Last week’s news that the Dow Jones Industrials Average was changing its lineup of stocks inspired some pundits to advise that keeping an eye on indexes generally for purposes of benchmarking your investment strategy isn’t worth your time. This recommendation arises from the fact that the Dow Jones Industrials and its counterparts aren’t really passive benchmarks and so any comparisons of your portfolio with these yardsticks is misguided. In fact, there are several problems with this line of thinking, and it’s worth our time to consider why.
Book Bits | 9.14.13
● Average Is Over: Powering America Beyond the Age of the Great Stagnation
By Tyler Cowen
Interview with author via NPR
Economist Tyler Cowen has some advice for what to do about America’s income inequality: Get used to it. In his latest book, Average Is Over, Cowen lays out his prediction for where the U.S. economy is heading, like it or not: “I think we’ll see a thinning out of the middle class,” he tells NPR’s Steve Inskeep. “We’ll see a lot of individuals rising up to much greater wealth. And we’ll also see more individuals clustering in a kind of lower-middle class existence.”
US Industrial Production: August 2013 Preview
Monday’s August report on industrial production is projected to post a 0.3% rise vs. the previous month, based on The Capital Spectator’s average econometric forecast. The expected gain compares with the previous update of no change in industrial output for July. Meanwhile, the Capital Spectator’s average projection for August is slightly below a consensus forecast based on a survey of economists.
Slower Retail Spending…. Again
The pace of growth in US retail sales slowed again last month, the Census Bureau reports. For the second month in a row, consumer spending on retail goods and services expanded at a lesser rate, rising a modest 0.2% in August vs. the previous month. That’s the smallest rise since April. On the other hand, retail spending still managed to increase for the fifth consecutive month. It’s been two years since the previous run of five straight monthly gains. Nonetheless, the advance has turned sluggish lately, raising questions about the future.
Asset Allocation & Rebalancing Review | 13 Sep 2013
Can you say “rebound”? Mr. Market can. Asset prices have taken a sharp turn higher in September, or at least some of the recently battered markets fall into that category, as today’s comparison with the previous update on August 28 reminds. The general change since then is striking, considering the breadth of negative momentum as last month slumped to a close. It’s anyone’s guess if the revival of late will continue, but for the moment the bulls have made a bit of progress in putting the bears on the defensive, if only on the margins.
Jobless Claims Fall To A 7-Year Low
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).