Critical flaws in world’s computers raise new security risks: c|net
Severe winter storm strikes US East Coast: Fox
Oil prices rise to highest level since 2015: Reuters
Countries look to launch virtual currencies to avoid sanctions: NY Times
Fed minutes show continued support for gradual rate hikes: Bloomberg
ISM: US factory activity increased in Dec to 2nd highest level in 6 years: Reuters
PMI: China’s services sector growth at fastest pace in over 3 years: Reuters
US auto sales fell 2% in 2017–first annual drop since ’09, but pace still healthy: AP
Broad US stock indices rise to record territory: RTT
CBOE VIX Volatility Index drops again, close to record lows: TradingGods.net

Weighting stocks based on market capitalization has long been the design standard for most index funds, but a recently launched ETF turns the strategy on its head. The Reverse Cap Weighted US Large Cap ETF (RVRS) holds the familiar S&P 500 names but in weights that are inversely proportional to their market cap. For example, the largest stock has the smallest weight and the smallest has the biggest footprint. What’s the rationale behind the strategy? Isn’t this just another twist on tapping into the small-cap factor? The Capital Spectator recently asked Herb Blank, a senior consultant at Global Finesse, to explain the motivation behind the strategy. In a recent study (“The Case for Reverse-Cap-Weighted Indexing”), Blank and co-author Qiao Duan report that reverse weighting outperformed the conventional S&P 500 for the ten-year period through 2016. The results offer “an intriguing alternative weighting scheme with the potential to realize superior rates of return,” they write.
Continue reading →

South Korea offers border talks with North Korea: NY Times
Will Mitch Romney, a possible Trump foe, run for Utah’s Senate seat? CNN
Is China’s rising economic influence in Latin America a threat to US? Bloomberg
Trump threatens to cut Palestinian aid: Haaretz
Unemployment rate in Germany fell to record low in Dec: Bloomberg
Global Mfg PMI ends 2017 at seven-year high: IHS Markit
US Mfg PMI rises to two-year high in Dec: IHS Markit
Gold rises to highest close since September: Reuters

The major asset classes enjoyed a flawless bull run in 2017, courtesy of across-the-board gains for all the broad measures of the global markets. Even cash managed to eke out a small gain.
Continue reading →

Kim Jong Un says “button for nuclear weapons is on my table”: CBS News
N. Korea extends olive branch to S. Korea: CNN
Iranian protests spread, triggers government crackdown: Reuters
N. Korean hackers are hijacking computers to mine cryptocurrencies: Bloomberg
PMI: China’s mfg growth ticks up to 4-month high in December: Reuters
Eurozone Mfg PMI ends 2017 at record high for time series: IHS Markit
Trump announces a big cut in military aid to Pakistan: Fox
What might Trump do in 2018? The Hill
Will deregulation in US spur business investment? NY Times
Consultancy predicts US store closings will accelerate in 2018: Business Insider

And so it begins. Best wishes for a prosperous new year! Cheers!

Last week we looked at the first installment of a short list of noteworthy titles that appeared in The Capital Spectator’s weekly Book Bits column during 2017. Here’s the second half of the year-end recap of books that deserve another look.
Continue reading →

So many research papers, so little time. How do you separate the wheat from the chaff? You might start with the following five economic and financial papers that appeared in The Capital Spectator’s Research Review column in 2017. In a sea of newly minted studies over the past 12 months, these titles stand out as worthy of a second read.
Continue reading →

China denies selling oil to N. Korea after Trump criticism: USA Today
US jobless claims unchanged at low 245k last week: Bloomberg
Majority of BoJ members see no need for more monetary stimulus: MNI
US inflation is low because monetary policy is too tight: Scott Sumner
Zillow: value of US housing stock increased by 6.5% in 2017: Bloomberg
A short list of risk factors to monitor for 2018: MarketWatch
Chicago PMI in Dec rises to highest level since 2011: ISM Chicago

In today’s final installment¹ of evaluating the US stock market’s recent performance, the toolkit uses three alternative risk metrics: the Sterling Ratio, the Calmar Ratio, and the Omega Ratio. In the dark art of deciding if the current return is extreme or not, I crunched the numbers using two rolling periods: 5 years and 20 years. Depending on which window you favor, the market’s current performance looks middling or flying in the upper reaches relative to the historical record.
Continue reading →