Housing starts are expected to slip fractionally to 1.169 million units (seasonally adjusted annual rate) in tomorrow’s December update, according to The Capital Spectator’s average point forecast of several econometric estimates. The projection still represents a modest gain over the year-earlier level of residential construction activity.
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Mean reversion in asset returns is a familiar subject in the academic and empirical literature, but the use–and abuse–of this core concept is all over the map. Depending on where you look, you’ll find interpretations ranging from “it’s nonsense” to a near-religious embrace of the idea that the performance cycle is all you need to know for developing robust estimates of future results. As usual when navigating through the world of finance and economics, however, reality tends to be somewhere in the middle of the extremes.
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● IMF Cuts 2016 Global Growth Forecast to 3.4%… | Bloomberg
● But IMF still sees 2016 growth rising over 2015’s pace | IMF
● Euro zone inflation confirmed at weak 0.2% YoY rate in Dec | Reuters
● China’s Q4 GDP growth weakest since 2009 | Reuters
● IEA Sees Risk of World Drowning in Oil | Bloomberg
● German investor morale slides in Jan as emg mkt slowdown bites | Reuters

Last week’s selling wave pushed most of the major asset classes into the red for the five trading days through Jan. 15, based on a set of proxy ETFs. For the one-year trailing period, everything has lost ground. Negative momentum, in other words, is in high gear.
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● US retail sales end 2015 on weak note | USA Today
● US Dec industrial output slumps for 3rd straight month | Reuters
● US Consumer Sentiment Continues To Improve In Jan | RTT
● Q4 growth outlook for US revised down to a weak 0.6% | Atlanta Fed
● Rate rise calls evaporate as markets plunge; mumurs of Fed reversal | Reuters
● Brent Falls to 12-Year Low Below $28 as Iran’s Oil to Swell Glut | Bloomberg
● Taiwan’s New Leader Faces a Weak Economy and China’s Might | NY Times

What does last week’s market slide across most of the major asset classes imply for investing? A lot… or maybe nothing. The decision to adjust a portfolio, or not, depends on the risk-management strategy.

Every portfolio needs a clear-eyed plan for dealing with risk—it’s the financial brain that controls the investment body and provides the map for navigating rough financial seas. With that in mind, now’s a good time to review and reaffirm the first principles of enlightened risk management in the care and feeding of conventional investment portfolios.
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● The Power and Independence of the Federal Reserve
By Peter Conti-Brown
Summary via publisher (Princeton University Press)
The independence of the Federal Reserve is considered a cornerstone of its identity, crucial for keeping monetary policy decisions free of electoral politics. But do we really understand what is meant by “Federal Reserve independence”? Using scores of examples from the Fed’s rich history, The Power and Independence of the Federal Reserve shows that much common wisdom about the nation’s central bank is inaccurate. Legal scholar and financial historian Peter Conti-Brown provides an in-depth look at the Fed’s place in government, its internal governance structure, and its relationships to such individuals and groups as the president, Congress, economists, and bankers.
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Today’s December updates on retail sales and industrial production for the US delivered disappointing news. Negative comparisons weighed on both indicators for last month, raising more doubts about the strength of the US economy. There’s also a bit of good news on the margins in the year-over-year comparisons. Nonetheless, it’s hard to overlook the deterioration in these numbers as last year came to a close.
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Treasury yields have made a sharp U-turn lately. The 2-year yield—considered the most sensitive to rate expectations—has been sliding this month, falling to 0.90% yesterday (Jan. 14), based on daily data via Treasury.gov. That’s the lowest in about a month. The benchmark 10-year yield has lost even more ground, slipping to 2.10%–the lowest since late-October.
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● Monthly US jobless claims hit highest level since July | MarketWatch
● US Jobless claims rose 7,000 last week, but still near lows | USA Today
● Consumer Comfort Index for US Improved Last Week to 3mo High | Bloomberg
● Chinese stocks breach December 2014 | Reuters
● ECB Minutes Signal Scope For Further Easing | RTT
● UK Analysis: Nov Construction Falls; Could Weigh on GDP | MNI
● Dating financial stress episodes: A new model-based approach | Vox