The pace of jobs creation in April improved for the third month in a row, according to the ADP Employment Report. “The 220,000 US private sector jobs added in April is well above the twelve-month average,” noted ADP’s president and chief executive officer. “Job growth appears to be trending up and hopefully this will continue,” said Carlos Rodriguez.
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What’s your return expectation for your investment portfolio? That’s a tough question to answer because there are many ways to estimate future performance. Meanwhile, let’s not forget that every forecast is probably wrong in some degree and so it’s a good idea to crunch the numbers from multiple angles. As a first step with modeling multi-asset-class strategies, I like to begin with what’s known as equilibrium risk premiums.
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Here’s the second installment of excerpts from my new book Nowcasting The Business Cycle: A Practical Guide For Spotting Business Cycle Peaks Ahead Of The Crowd. Earlier this month I published the Preface.
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Private nonfarm payrolls in the US are projected to increase 198,000 (seasonally adjusted) over the previous month in tomorrow’s April release of the ADP Employment Report, based on The Capital Spectator’s median econometric point forecast. The expected rise is slightly below a pair of consensus forecasts via surveys of economists.
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US economic growth will slow in this year’s first quarter, according to a range of projections. The consensus view via the Wall Street Journal’s April survey of economists anticipates a 1.5% annualized gain for real GDP in the first three months of this year—a substantially lower pace than the reported 2.6% rate for last year’s fourth quarter. The Capital Spectator’s revised median nowcast for Q1:2014 GDP also reflects a slowdown, but a considerably milder one vs. the crowd’s outlook. In fact, today’s updated outlook for 2.4% (real seasonally adjusted annual rate) is modestly above the previous 2.0% nowcast that was published here on March 25. What’s changed? The economic numbers have improved since our last update.
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● Emerging Markets in an Upside Down World: Challenging Perceptions in Asset Allocation and Investment
By Jerome Booth
Summary via publisher, Wiley
The world is upside down. The emerging market countries are more important than many investors realise. They have been catching up with the West over the past few decades. Greater market freedom has spread since the end of the Cold War, and with it institutional changes which have further assisted emerging economies in becoming more productive, flexible, and resilient. The Western financial crisis from 2008 has quickened the pace of the relative rise of emerging markets – their relative economic power, and with it political power, but also their financial power as savers, investors and creditors.
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Theory and practice in money management have a rocky relationship. What looks good on paper often suffers a difficult and even a fatal transition to the real world for several reasons, including trading costs, human error, and the ever-present burden of an uncertain future. But some models do better than others as portfolio strategies. At or near the top of this short list is what’s known as the global minimum variance portfolio (GMVP), which by design is a mix of assets that minimizes volatility. The success of this strategy violates modern portfolio theory, which tells us to build “optimal” portfolios, i.e., holding a combination of assets that maximizes expected return at a given level of risk. But many empirical studies show that portfolios that focus on minimizing volatility generate superior out-of-sample results. As such, it’s useful to consider how your current portfolio compares if you were to reweight it to reflect a GMVP strategy.
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The latest batch of housing numbers offer a mixed view at best for this key sector. The March data for new housing starts and residential building permits are above their recent lows, but the gains are sluggish compared to the rates of increase from 2011 through early 2013. And that’s the good news vs. home sales, which have been sliding recently. Purchases of existing houses last month slumped to the lowest level in nearly two years while sales of new homes in March dropped to a nine-month low.
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It’s widely recognized that the manufacturing sector is highly sensitive to the business cycle. Employment trends in this corner tend to react earlier to macro distress compared with payrolls generally. As a result, monitoring this slice of the labor market offers a valuable benchmark for evaluating the macro trend. The good news is that these numbers point to economic growth for the foreseeable future.
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Has the slow decline in the pace of consumer price inflation in the US hit bottom? If so, is that good news for the economy? A cautious “yes” applies in both cases, albeit with the usual caveats. Looking at the core reading of consumer price inflation through last month suggests that the price trend has a floor around the 1.6% rate. We won’t know for sue until future reports arrive, but it’s getting easier to think that we’ve seen the trough. If so, that’s an encouraging transition for the economic outlook.
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