House Speaker John Boehner wants to know “when are we going to get serious about cutting spending?” Perhaps today’s the day. The White House will formally release its 2012 budget plan later this morning, complete with a reported $1 trillion-plus in cuts.
A NEW REVIEW OF DYNAMIC ASSET ALLOCATION
The Independent Investor, an educational web site focused on personal finance, recently reviewed my book, Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor
BOOK BITS FOR SATURDAY: 2.12.2011
● Central Banking in the Twentieth Century
By John Singleton
Summary via publisher, Cambridge University Press
Central banks are powerful but poorly understood organisations. In 1900 the Bank of Japan was the only central bank to exist outside Europe but over the past century central banking has proliferated. John Singleton here explains how central banks and the profession of central banking have evolved and spread across the globe during this period. He shows that the central banking world has experienced two revolutions in thinking and practice, the first after the depression of the early 1930s, and the second in response to the high inflation of the 1970s and 1980s. In addition, the central banking profession has changed radically. In 1900 the professional central banker was a specialised type of banker, whereas today he or she must also be a sophisticated economist and a public official. Understanding these changes is essential to explaining the role of central banks during the recent global financial crisis.
POLITICAL RISK & CHINA’S CURRENCY
China’s economic rise increases the odds that its currency is destined to become a global currency, according to The New York Times. “No one expects that to happen immediately,” the article carefully adds, even if the writing is on the wall. “The RMB is likely to become a reserve currency in the future, even if the government of China does nothing about it,” economist Robert Mundell predicts. Perhaps, although the story also recognizes the political risk that still haunts China.
NEW JOBLESS CLAIMS FALL TO LOWEST IN MORE THAN 2 YEARS
Ah, now that’s better. New jobless claims dropped last week by a robust 36,000, pulling the total under the 400,000 mark on a seasonally adjusted basis for the second time since the Great Recession was formally declared null and void as of June 2009. Is the second time the charm?
THE POWER OF MEAN REVERSION
The more you look at it, the larger it looms. Yes, rebalancing is an old idea—buy low, sell high. But it’s forever new for at least two critical reasons. One is simply bound up with the recognition that rebalancing works, or at least it has a long history of working by enhancing return while keeping a lid on risk. But it’s not always clear what constitutes “optimal” rebalancing, or even if such a state of financial nirvana exists. That keeps analysts turning over rocks in search of progress.
THE DOUBLE-EDGED SWORD OF “INVESTING” IN VOLATILITY
A new research paper casts some doubt on using volatility as an asset class. The warning isn’t unexpected, given that the broad themes of the paper’s findings have been discussed for years. Nonetheless, “The Hazards of Volatility Diversification Volatility” (by Carol Alexander and Dimitris Korovilas at the University of Reading) is a timely reminder that owning (or shorting) volatility directly can be a complicated affair.
WORRYING ABOUT INFLATION… AGAIN
STRATEGIC BRIEFING | 2.7.2011 | CORPORATE PROFITS
No Rush to Hire Even as Profits Soar
Wall Street Journal/Feb 7
With 73% of the Standard & Poor’s 500-stock index by market value having reported fourth-quarter results, earnings are up 28% from a year earlier and sales are up 7.7%. But the contrast between profit and job growth remains a big hurdle for companies hoping to keep expanding their business.
Corporate profits surge
Deloitte/Feb 3
Corporate profits surged in 2010, according to analysis of fourth quarter 2010 company results by Deloitte, the business advisory firm. The results were stronger than expected with 69% of company results exceeding market forecasts, indicating a positive outlook for companies going into 2011. The 187 US companies that reported fourth quarter results posted an average growth in net income or profits of 45% over the last year. The 34 European companies in the study, most of them based in Continental Europe, have seen profits rise on average by 25% over the last year.
OIL PRICES: TALKING TRASH… OR TRUTH?
“I expect oil prices to reach $110 during the first half of 2011, however, it could go above that level if Egypt’s current crisis continues,” says Imad al-Atiqi, a member of Kuwait’s Supreme Petroleum Council, in an interview today with Reuters. “A huge amount of oil passes through the Suez Canal and the country’s stability is essential for the Middle East’s stability, particularly Israel.”