Today’s US updates for residential housing construction and industrial production fell short of expectations for the monthly comparisons, but the year-over-year trends are looking brighter. The January release on industrial activity is especially encouraging. It all adds up to a change for the better for anticipating that business cycle risk in the US will remain low for the foreseeable future.
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Real estate investment trusts (REITs) continue to hold the pole position among the major asset classes for the trailing one-year period, although the sizzling returns of late have cooled a bit in recent weeks. Vanguard REIT (VNQ) is higher by a strong 26.5% on a total return basis through yesterday (Feb. 17), based on the trailing one-year period (defined here as the past 250 trading days). That’s an impressive gain, but it’s moderately softer than the advances we’ve seen earlier this year.
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● Greek deal hopes boost Europe’s stock markets | MarketWatch
● Greece asks for extension; ECB to make crucial bank funding decision | Telegraph
● U.K. Oct-Dec Jobless Rate Falls Unexpectedly | RTT
● Confidence Among U.S. Homebuilders Declines to Four-Month Low | Bloomberg
● New York state manufacturing index falls in February: NY Fed | Reuters
● As Rivals Falter, India’s Economy Is Surging Ahead | NY Times

US industrial production is expected to rise 0.3% in tomorrow’s January report vs. the previous month, according to The Capital Spectator’s median point forecast for several econometric estimates. The median prediction reflects a moderate rebound in growth vs. the previous month’s 0.1% decline.
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Housing starts are expected to decrease to an annual pace of 1.075 million in tomorrow’s update for January, according to The Capital Spectator’s median point forecast for several econometric estimates. The projection represents a slightly lower level of residential construction vs. December’s 1.089 million units.
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This is no way to run a railroad. But the powers that be that run the European currency experiment have a taste for brinkmanship and 11th hour deals to avert a crisis. No one’s better at this task for the simple reason that Europe has more crises than a dog has fleas. It’s anyone’s guess if the current standoff with Greece — yesterday’s negotiations over bailout terms ended in a standoff — will end in tears or a solution. But the news to date makes one thing clear: the Eurozone leadership has been and continues to run a reckless policy. That’s partly due to the wobbly structure that is the currency union, which seems to be designed only for sunny macro weather with no mechanisms for dealing with turbulence. But there’s also plenty of blame to go around with the day-to-day management of the negotiations.
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● Greek impasse weighs on European stocks | MarketWatch
● Eurogroup Grants Greece Time Till Friday To Seek Bailout Extension | RTT
● U.K. Inflation Slows More Than Forecast to Record-Low 0.3% | Bloomberg
● China’s economy to grow about 7% this year: central bank official | Reuters
● Japan Escapes Recession But Q4 GDP Growth Misses Forecasts | WSJ
● German Investor Confidence Rises to One-Year High Before QE | Bloomberg

I’ve been analyzing a 60/40 US stock/bond portfolio in R in a series of posts and today’s installment picks up from the previous post by adding a global strategy. The goal is enhancing the 60/40’s return while keeping risk at a comparable if not lesser level. Overly ambitious? Perhaps, but it’s still valuable to explore the historical record.
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● Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice
By Bill Browder
Review via Reading The Markets
Bill Browder has written a book that is by turns gripping, chilling, and moving—a book that impels a reviewer to pile one outraged adjective upon another. Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice (Simon & Schuster, 2015) is a scathing indictment of Putin’s brutal kleptocracy, which Browder and the people connected to his firm, Hermitage Capital, experienced firsthand.
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Smart Beta Through the Lens of Risk Factors
Ben Meng and Paul Zhang
November 18, 2014
We analyze five popular smart beta indices with a simple two risk-factor framework. Our analysis shows that majority of the return variations of these five smart beta indices can be explained by S&P 500 and Barclays Treasury index. We also demonstrate that the diversification effect is limited by including the smart beta indices in an equity index portfolio with a metric called implied breath.
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