Today’s update on personal consumption spending in July (scheduled for release later this morning at 8:30 am eastern) is projected to report a rise of 0.2% vs. the previous month, based on The Capital Spectator’s average econometric forecast. That’s below the previously released 0.5% increase for June. Meanwhile, the Capital Spectator’s average forecast for July is slightly below the consensus predictions based on surveys of economists.
Jobless Claims Dip As Q2 GDP Is Revised Up
Jobless claims fell last week to a level that’s close to a five-year low. As a bonus in today’s data dump, the government also revised second-quarter GDP growth higher by a healthy degree: 2.5% vs. the preliminary 1.7% estimate. Today’s newly minted Q2 estimate is also quite a bit stronger than Q1’s 1.1% gain. The overall message, of course, is that the economy remains on a moderate growth track, or so the latest reports imply. That’s been the message all along, albeit with fits and starts from time to time. The ongoing capacity for the bears of macro to consistently argue the opposite suggests a predilection to ignore the broad sweep of numbers.
Emerging Markets, Mr. Market’s Asset Allocation, & The Year’s Big Lesson
Investors this year are receiving yet another lesson on risk, this time in connection with emerging markets, which have taken it on the chin so far in 2013. The MSCI Emerging Markets Index is lower this year by roughly 14% through yesterday (August 28) while US stocks (S&P 500) are up nearly 15% and foreign developed-market equities are higher by almost 7% on a year-to-date basis. The fact that some markets are down and others are up isn’t surprising, but the relatively wide spread in performance numbers this year offers another excuse to consider why beating an unmanaged, market-value-weighted portfolio of all the major asset classes is so tough for any length of time.
Asset Allocation & Rebalancing Review | 28 August 2013
Oil is higher, Treasury yields are lower, and the crowd has a renewed appetite for holding US dollars. The news du jour behind these events: anxiety about pending US military action in Syria, or so we’re told. So much for the surprise factor. What’s next? A press release with a detailed list of targets and specific bombing times? Well, that’s a possibility, based on the current “wisdom” in such matters. Why? The goal is punishment rather than a conventional military victory. Hmmm….
Reshuffling The (Historical Return) Deck
The Global Market Index (GMI) that’s frequently cited on these digital pages is a robust benchmark for the simple reason that it holds all the major asset classes in market-value weights and shuns rebalancing. In other words, GMI is a measure of global beta that’s available to anyone and everyone, at low cost and in a forecast-free framework. In short, a monkey could replicate GMI. As it turns out, a monkey can do quite well through time with this strategy. Nonetheless, readers periodically ask why GMI’s relatively short historical track record is a reliable guide to the future? Great question, and one that deserves more than a trivial answer.
Q3:2013 US GDP Nowcast | 8.26.2013
US GDP is expected to rise 1.7% (real seasonally adjusted annual rate) in this year’s third quarter, according to The Capital Spectator’s average econometric nowcast. Today’s update is slightly lower than the previous 1.9% nowcast average for Q3, which was published on August 5. The government’s initial estimate of this year’s Q3 GDP is scheduled for release on October 30.
Book Bits | 8.24.13
● Made in the USA: The Rise and Retreat of American Manufacturing
By Vaclav Smil
Summary via publisher, MIT Press
In Made in the USA, Vaclav Smil powerfully rebuts the notion that manufacturing is a relic of predigital history and that the loss of American manufacturing is a desirable evolutionary step toward a pure service economy. Smil argues that no advanced economy can prosper without a strong, innovative manufacturing sector and the jobs it creates. Reversing a famous information economy dictum, Smil argues that serving potato chips is not as good as making microchips.
The Top 5 Behavioral Hazards For Managing Asset Allocation
The technical aspects of designing and managing asset allocation are well known. If anyone’s mystified about the fundamental principles that support and promote enlightened portfolio strategy, it’s not for lack of reading material. Indeed, the literature on this topic is wide and deep, as I discussed in my book Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor
Macro-Markets Risk Index | 8.23.2013
The US economic trend remains relatively stable in the wake of a sharp but brief decline in June, according to a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 10.1% on Thursday, August 22—a level that suggests that business cycle risk remains low. The latest 10.1% value is well above the danger zone of 0%. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.
Unemployment Filings Increased Last Week, But The Trend Remains Encouraging
Jobless claims increased last week by 13,000 to a seasonally adjusted 336,000, but this doesn’t alter the fact that new filings for unemployment benefits have been trending lower in recent months in a convincing manner. This leading index has been telling us that the labor market will probably continue to expand at a moderate pace, which in turn implies that the economy will grow. Nothing in today’s report suggests otherwise, even if some perma-bears will jump on today’s data to argue that a darker future awaits in the near term.