May 18, 2013
Book Bits | 5.18.13
● From a Market Economy to a Finance Economy: The Most Dangerous American Journey
By A. Coskun Samli
Summary via publisher, Palgrave Macmillan
Dwindling innovation and deteriorating economic conditions are caused by a major force, a systemic shift in the American economy. In this gripping book, Dr. Samli makes the case that the US economy is shifting for the worse, tilting towards a finance-driven economy, and argues that investing in innovation will bring us out of the recession and back to a successful, market-driven economy.
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May 17, 2013
Chicago Fed Nat'l Activity Index: Apr 2013 Preview
The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to rebound moderately to +0.20 in the April report, according to The Capital Spectator's average econometric forecast. That compares with CFNAI's -0.01 three-month average for March. A value below -0.70 indicates an "increasing likelihood" that a recession has started, according to guidelines from the Chicago Fed. Based on today's estimates, CFNAI's three-month average is projected to remain at levels that historically are associated with growth in the update for April, which is scheduled for release on Monday, May 20.
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US Economic Profile | 5.17.13
Economic updates in recent weeks suggest that the economy is facing new headwinds. Notably, Industrial production and housing starts slumped in April. The latest data points may imply trouble down the road, but the case is still weak for arguing that the economy's suffering in the here and now. Indeed, a big picture review of the business cycle betrays few signs of stress, based on today’s update of The Capital Spectator's Economic Trend Index (ETI) and Economic Momentum Index (EMI). In other words, the odds are low that the NBER will eventually declare April as the start of a new recession, based on the current data sets available.
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May 16, 2013
April's Pinch Gets A Bit Tighter
It’s a rough morning for US economic news. Initial jobless claims jumped sharply last week and housing starts in April suffered the biggest monthly decline in six years. Overall, it’s pretty ugly, but it’s not yet fatal for the business cycle, or so a broad review of indicators still suggests. We could be slipping over the edge, but we could just as easily be stuck in another one of the temporary slow patches that’s plagued the recovery from time to time since the Great Recession ended. Clarity is coming, even if it’s tempting to assume the worst in the wake of today’s updates. But before we do anything, let’s take a closer look at the data.
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Now It's Really Time For A Flat Tax
If the scandal over monitoring political groups that forced the acting commissioner of the IRS to resign this week doesn't inspire dismantling the tax-collecting agency and introducing a flat tax, nothing will. It won't happen, of course. But it should. There are easier, more efficient ways to collect taxes than allowing bloated bureaucracies to act with near impunity as a quasi-government within a government. If that's not painfully clear at this stage, if it's not obvious that the IRS is too big, too powerful, and oversees an impossibly convoluted set of tax laws, it's hard to imagine that we'll ever engage in meaningful reform of the US tax system, which is in dire need of reforming.
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May 15, 2013
Industrial Output In April Slumps The Most In Eight Months
Industrial production fell more than expected last month, sliding 0.5% in April. That’s a bit deeper than economists projected, and it's an even bigger drop relative to the modest gain that my econometric modeling suggested. But based on today's release, it's obvious that April was a rough month for the industrial sector. The worst, in fact, since last August. The manufacturing component of industrial activity didn’t fare much better, slipping 0.4% last month. That’s the second consecutive monthly retreat for manufacturing, according to this series. It’s also the first time that manufacturing in this data set slumped for two months running since 2009.
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US Housing Starts: April 2013 Preview
Housing starts are expected to total 1.013 million in April in tomorrow’s update, based on The Capital Spectator's average econometric forecast (seasonally adjusted annual rate). That’s a modest decline vs. the previously reported total of 1.036 million for March. Meanwhile, The Capital Spectator's projected gain for April is well above the numbers in several consensus forecasts drawn from surveys of economists.
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Surprising Asset Allocation Results That Really Aren't Surprising
Monday's article on the average to above-average results that usually describe a passive allocation to all the major asset classes brought charges of foul play from some quarters. A few critics said I was cherry picking the data; one claimed that I was intentionally manipulating the numbers so as to engineer a favorable result for a benchmark of broad asset allocation vs. the universe of its actively managed equivalent. How, they wondered, could a passive strategy that holds everything compare so favorably on a regular basis? In fact, it would be surprising—impossible, in fact—if the results were otherwise.
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May 14, 2013
US Industrial Production: April 2013 Preview
Tomorrow's report on industrial production for April is projected to post a 0.2% gain, based on The Capital Spectator's average econometric forecast (seasonally adjusted). The expected increase represents a modest slowdown vs. March’s 0.4% rise. Meanwhile, the Capital Spectator’s average projection for April contrasts with expectations for a drop in industrial production via consensus forecasts from economists.
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May 13, 2013
Retail Sales: Slow Growth In April
Whenever a key economic indicator shows weakness in the latest monthly update, the usual worries arise. No explanation required in the current environment and so today’s retail sales report for April will draw a fresh round of dark predictions from the usual suspects. And perhaps they’ll be right this time. But for now, it’s still premature to argue that the modest growth train has derailed, even if it looks that way by focusing on the latest data point.
