This year’s fourth-quarter US GDP is expected to increase 1.9% (real seasonally adjusted annual rate), according to The Capital Spectator’s average econometric nowcast. This is the initial estimate that uses limited Q4 data and so the projection is a preliminary review that will be updated several times as new economic indicators are published and existing data are revised. The final nowcast will be published shortly ahead of the official Q4 GDP report. The US Bureau of Economic Analysis (BEA) is scheduled to release its first Q4 estimate on January 30, 2014.
Book Bits | 11.16.13
● The Road to Recovery: How and Why Economic Policy Must Change
By Andrew Smithers
Review via The Financial Times
Although he is about as far from a leftwing populist banker-basher as it is possible to imagine, this book is a startling and authoritative attack on the system of tying executives’ bonuses to the share-price performance of their companies.
For Smithers, the bonus system was the principal cause of the financial crisis, and is now the main reason why the recovery has been so weak. He establishes this claim meticulously, with a plethora of charts, and looks for alternative explanations. (He accepts that greater concentration, or lack of competition, could be an important factor.)
Industrial Production Unexpectedly Fell In October
US industrial activity dipped last month, falling 0.1% in October vs. forecasts that called for a slight rise. The decline was due mostly to lower ouput in mining and utilities. By contrast, the manufacturing component of industrial production advanced 0.3% in October, a modestly higher pace over September’s 0.1% rise. The fact that growth picked up a bit in the cyclically sensitive manufacturing slice of today’s report suggests that the weaker headline number may be noise in terms of the business cycle implications.
Asset Allocation & Rebalancing Review | 15 Nov 2013
How high will it go? It’s getting harder to ignore the question as the US stock market’s 2013 rally rolls on. As of yesterday’s close, our ETF proxy for US equities (Vanguard Total Stock Market (VTI)) is approaching a 29% gain for the year so far, or more than three times higher than the long-run annualized performance record for the asset class. Once again we have a real-world reminder that momentum can’t be denied, at least in the short term. The tricky part, of course, is deciding when positive momentum turns into its darker twin.
Jobless Claims Still Fallling, But The Rate Of Decline Is Slowing
Initial jobless claims fell again last week, dropping for the fifth week in a row. That’s good. But the rate of descent is slowing. It’s too soon to say if this is a warning sign, but as a potential problem it deserves monitoring. As for considering the numbers in hand, today’s release offers another dose of mildly upbeat news. With new filings for unemployment benefits inching lower, the case strengthens for assuming that the downward trend that’s been in force for much of this year is intact. In turn, the continued improvement supports a forecast that the labor market will continue to heal.
US Industrial Production: October 2013 Preview
Tomorrow’s October report on US industrial production is projected to post a 0.2% rise vs. the previous month, based on The Capital Spectator’s average econometric forecast. The expected gain represents a substantial deceleration vs. the increase in industrial output for September. Meanwhile, the Capital Spectator’s average projection for October is slightly higher than the estimates in several surveys of economists.
Squeezing Federal Spending
Is spending out of control in Washington? The answer depends on how you define your terms. There’s enough data to spin this any way you want. But let’s try to be objective. In truth, there’s no single, fully objective way to quantify the spending habits of the beast in Washington. We can, however, make a valiant effort by considering federal outlays from several perspectives. What we’ll find is a spending trend of late that’s in decline. It’s anyone’s guess if this will endure. As always, the answer relies on political decisions, which are constrained at the moment due to the automatic budget cuts that are currently the law of the land. For now, let’s consider what the current numbers tell us about the trend in budgetary matters.
Chicago Fed: Slightly Stronger Economic Growth In September
The US economy grew a bit faster in September, according to today’s delayed update of The Chicago Fed National Activity Index, a macro benchmark based on 85 indicators. “The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in September from –0.15 in August, marking its seventh consecutive reading below zero,” the Chicago Fed reports. Although the expansion remains a touch “below trend,” as indicated by CFNAI-MA3’s marginally negative value, the current -0.03 level is the highest since February. That’s a sign that economic growth, while still moderate, shows no imminent signs of deterioration, or so the September numbers suggest.
Research Review |11.12.13 | Managing & Measuring Volatility
Restoring Value to Minimum Variance
Lisa R. Goldberg (University of Calif., Aperio Group), et al. | Oct. 2013
A long-only investable minimum variance strategy outperformed the S&P 500 over the four decades from January 1973 to December 2012. Through the lens of a factor model, we show this outperformance can be largely attributed to implicit style bets. Specifically, minimum variance has thrived by tilting away from size and volatility and toward value. As funds have poured into minimum variance in the wake of the financial crisis, and plausibly as a consequence of this trend, the value tilt has disappeared and a momentum tilt has emerged. This suggests that the cost of entry to minimum variance is at an historic high. We show how the value tilt can be restored to minimum variance by targeting specific exposures, and that there was a substantial long-term benefit to the restoration at most recent points of entry to the strategy.
No Sign Of Tapering In Base Money Supply Data
The inflation-adjusted year-over-year pace in so-called high-powered money—M0, as some label it—is rising at the fastest rate since 2009, when the Federal Reserve was winding down its initial monetary response to the Great Recession. The news that the growth in base money–a slice of money supply that the Fed controls directly–is accelerating arrives during a new round of chatter that the central bank will soon begin tapering its asset-buying program in the wake of last week’s upbeat economic reports. Some analysts now predict that a tapering announcement could come as early as next month, at the next FOMC policy meeting. Maybe, although a new Bloomberg survey advises that economists overall expect that the March 2014 meeting is the more likely date for a change in the monetary weather. Meanwhile, there’s nary a hint of tapering in the latest base money data. In fact, it looks like monetary policy stimulus is becoming more aggressive, or so the current numbers show.