The US economic trend has been positive and relatively steady in recent weeks, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 11.2% on Monday, March 10–a level that suggests that business cycle risk remains low. If MMRI falls below 0% in the future, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply that economic growth will prevail for the near-term future.
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One of the concerns that inflation hawks continue to discuss is the potential for trouble when banks start lending out all that liquidity that’s sitting on their balance sheets. At that point, we’re told, inflation will return with a vengeance and the Fed’s great monetary stimulus will become a burden. But inflation remains subdued, with consumer prices rising less than 2% lately, or near the lowest levels in modern history. But some analysts say that if the economic growth picks up this year, the inflation threat will finally start to bite. By some accounts, one of the warning signs that this tipping point is here will be rising levels of commercial loans. Actually, bank lending to businesses has already revived in a meaningful degree. But it looks like the trend has peaked. That throws cold water on the idea that inflation is about to roar skyward. A decelerating rate of commercial lending also raises questions about the health of the economy.
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● Money: The Unauthorized Biography
By Felix Martin
Review via The Guardian
In The Importance of Being Earnest, the prim governess Miss Prism tells her young charge Cecily to omit the chapter on the fall of the rupee in the political economy textbook she has been instructed to study: “It is somewhat too sensational. Even these metallic problems have their melodramatic side.” And in Felix Martin’s stimulating and timely book we see how right Miss Prism was: money – metallic or paper – may seem deadly dull, but it actually stands centre-stage in today’s most important political and economic conflicts. Moreover, it is economists’ blinkered insistence that money is just a “technical” and relatively minor issue that explains why they, and their politician followers, brought the world to the brink of catastrophe in 2008 – and why they are conspicuously failing to rescue us from that crisis.
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If you’re an economic extremist in search of hard data to validate your outlook, today’s nonfarm payrolls update for February is a disappointment. That’s not necessarily a bad thing, but it’s not especially encouraging either. Private-sector jobs increased by a net 162,000 last month (seasonally adjusted), up a bit from January’s revised 145,000 advance. Last month’s gain beat expectations, including The Capital Spectator’s median forecast. But there’s nothing exciting here in terms of new evidence that the labor market’s about to break free of its sluggish behavior in recent months.
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Morningstar’s Greg Carlson writes that “allocation funds are different beasts than most of the funds we rate.” In my view, the main challenge in this corner is finding a benchmark for analyzing portfolios that routinely hold multiple asset classes. If we’re talking about a single-asset-class strategy—large-cap US stocks, for instance—there’s usually an assortment of reference indexes to consider for crunching the numbers on risk and return. By comparison, asset allocation portfolios–whether home grown or in prepackaged in a mutual fund or ETF–are complicated for one key reason: there’s no obvious benchmark.
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Today’s weekly jobless claims report suggests that that the harsh winter really is the main source of the soft economic data we’ve seen over the past month. If so, the future is somewhat brighter for anticipating a spring rebound. The standard caveat applies when it comes to drawing conclusions from one jobless claims number. Nonetheless, if we suspend our capacity for common sense for a minute, today’s update looks encouraging for thinking that the economy isn’t as wobbly as it appears.
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Private nonfarm payrolls in the US are projected to increase 137,000 (seasonally adjusted) in tomorrow’s February update from the Labor Department, according to The Capital Spectator’s median econometric point forecast. The expected rise is slightly below the previously reported increase of 142,000 for January. Meanwhile, The Capital Spectator’s median January projection is moderately below a pair of consensus forecasts, based on surveys of economists.
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New jobs in the private sector increased by a disappointing 139,000 last month, according to today’s ADP Employment Report for February. The consensus forecast via surveys of economists expected 150,000, although The Capital Spectator’s econometric projection anticipated a lesser gain, albeit one that turned out to be too low relative to the actual number. In any case, the labor market is still expanding at a comparatively weak pace by the standards of the past year or so. Although February’s advance was a bit faster than the increase for January, that’s only because of ADP’s downward revision for the first month of the year in today’s update.
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The term “investing” is a misnomer when it comes to managing money. It’s really a job of choosing a set of risk factors that will produce an expected result. Most folks don’t think in these terms, but the reality of “investing” boils down to a basic framework: select assets today on the assumption that a particular outcome will arrive tomorrow. The details, of course, matter, which is to say that not all assumptions are created equal. One that’s on the short list is the belief that reversion to the mean endures when it comes to returns. Buy low, sell high, as they say, because returns are always fluctuating. History exhibits a long and deep pool of empirical evidence for thinking that a mean-reverting process dominates price behavior in financial and commodity markets through time. Embracing this idea in real time, however, is devilishly difficult, which helps explain why so many investors find it tough to earn a satisfying return over one or more business cycles. The trap of buying high and selling low, in sum, is never far.
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I was going to compile a list of commentary and analysis on the events related to upheaval in Ukraine, but Juhani Huopainen of MoreLiver’s Daily beat me to it with his comprehensive overview at Saxo’s TradingFloor.com.