A month ago, it looked like the new abnormal was going to roll over the economy and the stock market and unleash a fresh round of general havoc. But the big squeeze never arrived. Is that the calm before the storm? Or is real mending unfolding in macro and markets?
Is The June Slowdown In Manufacturing Activity A Sign Of Things To Come?
Manufacturing activity contracted in June, according to the Institute for Supply Management’s manufacturing index. For the first time since July 2009, the ISM Index slipped under 50, dropping to 49.7 last month. A reading below 50 indicates a contracting manufacturing sector.
Major Asset Classes | June 2012 | Performance Review
June was a month of revival for most of the major asset classes. The hefty, wide-ranging losses in May gave way to handsome gains last month. Alas, the pop in June wasn’t strong enough to wipe away May’s red ink, but there’s no mistaking the rebound in the month just passed. Whether it’ll roll on in July is anyone’s guess, but for the moment the bulls have something to cheer about.
The Capital Spectator On The Road…
Your editor will be at various undisclosed locations for the next week or so along the West Coast, traveling with no particular agenda, from LA to San Francisco. Blogging will be light to non-existent during this brief hiatus. What passes for normal around here will resume on Monday, July 2. Meantime, having recently re-read On the Road
Book Bits | 6.23.2012
● Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System
By Scott Patterson
Summary via publisher, Crown Business
A news-breaking account of the global stock market’s subterranean battles, Dark Pools portrays the rise of the “bots”- artificially intelligent systems that execute trades in milliseconds and use the cover of darkness to out-maneuver the humans who’ve created them. In the beginning was Josh Levine, an idealistic programming genius who dreamed of wresting control of the market from the big exchanges that, again and again, gave the giant institutions an advantage over the little guy. Levine created a computerized trading hub named Island where small traders swapped stocks, and over time his invention morphed into a global electronic stock market that sent trillions in capital through a vast jungle of fiber-optic cables. By then, the market that Levine had sought to fix had turned upside down, birthing secretive exchanges called dark pools and a new species of trading machines that could think, and that seemed, ominously, to be slipping the control of their human masters. Dark Pools is the fascinating story of how global markets have been hijacked by trading robots–many so self-directed that humans can’t predict what they’ll do next.
Strategic Briefing | 6.22.12 | Debating Monetary Policy (Still)
Fed’s Lacker Says Operation Twist Won’t Help Growth, Jobs
Bloomberg | June 22
Federal Reserve Bank of Richmond President Jeffrey Lacker said he dissented from the Fed’s $267 billion extension of its Operation Twist program believing it would spur inflation and not significantly help the economy. “I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable,” Lacker said in a statement today from the Richmond Fed.
Jobless Claims Fell Slightly Last Week, But Stagnation Prevails This Year
Initial jobless claims slipped by 2,000 last week to a seasonally adjusted 387,000. That’s enough to put a lid on fears that the economy’s falling off a cliff now, today, this minute. But today’s update also falls well short of inspiring confidence that stronger, sustained growth will quickly resume. Nonetheless, it’s still hard to make a case that a new recession is imminent based on the latest numbers.
Mr. Market’s Estimate Of Expected Stock Returns
Debate over the expected return on the stock market is a hardy perennial for two basic reasons. First, the true ex ante market return can never be known with certainty. Second, the true ex ante return is forever changing. The problem, of course, is that investors must make decisions, even with imperfect information about the future. Where to begin? One possibility is a simple Gordon growth model that equates equity market return with the sum of the growth rate of dividends plus the current dividend yield. It’s really an identify rather than a model, but it’s useful just the same.
Housing Starts Retreat In May As New Building Permits Climb
Is the rising economic anxiety taking a toll on the housing industry… again? The answer depends on the data set you’re looking at. Housing starts fell nearly 5% last month vs. April’s tally, the Census Bureau reports. But newly issued building permits jumped by almost 8% in May to the highest level since September 2008. That’s a sign that housing starts will stay firm if not rise in the months ahead. As economist Richard Yamarone writes in The Trader’s Guide to Key Economic Indicators
Strategic Briefing | 6.19.12 | Staring At The Fiscal Cliff
Fiscal-Cliff Concerns Hurting Economy as Companies Hold Back
Bloomberg | June 19
Companies are starting to delay hiring and spending out of concern that Congress won’t reach a compromise in time to avoid automatic tax increases and budget cuts that would pull billions of dollars of purchasing power out of the economy. Faced with a so-called fiscal cliff of more than $600 billion in higher taxes and reductions in defense and other government programs in 2013, U.S. companies are pulling back, though the deadline for congressional action is more than six months away.