The new abnormal is alive and well, or so it appears. Exhibit A: the stock market and inflation expectations remain joined at the hip. As the crowd anticipates higher inflation, the stock market rallies, and vice versa. This won’t last forever, and earlier this month I wondered if the new abnormal was on its last legs. But for the moment, at least, reports of this relationship’s demise are premature.
Category Archives: Uncategorized
More Awkward Questions For Advocates Of The Gold Standard
David Glasner has been reading a newly acquired copy of Ralph Hawtrey’s Trade Depression and the Way Out, 1933 edition, which inspires some tough questions for the hard money folks.
Jobless Claims Flat Last Week At 4-Year Low
Today’s initial jobless claims report is a yawn with last week’s new filings for unemployment benefits showing no change from the previous week’s total, which was revised upward slightly. But the latest numbers don’t provide any reason to question the persistence in the recent decline for this series. The unchanged 351,000 seasonally adjusted total for new claims last week is still the lowest since early 2008.
Volatility & Asset Allocation
Earlier this month I wrote about the upcoming launch of two foreign bond index funds from Vanguard—the firm’s first step into the market for international fixed-income products. Foreign bond funds are nothing new these days, although the proposed Vanguard funds are a bit out of the ordinary because the portfolios will hedge foreign exchange risk. Vanguard’s reasoning is that forex hedging dampens volatility, which is true. But as I noted, volatility per se isn’t a problem in the context of a broadly diversified multi-asset class strategy. In fact, volatility can be quite helpful in that case. Although I mentioned this point briefly, the issue deserves more attention vis-a-vis rebalancing.
Strategic Briefing | 2.22.12 | Eurozone Economics
European shares slip on euro zone recession worries
Reuters | Feb 22
The euro zone’s service sector shrank unexpectedly this month, reviving fears that the economy risks sinking into recession, a business survey showed. Markit’s Eurozone Services Purchasing Managers’ Index (PMI) fell to 49.4 from January’s 50.4, missing even the lowest forecast in a Reuters poll. Strategists said several issues remained unresolved after the Greek bailout deal. “There are still some big questions: does Greece have enough money even now after the second bailout? Can they generate the growth required?” asked Henk Potts, equity strategist at Barclays Wealth, though he noted other factors would limit the downside for equities. “In general terms, there has been a more positive feel to markets since the start of the year. The euro zone crisis has been helped by recent measures. The U.S. (economy) is gaining momentum.”
Chicago Fed Nat’l Activity Index Is Positive For 2nd Straight Month
For the first time in a year, the Chicago Fed National Activity Index (CFNAI)—a broad measure of the U.S. economy—posted a positive reading for the second month in a row. Nonetheless, the pace slowed, with CFNAI slipping to +0.22 for January from December’s +0.54. Meanwhile, the three-month moving average (CFNAI-MA3) rose slightly to +0.14 last month, up from +0.06 in December, which the Chicago Fed advises is a sign “that growth in national economic activity was slightly above its historical trend.”
Will Rising Gasoline Prices Derail The Economic Recovery?
Gasoline prices are on the march once again, reaching an average price of $3.52 a gallon in the U.S. for the week of February 13, according to the Energy Information Administration. Prices have been advancing steadily since mid-December and are now at the highest level since last September. Some analysts predict that we’ll see $4-a-gallon soon as a national average. If so, will the rally in fuel costs threaten the economic recovery?
Research Review | 2.20.2012 | Socially Responsible Investing
Do Socially Responsible Investment Indexes Outperform Conventional Indexes?
Shunsuke Managi (Tohoku University), et al. | Feb 2012
The question of whether more socially responsible (SR) firms outperform or underperform other conventional firms has been debated in the economic literature. In this study, using the socially responsible investment (SRI) indexes and conventional stock indexes in the US, the UK, and Japan, first and second moments of firm performance distributions are estimated based on the Markov switching model. We find two distinct regimes (bear and bull) in the SRI markets as well as the stock markets for all three countries. These regimes occur with the same timing in both types of market. No statistical difference in means and volatilities generated from the SRI indexes and conventional indexes in either region was found. Furthermore, we find strong co-movements between the two indexes in both regimes.
Another Month, Another Rise In The Conference Board’s Leading Indicator
The economy is poised to continue growing for the foreseeable future, according to the January update of the Conference Board’s leading indicator index. “This fourth consecutive gain in the LEI reflected fairly widespread strength among its components, pointing to somewhat more positive economic conditions in early 2012,” says Conference Board economist Ataman Ozyildirim in a press release.
Inflation & The New Abnormal
The trend in headline inflation slowed last month, the Labor Department reports. Consumer prices rose 2.9% for the year through January—a slightly slower pace than the annual 3.0% rise as of December. Meanwhile, core inflation—consumer prices less food and energy—inched higher on an annual basis, advancing 2.3% for the year through last month, or up slightly from December’s 2.2% rate. What does it all mean? For the moment, nothing much has changed relative to the previous update. But because we’re still in the new abnormal, higher inflation remains a positive. By that standard, today’s CPI offers a mixed bag of news on the margin.