Private nonfarm payrolls in the US are projected to increase by 115,000 (seasonally adjusted) in tomorrow’s February release of the ADP Employment Report, based on the The Capital Spectator’s median econometric point forecast. The projected gain is substantially lower than the previously reported increase of 175,000 for January. Meanwhile, The Capital Spectator’s median projection for February is well below a pair of consensus forecasts based on surveys of economists.
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February was a strong month for the major asset classes, but the prospects for more of the same in March are under threat in the wake of the deepening crisis in the Ukraine. Russia’s intervention so far has been limited to the Ukraine’s Crimean Peninsula, but tensions are growing as the US and Europe struggle to find the right policy mix to keep a lid on this potentially explosive situation that carries ramifications for the global economy. Leaving all that aside for the moment, prices revived last month after widespread losses in January. Leading the markets higher in February: commodities, which gained more than 6%, based on the Dow Jones-UBS Commodity Index. At the bottom of the pack: inflation-protected Treasuries, which nevertheless managed to eke out a small advance.
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● Money Mania: Booms, Panics, and Busts from Ancient Rome to the Great Meltdown
By Bob Swarup
Summary via publisher, Bloomsbury
Money Mania is a sweeping account of financial speculation and its consequences, from ancient Rome to the Meltdown of 2008. Acclaimed journalist and investor Bob Swarup tracks the history of speculative fevers caused by the appearance of new profitable investment opportunities; the new assets created and the increasing self-congratulatory euphoria that drives them to unsustainable highs, all fed by an illusion of insight and newly minted experts; the unexpected catalysts that eventually lead to panic; the inevitable crash as investors scramble to withdraw their funds from the original market and any other that might resemble it; and finally, the brevity of financial memory that allows us to repeat the cycle without ever critically evaluating the drivers of this endless cycle. In short, it is the story of what makes us human.
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Monday’s report on personal consumption spending for January is projected to show a gain of 0.3% vs. the previous month, based on The Capital Spectator’s median econometric forecast. That’s slightly below the previously released 0.4% increase for December. Meanwhile, the Capital Spectator’s median forecast for January is slightly higher than a consensus prediction based on a survey of economists.
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The ISM Manufacturing Index is headed for a marginal decline to 50.5 in Monday’s February update (scheduled for release on March 3), based on The Capital Spectator’s median econometric forecast. By comparison, the index was estimated at 51.3 in the January report. Meanwhile, the Capital Spectator’s average projection is moderately below a consensus forecast drawn from a survey of economists.
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The new Fed Chair Janet Yellen thinks the economy will revive in the spring. “It’s really quite a range of data that has been soft recently,” she told the Senate Banking Committee yesterday. “I think it’s clear that … unseasonably cold weather has played some role in much of that.”
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Equities in developed markets and foreign junk bonds continue to hold the edge as the performance leaders, based on our standard set of ETF proxies via a 250-trading-day window (the rough equivalent of 1-year returns). Meanwhile, broadly defined measures of bonds and stocks in emerging markets are still bumping along at the bottom of the performance ledger for investable products that represent the major asset classes.
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The Telegraph’s Jeremy Warner wonders if the political crisis that recently overturned the government in the Ukraine could be “the next Black Swan for West’s financial markets?” It’s a reasonable question, although a true Black Swan event, by definition, is unpredictable. Thinking about uncertainty deserves attention in designing and managing investment portfolios, but there’s only so much blood to be extracted from this stone. What we can’t fathom can still hurt us, but substantially reducing the potential fallout from the unknown unknowns is difficult if not impossible as a practical matter. Market risk, by contrast (price volatility, for instance) can be slightly less threatening to our wealth, assuming that we manage it prudently.
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The winter is taking a toll on the outlook for GDP growth in this year’s first quarter. The US economy is expected to expand by 2.4% (real seasonally adjusted annual rate) in the first three months of 2014, according to The Capital Spectator’s new median econometric nowcast. The projected gain is down slightly from the previous 2.6% nowcast for Q1:2014, which was published on February 10.
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US economic growth decelerated last month, according to today’s update of The Chicago Fed National Activity Index, a macro benchmark based on 85 indicators. “The index’s three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December, marking its fifth consecutive reading above zero,” the Chicago Fed reports.
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