Morningstar reminds that there are lots of fund choices for diversifying across asset classes these days, perhaps too many. “Not only has the number of mutual funds expanded by the thousands over the past decade, but numerous exchange-traded and closed-end funds, many of them with very specialized, even exotic, mandates, have also popped onto the scene,” writes Gregg Wolper,
Retail Sales Rise For 7th Straight Month
Retail sales forged higher to a new all-time record last month, rising 0.3% to $381.6 billion in January on a seasonally adjusted basis, according to this morning’s release from the U.S. Commerce Department. That was less than the 0.5% rise that economists were expecting, and January’s gain is half as much as December’s increase. But last month’s growth in retail sales is the seventh straight month of higher numbers. The various troubles that hang over the economy are far from trivial, but it’s still hard to argue at the moment that the blowback from the Great Recession is pinching consumer spending.
Strategic Briefing | 2.15.2011 | The President’s Budget Proposal
The White House released President Obama’s 2012 budget yesterday, a document that’s striking for its failure to address the main engine of the projected deficits: entitlement programs. The Republicans’ budget proposal isn’t published yet and so official comparisons aren’t available. Meantime, the President’s budget reportedly cuts the record deficit by $1.1 trillion over the next decade. Here are additional details/opinions on the numbers and the implications from various sources:
Budget Battle Lines Drawn
Wall Street Journal/Feb 15
If Congress accepted all the president’s proposals—which is unlikely—and the economy recovered, the federal deficit would fall from 10.9% of GDP this year to 3%, Mr. Obama’s goal, in 2017. The plan would place the federal government’s deficit next year at $1.1 trillion, down from $1.6 trillion this year, and the White House said it would reduce the government’s accumulated red ink over the next decade by a similar $1.1 trillion. Just over a third of that deficit reduction would come from Mr. Obama’s previously announced freeze in domestic discretionary spending. The balance would come from tax increases, largely on businesses and upper-income taxpayers; assorted fee hikes and spending reductions; and a cut in government borrowing costs, which will continue to rise dramatically but not quite as fast if the deficit is reduced.
Budget Battles, Round 1
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.