US retail sales are expected to increase 0.2% in tomorrow’s December report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The average prediction matches the growth rate in the previous month.
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US industrial production is expected to post no change in tomorrow’s December report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The prediction reflects relative improvement in comparison with the previously reported 0.2% decline in November.
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The recent increase in junk bond yields is a warning sign that recession risk is rising, says Martin Fridson, a money manager at Lehmann Livian Fridson Advisors. “I am not an economic forecaster — this is what the market is saying,” he told Bloomberg on Tuesday. “There are lots and lots of caveats, but if you accept all of the assumptions, it’s a pretty startling comment,” says this respected veteran of all things high-yield-bond related.
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● US Economy Expands as Wages Stay Flat, Fed’s Beige Book Says | Bloomberg
● Mortgage applications in US rebound 21% | CNBC
● Year-ahead inflation outlook dips to 1.8% via US businesses | Atlanta Fed
● US Foreclosures at 9-Year Low in 2015 But Up in Some Oil Towns | MNI
● Survey finds that Americans see gov’t, economy as top US problems | Gallup
● China may slow Fed’s interest rate rises: Fed officials | Reuters
● German Economy Defied 2015 Global Slowdown via Stronger Growth| Bloomberg

Consumer discretionary stocks are holding on to their leadership position for the trailing 1-year period, but the edge is fading. Meantime, the worst-performing US equity sector—energy—has slipped deeper into negative territory, based on analysis of a set of sector ETFs.
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● Job Openings in US Rose in November | Bloomberg
● US Small Business Optimism Ticks Higher in Dec | 24/7 Wall St
● US Redbook: Jan sales growth slows during clearance week | MNI
● China trade data eases concerns about economy | Reuters
● Eurozone Industrial Output Falls More Than Forecast in Nov | RTT
● Obama’s State of Union Optimism at Odds With Voter Anxiety | Bloomberg

Do you know where the risk in your portfolio is coming from? Well, of course, you do. After all, you designed the portfolio and so the asset weights reflect the risk contribution. A 50% weighting in stocks translates into a 50% contribution to risk for the portfolio overall, right? That’s a reasonable first approximation, but it’s a crude estimate and one that’s prone to error as market conditions change—particularly for a strategy that holds a mix of asset classes. For a precise profile of the relative contributions from each piece of the portfolio—an essential piece of intelligence for risk management—we’ll have to go deeper into the analytical toolkit.
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● Fed’s US Labor Conditions Index Rises to 2.9 in Dec | Bond Buyer
● Employment trends index for US rebounds in Dec | CB
● Atlanta Fed President Lockhart expects US economy to grow in 2016 | Atlanta BC
● Atlanta Fed’s ‘GDP Now’ Forecast Much Lower than Consensus | Barron’s
● UK Industrial Output Plunges Most in Almost 3 Years | Bloomberg
● German Machine Orders Rise For 2nd Straight Month In Nov | MNI
● Oil prices tumble 3% to just over $30 | Reuters
● RBS cries ‘sell everything’ as deflationary crisis nears | Telegraph

David Stockman points out that last week’s news of a surprisingly strong gain in payrolls in December is primarily due to seasonal adjustment. The impressive 292,000 seasonally adjusted surge dwindles to a tepid 11,000 advance in unadjusted terms. He’s rightly skeptical about the value of viewing economic data over short-term windows through a seasonally adjusted lens. What he doesn’t mention is that the antidote to noise, at least in part, is the year-over-year comparison. Watching job creation (or the lack thereof) by this yardstick is a useful and generally reliable filter for monitoring the trend. In fact, looking at the latest jobs report in annual terms for raw and seasonally adjusted results reveals virtually identical gains: roughly 1.9% advances on both counts in December vs. the year-earlier level.
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The year began with a thud for most of the major asset classes, based on total returns for a set of proxy ETFs. Investment-grade US bonds edged higher in the first five trading days through Jan. 8. Thanks in part to a slightly weaker dollar last week, foreign government bonds in developed markets and foreign junk advanced slightly as well. But the red ink was otherwise dominant.
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