Reviewing 2023 results for the major asset classes reflects a long list of winners, with one conspicuous downside outlier: commodities. Amid widespread gains in global markets last year, the red ink in raw materials stands out. Does that create the setup for a rebound in 2024?
Macro Briefing: 16 January 2024
* Trump wins big in Iowa caucus, first GOP vote of 2024 election campaign cycle
* Houthi rebels continue to attack shipping in Red Sea
* Iran launches missile strikes on northern Iraq and Syria
* Taiwan election raises fears of greater tensions with China
* US economy on track for more stimulus if Congress OKs tax deal
* Tax cuts worth trillions of dollars are on the line in this year’s elections
* Progress on taming inflation expected to slow, predicts Atlanta Fed chief
* US producer prices fall for third straight month in December:
Martin Luther King Jr. Day: 15 January 2024
“True peace is not merely the absence of tension; it is the presence of justice.”
–Martin Luther King, Jr.
Book Bits: 13 January 2024
● Beyond the ESG Portfolio: How Wall Street Can Help Democracies Survive
Marcos Buscaglia
Summary via publisher (McGraw Hill)
How to be confident that your ESG investments serve your clients’ needs—and take Democracy into account. It is easy to unintentionally finance autocrats by using benchmark indices, which often include bonds and stocks of countries slipping down the democracy rankings. Despite best intentions, an investor may be investing in Russia’s invasion of Ukraine or supporting a leader like Hugo Chavez without realizing it. Marcos Buscaglia, a Latin America economist, emerging markets expert, and an emerging voice on the relationship between democracy and markets, argues that the current ESG criteria has brought environmental and social standards into investment decisions, but its approach to democracy needs to be refined.
10-Year US Treasury Yield ‘Fair Value’ Estimate: 12 January 2024
The US 10-year Treasury yield continues to fall, which is narrowing the gap between the higher market rate and a lesser “fair-value” estimate, based on the average of three models run by CapitalSpectator.com.
Macro Briefing: 12 January 2024
* US and UK launch retaliatory air strike on Iranian-backed Houthis in Yemen
* US government shutdown risk is rising ahead of Jan. 19 deadline
* China deflation persists: consumer prices fell for third straight month
* US credit card delinquencies rise to highest level since 2012
* Some firms on Wall Street block new bitcoin ETFs on their trading platform
* Hope for 2024 revival in value stocks springs eternal… again
* US consumer inflation’s 1-year change ticked up in December, but…
* Core CPI eased below 4% year-over-year for the first time since May 2021:
US housing costs continued to post the biggest impact on consumer inflation in December, but as Yahoo Finance reports: “There seem to be some hopeful signs in the latest data, experts said.” Meanwhile, “On a year-over-year basis, shelter inflation remained high — up 6.2% over the last year. The optimistic take: that’s lower than November’s 6.5% year-over-year figure and March’s peak of 8.2%.” Omair Sharif, president of Inflation Insight, predicts: “We’re on the cusp of another step down in shelter inflation.”
Research Review | 11 January 2024 | Fat Tail Distributions
Optimal Portfolio Choice with Fat Tails and Parameter Uncertainty
Raymond Kan (U. of Toronto) and Nathan Lassance (LFIN/LIDAM)
December 2023
Existing portfolio combination rules that optimize the out-of-sample performance under estimation risk are calibrated assuming multivariate normally distributed returns. In this paper, we show that this assumption is not innocuous because fat tails in returns increase the out-of-sample mean and variance of sample portfolios relative to normality. Consequently, portfolio combination rules should allocate less weights to the sample mean-variance portfolio and the sample global minimum-variance portfolio, and more weight to the risk-free asset, than the normality assumption prescribes. Empirically, accounting for the impact of fat tails in the construction of optimal portfolio combination rules significantly improves their out-of-sample performance.
Macro Briefing: 11 January 2024
* No rate cuts until inflation at 2% on ‘sustained basis’: Fed’s Williams
* SEC approves rules to permit bitcoin ETFs
* China will make foreign investment easier, says vice premier
* US consumer spending growth will slow in 2024, economist predicts
* Google and Amazon announce layoffs
* Copyright challenges threaten to create serious headwinds for OpenAI
* Global renewable energy capacity rose 50% in 2023, but more is needed: IEA
Managing Expectations For December’s Consumer Inflation Report
There’s a lot riding on tomorrow’s US consumer inflation report for December for markets, which are pricing in relatively upbeat news. Quite a lot of the stock market’s upbeat profile recently is closely linked to forecasts that the worst has passed for inflation, which leaves room for the Federal Reserve to start cutting interest rates. In that case, the market has a green light to reprice equity prices up, which it’s been doing in no trivial degree in recent months. Meanwhile, US Treasury yields have fallen recently, largely for the same reason. Tomorrow’s CPI report will provide a reality check on the rosy assumptions of late.
Macro Briefing: 10 January 2024
* Houthi militias launch biggest attack to date on ships in Red Sea
* US inflation expected to ease further in Thursday’s report for December
* Will politics be a factor for Fed policy this year?
* World Bank forecasts slowest growth since pandemic in 2024
* BlackRock, world’s largest asset manager, announces job cuts
* U.S. trade deficit unexpectedly narrowed in November:
