Any one economic report, like a single baseball game or the election du jour, is prone to deliver a surprise every once in a while, for good or ill. Today’s update on payrolls clearly falls into the category of positive surprise, and not a moment too soon.
THE CASE FOR HOLDING A CORE GLOBAL EQUITY ALLOCATION
The world is getting smaller, and that has implications for investing. Perhaps the leading change is the reduction in the potency of the country and industry factors as drivers of the equity risk premium. These sources of priced risk aren’t going away, nor are they irrelevant. But they just don’t pack as much punch as they once did.
HORNSWAGGLED AGAIN WITH INITIAL JOBLESS CLAIMS
Last week’s sharp drop in new filings for jobless benefits claims evaporated in today’s follow-up report.The trendless trend in initial claims rolls on.
READING ROOM FOR THURSDAY: 11.4.2010
►Fed to Spend $600 Billion to Speed Up Recovery
David Sanger and Sewell Chan/NY Times/Nov 3
The Federal Reserve, getting ahead of the battles that will dominate national politics over the next two years, moved Wednesday to jolt the economy into recovery with a bold but risky plan to pump $600 billion into the banking system.
►What the Fed did and why: supporting the recovery and sustaining price stability
Ben Bernanke/Washington Post/Nov 4
Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy – especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation…Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation.Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation.
ADP SAYS PRIVATE-SECTOR JOB CREATION WAS +43k IN OCTOBER
If today’s better-than-expected good news in the ADP Employment Report is a sign of things to come, the freshly minted Republican takeover of the U.S. House of Representatives is starting with a favorable tailwind. Actually, make that a modestly less troubling tailwind.
THE MORNING AFTER IN WASHINGTON: YOU WANT IT? YOU GOT IT
The Republicans took control of the House of Representatives in yesterday’s election and made progress but fell short of a majority in the Senate. The GOP, in other words, now has co-responsibility for the economy. Deciding if this is a political boon, or the equivalent of walking into a business cycle trap, will take time to assess. Meanwhile, this much is clear: the sluggish economy is no less sluggish now that the Republicans have a formal stake in the macro outcome. The only question is how the new party in power will influence policy in Washington and what that will mean, if anything, for the labor market, GDP, government debt levels, and all the rest.
THE CRUX OF THE QE2 BISCUIT…
It’s all about expectations. A nebulous concept, to be sure, but one that’s not beyond influencing macro outcomes with some control via monetary policy. To what extent? To what end? Ideally, it runs like this, as per Professor David Beckworth: “Here is why I think QE will pack an economic punch, if done correctly. The expectation of permanently higher prices will cause cash-flushed firms, households, and other entities to start spending more today. Right now there is an excess money demand problem that could be stemmed by meaningfully changing the inflation outlook.”
ANOTHER LOOK AT REBALANCING…
Is rebalancing a tool for managing risk? Or maybe it’s a source for minting benchmark-beating returns. No, wait–it might be both. Really? In the new issue of Financial Advisor magazine, I take a fresh look at rebalancing in: Rethinking Rebalancing.
QE2’s SUCCESS SO FAR…
Critics of the anticipated launch of the Fed’s new round of quantitative easing (QE2) to lower medium and long-term interest rates have fallen into two broad camps. One says that the policy won’t work. The second argues that QE2 threatens to create new problems for the economy, ranging from higher inflation that spirals out of control to asset bubbles and other negative consequences. And, of course, some attacks incorporate both of these points.
PERSONAL INCOME SLIPS, SPENDING RISES FOR SEPTEMBER
Disposable personal income (DPI) slipped last month while personal consumption expenditures (PCE) rose, the U.S. Bureau of Economic Analysis reports. The mixed profile for September isn’t surprising these days, although it does offer one more piece of statistical evidence for keeping optimism in check about the near-term prospects for economic growth.