I’m reluctant to disagree with a newly minted Nobel laureate in economics, but I just can’t let Robert Shiller’s remark about the business cycle pass without comment. “The world economy is softening a bit,” he told Yahoo Finance yesterday. “There’s always a chance of another recession. It’s been six years since the last recession started — they tend to come along with some regularity.” Regularity? Well, actually that’s the wrong word to use on this subject for a simple reason: there’s nothing regular when it comes to the timing of recessions.
Industrial Output Picks Up But Manufacturing Is Soft
Industrial production beat expectations and increased 0.6% in September vs. August, the best monthly comparison since February, the Federal Reserve reports. The year-over-year change turned higher as well, with output expanding 3.2% last month vs. a year earlier—the biggest annual gain since last November. But the upside surprise was due mostly to factors other than manufacturing, which rose a sluggish 0.1% last month. Is the mismatch a sign of trouble ahead? When ever the cyclically sensitive manufacturing sector wobbles, there’s always room to wonder about what comes next. It’s too early to say, of course, although today’s mixed report won’t be easy to dismiss until or if we see better numbers in the economic updates to come, starting with tomorrow’s delayed retail sales numbers for September.
Where’s Inflation When You Need It? Or Do We Need It?
Some economists say that more inflation is (still) just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment. A New York Times article over the weekend advises that “as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.”
An Afternoon Of Asset Allocation In New York
I’ll be attending the half-day conference on “The Evolution of Active Asset Allocation” in New York on Tuesday, Oct. 29. Maybe you should too? The price is certainly affordable: free, in fact, courtesy of S&P Dow Jones Indices. Even better, the lineup of speakers and topics looks intriguing. What’s the catch? You’ve got to register in advance. I’m particularly interested in the final session: “Ideas and Innovations in Asset Allocation using ETFs”.
Book Bits | 10.26.13
● WRONG: Nine Economic Policy Disasters and What We Can Learn from Them
By Richard Grossman
Q&A with author via Boston.com
Q: You have a book coming out this October about economic policy disasters and what we can learn from them. Tell me about that.
A: I found nine economic policy mistakes over the last couple hundred years and did a sort of economic autopsy to explain why they happened and find themes that runs through the mistakes.
Q: What did you find?
A: The main theme seems to be that things go really wrong when policymakers are taken up by ideology. For example, if some percent of your political party sign a pledge saying they would never under any circumstances vote to raise taxes, I would say that is based purely on ideology. My book is sort of a plea for non-ideological, analysis-based economic policy.
Will The Recent Government Shutdown Derail The Economy?
How much damage, if any, did the recent government shutdown inflict on the US economy? The answer will remain a mystery until we see how the macro trend looks in the post-shutdown data. That’s going to take at least a month or two as we wait for reliable numbers across the economic spectrum. Meantime, we can look to the financial markets and a handful of economic data points that have been published this week for clues on what to expect.
The Crucial Connection: Asset Allocation & Rebalancing
The link between asset allocation and rebalancing is widely recognized, but it’s not always widely respected. This is a subtle point, but it has major implications for risk management and earning a respectable risk premium through time. Most investors understand this, at least intuitively. But in practice, it’s not unusual to see portfolio designs that are victimized by what I call subjective neglect.
Asset Allocation & Rebalancing Review | 23 Oct 2013
If there’s reason to worry about the global economy, it’s not obvious in asset prices these days. Positive momentum seems to have the upper hand, at least for the moment. The winners keep winning and the losers are trimming their losses.
September Employment Growth Slows
Today’s nonfarm payrolls report finally arrived, but it wasn’t worth the wait. Private-sector employment increased by a net 126,000 jobs last month on a seasonally adjusted basis, according to the US Labor Department. That’s not the slowest pace this year, but it’s close. Only July’s meager 100,000 rise is lower so far in 2013. There’s nothing to cheer about in today’s employment release, but it’s still not obvious that the jig is up for the business cycle. True, the latest monthly perspective looks discouraging, but that’s not the only statistical lens at our disposal. Consider that the year-over-year percentage change for private-sector employment continued to expand by just over 2% through last month. That rate is unchanged from the previous month and is in line with the annual pace of growth we’ve seen so far this year.
Why This Year’s Nobel Award In Economics Makes Perfect Sense
Last week’s news on the choice of this year’s winners of the Nobel prize in economics perplexed and even disturbed some pundits. How could two economists—Eugene Fama and Robert Shiller—with such diametrically opposed ideas on asset pricing be awarded a Nobel at once? (A third winner, Lars Peter Hansen, shared the prize for his work in econometrics.) By some accounts, elevating the two names, and their respective bodies of work, in one Nobel award is misguided at best because it mistakenly suggests a degree of equality in the underlying methodologies for evaluating markets. I’ve heard some people argue over the past week that one or the other name should be stricken from the list. But that’s a foolish read on this year’s award. Giving the prize jointly to Fama and Shiller makes perfect sense because it reminds us that no one theory can tell us everything we need to know in the money game.