The global economy was growing moderately at the end of last year, but the pace of the expansion slowed to a 14-month low, according to the December update of the JPMorgan Global All-Industry Output Index. “The underlying dynamics of the survey are weaker across the board, with indices for output, new orders, backlogs and employment all tracking lower,” the press release noted. But if this is a prelude to a global recession in the year ahead, it’s not obvious to a number of widely followed forecasting groups.
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● Economy Gives Obama Slight Lift Ahead of Sixth State of the Union | NBC
● German ZEW economic sentiment rises to 11-mo high in Jan | Investing.com
● German producer price deflation worsens increasing pressure on ECB | IBT
● China economy expands 7.4% in 2014; lowest since 1990 | USA Today
● As Growth Slows, China Pins Hopes on Consumer Spending | NY Times
● Global economic growth is expected to increase marginally in 2015 | UN

How’s that rebalancing strategy working out for ‘ya? Results will vary, of course, depending on when we run the analysis, the architecture of the strategy, and a number of other variables. Deciding if the results are satisfying or disappointing could be due to any number of factors, such as the choice of assets, the rebalancing rules, or the selection of ETFs to implement the strategy. But whether you’re running a backtest to kick the tires on a rebalancing idea or monitoring an existing portfolio in real time, keeping an eye on risk and return–and understanding what’s driving results–is critical. The good news is that this essential task is relatively easy thanks to R, the data analysis software. As a brief illustration, let’s kick the tires on a simple 60%/40% US stock/bond strategy with a couple of ETFs.
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● Will The Fed Take a Dovish Turn? | Tim Duy’s FedWatch
● Chinese stocks plummet 8% as regulators prick stock bubble | Fortune
● Euro near 11-year low as investors bet on ECB quantitative easing | Reuters
● Syriza says it is ready to rule Greece and Europe ‘should not be afraid’ | Euronews
● China Likely To Miss 2014 Growth Target | RTT
● What the Swiss FX shock says about risk models | VoxEU

● Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again
by Peter J. Wallison
Essay by author via San Diego Union-Tribune
If there were ever any doubt that the lesson of the financial crisis has not been learned, it was dispelled last month, when the six federal regulatory agencies charged by the Dodd-Frank Act with defining the terms of a high-quality prime mortgage backed away from the idea. Instead, they issued a final rule that equates a prime mortgage with a loan that has no minimum down payment and no required minimum credit score.
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Considering the heightened uncertainty in global markets at the moment, today’s update on US industrial production for December looks ok. Although production slipped 0.1% last month vs. November, “warmer-than-usual temperatures reduced demand for heating” and translated into “a sharp drop in the output of utilities,” the Federal Reserve advises. As a result, industrial production ex-utilities posted a healthy 0.7% increase last month. Note too that manufacturing activity–the main component in industrial activity–expanded 0.3% in December, according to the Fed.
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The world needs more inflation and if it doesn’t get it–soon–the slow burn of disinflationary pressure may tip over into outright deflation. It’s another wake-up call for central banks, which is another way of saying that the blowback of the Great Recession is still with us. Back from the dead? In fact, D-risk was never stamped out entirely; rather, it was only tamed. But the virus of falling prices has found renewed strength, which means that the global economy needs another dose of anti-viral medication.
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● IMF Chief Says Global Recovery Faces Strong Headwind | RTT
● Euro zone Dec prices fall confirmed ahead of ECB decision | Reuters
● U.S. jobless claims rise to four-month high | Reuters
● U.S. Producer Prices Fall by Most in Three Years | Wall St Journal
● NY Fed Empire State Manufacturing Report: Activity Expands | Bond Buyer
● Philly Fed: Manufacturing Activity Grows at Weaker Pace in Philly Region | AP/ABC
● U Consumer Confidence Increases to Highest Level Since July 2007 | Bloomberg

US industrial production is expected to rise 0.3% in tomorrow’s December report vs. the previous month, according to The Capital Spectator’s median point forecast for several econometric estimates. The median prediction reflects a substantial deceleration in growth vs. the previous month’s 1.3% advance.
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It’s a forgone conclusion in the markets that the European Central Bank will soon roll out a quantitative easing program—buying government bonds with newly printed money. Yesterday’s legal ruling paves the way for no less—a lawyer at the European Court of Justice said that the ECB’s bond-buying program doesn’t run afoul of EU law. But otherwise the subject of the ECB and QE is morass of uncertainty. In fact, it’s fair to say that the outlook for what can be achieved with the next phase of monetary stimulus, and how it will proceed, is a tangled web of unknown unknowns at this point.
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