US industrial production in April is projected to increase by 0.3% vs. the previous month in tomorrow’s release from the Federal Reserve, according to The Capital Spectator’s median econometric forecast. The projected gain represents a deceleration in growth from the previously reported 0.7% rise for March.
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Retail sales slowed to a crawl in April vs. the previous month, rising a slim 0.1%, the US Census Bureau reports. Excluding gasoline, retail spending was flat. The news contrasts sharply with the March data, which revealed a dramatic 1% jump in spending. For the moment, however, it’s reasonable to dismiss the latest update as noise. The year-over-year change through last month (+4.0%) was off only marginally from annual pace in March (4.1%), suggesting that retail activity is still rolling forward at a robust rate.
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This month’s outlook for long-run risk premiums (return over the “risk-free” rate) is generally unchanged from the previous estimates. For example, the Global Market Index (GMI)–an unmanaged, market-value weighted mix of all the major asset classes—is currently expected to generate an annualized 4.1% risk premium, based on analysis of data through April 2014. The projection matches last month’s forecast.
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US retail sales are expected to rise 0.2% in tomorrow’s April report vs. the previous month, according to The Capital Spectator’s median econometric forecast. The prediction represents a substantially slower rate of growth over the previously reported 1.1% gain for March.
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● Stress Test: Reflections on Financial Crises
By Timothy F. Geithner
Blog post via Dealbook/NY Times
Timothy F. Geithner is finally going public. Since Mr. Geithner stepped down as Treasury secretary last year, he has remained largely out of the public eye. Now, with the publication of his book, “Stress Test: Reflections on Financial Crises,” to be published next week, Mr. Geithner is breaking his silence. I caught up with him last month as he was putting the finishing touches on the book. We discussed — and debated — his tenure in government and his prescriptions for solving financial crises. During a series of interviews, he was surprisingly frank. The result of those interviews — and an early look at his book — appear as the cover story in the coming issue of The New York Times Magazine.
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Housing is the weak link in an otherwise upbeat trend for the US economy. Deciding if this is a temporary soft patch for real estate or the start of something darker is still a work in progress. The potential for trouble is certainly lurking, as the recent run of weak data in residential sales and construction show. Given the influential link between housing and economic activity generally, watching this sector closely is critical these days. The truth will out eventually, but a clearer picture based on the hard data for several key metrics will take months. It doesn’t help that several reports are published with a significant lag. For example, we won’t see numbers on April’s housing starts until May 16. Fortunately, there are more timely numbers to watch to supplement the analysis—numbers that may drop relatively early clues on where housing’s headed. For example, here are three data sets that deserve close attention for tracking conditions in the housing market on a real-time or quasi-real-time basis.
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The US economic trend has decelerated to the slowest pace of growth since last September, according to a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 7.8% on Wednesday, May 7. Although MMRI has been trending lower lately, the positive reading still suggests that business cycle risk remains low. Further declines in MMRI that push the index below 0% would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
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The answer depends on your definition of “bubble”… and the market under the microscope. “House prices differ widely across OECD countries, both with respect to recent changes and to valuation levels,” the OECD advises in a report on residential real estate around the world.
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Michael Edesess questions the notion of a “rebalancing bonus,” wondering if it’s a ghost in money management’s machine. The concept, he recaps, was formalized in Bill Bernstein’s influential 1996 study—“The Rebalancing Bonus: Theory and Practice”, which found that “the actual return of a rebalanced portfolio usually exceeds the expected return calculated from the weighted sum of the component expected returns.” Edesess points out, apparently with Bernstein’s support, that the 1996 analysis is slightly misleading in the sense that the underlying assumptions aren’t as practical as they could or should be. Although Edesess’s number crunching is yet another reminder that you can’t count on rebalancing to boost return, that’s still not an argument for shunning rebalancing as a risk-management tool.
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Small- and micro-cap stocks have had a good run lately, but the bullish momentum is now fading. In the long run, finance theory tells us that these corners of the equity market will generate a risk premium over and above the broad stock-market benchmarks. In the short run, however, gravity can and does intrude on the party if performance gets ahead of itself.
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