The future is hazy for the US economy, perhaps more so than usual, but the recent past is relatively clear and encouraging. A broad set of economic and financial indicators–defined by the Economic Trend Index (ETI) and the Economic Momentum (EMI) Index–continues to signal growth. In addition, an econometric projection of the indicators suggests that a relatively upbeat profile for the US economy is likely to roll on for the immediate future.
Housing Starts: February 2013 Preview
Housing starts are expected to rise 5.0% in February vs. the previous month in tomorrow’s update, according to The Capital Spectator’s average econometric forecast. That compares with an 8.5% decrease reported for January (seasonally adjusted annual rate). The Capital Spectator’s projected gain for February is above the expected increases in several consensus forecasts drawn from surveys of economists.
Book Bits | 3.16.13
● The Dividend Imperative: How Dividends Can Narrow the Gap between Main Street and Wall Street
By Daniel Peris
Q&A with author via The Globe and Mail
Q: You show that dividend payout ratios – dividends as a percentage of profits – for S&P 500 companies have fallen to 30 per cent, on average, from 50 per cent three decades ago. Why?
A: There are a lot of reasons. The one that I highlight is the relentless decline in interest rates. A lower interest rate allows companies to get away with offering a lower yield and still attract capital.
Q: And that’s a problem because …?
By taking their dividend payout ratios so low over the past three decades they have made investing in their companies to be a speculative endeavour rather than to be a business investment. To make money, you have to hope to sell the stock for a profit. People no longer view themselves as stakeholders in businesses they use on an everyday basis, but instead as speculators in the stock.
Industrial Production Rebounds In February
Today’s report on industrial production for February deals another blow to analysts who insist that the US economy is in imminent danger of slipping into a recession or (even more dubious) that the business cycle has already slipped off the edge. Indeed, industrial output last month accelerated, rising 0.7% in February—the best monthly gain since November. The cyclically sensitive manufacturing slice of industrial activity also enjoyed a strong month, advancing 0.8% over January’s level. Is all this misleading us about the true nature of the trend? Perhaps, but the numbers suggest otherwise once you consider that the annual change in industrial production continues to chug along at a moderate pace, rising a bit faster at a 2.5% gain for the year through last month vs. the 2.3% year-over-year rate for January.
Rebalance Periodically, Review Frequently
The risk premium for a broadly diversified, unmanaged portfolio of asset classes is expected to fall in the years ahead. Can this trend be offset by working smarter and making better rebalancing decisions? In theory, yes. In practice, only a minority of investors can avail themselves of benchmark-beating results in the long run. True for individual asset classes, true for asset allocation. That’s the nature of the arithmetic of active management. But if there’s any chance for success on this front, most of the strategic intelligence for improving results will come from within your portfolio, as I discussed a few weeks ago. Carefully monitoring the fluctuations in your asset allocation doesn’t insure that you’ll earn a higher risk premium, but it’s a lot harder (impossible?) to enhance results if you don’t fully exploit this information for managing the portfolio.
Weekly Jobless Claims Closing In On Five-Year Low
Last week’s decline in initial jobless claims puts the data within a statistical hair of a five-year low. That’s a bullish sign for the labor market and, by extension, the economy. Indeed, the latest dip in new claims strengthens last week’s encouraging news of private nonfarm payrolls growth in February. Some analysts continue to press the case that the US economy is in recession, or is slipping into darkness as we speak. But the numbers say otherwise, starting with the labor market, which continues to grow at a modest pace.
US Industrial Production: Feb 2013 Preview
Tomorrow’s report on industrial production for February is projected to post a 0.4% gain, according to The Capital Spectator’s average econometric forecast. The expected gain compares with a slight 0.1% decline in January. Meanwhile, the Capital Spectator’s average February projection is at the low end of consensus forecasts from economists.
February Retail Sales: The Strongest Gain In 5 Months
Retail sales increased at a faster pace in February, advancing 1.1% over January—the most since last September, on a seasonally adjusted basis, the Census Bureau reports. The gains were broad based, with most of the subsectors of sales showing positive monthly comparisons. The upbeat news extends to the crucial year-over-year measure as well, with retail sales climbing 4.6% for the 12 months through February, noticeably faster than January’s 4.2% annual pace. The message here is that consumer spending continues to rise at a modest rate, implying that economic momentum generally is still trending positive.
A New Old Game Plan For Asset Allocation
You have to run faster just to stand still. That’s the message in Bill Bernstein’s recent e-book Skating Where the Puck Was: The Correlation Game in a Flat World
US Retail Sales: Feb 2013 Preview
Tomorrow’s report on US retail sales for February is projected to show a 0.7% gain for the month, according to The Capital Spectator’s average econometric forecast. That’s up from the 0.1% gain reported by the Census Bureau for January. The projection is also at the upper range of consensus forecasts from several surveys of economists.