Let’s hope today’s ADP National Employment Report is wrong. Nonfarm private employment increased by a meager 32,000 last month, according to this report. The general trend is fine, but that’s far below the consensus forecast by economists for this Friday’s government update on April payrolls. More importantly, a net rise of 32,000 is hopelessly insignificant given the extent of the 8-million-plus job losses in the Great Recession. But what the economy needs, and what it ultimately gets, may be two different things.
WHAT’S THE DEAL WITH MOMENTUM INVESTING?
Your trusty editor reviews the strategy, including a trio of new momentum index funds in the new issue of Financial Advisor magazine. “Momentum investing has long been a thorn in the side of conventional market theories,” the article begins. “That doesn’t dim its power as a strategic investment tool, but it can still be an awkward beast.” For the details, read on…
CONSUMER SPENDING & INCOME RISE IN MARCH
Today’s update on consumer spending and income confirms what was already clear in Friday’s Q1 GDP report: the economy is rebounding. It’s debatable if the rebound has the wherewithal to roll on at a pace that’s sufficient to keep the economic engine humming. But for the moment, the numbers speak loud and clear.
REITS CONTINUE TO SOAR
April was relatively uneventful for the major asset classes in terms of total returns—with one exception. REITs scored another outsized gain last month, posting a strong 7.7% total return, based on the MSCI REIT Index. Real estate securities are also far ahead of the pack for 2010 after advancing by nearly 18%, or about twice as much compared to the next-best performance for U.S. stocks in the year-to-date ranking. But with REIT valuations stretched thin, it’s getting harder to expect the real estate surge to roll on at this pace.
FIRST QUARTER US GDP RISES 3.2%
The U.S. economy expanded at a robust pace in this year’s first quarter, the Bureau of Economic Analysis reported this morning. Real GDP increased by 3.2% on an annualized basis in the first three months of 2010. That’s considerably lower than the 5.6% surge in the previous quarter. But no one expected the powerful momentum in Q4 2009 to continue. The question was (and remains): How much will the economy slow after the initial snapback from the Great Recession? With fiscal and monetary stimulus destined to fade, the economy faces a transition. For now, growth still has the upper hand. The latest numbers, albeit the first of three estimates, suggest that the expansion has a foothold. Encouraging as that is, there’s still some concern about the quarters ahead. The risk that the rebound will stall is lower these days, but not yet low enough to dismiss the idea completely.
MARKOWITZ ON MPT
Harry Markowitz, who more or less invented modern portfolio theory with his 1952 paper “Portfolio Selection,” talks finance in a new Q&A published by the Journal of Financial Planning. Asked if he thought MPT was fatally wounded from the dramatic market volatility of recent years, he said, No: still alive and kicking. “In fact, it proved itself in the crisis rather than disproved itself,” he asserted.
PONDERING THE POSSIBILITIES OF REBOUND & RETREAT FOR JOBS
Will the Federal Reserve rethink its decision yesterday to keep Fed funds at just above zero after this morning’s news of a fall in new claims for unemployment last week? Not likely. Initial claims slipped by just 11,000. That’s welcome, of course, but if you’ve been following the soap opera with this data series you know that we’ll need to see something more dramatic before the central bank changes its monetary tune of standing pat.
ASSET ALLOCATION FUNDS: POPULAR BUT COMPLICATED
The rising popularity and expanding menu of multi-asset class funds suggests that investors are eager and willing to farm out the asset allocation decision to professionals. Morningstar Principia lists over 1,700 mutual funds and ETFs that engage in some form of multi-asset class investing under one strategic roof. These products are branded under several labels, such as global asset allocation or target date funds. There’s the old standby term balanced fund as well. But no matter what you call them, they all share a common link: managing asset allocation. Some investors think owning these funds relieves them of the chore of making strategic investment decisions, but that’s only partly true.
DISSECTING BUBBLES
Everybody talks about bubbles, but what should we do about it? Before we can answer intelligently, we need to put bubbles in context. In other words, how should we think about bubbles? There’s no simple answer, in part because the hyperbole surrounding the concept is thicker than honey in a beehive.
THE CASE FOR CAUTIOUS OPTIMISM
“The global economy seems to be recovering,” the chairman of the IMF’s Financial Committee meeting said at press conference over the weekend. “The worst is definitely behind us,” advised Youssef Boutros-Ghali, who’s also the Egyptian finance minister in his day job.