It’s higher than the initial advance estimate (just barely) but considerably lower than the second guess. But no matter how you wish to interpret today’s third and final measure of second-quarter GDP, there’s no getting around the fact that the general trend with economic measures broad and narrow of late is down.
The real, annualized increase in GDP was 2.6% during April through June, the government reported, down from 5.6% in the first quarter. The fact that there’s a slowdown in our midst is old news. The bigger question is what investors should do, if anything? In search of an answer, everyone starts with the same handicap: ignorance about what’s coming. That, as they say, is the nature of risk.
The first step in mitigating that risk is diversification. The devil, of course, is in the details. With that in mind, we direct you to the dark angel’s scorecard. As always, it’s heavy on offering clarity about what’s already passed and silent on the morrow….

2 thoughts on “THE VIEW FROM 29,000 FEET (AGAIN)

  1. Chris

    First, I’d like to say that I love the site and read it routinely.
    You may have touched on this and I may have simply missed it, but any ideas or crunched any numbers (or aware of anyone that has) regarding the correlations of the different asset classes? The WSJ is abuzz with commentators trying to say that commodities and real estate are “acting like equity.” Any idea on how true this is, as classes?
    I buy the argument that many of these asset classes, whether foreign stocks or U.S. bonds or REITs are acting more and more alike, if for no other reason that they are gobbled up by essentially the same investors subject to the same shocks (not that this is the only argument made), but it appears increasingly difficult to get the same diversification benefits. Especially since I have never been a big fan of commodities, and Amaranth and the class’s return (and giant STD) don’t make me any more excited to add it in.

  2. Jim Picerno

    Thanks for reading. As for correlations between commodities and other asset classes, I posted a piece back on
    March 22, 2006 that pointed out that the diversification benefits of commodities relative to stocks and bonds was fading. (I’ll be updating this shortly, by the way.)
    Of course, it’s worth pointing out too that correlations between any two asset classes wax and wane over time. Correlations have cycles in other words. The problem at the moment regarding commodities is that everyone’s piled in. Who was buying several years ago when the correlations were lower? Relatively few.
    My guess is that commodities will correct more, at which point correlations will fall. Of course, at that point, commodities will be a hard (or at least a harder) sell again. So it goes.
    Diversification is a powerful tool, but it’s not always compelling. The reason is partly because a diversified portfolio means always owning something that’s losing. Owning low and non-correlated assets works wonders over time, but in the short run it doesn’t carry the allure of chasing hot returns.

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