The Federal Reserve yesterday told us what we already suspected was coming. Economic growth will remain sluggish, according to the Fed’s new core projection. Real GDP for all of 2011 will rise by 1.6% to 1.7%, the central bank predicts, down from its June estimate of 2.7% to 2.9%. Next year’s real GDP is expected to deliver slightly better results in the 2.5% to 2.9% range, but that estimate has also been trimmed from June’s 3.3% to 3.7% guess.
Employment Expectations
Every monthly employment report is crucial these days, but Friday’s update may be the first among equals. When we last checked in with the nation’s payrolls report, there was a collective sigh of relief that private-sector job creation avoided a descent into darkness in August. A repeat performance is essential if there’s any hope for sidestepping a new recession.
The Pessimism Of Economics Bloggers
“Economics bloggers seem the most pessimistic in their outlook on the U.S. economy so far for 2011,” according to the Kauffman Foundation’s latest quarterly survey of 200 economics bloggers, including the views of yours truly. According to the report, 96% of the bloggers polled think overall economic conditions are “mixed, facing recession, or in recession.”
Major Asset Classes | Oct 31, 2011 | Performance Update
October was a month of renewal. After sharp losses virtually across the board in September, last month witnessed a healthy dose of the opposite. But in a sign of the times, the last day of October suffered a heavy bout of selling in risky assets amid new fears that the crisis in Europe rolls on. The red ink is spilling anew this morning as I write. For a brief, shining moment, however, it looked like there was a light at the end of the tunnel. But last month is suddenly so yesterday.
Australia Rethinks Inflation Worries
Bloomberg reports: “Australia’s central bank lowered its benchmark interest rate today for the first time since April 2009 as inflation eases and weaker global growth threatens to slow the nation’s resource-driven economy.” The Reserve Bank of Australia cut its benchmark rate by 25 basis points to 4.5%.
The Hazards Of One-Size-Fits-All Performance Attribution
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.