The latest economic news from China suggests that the world’s second-largest economy is stabilizing. As Reuters reports, “factory output rose 9.7 percent in July from a year earlier, the fastest growth since output grew 9.9 percent over January and February, National Bureau of Statistics data showed.” Is this a clue for thinking that that the topical news of late that emerging markets are destined for a “Great Deceleration” is premature, timely, or ancient history?
Jobless Claims Continue To Trend Lower
Filings for unemployment benefits inched higher last week, and the new five-and-a-half-year low in the previous report evaporated with a modest upward revision. As it turns out, claims for the week through July 27 only matched the previous low, established for the week through May 4, 2013. But don’t let this statistical shuffling divert you from the main takeaway: new claims continue to trend lower, which is a positive sign for the labor market and the economy.
Don’t Confuse Uncertainty With Risk (Or Diamonds With Coal)
There’s been a mini bull market in discussions about uncertainty lately, thanks to the recent drop in the so-called Economic Policy Uncertainty Index. “‘Uncertainty’ isn’t a problem anymore,” declares The Washington Post’s Wonkblog, which Paul Krugman references by noting that “the index of uncertainty that everyone was pointing to has plunged, with no visible boost to the economy.”
The Elephant In The (Money Management) Room
The concept of risk management receives a lot of attention in the investment realm, and rightly so. Chasing return directly, by contrast, is almost certainly doomed to failure. In other words, risk management is the only game in town. But talking about it is one thing; applying it in a meaningful, productive way that delivers satisfactory results is something else. There’s no hard data that tells us how the world practices risk management, but I’m guessing that a surprising number of investors aren’t doing justice to this fundamental concept. With that in mind, let’s kick the tires a bit on what can be a fuzzy topic for the average investor. After all, this is one corner where mistakes are almost always costly if not fatal in a financial sense.
Asset Allocation & Rebalancing Review | 6 August 2013
It doesn’t get much better than this for US stocks… or does it? Hold that thought as we take a brief tour of the major asset classes by way of ETF proxies. By this accounting, the US stock market remains on a tear, surging higher by 22% so far this year on a total-return basis through August 5. Foreign stocks in developed markets are looking stronger too, although the year-to-date rise of around 11% still pales next to US equities.
Macro-Markets Risk Index | 8.5.2013
US economic conditions remain relatively stable after a sharp but so far brief deterioration in June, according to a markets-based profile of the macro trend. The Macro-Markets Risk Index (MMRI) closed at 12.6% on Friday, August 2—a level that suggests that business cycle risk remains low. The latest 12.6% 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 economic growth. (Note that MMRI is now calculated as the daily median change of four key market indicators. A brief review of this adjustment is discussed below).
Q3:2013 US GDP Nowcast | 8.05.2013
Third-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 Q3 data and so the projection is a preliminary review that will be revised several times as new economic data is published. The final nowcast will be published shortly before the official Q3 GDP report, which will arrive on October 30, when the Bureau of Economic Analysis (BEA) releases the first of three estimates.
Book Bits | 8.3.13
● Wealth and Power: China’s Long March to the Twenty-first Century
By Orville Schell and John Delury
Interview with authors via The Diane Rehm Show
By some estimates, China will likely surpass the United States to become the leading economic superpower by 2016. The world’s most populous country now boasts a rapidly expanding military and growing influence in global affairs. But these accomplishments have come after a long period of dynastic decline, foreign occupation and civil war. China experts Orville Schell and John Delury say China’s pursuit of national greatness after generations of humiliation has come to define the Chinese character. They say this determined quest for wealth and power remains the key to understanding many of China’s actions today. A conversation about the history of Chinese nationalism and how it paved the way for the world’s most populist country to become the global economic powerhouse it is today.
Major Asset Classes | July 2013 | Performance Review
July delivered a strong month of rebounding prices for the major asset classes. The red ink that dominated the numbers for June gave way to across-the-board gains last month, with US stocks leading the way. The Global Market Index (GMI), a markets-weighted, unmanaged mix of the major asset classes, posted a strong 3.5% increase in July–its best monthly advance in more than a year. For 2013 through the end of last month, GMI is up a respectable 6.5%.
Slower Jobs Growth In July, But The Macro Trend Remains Positive
Private payrolls increased by a seasonally adjusted 161,000 in July, the Labor Department reports. That’s below expectations, but the moderately disappointing pace of growth last month isn’t out of character with the trend this year. In fact, when you consider today’s number in context with the other economic news of late, there’s still a good case for assuming that a moderate rate of expansion is still with us for the economy overall.