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.
Looking Into The Future With A Rear-View Mirror
How do you know if the stock market (or any asset class) is overvalued and ripe for a fall? Wait a year or two and you’ll have a definitive answer. Real-time decisions, alas, are slightly more complicated. Yes, there are several techniques that you can apply for estimating expected return, but you might start with one metric that easy to compute and always up to date: trailing return. It’s hardly perfect and it’s burdened with all the usual caveats. But it’s a great starting point for developing some context for thinking about what’s overpriced, what’s not, and how to tell the difference.
Looking For Macro Signals (And Ignoring The Noise)
The Big Picture’s Barry Ritholtz reminds us that most of the media frenzy that surrounds the monthly payrolls report is misplaced. “The jobs report is overrated… it’s meaningless,” he tells Yahoo Finance. “All we care about are the long-term trends: is the economy creating jobs? Are wages going up or are wages flat? What does this mean relative to inflation?”
Chicago Fed: Economic Growth Remains Below Average In July
The US economy continued to expand in July but at a rate that’s “below its historical trend,” according to today’s update of The Chicago Fed National Activity Index. “The index’s three-month moving average, CFNAI-MA3, increased to –0.15 in July from –0.24 in June, marking its fifth consecutive reading below zero,” the bank advised in a press release. The modest improvement (slightly better than my econometric projection) puts CFNAI-MA3 at the highest level since February.
Asset Allocation & Rebalancing Review | 20 August 2013
The Book of Matthew foresees that the last will be first, and the first will be last. Investors will recognize the prophecy as the restless rotation in the realm of asset classes—a concept that even the blind can see in this year’s market’s action.
Chicago Fed Nat’l Activity Index: July 2013 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to remain unchanged at -0.26 in tomorrow’s update for July, according to The Capital Spectator’s average econometric forecast. Values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate, CFNAI’s three-month average is projected to remain at a level that’s historically associated with economic expansion, albeit at a below-trend rate, in the July report, which is scheduled for release on Tuesday, August 20.
US Economic Profile | 8.19.13
Business cycle risk remains low, according to the July update of the Economic Trend (ETI) and Momentum indexes (EMI). Both benchmarks, which measure the broad trend in the economy via 14 economic and financial indicators, continue to post values that are well above their respective danger zones. That’s a strong signal for anticipating that the NBER will not declare July as the start of a new recession, or so the latest numbers suggest.
A Brief Holiday…
They say that August is a lazy month, and so who are we to argue? The Capital Spectator is taking a brief holiday for the rest of the week. We’ll be back on Monday, August 19 with the usual fare. Cheers!