Carl Richards, a financial planner who blogs for The New York Times, laments the fact that equity investing has been distinctly unimpressive over the past decade plus. Earning a risk premium in the stock market “is a function of pure luck,” writes the founder of Prasada Capital.
A DEATH EXAGGERATED
Is modern portfolio theory (MPT) dead? Yes, according to many pundits and strategists. There have always been skeptics of modern finance, although membership in this club has risen sharply in recent years, thanks to the surge in market volatility and the steep losses posted by the major asset classes during late-2008 and early 2009. A popular argument is that multi-asset class diversification didn’t spare investors from unusually big declines, ergo, MPT failed. By that standard, the case for abandoning conventional asset pricing theory looks compelling. There’s just one problem: It’s wrong.
ONE ANALYST’S TAKE ON THE RECESSION RISK
(RE)CONSIDERING INVESTMENT NEWSLETTERS
Dow Jones sent me an email this morning inviting yours truly to partake of the enlightened analysis in The Hulbert Financial Digest, a newsletter edited by Market Hulbert that evaluates other investment newsletters. No doubt thousands received similar invites. But while it was one more marketing effort, the email was intriguing for what it says about published efforts at trying to beat the market.
THE TRENDLESS TREND IN JOBLESS CLAIMS
Today’s update on weekly jobless claims is more of the same. New filings for unemployment benefits continue to bounce around in the seasonally adjusted weekly range of 450,000-500,000. That’s been true all year, and today’s report doesn’t change anything. The longer this goes on, the stronger the case for thinking that the rebound in the labor market is going to be sluggish—perhaps more so than even the generally muted expectations of a month ago.
DOUBLE-DIP LINKS
Is a new recession brewing? No, or at least I don’t see the odds as particularly high for a double-dip contraction. Not today, anyway. But the risk isn’t zero. It’s still quite low, or so I estimate, but it may be rising, in part because the deflationary winds are blowing harder these days. But this is economics, and so no one’s really sure what’s coming. That doesn’t stop anyone from making forecasts, of course. And if there was ever a moment for keeping an open mind, this is it. Here’s a sampling of recent commentary on what the economic pundits are saying about the business cycle, pro and con…
HOUSING STARTS, BUILDING PERMITS & WHOLESALE PRICES RETREAT IN MAY
The markets told us that there were problems in May, and as the economic data rolls in there’s no reason to think otherwise. Today’s numbers on housing starts and new building permits certainly suggest that the economic recovery struggled last month. The question is whether the change is temporary, or the sign of more trouble ahead?
STILL WORRYING ABOUT DEFLATION
If a wave of deflationary threatens the global economy’s rebound, will Japan be the canary in the coal mine. Probably. It’s certainly a high risk country, in part because it’s already loaded to the gills with debt from efforts at fighting deflation over the past 20 years. There are no guarantees in macroeconomic analysis, but if Japan’s already cheerless outlook takes a turn for the worse, it may signal that deflationary winds are set to blow harder in the rest of the world.
THE MARKET PORTFOLIO & YOUR “PERSONAL BETA”
Moshe Milevsky, a professor at York University, recommends thinking strategically about your “personal beta” for managing risk. That begins by evaluating your human capital, he advises in today’s Wall Street Journal. “It’s a measure of your future earnings, a product of what you’ve invested in yourself.” Good advice. In fact, evaluating your career risk is job one when considering how to modify the broad market portfolio. But even before you do that, you need a good definition of the market, and the usual suspects just won’t do.
RETAIL SALES DROP IN MAY
Retail sales dropped 1.2% last month on a seasonally adjusted basis, the Census Bureau reported today. That’s the biggest monthly decline since last September’s 2.2% fall and the first retreat since December’s mild 0.2% loss. The latest drop in retail expenditures, coming at a time of rising deflationary worries, suggests that the worst fears about the economic recovery are confirmed. But while it’s too soon to dismiss such concerns, today’s retail sales update for May isn’t the smoking gun it appears to be.