DAL Investments suggests that we should dispense with narrowly focused benchmarks for evaluating actively managed mutual funds, according to The New York Times. “As much as people in the fund industry may want to measure their performance against a narrowly defined index, the reality is that most investors judge their returns against the S.& P. 500, for better or worse,” writes Times reporter Paul Sullivan. That’s hardly a rationale for using the S&P 500, or any one benchmark, for analyzing a wide spectrum of investment strategies. Using one index certainly simplifies the critical task of portfolio attribution, but at what cost?
Book Bits For Saturday: 10.29.2011
● The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies
By Len Zacks
Summary via publisher, Wiley
The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market.
Correlation Inflation
A story last month in the FT quoted several sources who argue that the sovereign debt crisis in Europe is a factor that’s driving up correlations among asset classes lately. “It poses a big challenge for risk managers and portfolio managers,” explains Pavan Wadhwa, head of global interest rate strategy at JPMorgan. “The more correlated the underlying assets in your portfolio, the less diversification you have.”
September’s Rebound In Consumer Spending & Income
Personal income and spending jumped in September, offering an encouraging reversal from August’s sluggish pace. The revival was particularly strong for consumer spending. The numbers aren’t all that surprising in light of yesterday’s mildly upbeat GDP report for the third quarter. Surprising or not, today’s spending and income numbers reconfirm the statistical case for arguing that there was no sign of a recession in Q3. Deciding what happens in Q4 is guesswork, of course, but there seems to be a bit of momentum in the macro numbers these days and so a bit of optimism is the new new thing again… at least for the weekend.
Jobless Claims: Still Going Nowhere Fast
Initial jobless claims slipped by a mere 2,000 last week to a seasonally adjusted 402,000. This leading indicator seems to be telling us that the economy can avoid a new recession–maybe–but that’s about as far as the good news goes.
US Economy Grew 2.5% In Third Quarter
The economy continues to struggle and recession risk is elevated, but today’s official estimate of third-quarter GDP shows that the economy didn’t surrender to contraction in the last three months. That may change, but for now the recession talk is on the defensive.
The Forecast File: US Q3 GDP
GDP Growth Rate May Run Out of Steam
The Wall Street Journal | Oct 27
The Commerce Department will release its first estimate of third-quarter U.S. gross-domestic-product growth Thursday. Economists expect GDP in real terms to expand at about a 2.7% seasonally adjusted annualized pace, helped by a rebound in auto production after Japan-related shutdowns this year. This would be an improvement from the economy’s average 0.9% growth rate in the first half of the year.
Brooklyn Bound
I’m heading off to the NAPFA Practice Management & Investments Conference at the Brooklyn Marriott. I’m the luncheon speaker tomorrow (Wed). The topic: asset allocation. Strategy chatter on a full stomach. Is that wise? We’ll see. In any case, blogging will go dark for the next day or so, with a resumption of the usual fare on Thursday.
Meanwhile, I see that today’s S&P/Case-Shiller Home Price Indices were up in August. “We see a modest glimmer of hope with these data,” David Blitzer of S&P said via the press release.
Hayek’s Solution
There’s no shortage of worrisome trends on the macro stage, but perhaps the most troubling is the trend in real (inflation-adjusted) hourly earnings and personal consumption expenditures. Both have been falling persistently on a year-over-year basis. Some economists see this as a dark sign for the business cycle. It’s also a test of Hayek’s idea that falling wages will plant the seeds of economic recovery. By that standard, macro salvation is coming.
Another Look At The Stock Market & The Business Cycle?
The stock market’s annual performance is comfortably in the black again. After a brief slump into negative territory on a year-over-year price basis in late-September and early October, the S&P 500 is higher by 4.9% through Oct. 21. Is that a sign that the economy will keep growing? History offers some evidence for responding with a cautious “yes.”