Does the International Monetary Fund’s diminished outlook for the global economy lay the groundwork for thinking that recession risk is elevated for the U.S.? Perhaps, although the IMF’s latest numbers suggest otherwise. Indeed, IMF projections for US GDP remain intact.
Will December’s Economic Momentum Survive The Month’s Final Updates?
The full profile of the U.S. economy for December is nearly complete, and so far the numbers continue to look mildly encouraging. It’s hardly a perfect report card, and we’re still waiting for some key numbers. But based on the data released so far, it appears that growth had the upper hand in the last month of 2011.
Tactical ETF Review: 1.24.2012
It’s been a good year so far for risky assets. Year-to-date returns don’t mean much at this point, but the out-of-the-gate start keeps hope alive. Yet the crowd always finds a reason to worry and the “surprisingly tranquil” profile of runnup will do nicely. Nonetheless, U.S. stocks look quite strong on a technical basis these days as domestic equities extend the rally that began in mid-December. Foreign stocks are following suit. Or is it the other way around? But amid a rising appetite for risk, investment-grade bonds are sagging, thanks mostly to lightening up on Treasuries. It’s a different story for foreign bonds, which are rising in U.S. dollar terms, in part thanks to fresh weakness in the greenback. Meantime, commodities overall look stuck in neutral, although gold is beginning to percolate again. And after a brief respite, real estate investment trusts are taking wing once more. The question is whether the revival is a sign of things to come for the year ahead? Much depends on how the economic numbers fare in the weeks ahead. We know that recession looks like a done deal in Europe, but the consensus view is more favorable for the U.S. Meantime, here’s how the charts stack up for the major asset classes via our usual list of ETF proxies…
Delicate Relations: Markets & Macro
Searching for a connection between asset prices and the business cycle is no spring chicken. The economist Irving Fisher, for example, theorized a link between short-term interest rates and economic expectations in his 1907 book The Rate of Interest
Book Bits For Saturday: 1.21.2012
● First Principles: Five Keys to Restoring America’s Prosperity
By John Taylor
Summary via publisher, W.W. Norton
Leading economist John B. Taylor’s straightforward plan to rebuild America’s economic future by returning to its founding principles. America’s economic future is uncertain. Mired in a long crippling economic slump and hamstrung by bitter partisan debate over the growing debt and the role of government, the nation faces substantial challenges, exacerbated by a dearth of vision and common sense among its leaders. Prominent Stanford economist John B. Taylor brings his steady voice of reason to the discussion with a natural solution: start with the country’s founding principles of economic and political freedom-limited government, rule of law, strong incentives, reliance on markets, a predictable policy framework-and reconstruct its economic foundation from these proven principles.
The Enduring Power Of Passive Asset Allocation
The dominant theme in the financial economics literature is that most relationships are dynamic
New Jobless Claims Drop Sharply
The folks expecting a new recession have a new statistical challenge today. Initial jobless claims fell sharply last week, dropping 50,000 to a seasonally adjusted 352,000. The last time new filings for unemployment benefits were this low was nearly four years ago—April 2008. Last week’s large 50,000 tumble is impressive as well relative to history. Indeed, we just saw the largest weekly drop in more than three years.
Golden Stump Speeches
Is Newt Gingrich now running on a hard money platform? During campaigning in South Carolina earlier this week for the state’s Republican primary on Saturday, January 21, the candidate recommended a “commission on gold to look at the whole concept of how do we get back to hard money,” CNNMoney reports. “We need to say to the Federal Reserve: Your only job is to maintain the stability of the dollar because we want a dollar to be worth thirty years from now what it is worth now,” he asserted. “Hard money is a discipline. It means you can’t inflate away your difficulties.”
Data Check: The Small-Cap & Value Factors
The academic case for using a multi-factor model to maximize the realized equity risk premium is old news, but documenting the empirical evidence is forever new. It’s been known since the 1970s that the single-factor model of CAPM doesn’t fully explain the risk-return relationship for stocks. The limitation of the one-beta model has inspired a range of nuanced approaches for modeling returns and looking for Mr. Market’s silver lining. The most popular framework is still the Fama-French 3-factor model that taps the broad market beta along with the small-cap and value factors. It’s useful every once in a while to ask: How’s the 3-factor recipe working out for ‘ya. As it turns out, quite well, or so recent history suggests.
An Optimist’s Optimist On The Economy
If you’re looking for a cheerleader on the outlook for the U.S. economy, Ed Yardeni’s your man. “The US economy may be on the verge of a big comeback,” this economist and founder of Yardeni Research predicts. “It could experience an unusual second recovery over the next three years following the weak initial recovery of the past three years. In the past, recessions were followed by one broad-based recovery in economic activity. The Naysayers have been predicting a ‘double dip’ recession for the US economy since it started to recover in 2009. I’m suggesting that a more likely scenario might be a double back-to-back recovery.”