PowerShares is planning to launch five factor ETFs based on the S&P 500, according to an SEC filing. It’s one more sign that a new era is dawning for alternative betas and enhanced asset allocation opportunities.
MORE OF THE SAME IN Q3 GDP: SLUGGISH GROWTH
The U.S. economy expanded at an annualized 2% in the third quarter, the Bureau of Economic Analysis reports. The rate of GDP increase for July through September is up slightly from Q2’s 1.7% pace, but still well below the 3.7% logged in this year’s first quarter or the robust 5.0% reading from last year’s final three-month stretch. In other words, the economy’s continuing to muddle along with enough forward momentum to keep another recession at bay. At the same time, today’s GDP report isn’t likely to inspire confidence that economic growth is sufficient to cure the sluggish trend in the labor market—the primary macro challenge these days.
CAN WE BELIEVE THE DIP IN JOBLESS CLAIMS THIS TIME?
Today’s update on weekly jobless claims delivered a wallop—in the right direction for a change. It may be another head fake, but on its face this morning’s report is the best news in months for this measure of the job market. It’s only one number, of course, and so all the usual caveats apply. All the more so given the volatility in this data series and the fact that we’ve been hoodwinked many times before in thinking that the stat du jour on this front was a sign of improvement in the labor market only to find that, well, it wasn’t. But for the moment, there’s a new talking point on Wall Street and it’s a refreshing change of pace from the usual gloomy news.
THE STRANGE WORLD OF MONETARY ECONOMICS IN 2010
GMO’s Jeremy Grantham, surely one of the finest investment strategists of our time, is no fan of the Federal Reserve’s track record over the past decade or so. In fact, he’s gone on record with sharp criticisms of the central bank. This is an institution, after all, that’s made mistakes, to say the least. But how to proceed? In his latest quarterly missive, Grantham remains skeptical that the Fed has a silver bullet solution up its sleeve for the various problems that ail the economy at the moment. He did, however, suggest in so many words that Bernanke and company should adopt an inflation target. A reasonable idea, but one that comes with some assumptions on the mechanics–assumptions that complicate the analysis at the moment on what the Fed should, and shouldn’t do, for those of a particular world view.
LET A THOUSAND INDEXES BLOOM
Choosing an index to represent a particular beta is almost as difficult these days as deciding how to design and manage asset allocation. It wasn’t that long ago when there was generally one choice: capitalization weighted indices. Now there’s a growing mix of so-called alternative weighted benchmarks, and more are on the way.
ECON BLOGGERS ARE GLOOMY
The Kauffman Foundation yesterday published its Fourth Quarter Economics Bloggers Survey. The report summarizes the views of the “top economics bloggers,” a label that generously includes The Capital Spectator, or so the Kaufmann Foundation opines. In any case, the overall view is rather dark, a bit darker than the current outlook on these pages. In fact, the survey’s general tone is the darkest yet, relative to previous responses in this poll. The accompanying press release for the report notes that the “respondents’ outlook on the U.S. economy is more pessimistic than in any previous quarterly survey in 2010, with 99 percent saying that conditions are mixed, facing recession or in recession. When asked about the probability of a double-dip recession in the United States, the average response is a 41 percent probability; two-fifths see a 20 percent probability, and opinion declines toward higher probabilities.”
ANOTHER SIGN THAT THE MARKET IS NOW EXPECTING HIGHER INFLATION
Expectations about inflation/deflation are a critical factor for handicapping the future in terms of broad price trends, as we discussed in the previous post. Hold that thought as you consider that 5-year inflation-indexed Treasuries sold at a negative yield for the first time, according to Bloomberg.
THINKING ABOUT DEFLATION
It’s important to distinguish between “good” and “bad” deflation, the former being a byproduct of improved technology, higher productivity, and other factors that can generally be lumped under the heading of “progress.” Bad deflation, by contrast, is the blowback from a shock of one form or another that produces a financial crisis, such as the one that occurred in 2008.
READING ROOM FOR MONDAY: 10.25.2010
►Wall Street focuses on the ‘three Es.’
Julianne Pepitone/CNNMoney/Oct 24
Investors are bracing for an onslaught of news this week: The earnings avalanche continues, midterm elections are approaching and economic data are due in a bunch of sectors. Those “three Es” are a lot for investors to digest individually, and this week’s triple-whammy could bring volatility to a market that’s been behaving somewhat normally.
BOOK BITS FOR SATURDAY: 10.23.2010
● Shock of Gray: The Aging of the World’s Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation
By Ted Fishman
Radio interview with author via NPR
By the year 2030, one billion people on the planet will be over the age of 65. Plus, for the first time in history, the number of those who are older than 50 will be greater than those under 17. Ted Fishman has traveled around the world to find out what effects this aging trend will have on families and communities, nations and economies. Host Liane Hansen speaks with Fishman about his new book Shock of Gray.
