Tobin’s Q, a market-valuation metric, is back in the news, in part thanks to a widely read Bloomberg article. The story, published earlier this week, offered the provocative title: “Nobel Winner’s Math Is Showing S&P 500 Unhinged From Reality.” Oh, my, that sounds serious. Or maybe not. As several observers have pointed out (see here, here, and here, for instance), the practical connection between real-world money management and Tobin’s Q is a dicey proposition. It does, however, provide the raw material for dramatic headlines.
Continue reading →

● Fed officials see June rate hike as unlikely: minutes | Reuters
● US mortgage applications drop for 4th straight week | RTT
● Eurozone Job creation at 4-year high as eco. growth slows in May: PMI | Markit
● Further slowing of German private sector output growth in May: PMI | Markit
● China’s mfg. output contracts at strongest rate in over a year in May: PMI | Markit
● Operating conditions in May improve at Japanese manufacturers: PMI | Markit

The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to slip a bit deeper into negative territory in the April update that’s scheduled for tomorrow (May 21), based on The Capital Spectator’s median point forecast for several econometric estimates. The projection for -0.31 is slightly below the -0.27 reading for March, which reflected a below-average pace of economic growth for the US relative to the historical trend. Only negative values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Using today’s estimate for April as a guide, CFNAI’s three-month average is expected to remain at a rate of growth that’s below the historical trend but still above the tipping point that marks the start of a new recession.
Continue reading →

US economic growth has slowed in recent months, but the deceleration to date remains well short of a tipping point for the business cycle, based on a broad set of published reports through April. There’s heightened concern that the economy will remain unusually vulnerable if the weakness persists in the second-quarter. As a result, the yet-to-be published numbers for May could be decisive. Meantime, the current numbers strongly suggest that April wasn’t the start of a new recession for the US. Growth may turn out to be slower than recently anticipated, but it’s not yet obvious that a sluggish pace of expansion will soon lead to a new phase of economic contraction.
Continue reading →

● US Housing Starts in U.S. Surge to 7-Year High as Weather Warms | Bloomberg
● US Government Bonds Hit by Surge in Housing Starts | WSJ
● US Retail Sales Fall in First Two Weeks of May From April: Redbook | Nasdaq
● Dueling Views on the First-Quarter GDP Slump In The US | NY Times
● Japan’s economy grows faster than expected | BBC
● ECB To Discuss Lending Rules For Greece On Wednesday | RTT
● India’s economic growth to surpass China next year: UN report | IndiaToday

Home-building activity in the US rebounded sharply in April, the US Census Bureau reports. After two months of weakness, housing starts revived to 1.135 million units in seasonally adjusted annualized terms. The 20.2% increase in April is the strongest monthly gain since the early 1990s, pushing the number of newly built units to a new post-recession high.
Continue reading →

The US stock market has regained the pole position for the trailing one-year return (250 trading days) among the major asset classes via our standard set of ETF proxies. Vanguard Total Stock Market (VTI) is ahead by 16% on a total-return basis for the past year through yesterday (May 18). The rebound to the top spot comes at the expense of the former leader in last month’s update—US real estate investment trusts (REITs). Vanguard REIT (VNQ) is still sitting on a solid advance of more than 13% for the past year, but the performance edge has dulled a bit relative to our April review.
Continue reading →

● Confidence Among U.S. Homebuilders Unexpectedly Fell in May | Bloomberg
● ZEW: German economic sentiment drops unexpectedly | MarketWatch
● Eurozone inflation confirmed flat y/y in Apr, core inflation inches higher | Reuters
● U.K. Inflation Falls Below Zero for First Time Since 1960 | Bloomberg
● Euro, bond yields tumble as ECB hints at faster buying pre-summer | Reuters
● EC chief denies Greek rescue plan as negotiations reach ‘final stages’ | Telegraph

Housing starts are expected to total 949,000 units (seasonally adjusted annual rate) in tomorrow’s update for April, according to The Capital Spectator’s median point forecast for several econometric estimates. The projection represents a moderate gain in residential construction vs. March.
Continue reading →

Last week’s disappointing economic news has raised new worries about business cycle risk for the US. It’s still premature to assume the worst, but it’s clear that there’s still not much support for a strong second-quarter rebound after Q1’s weak performance. That could change in the updates in the weeks ahead. Meantime, the macro profile for April looks weak.
Continue reading →