The long Labor Day weekend in the US is fast approaching and that means one thing at the world headquarters of The Capital Spectator: a 120-hour coffee break has commenced for all employees. The usual schedule resumes next week, on Tuesday, September 2, when the staff punches the digital time clock once again. Meanwhile, to working stiffs everywhere… Cheers!

Tomorrow’s update on US personal consumption spending for July is expected to show a rise of 0.3% vs. the previous month, based on The Capital Spectator’s median econometric point forecast. That’s a slight deceleration in growth vs. June’s 0.4% increase.
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Morningstar got a lot of pushback from readers in the wake of John Rekenthaler’s recent essay that asked a loaded question: “Do Active Funds Have a Future?” His short answer: “Apparently not much.” Unsurprisingly, advocates of active management responded with gales of criticism, triggering a bit of a mea culpa from Rekenthaler, a Morningstar veteran and generally speaking one of the better analysts in the mutual fund game. He writes in a follow-up piece: “Rather than pit active funds against passive funds, I should distinguish between deserving funds and those that are not. I agree.”
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The S&P 500 briefly traded above 2000 yesterday for the first time. The all-time high inspired some analysts to announce (not necessarily for the first time) that the stock market was in bubble territory. But there’s a reason for the bull market: economic growth. We can debate if the growth is sustainable or even genuine–some say it’s an artifact of central bank liquidity. But that’s a separate issue. Growth is still growth, and the market’s reacting to current conditions accordingly.
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The surprisingly strong rebound in second-quarter GDP growth will suffer a substantial bout of deceleration in the third quarter, according to the Capital Spectator’s median econometric nowcast. The US economy is projected to increase 2.5% (real seasonally adjusted annual rate) in the July-through-September period, down from the 4.0% rate reported by the Bureau of Economic Analysis (BEA) for Q2.
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● Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations
By Tobias E. Carlisle
Summary via publisher, Wiley
Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations is a must-read exploration of deep value investment strategy, describing the evolution of the theories of valuation and shareholder activism from Graham to Icahn and beyond. The book combines engaging anecdotes with industry research to illustrate the principles and methods of this complex strategy, and explains the reasoning behind seemingly incomprehensible activist maneuvers. Written by an active value investor, Deep Value provides an insider’s perspective on shareholder activist strategies in a format accessible to both professional investors and laypeople. The Deep Value investment philosophy as described by Graham initially identified targets by their discount to liquidation value. This approach was extremely effective, but those opportunities are few and far between in the modern market, forcing activists to adapt.
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The three-month average of the Chicago Fed National Activity Index (CFNAI) is expected to decline slightly +0.09 in Monday’s update for July, according to The Capital Spectator’s median econometric forecast. The projection is marginally below the previously released +0.13 reading for June, which reflected above-average economic growth relative to the historical trend. Only values below -0.70 indicate an “increasing likelihood” that a recession has started, according to guidelines from the Chicago Fed. Based on today’s estimate for July, CFNAI’s three-month average is expected to remain at a level that’s historically associated with growth at a moderately above-trend pace.
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This week’s upbeat data on housing has inspired a new round of charges that the Federal Reserve “is clearly behind the curve.” Economist Scott Grannis proclaims: “Great news: the Fed is likely to raise rates sooner rather than later.” He explains that “nominal GDP has been growing at about a 4% pace for most of the past four years, yet the Fed has kept short-term rates extremely low. This is unsustainable.”
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Today’s weekly update on new unemployment filings is a fresh reminder that it’s hard to be a pessimist on the US labor market these days. Jobless claims fell a healthy 14,000 last week to a seasonally adjusted 298,000—close to last month’s post-recession low of 279,000. More importantly, the longer-term trend continues to look encouraging. Although the short-term volatility for this series can be confusing, the big-picture view is quite clear: layoffs are winding lower. That’s been true for some time and today’s releases offers another dose of the same.
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Looking for recessions is an obsession for some folks. Every wobbly update, every release of bad news is a new excuse to see trouble around the next bend. But crying fire in the theater of business-cycle analysis has been a fruitless pursuit for several years and there’s no sign in the current lineup of data that suggests the near-term future will be any different. The macro profile for the US continues to trend positive in the July update of a diversified set of 14 economic and financial indicators. In fact, the near-term projections for the overall trend reflect a stronger run of data for the months ahead.
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