Everyone (or nearly everyone) agrees that investment portfolios should be customized, based on an investor’s risk tolerance, objectives, time horizon, and so on. Where minds differ is deciding how to customize. There are two basic paths. The first, which is the overwhelmingly popular route, is building portfolios from the ground up, security by security, fund by fund. Peter Betenstein called this approach the “interior decorator fallacy” in Capital Ideas
Nonfarm Payrolls’ Growth Slows Sharply In March
Private payrolls increased by 95,000 in March, but the net gain is the smallest since last June, the Labor Department reports. Today’s update represents a sharp slowdown from February’s revised 254,000 advance. Even more troubling is the hefty deceleration in the year-over-year trend: private payrolls rose by just under 1.8% for the year through March—the slowest pace in nearly two years.
Macro-Markets Risk Index | 4.05.2013
A markets-based profile of economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (April 4) at 12.3%–well above the danger zone of 0% and within the 10%-to-15% range that’s prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.
Jobless Claims Take Another Turn For The Worse
Today’s jobless claims update looks troubling. It’s premature to make definitive claims about what comes next, but the number du jour doesn’t make it easier to maintain the rosy glow that’s defined the macro outlook of late. Here’s the problem: Last week’s sharp rise in new filings for unemployment benefits is the third increase in a row, and the biggest of the three. As a result, claims have jumped to the highest levels since last November, when the blowback from Hurricane Sandy had temporarily elevated new filings. But you can’t blame the weather this time. It’s unclear if the rise in recent weeks is noise, albeit in somewhat more extreme form from what we’ve seen lately, or the start of something darker for the business cycle. But for now, the outlook looks a bit cloudier in the wake of this morning’s update.
US Nonfarm Private Payrolls: March 2013 Preview
Private nonfarm payrolls are expected to post a monthly increase by 160,000 for March in tomorrow’s update from the Labor Department, based on The Capital Spectator’s average econometric forecast. The projected gain is sharply lower vs. the reported increase for February and below a pair of consensus forecasts for March.
Portfolio Risk Management & Analysis With Monte Carlo Simulations
The future’s uncertain, which is why it’s so essential to consider what could happen, or not, from a variety of perspectives. Every attempt at modeling and forecasting is wrong, of course. That’s the nature of the prediction beast. But different methodologies are wrong in different ways. That doesn’t mean that we should refrain from guesswork. Au contraire. More is better, up to a point, and assuming that that we diversify out toolkit and remain humble with regards to expectations. You can’t get blood out of a stone and no methodology under the sun can offer certainty on what may be lurking around the corner. But if you don’t spend time considering the possibilities, you’re more vulnerable than necessary when it comes to estimating and managing risk and minimizing the surprise factor.
Asset Allocation And The Negative Selection Factor
Some investors labor under the delusion that the realm of asset allocation and its influences don’t apply to their portfolios. At a recent conference, for instance, I found myself in a casual conversation with a fairly wealthy individual who told me that asset allocation was to be avoided at all costs. He talked a good game, but he didn’t realize that he could no more escape decisions on asset allocation than he could walk the earth and avoid gravity.
Manufacturing Growth Slowed In March… Maybe
The manufacturing sector’s growth slowed in March, according to the Institute for Supply Management. The composite reading for ISM’s Manufacturing index dropped to 51.3, down from 54.2 in February. Values above the neutral 50 mark indicate growth. New orders for manufactured goods also declined, according to ISM data, slumping to 51.4 from 57.8 previously.
Major Asset Classes | March 2013 | Performance Review
March was kind to US equities. The domestic stock market gained 3.9% last month. Foreign REITs performed nearly as well with a 3.8% advance. Bonds, by contrast, struggled last month, with a broad investment-grade measure of US fixed-income rising only 0.1%. The big loser in the month just passed: emerging market stocks, which shed 1.7%, in part because of a stronger dollar in March. The US Dollar Index rose again in March and for the year so far has increased by 8.1%. The greenback’s strength has been a significant headwind for foreign assets after translating results into US dollars.
Book Bits | 3.30.13
● Forecast: What Physics, Meteorology, and the Natural Sciences Can Teach Us About Economics
By Mark Buchanan
Column by author via Bloomberg
In the not-too-distant future, it’s easy to imagine a U.S. or European Center for Financial Forecasting. Thousands of researchers would oversee massive simulations probing the developing network of interactions among the world’s largest financial players, following the vast web of loans, ownership stakes and other legal claims that link banks, governments, hedge funds, insurance companies and ratings companies.
The computers would test scenarios and calculate hundreds of indicators of systemic leverage, the density of interconnections, or the concentration of risk at single institutions. Experts would probe models of the financial system, looking for weak points and testing resilience, much as engineers now do with models of the electrical grid or other complex systems.