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Boring, Diversified, And (Still) Tough To Beat
Most investors suffer high fees and earn low returns. There are no sure-fire solutions, at least for the second problem, although playing defense by way of investing in a broadly diversified portfolio across the major asset classes with low-cost index products is a good start. This isn't a silver bullet, but history suggests you can do quite well with this simple strategy. And if you add in a bit of rebalancing, you'll probably do moderately better still. Not tomorrow, necessarily, but through time the odds usually stack up in your favor with this strategy. This basic advice drives the financial industry crazy because it sounds incredibly easy and doesn't cost much. It's hard to charge a lot for a strategy that requires no skill or forecasting prowess. But the results speak for themselves.
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May 11, 2013
Book Bits | 5.11.13
● Political Bubbles: Financial Crises and the Failure of American Democracy
By Nolan McCarty, Keith T. Poole & Howard Rosenthal
Excerpt via publisher, Princeton University Press
By political bubble, we mean a set of policy biases that foster and amplify the market behaviors that generate financial crises. Political bubbles are procyclical. Rather than tilting against risky behavior, the political bubble aids, abets, and amplifies it. During a financial bubble, when regulations should be strengthened, the political bubble relaxes them. When investors should hold more capital and reduce leverage, the political bubble allows the opposite. When monetary policy should tighten, the political bubble promotes easy credit.
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May 10, 2013
Macro-Markets Risk Index | 5.09.2013
A markets-based profile of US economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (May 9) at 16.3%--well above the danger zone of 0% and within the 10%-to-16% range that's prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.
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US Retail Sales: April 2013 Preview
Monday’s scheduled report on US retail sales for April is projected to remain unchanged vs. the previous month, according to The Capital Spectator's average econometric forecast. That compares with a 0.4% decline reported by the Census Bureau for March. Meanwhile, the Capital Spectator's average projection for April is slightly above a consensus forecast based on a recent survey of economists.
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May 9, 2013
Another 5-Year Low For Jobless Claims
It’s the gift that keeps on giving. Initial jobless claims slipped again last week, retreating by 4,000 to a seasonally adjusted 323,000—the lowest since January 2008. The latest drop is slight, but the fact that claims fell to another multi-year low for the week through May 4 is significant. The main takeaway in today’s report: the odds continue to look favorable for modest growth in the labor market.
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The Chronic Crisis That Is The Euro
Lars Seier Christensen, the co-chief executive of Saxo Bank, thinks it's only a matter of time before the euro passes into history as another failed experiment in the dark art of monetary machinations."It is the renewed reality for traders and investors," he advised at a Bloomberg conference last week in London. "The euro is a doomed currency and a lot of people knew that already when it was introduced. Rationality needs to return to the Eurozone. If it doesn't, recession will turn into depression."
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May 8, 2013
A Reality Check For Two Employment Indicators
If the US was slipping into a recession, would the evidence be conspicuous in the labor market data? History says that's a good bet. In fact, it's inconceivable that the country could go into a macro hissy fit without a sharp downturn in jobs creation. Anything's possible, of course, but bolts of unprecedented behavior from the blue are a rare breed in economics. That's good news these days because the trend still looks encouraging on this front. To be precise, the so-called establishment survey from the Labor Department continues to hold up, providing a relatively steady year-over-year growth rate of just under 2%. The household survey, by contrast, looks relatively wobbly, although this series is now looking a bit stronger too.
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May 7, 2013
The Whole & The Parts
One of the biggest challenges for successfully managing asset allocation comes from a familiar source: you. There are many resources to tap for excelling on the technical side of portfolio management. From researching fund products to sorting market valuations to dissecting risk and return, there are countless analytical tools at your disposal in the information age. But no matter how many web sites you visit, no matter how many data points you crunch, managing your behavioral biases isn't getting any easier.
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May 6, 2013
Q2:2013 US GDP Nowcast | 5.6.2013
Second-quarter US GDP is expected to increase 2.9% (real seasonally adjusted annual rate), according to the The Capital Spectator’s average econometric nowcast. This is an initial estimate that uses limited Q2 data and so the projection is a preliminary review that will be revised several times as new economic data arrives. The final nowcast will be published shortly before the official report for Q2 GDP, which is scheduled for release on July 31, when the Bureau of Economic Analysis (BEA) publishes the first of three estimates.
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May 4, 2013
Book Bits | 5.04.13
● The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market
By Michael G. Pento
Summary via publisher, Wiley
America is rapidly approaching a financial apocalypse far exceeding the devastation caused by the 2007 housing bubble burst and subsequent Great Recession. The country is in the final stages of the biggest asset bubble in history: U.S. Treasury debt. When this bubble bursts, a massive interest rate shock will send the U.S. government and the consumer economy into bankruptcy, an event with repercussions that will be felt throughout the global economy. In this economic expert’s new book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market, Michael G. Pento explains how the bubble was created, what we can do to ameliorate the crisis and how investors can protect themselves regardless of what economic condition prevails.
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May 3, 2013
April Payrolls Rebound
Maybe the spring slowdown isn’t as slow as we thought. Private-sector payrolls increased by a net 176,000 in April on a seasonally adjusted basis, or roughly in line with expectations, the Labor Department reports. In addition, March’s initially estimated 95,000 increase has been substantially revised up to a 154,000 gain. In other words, the odds still look favorable for expecting modest growth in the labor market.
