prices & Rising Inflation Expectations
The market’s inflation outlook has popped a bit in recent weeks. The stock market has moved higher too. The new abnormal, in other words, remains intact.
A Summer Dip For The Monetary Base
For the first time since late-2010, the monetary base in the U.S. has been contracting on a year-over-year basis as of this past June. Does that represent a significant change for assessing risk in the outlook for the business cycle? Possibly… if the contraction rolls on.