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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● German GDP Growth Gains Momentum In Q4; French Expansion Slows | RTT
● Eurozone economy grows 0.3% in fourth quarter | FT
● Ukraine crisis: more shelling and fighting after Minsk ceasefire agreed | Telegraph
● Greece, lenders appear to edge closer to deal | Kathimerini
● Worst Drought in 1,000 Years Predicted for American West | Nat’l Geographic

Retail sales slumped for the second straight month in January, falling 0.8% vs. the previous month. The decline is well below the 0.5% drop anticipated in the consensus forecast (Econoday.com) and far worse than the slight gain that my econometric modeling implied. But the weakness in headline spending may have more bark than bite due to the ongoing tumble in the dollar value of gasoline sales. In fact, when you look at the year-over-year trend for retail sales ex-gasoline, consumption’s rate of increase continues to improve.
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In the search for timely signals about recession risk in the US, the quarterly GDP releases are of limited value. The data is published with a considerable lag, is subject to hefty revisions, and suffers from low frequency (quarterly rather than monthly). But not all corners of the GDP report are created equal for analyzing the business cycle. Indeed, when it comes to searching for clues about the state of the economy, gross private domestic investment tends to be more sensitive to the ebb and flow of the macro trend vs. headline GDP data or personal consumption expenditures (PCE).
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● Ceasefire agreed for eastern Ukraine after Minsk summit | Reuters
● I.M.F. Approves $17.5 Billion Bailout for Ukraine | NY Times
● Sweden Cuts Rate, Announces Bond-Buying Program | WSJ
● US mortgage applications begin Feb with a drop | FT
● Eurozone Industrial Output Remains Flat In December | RTT
● German inflation falls 0.4% in Jan, biggest drop since 2009 | Europe Online
● Bank of England inflation report: UK inflation rate will go negative | City AM

US retail sales are expected to rise 0.2% 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 rebound vs. the previous month’s 0.9% decline.
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