● A Vice President in the research division of the Federal Reserve Bank of St. Louis responds to the attacks on the central bank via one rather prominent critic in Congress: Ron Paul’s Money Illusion
● The case for arguing that QE2 worked: Quantitative Easing and America’s Economic Rebound
● Scott Sumner also argues that QE2 succeeded: Feldstein–>Glasner–>Feldstein
● But Mark Thoma thinks it’s too early to say for sure: Long and Variable Lags in Monetary Policy
● Meanwhile, central bankers aren’t completely immune to learning from history: An historical perspective on the Great Recession
Is The Stalled Decline In Jobless Claims Really Over This Time?
Was that a tipping point for the trend in jobless claims? Today’s update of weekly filings for new unemployment benefits shows a drop to a seasonally adjusted 368,000 for the week through February 26. Initial claims haven’t been this low since May 2008. Today’s number also marks another milestone since the end of the recession: the first back-to-back weekly readings below 400,000.
Carving Up Betas Is Only A Partial Solution
More is better when it comes to asset allocation, at least in theory. But how much is too much? Common sense suggests that there’s a point of diminishing returns to dividing up portfolios into ever finer slices. Exactly where that point lies is unclear, however. That’s partly because analyzing widely divergent portfolio choices rapidly spins out of control as a quantifiable research project intent on dispatching a few concise insights. Reviewing the infinite, in other words, doesn’t help much in the search for one-size-fits-all advice.
A Fresh Take On Factor Indexing
My latest story for Financial Advisor is hot off the press. The focus is factor indexing, which is getting easier. The question, of course, is whether easier means better when it comes to juicing risk-adjusted returns, particularly in a multi-asset class framework. For some perspective, you can read the digital version of the article here.
ADP: Employment Growth Accelerates in February
There’s enough upward momentum in today’s ADP Employment Report for February to encourage the belief that the labor market is healing. But true to form these days, there’s still not enough juice in the numbers to slay worries that job growth will be anything other than modest for the foreseeable future.
The Madness of Mr. Market
Manufacturing’s Hot. Will Job Growth Follow?
Manufacturing is on a roll. Today’s update of the ISM Manufacturing Report for February shows that “economic activity in the manufacturing sector expanded in February for the 19th consecutive month.” In fact, the latest rise brings the index to the previous high, set in 2004. The question is when, or if, the revival in manufacturing will spill over into the labor market?
Strategic Briefing | 3.1.2011 | Commodity Inflation
Prospects for the Economy and Monetary Policy
William Dudley, president and CEO, NY Fed | Feb 28
…we need to keep a close watch on how households and businesses respond to commodity price pressures. The key issue here is whether the rise in commodity prices will unduly push up inflation expectations. Although there have been commodity price cycles in the past, commodity prices have not consistently increased relative to other prices, and indeed have declined in relative terms over the very long term. Historically, if commodity prices rose sharply in a given year, it has been reasonable to expect that these prices would stabilize or fall within a year or two. This property has been important because it has meant that measures of current “core” inflation, rather than current headline inflation, have been more reliable in predicting future headline inflation rates.
In contrast, over the past decade, commodity prices generally have been on an upward trend….
Nevertheless, there are important mitigating factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures. First, despite the general uptrend, some of the recent commodity price pressures are likely to be temporary. In particular, much of the most recent rise in food prices is due to a sharp drop in production caused by poor weather rather than a surge in consumption. More typical weather and higher prices should generate a rise in production that should push prices somewhat lower. This is certainly what is anticipated by market participants. Second, even if commodity price pressures were to prove persistent, the U.S. situation differs markedly from that of many other countries. Relative to most other major economies, the U.S. inflation rate is lower and the amount of slack much greater.
Moreover, for the United States, commodities represent a relatively small share of the consumption basket. This small share helps to explain why the pass-through of commodity prices into core measures of inflation has been very low in the United States for several decades.
Spending & Income Rise In February
Personal income and spending rose again in January, the U.S. Bureau of Economic Analysis reports. The news offers fresh ammunition for arguing that the trend remains encouraging for two key pillars of the economy. But there’s some fine print to consider. It remains to be seen how (or if?) the Middle East turmoil, and the associated rise in energy prices, will alter consumer behavior. As such, the February numbers may already be dated. Meanwhile, the jump in income last month was primarily due to a new cut in payroll taxes that began last month. Nothing wrong with that, of course, but it’s not the same thing as saying that companies were handing out big raises last month.
Can The Crowd Exploit The Rebalancing Bonus?
James Surowiecki’s The Wisdom of Crowds