Today’s weekly update on initial jobless claims is a blow-out bullish report. It may be a game-changer, although let’s see how the revisions to the data go over the next several weeks. For now, let’s simply recognize that new filings for unemployment benefits dropped a whopping 31,000 to a seasonally adjusted 292,000—the lowest since 2006! It could be the result of a glitch in reporting, as Bloomberg notes. But for now let’s leave that aside and consider the data as reported, keeping in mind that next week we could see the numbers run up again.
US Retail Sales: August 2013 Preview
US retail sales are expected to rise 0.4% in tomorrow’s update for August, according to The Capital Spectator’s average econometric forecast. That’s up from the previously reported 0.2% gain in July. Meanwhile, the Capital Spectator’s average projection for August is at the low end of the range relative to consensus forecasts based on recent surveys of economists.
In Memoriam…
For the fallen heroes of 9/11, and their families and friends, on this, the 12th anniversary of that day, we remember… always.
Can I see another’s woe,
And not be in sorrow too?
Can I see another’s grief,
And not seek for kind relief?
–William Blake, “On Another’s Sorrow”
Behavioral Risk & Rebalancing
Central bankers don’t usually deliver insight on matters of portfolio management, but San Francisco Fed President John Williams bucked the trend in a speech on Monday. Discussing “Bubbles Tomorrow and Bubbles Yesterday, but Never Bubbles Today,” his focus, of course, is on monetary policy and what a central bank can and can’t do when Mr. Market suffers from an extended bout of irrational exuberance. It’s an old topic but a perennially relevant one since what we call “bubbles” are likely to stalk the market landscape for something close to eternity. Identifying these beasts in real time in the cause of distinguishing the general article from an imposter is tricky. But recognizing how the crowd has a habit of aiding and abetting misguided behavior on this front reminds us why the critical task of rebalancing is so hard for so many investors.
What Are Economics Bloggers Thinking?
The Hudson Institute’s new “Survey of Leading Economics Bloggers” was published yesterday. Among the participants is yours truly. My contribution to inquiring how my blogging counterparts view the world of macro and related subjects these days is asking this esteemed group to rate business cycle risk over the next few months. Most of the responses fall into the range of “neutral/balanced probability” to “highly unlikely.” On that note, last month’s US Economic Profile on these pages estimated the risk closer to the “highly unlikely” category in the here and now (“nowcasting”), and nothing much has changed in my internal weekly updates (I’ll publish a new monthly profile next week).
Frontier Markets ETFs: Similar In Name Only
So-called frontier markets—the smaller and less-liquid slice of emerging markets—are attracting a lot of attention these days, inspiring the question: Should I add this slice of the world’s equity markets to my asset allocation? Maybe, but a lot depends on how a fund defines “frontier.” No less important is the current structure of your existing portfolio.
Introducing The ETF Asset Class Performance Review
The Capital Spectator today is rolling out a new weekly research service: The ETF Asset Class Performance Review. The details on subscription information are available at CapitalSpectator.com/premium. This weekly newsletter reviews the performance trends of all the major asset classes and their principal subcategories through the lens of a representative list of ETFs. Take a look for yourself: the inaugural issue is free at: CapitalSpectator.com/premium. There’s also a dedicated link to the newsletter in the upper right-hand corner of The Captial Spectator’s home page under the “Premium Research” label.
Book Bits | 9.7.13
● Scarcity: Why Having Too Little Means So Much
By Sendhil Mullainathan and Eldar Shafir
Audio interview with co-author Sendhil Mullainathan via Marketplace
At first blush, there is little in common between a Harvard economics professor who’s very busy and a poor person from India, struggling to simply put food on the table. But according to Sendhil Mullainathan, the Harvard economist, what they have in common is an idea: Of scarcity. “Both of us are touching on the exact same psychology,” Mullainathan says. “There is actually something primitive that happens to the human brain when experiencing very little.” In a book he’s written, with Eldar Shafir, about this topic, called “Scarcity: Why Having Too Little Means So Much,” Mullainathan says that scarcity can focus the mind. “Everyone has had the experience of two weeks left to do something, and you doddle,” he adds. “One day left to do something, wow, you are focused.” He says this same focus applies to people with limited money. “They become incredibly focused on every little dollar, every little penny,” he says.
An Unexpectedly Weak Jobs Report For August, But Moderate Growth Trend Still Prevails
Private payrolls increased in August by 152,000 vs. the previous month, a gain that was unexpectedly low. Once again the latest macro data point dispensed a surprise, which is typical. This time it disappointed the crowd, and by more than a trivial degree. Some analysts will jump on the news as a dark sign. It may prove to be… in time. But the fact remains that private payrolls continued to rise by 2%-plus on a year-over-year-basis through last month. That’s in line with the annual pace we’ve seen in recent months. In fact, each of the last three monthly updates for private payrolls show annual growth rates of 2% or better—the best consecutive trio of annual changes since last year’s fourth quarter. In other words, nothing much has changed. The private sector is still creating jobs on a net basis and at the rate that’s prevailed for much of this year. If anything, the rate has improved a touch.
The Past-Performance-Is-Bunk Warning Isn’t Quite Right
The topic of past performance, and how to think about it, requires some clarification. There are a lot of folks who advise us that we should ignore historical performance. It’s worthless, they argue. Case closed. I understand the motivation to embrace this extreme form of skepticism since it springs from a crucial problem in the wider world. Indeed, many investors look at a hot hand for a mutual fund manager, for instance, and blindly assume that they can easily join the party and reap the rewards. All too often that’s an assumption that’s destined for disappointment. But that’s not the same thing as saying that historical returns provide no value for projecting, analyzing and modeling expected returns.