In the hierarchy of investment decisions, asset allocation is at or near the top of the list of variables that are strategically relevant for diversified portfolios. There are a number of studies telling us so, starting with the influential Brinson study from 1986—“Determinants of Portfolio Performance”—and its 1991 update. The basic message: asset allocation matters.
THE WEATHER FACTOR
“Everybody talks about the weather but nobody does anything about it,” goes the famous quip (written, by the way, by Charles Dudley Warner and quoted by Mark Twain in a lecture). The connection between the weather and the economy is popular among the chattering classes these days. There’s some who think that the winter storms from earlier this month have suppressed business and consumer activity to a degree and so March will bring a stronger bit of growth than we’d otherwise see. In turn, that implies that we shouldn’t get too uptight about data dispatches for this month, as we did yesterday with regards to weekly jobless claims.
A WHIFF OF DEFLATION IN THE CPI REPORT
Headline inflation last month rose a modest 0.2%, the Bureau of Labor Statistics reported today. That’s been the pace each and every month since last September. Over the past year, inflation was a mild 2.6%. On the surface, it’s all quite humdrum. But wait—what’s this? There’s an outlier in the core inflation trend for January: CPI less food and energy slipped by 0.1%.
THE FIRST OF MANY RATE HIKES BY THE FED
We knew it was coming, but we didn’t know when. Now we know. After the stock market closed today in New York, the Federal Reserve announced it was raising its discount rate to 0.75% from 0.50%. This is the rate that the Fed charges on short-term loans to banks. Think of it as a down payment on the future.
WHERE ARE THE CUSTOMER’S RETURNS?
Fred Schwed’s classic Where Are the Customers’ Yachts: or A Good Hard Look at Wall Street (Wiley Investment Classics)
There are many answers, of course, ranging from high fees to poor decisions to thinking that beating the market is easy. Whatever the reason, it’s no secret that the average investor needs help in earning a decent rate of return on his investments. It all looks easy from the vantage of history, but real-world results tend suggest otherwise.
ANOTHER JUMP IN JOBLESS CLAIMS
It’s still touch and go with weekly jobless claims, and it probably will be for some time. We’re in a transition phase, or so it seems. The question is what will be the outcome? As we write, we’re inclined to think the odds are evenly split between a resumption in the near future of the general decline that’s been in force vs. a change for the worse.
SEARCHING FOR ECONOMIC PERSPECTIVE AMID A SEA OF NUMBERS
There’s no shortage of economic data in the 21st century. Perspective, however, isn’t always easy to come by. The digital age is a wonder for dispensing statistics, but the central challenge of digesting the endless reports, surveys, numbers and trends requires assistance.
HOUSING & INDUSTRIAL PRODUCTION CONTINUE TO RECOVER
The staying power of the current rebound remains an open question, but the data du jour at least confirm that a recovery is underway. It’s a precarious rebound, but the economy must walk before it can run.
THE TROUBLE WITH MACROECONOMICS
Hyman Minsky is a popular guy these days. An economist who studied under Joseph Schumpeter, Minsky has become the dismal scientist of choice in the wake of the Great Recession as the man who told us so.
FROM RUSSIA WITH CAVEATS
Is it me or is there a growing supply of video feed available gratis on the strategic and tactical investment topics du jour? In any case, the Russia Forum 2010 from last week offers some intriguing commentary by Marc Faber, Nassim Taleb and others (hat tip to Mebane Faber). Faber’s set-up question: How would you invest $100 million today for the next 12 months?