● Bonds Are Not Forever: The Crisis Facing Fixed Income Investors
By SImon Lack
Summary via publisher, Wiley
Bonds Are Not Forever: The Crisis Facing Fixed Income Investors interweaves compelling, often amusing anecdotes from Lack’s distinguished thirty-year-career as a professional investor with hard economic data showing how we got to the point where bonds—long considered a reliable source of portfolio income—should be handled with extreme caution. Lack also provides investors with a coherent framework for understanding the future of the fixed income markets and, more importantly, answers the question: “Where should I invest tomorrow?”
Income & Spending Growth Slows In July
Today’s personal spending and income update for July is a mixed bag. There’s no smoking gun here per se, but the numbers for July certainly don’t look impressive either. The best you can say is that sluggish growth prevails and that the trend is holding up with enough strength to keep the economy out of the ditch. That’s old news, of course, but the recent changes for these crucial data sets leave minimal room for comfort should the economy suffer an unexpected shock. On the bright side, the economy overall still looks relatively resilient, or so it appears based on yesterday’s substantial upward revision in Q2 GDP growth to 2.5% from 1.7%. Nonetheless, when you factor in today’s news on consumer spending and income, it’s still hard to imagine that the US is poised to break free of its moderate-growth track any time soon.
ISM Manufacturing Index: August 2013 Preview
The ISM Manufacturing Index is expected to increase to 55.8 in next week’s August update (scheduled for release on September 3), based on The Capital Spectator’s average econometric forecast. The estimate reflects a slight rise from the previously reported 55.4 for July. Meanwhile, the Capital Spectator’s average projection is moderately higher than a consensus forecast for August that’s based on a survey of economists.
Personal Consumption Expenditures: July 2013 Preview
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.
