Is the labor market finally set to create jobs on a sustained basis? If not, will the stock market continue to shrug off the delayed rebound in the labor market? Such questions promise (threaten?) to be topical this week as Friday’s update on payrolls for March draws near. Whatever the answers, there’s a bit of timing glitch.The stock market will be closed for Good Friday and so equity traders will have to wait till the following Monday to react to the news.
TALKING ABOUT DYNAMIC ASSET ALLOCATION
I was a guest yesterday on the financial talk show hosted by HorsesMouth.com. The subject of discussion is my new book: Dynamic Asset Allocation
http://www.blogtalkradio.com/horsesmouth/2010/03/25/modern-portfolio-theory-grows-up
TAXING NUMBERS
The newly enacted health care reform legislation may be a net plus when it comes to expanding access to medical services, but it’s not free, or at least not for taxpayers in the upper brackets and certain investors. The new health care reform “will raise taxes for many Americans,” according to a report by RSM McGladrey, a consulting firm in Atlanta.
GDP ROSE 5.6% IN Q4 2009
The economy grew by 5.6% at a real annualized rate in the final three months of last year, the U.S. Bureau of Economic Analysis reported this morning. Today’s update is the third and final estimate of Q4 2009 GDP. The first estimate was 5.7%; the second was 5.9%. Although the final number has been revised down from the previous estimates, the 5.6% gain in GDP for the last three months of 2009 is the highest pace since the 6.9% gain in Q3 2003.
The government’s initial estimate of this year’s first quarter GDP is scheduled for release on April 30. “GDP isn’t expected to have gone up by as much in the first three months of 2010” compared with Q4 2009, The Wall Street Journal reported today. Early estimates for 2010’s first quarter GDP range from 2.5% to 3.0%, according to the article.
IS THE HOUSING MARKET RECOVERING?
The Fed is talking about an exit strategy these days, including selling its existing stockpile of mortgage securities, which it purchased in large quantities over the past 18 months to boost the sagging fortunes of the housing industry. It may be coincidence, but the Obama administration is reportedly rolling out a new program to address the still-high rate of foreclosure in the residential housing market.
JOBLESS CLAIMS IMPROVE, BUT THAT’S (STILL) ONLY HALF THE BATTLE
This morning’s update on initial jobless claims suggests that our previous anxiety over the recent rise in new filings for unemployment benefits was a false alarm. Good thing, too, since being right would have meant looking at a much bigger problem. Fortunately, the Labor Department reports today that new claims dropped last week to 442,000, or down 14,000 from the week before. Except for the first week of February, that’s the lowest reading since this data series peaked in March 2009. A collective sigh is in order, or so it seems.
WHO IS JANET YELLEN?
The White House says that San Francisco Fed president Janet Yellen is President Obama’s leading candidate for vice chairman of the Fed—the number two spot after Fed Chairman Bernanke. The open position comes by way of the retiring Fed governor Donald Kohn, who plans to step down in June. Meantime, Yellen says she’ll accept if nominated.
EURO WEAKNESS, DOLLAR STRENGTH & THINKING ABOUT ZERO
The debt problems of Greece and Portugal are punishing the euro, The Wall Street Journal reports. That’s another way of saying that the U.S. dollar is rising sharply against the euro. “”Sovereign credit worries in Europe and Japan are leading to some general risk aversion,” Michael Malpede, a market analyst at Easy Forex in Chicago, tells Reuters.
DURABLE GOODS ORDERS RISE FOR THIRD STRAIGHT MONTH
This morning’s update on new orders for durable goods reminds that the cyclical forces of recovery are bubbling. It’s still unclear how deeply and how soon the recovery will spill over into the labor market. As long as that uncertainty persists, there’s some doubt about strength of the economic rebound overall. Meantime, it’s clear for the moment that the trend in the manufacturing sector continues to claw its way back from the steep losses of 2008.
A RAINBOW OF RISK FACTORS
In the six decade-history of modern finance, the basic lesson is that risk matters. Managing risk, in other words, is more productive than chasing return. But what exactly is risk? Alas, there are no easy answers, but at least there’s a beginning.
Financial economics has been uncovering what risk means for decades, refining our understanding of financial hazard and, more importantly, how it’s priced and what it all implies for portfolio design. At the basic level, market risk—beta—is the elephant in the room. Unless you’re willing to hold extreme portfolios—a handful of securities, for instance—beta will cast a long shadow over risk and return.