One of the major concerns for investors for the near-term future is the expected rise in interest rates. With the price of money at or near all-time lows in the modern era, the obvious question arises: what to do now? The short answer: more of the same. Assuming, of course, that your strategy is one of remaining broadly diversified across the major asset classes and maintaining a robust rebalancing strategy. That doesn’t satisfy some analysts, who argue that more radical measures are necessary. It’s different this time, the reasoning goes, and so strategy must be different. Well, it’s always different, but a prudent strategy of broad asset allocation and rebalancing tends to deliver average to above-average results vs. a broad array of portfolios that try to do better.
US Economic Profile | 3.04.13
The automatic budget cuts that commenced on Friday, March 1, may threaten economic growth, but recession risk remains low, based on the latest set of economic and financial numbers. Asked about the potential macro fallout from the sequester, House Speaker John Boehner yesterday responded: “I don’t know whether it’s going to hurt the economy or not. I don’t think anyone quite understands how the sequester is really going to work.” Whether you agree or not, what we do know is that the economy’s forward momentum remains intact–according to a broad survey of the current data set.
Book Bits | 3.2.13
● The Affluent Investor: Financial Advice to Grow and Protect Your Wealth
By Phil DeMuth
Excerpt
People are always bragging about their portfolio returns, but they never mention the risks they took because they don’t know what the risks are. Returns are visible; risks are the icebergs you don’t see until you’re Leonardo DiCaprio holding on to the plank….
Imagine that the risk/return visibility was reversed: that it was possible to find out every minute precisely how risky your investments were just by turning on CNBC, but you only learned their returns once a year. This would immediately promote a lot of sensible and productive investing behavior. People would manage their risks diligently and then settle for the returns they could get. This is exactly correct. Unfortunately, the world works otherwise. We watch performance—the bouncing ball in front of our eyes—because of an availability bias. The sadder-but-wiser investor always keeps an eye on risk, especially when he cannot see it.
Major Asset Classes | Feb 2013 | Performance Review
A stronger dollar last month clipped returns of foreign stocks and bonds from a US currency perspective. US equities and bonds, by contrast, posted respectable gains in February, although the domestic pop wasn’t enough to offset the drag from foreign markets in US dollar terms for a globally diversified portfolio. As a result, the Global Market Index (GMI) slipped 0.1% last month, although GMI is still up a handsome 2.4% for the year so far through February’s close.
Personal Spending: Jan 2013 Preview
January personal consumption spending is projected to rise 0.4% over the previous month in tomorrow’s update, based on The Capital Spectator’s average econometric forecast. That compares with a reported 0.2% rise for December. Three consensus forecasts based on surveys of economists expect a lesser increase of 0.2% for January.
A Weak GDP Revision & A Healthy Drop In Jobless Claims
The second estimate of fourth-quarter GDP for the US shows that the economy eked out a small gain in the final three months of 2012. The 0.1% increase for Q4 is a slight improvement over the 0.1% decline in the initial report. But as revisions go, this one’s close to insignificant. By contrast, today’s weekly jobless claims update offers more encouraging news. Good thing, too, since claims offer a more-timely read on the macro trend for the near term.
ISM Manufacturing Index: Feb 2013 Preview
The ISM Manufacturing Index is projected to rise to 53.7 in tomorrow’s February update, based on The Capital Spectator’s average econometric forecast. That reflects a modest rise above the 53.1 reading for January. By contrast, the consensus forecasts in three surveys of economists predict a modest decline for ISM’s February report.
Durable Goods Orders: A Mixed Bag For January
Today’s durable goods report brings mixed news for the economy. That’s a good thing in the sense that the numbers aren’t uniformly discouraging. On the dark side, headline durable goods orders fell last month, tumbling the most since last August. On the bright side, so-called business investment—capital goods orders less aircraft and defense—posted a strong gain in January. Depending on your outlook, the macro glass is either half full or half empty.
Q1:2013 US GDP Nowcast Update | 2.26.2013
US GDP is expected to grow 2.0% in 2013’s first quarter, according to the latest update of The Capital Spectator’s average econometric nowcast. That’s up slightly from the previous 1.9% nowcast for Q1, which was published on February 5. Today’s nowcast reflects updates to several indicators used for computing the estimates. This year’s official Q1 data is scheduled for release on April 26, when the Bureau of Economic analysis will publish its initial GDP estimate for the first three months of 2013. (GDP percentage changes are quoted as real seasonally adjusted annual rates.)
Chicago Fed Nat’l Activity Index: Slower Slow Growth In January
The Chicago Fed National Activity Index (CFNAI) dropped in January to -0.32 from +0.25 in December, the Chicago Fed reports, although the three-month average (CFNAI-3MO) reading rose to +0.30 from an upwardly revised +0.23 in December. Recession risk, in other words, was minimal last month. Although economic growth slowed in the start of the year, the three-month average of this index in January was well above the -0.70 level. That’s considered to be the tipping point for the onset of recessions. (CFNAI, a weighted average of 85 indicators, is designed as a benchmark of US economic activity broadly defined.)