● The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore
By Michele Wucker
Summary via publisher (St. Martin’s Press/Macmillan)
A “gray rhino” is a highly probable, high impact yet neglected threat: kin to both the elephant in the room and the improbable and unforeseeable black swan. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence. The bursting of the housing bubble in 2008, the devastating aftermath of Hurricane Katrina and other natural disasters, the new digital technologies that upended the media world, the fall of the Soviet Union…all were evident well in advance. Why do leaders and decision makers keep failing to address obvious dangers before they spiral out of control? Drawing on her extensive background in policy formation and crisis management, as well as in-depth interviews with leaders from around the world, Michele Wucker shows in The Gray Rhino how to recognize and strategically counter looming high impact threats.
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Does The US Economy Still Have A Money-Demand Problem?
The ongoing collapse of the velocity of M2 money supply screams loud on clear: YES. As the St. Louis Fed pointed out yesterday, M2 money velocity—the ratio of nominal GDP to the average of the money stock—has fallen to record lows, based on numbers dating to 1959. That’s a powerful sign that the crowd has a strong—and still growing–appetite for safe-haven liquidity. Therein lies Exhibit A for explaining why the post-2008 economic recovery has been unsatisfying.
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Initial Guidance | 8 April 2016
● US Jobless Claims Fell Last Week, Showing Layoffs Remain Low | WSJ
● US Consumer Comfort Index Slips to Weakest in Over 3 Months | Bloomberg
● US Consumer Credit Climbs More Than Expected In Feb | RTT
● Fed’s Yellen Joins With Predecessors to Calm Recession Fears | WSJ
● Yellen Says U.S. Near Full Employment, Some Slack Remains | Bloomberg
● Mortgage rates plummet to lows not seen in more than a year | WaPo
Testing Asset Allocation Results With Random Market Selection
Skill is a slippery concept in finance, courtesy of the shady influence of chance in asset pricing. It’s also an awkward topic in just about every corner of money management because discussing it in detail invariably raises serious doubts about our ability to engineer investment results that are satisfactory much less stellar. But ignored or not, randomness is a factor and perhaps a far more powerful one than generally assumed.
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Initial Guidance | 7 April 2016
● Sentiment on Fed runs against April rate hike, minutes show | MarketWatch
● The Fed’s Dovish Minutes | Tim Duy’s Fed Watch
● Dollar sinks again after Fed remains cautious | Reuters
● ECB willing to act as Draghi warns on global uncertainty | Reuters
● US equities are stretched | The Telegraph
● New rules to make retirement industry more accountable | Boston Globe
Will Falling Treasury Yields Create New Headwind For US Equities?
The risk-off trade is back in high gear, according to Treasury yields. The downside momentum in the benchmark 10-year yield is particularly conspicuous, based on daily data through yesterday (Apr. 5) via Treasury.gov. One theory making the rounds: the slide in the 10-year yield to 1.73% on Tuesday — a five-week low — is the crowd’s way of pricing in expectations that the first estimate of US GDP growth for this year’s first quarter that’s due later this month will slip to the slowest pace in two years.
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Initial Guidance | 6 April 2016
● US Hiring Reaches 9-Year High in Feb; Job Openings Slip | AP
● ISM US Non-Mfg Index Perks Up As Exports Jump | IBD
● PMI: US Services Index returns to expansion; new orders growth weak | Markit
● US Q1 GDP growth nowcast slips to tepid 0.4% | Atlanta Fed
● US trade data points to weak first-quarter growth | Reuters
● Global economic growth ticks higher in March | Markit
● 21 Countries Reduce Carbon Emissions While Growing GDP | WRI
● German Economy, Once Europe’s Leader, Now Looks Like Laggard | NY Times
Two US Labor Market Indexes Predict Slower Employment Growth
Job growth in March posted a solid gain, inspiring a new round of upbeat comments on the outlook for US payrolls and the economy generally. But newly minted numbers for two multi-factor measures of the labor market hint at a weakening trend. In contrast with the upbeat message in the latest data for payrolls, broadly defined benchmarks of the labor market published yesterday by the Federal Reserve and the Conference Board (CB) reveal a worrisome round of deceleration unfolding in the first quarter. The conflicting signals raise a question: Is the US labor market weaker than the nonfarm employment numbers imply?
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Initial Guidance | 5 April 2016
● US factory data signals further slowdown in economic growth | Reuters
● Fed’s US Labor Mkt Conditions Index shows weakness in Mar | Bloomberg
● Employment Trends Index falls in Mar, points to weaker job growth | CB
● US consumer spending survey data ticks higher in March | Gallup
● TD Ameritrade IMX investor sentiment index ticks lower in Mar | TD
● US Dollar slides to 17-mo low vs. yen as stocks, oil fall | Reuters
● India’s central bank cuts interest rates to 5yr low | Reuters
● IMF’s Lagarde: global recovery risks are increasing | Bloomberg
Risk Premia Forecasts: Major Asset Classes | 4 April 2016
The expected risk premium for the Global Market Index (GMI) ticked higher in March—the first increase in five months. GMI—an unmanaged market-value weighted mix of the major asset classes—is projected to earn an annualized 3.0% over the “risk free” rate in the long term. (For details on the equilibrium-based methodology that’s used to generate the forecasts each month, see the summary below.) Today’s revised estimate, which is based on data through March, is slightly above last month’s projection.
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