The Economic Trend Usually Looks Positive When Recessions Start

Recognizing when a recession starts in real time is, for all practical purposes, impossible. The one exception to that rule is if you’re willing to endure a high number of false signals in your model. In that case, you’ll see lots of new recessions starting, but only a handful will be the genuine article. But if reliability with a low error rate is required — as it should be – the usual routine won’t suffice. Instead, you’ll need a methodology that focuses on a broad set of key indicators. No less critical is how you define the analysis of the dataset. An optimal set of indicators won’t mean much if you’re running the analysis with a shaky modeling framework.
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Major Asset Classes | June 2017 | Performance Review

US real estate investment trusts (REITs) rebounded in June, taking the top spot for performance among the major asset classes. MSCI REIT Index gained 2.1%, the strongest monthly gain in four months. For the first half of the year, however, MSCI REIT’s 2.7% advance is relatively weak vs. the rest of the field.
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Book Bits | 1 July 2017

● Before Babylon, Beyond Bitcoin: From Money that We Understand to Money that Understands Us
Review via The Economist
People use money every day and yet struggle to understand it. The economic experiment known as monetarism—limiting the supply of money in order to control inflation—was abandoned when it became clear it was impossible to establish a precise definition of the money supply. The idea of negative interest rates, introduced by some modern central banks, puzzles those who think that savers should be rewarded for thrift.
“Before Babylon, Beyond Bitcoin” by David Birch, a consultant, offers a broad historical overview on the nature of this essential economic instrument. His underlying thesis is that money has evolved over the ages to suit the needs of society and the economy.
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Research Review | 30 June 2017 | Searching For Alpha

US Sector Rotation with Five-Factor Fama-French Alphas
G. Sarwar (University of Greenwich), et al.
June 16, 2017
In this paper we investigate the risk-adjusted performance of US sector portfolios and sector rotation strategy using the alphas from the Fama-French five factor model. We find that five-factor model fits better the returns of US sector portfolios than the three factor model, but that significant alphas are still present in all the sectors at some point in time. In the full sample period, 50% of sectors generate significant five-factor alpha. We test if such alpha signifies a true sector out/underperformance by applying simple long-only and long-short sector rotation strategies. Our long-only sector rotation strategy that buys a sector with a positive five-factor alpha generates four times higher Sharpe ratio than the S&P500 buy-and-hold. If the strategy is adjusted to switch to the risk-free asset in recessions, the Sharpe ratio achieved is ten-fold that of the buy-and-hold. The long-short strategy fares less well.
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Financials Accelerate To Top Sector Performer For 1-Year Return

Thanks to this month’s rally in financial shares this corner of the US equity market has become the top-performing sector for the trailing one-year period, based on a set of proxy ETFs as of June 28. Meanwhile, the tech sector, the second-best performer over the past 12 months, has stumbled in recent weeks, opening the door for financials to pull ahead.
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What’s The Outlook For The US Yield Curve?

Hawkish comments by European Central Bank (ECB) President Mario Draghi helped lift rates around the world yesterday, including Treasury yields. But it’s premature to conclude that recent flattening of the US yield curve – a bearish signal for the economy — has run its course.
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