● The Era of Uncertainty: Global Investment Strategies for Inflation, Deflation, and the Middle Ground
By Francois Trahan and Katherine Krantz
Summary via publisher, Wiley
The recent credit crisis in the United States ushered in a new era of uncertainty. Like other bubbles, it was born out of an extended period of easy money that fueled prosperity and engendered speculation, but it was not the same as a euphoric run up and crash of technology stocks; it was an assault on two pillars holding up middle-class America: homes and credit. The remaining two pillars—employment income and investments—were collateral damage. People can no longer count on ample access to credit, increasing home values, and abundant job opportunities to propel them into a better lifestyle. In The Era of Uncertainty: Global Investment Strategies for Inflation, Deflation, and the Middle Ground, François Trahan, Vice Chairman and Chief Investment Strategist of Wolfe Trahan & Co, and Katherine Krantz, Managing Director and Founding Partner of Miracle Mile Advisors, LLC, present a new framework for investing in a dynamic, macro-driven world. The book addresses the creation and aftermath of bubbles from a top-down perspective and shows how applying the macro framework can help investors profit from the interwoven inflationary and deflationary scenarios likely to evolve in the next several years. It also examines the role of macro analysis in the markets: how top-down forces influence the direction of financial markets; how including macro analysis in research improves the odds of investment profits; and the potential pitfalls of ignoring macro trends in the investment process.
Private-Sector Job Creation Accelerates In July
Today’s jobs report isn’t great, but it’s better. For the moment, that’s good news–great news, if you consider the alternative outcome implied by yesterday’s steep market loss. Private-sector payrolls rose by 154,000 in July, nearly double June’s revised 80,000 gain. Although government jobs overall decreased 37,000 last month, the momentum in the private sector was enough to bring the unemployment rate down ever so slightly to 9.1%. In short, we dodged another bullet. There are still plenty of challenges ahead, as there have been all along, but today’s payrolls report for the private sector is strong enough to keep the recession risk at bay, if only on the margins and just long enough until the next data point arrives.
Strategic Briefing | 8.5.2011 | Recession Risk
Odds of double-dip recession grow
MercuryNews | Aug 4
In a report titled “Markets tumble, recession alarm bells ring,” consulting firm IHS Global Insight Thursday put the odds of a new recession at 40 percent. Vanguard economists are estimating the odds of a double-dip recession at around 35 percent to 40 percent, up from 30 percent last year, [Roger] Aliaga-Diaz [Vanguard Fund senior economist] said. Economists still consider the most likely scenario to be a very slow-growing economy that feels like a recession, but isn’t one officially.
NY Fed Model: 1-in-125 Chance of 2012 Double-Dip
Carpe Diem (Professor Mark Perry) | Aug 4
The New York Federal Reserve updated its “Probability of U.S. Recession Predicted by Treasury Spread” this week with treasury yield data through July 2011, and the Fed’s recession probability forecast through July 2012. The NY Fed’s Treasury model uses the spread between the yields on 10-year Treasury notes (3.00% in July) and 3-month Treasury bills (0.04%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (2.96% in July).
Dipping Closer To The Tipping Point
The digital ink was barely dry on this morning’s post, which discussed the relationship between the S&P 500’s rolling one-year price return and the onset of recessions, when Mr. Market went into one of rare but far-from-unprecedented hissy fits. By the end of the day’s trading, the S&P had a new haircut with a price tag that pinched the numbers by 4.8%. What does it mean for the market’s forecast on the macro outlook? The good news is that even after today’s rout, the S&P 500 is still up roughly 6.5% vs. a year ago on a price basis. The bad news is that the margin of comfort is fading—fast, at least by today’s standard.
What’s Up (And Down) With The Economy?
Is there a new recession looming? That’s the burning question (again) these days, and understandably so. The slowdown in job creation is reason enough to worry. As troubling as that is, there’s discouraging news on consumer spending and weak July reports for the manufacturing and services sectors. Adding to the anxiety is the fear that the push in Washington to cut spending at a time of weak economic growth will only exacerbate the problem, although the pro-austerity crowd argues otherwise. All of which sets us up for the latest update on initial jobless claims. Unfortunately, the number du jour doesn’t tell us much.
ADP: Economy Adds 114,000 Private-Sector Jobs In July
Today’s ADP Employment Report for July isn’t really encouraging but it does tell us that there’s still job growth. It’s modest at best, but the fact that the labor market is still expanding at this point suggests that the economy will sidestep a new recession. There’s no assurance that the labor market won’t suffer in the months ahead, but the latest numbers don’t look like recession figures.
The Big Squeeze
The new austerity is underway, but it’s not clear that the bond market is optimistic about the implications for growth. The benchmark 10-year Treasury yield dropped to 2.66% yesterday, the lowest since last November. The sight of the crowd rushing into bonds at this stage isn’t encouraging. Meanwhile, the stock market cast its own vote yesterday via a hefty 2.6% tumble.
Consumer Spending Retreats In June
For the first time in a year, monthly consumer spending dropped, the U.S. Bureau of Economic Analysis reports. Personal consumption expenditures (PCE) fell 0.2% in June as disposable personal income rose by a slight 0.1%. Joe Sixpack’s inclination to spend, it seems, is drying up. Indeed, PCE’s monthly pace has been descending non-stop since March and the latest number reflects outright decline. (Some news outlets are reporting that consumer spending, as per today’s revised numbers for PCE, fell in June for the first time in nearly two years. In fact, there was a slight 0.04% drop in June 2010, although rounding changes this to zero.)
Strategic Briefing | 8.2.2011 | The Debt Deal In Washington
Debt battle set to draw to close, for now
MSNBC | Aug 2
The United States was poised to step back from the brink of economic disaster Tuesday as a bitterly fought deal to cut the budget deficit was expected to clear the Senate and President Barack Obama’s desk.
Budget fight on health care cuts just beginning
AP | Aug 2
When it comes to Medicare and Medicaid, the debt deal raises more questions than it answers. The giant health care programs serving some 100 million elderly, low-income and disabled Americans were spared from the first round of cuts in the agreement between President Barack Obama and congressional leaders. But everything’s on the chopping block for a powerful new congressional committee that will be created under the deal to scour the budget for savings.
US Manufacturing Activity Slows Sharply In July
Today’s ISM Manufacturing report—the first economic data point for July—reflects a sharp slowdown. Although the ISM index is still above 50, indicating growth, it fell to its lowest level in two years.