● The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order
By Paul Vigna and Michael J. Casey
Review via The Washington Post
To their ample credit, Paul Vigna and Michael J. Casey, veteran Wall Street Journal reporters, resist the common temptation to hype their trendy subject. They’ve written a reported explainer that patiently documents bitcoin’s rise, acknowledges its flaws and highlights its promise. Smart and conscientious, “The Age of Cryptocurrency” is the most thorough and readable account of the short life of this controversial currency.
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US GDP growth fell short of expectations in last year’s fourth quarter, the government reports. National output increased 2.6% in the final three months of 2014 vs. the previous quarter (seasonally adjusted annual rate). The consensus forecast was looking for something better—a 3.2% rise, according to Econoday.com’s survey of economists.
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Housing remains a weak spot for the US economy, as suggested by yesterday’s news of a bigger-than-expected tumble in December’s Pending Home Sales Index, a forward-looking measure of demand. The National Association of Realtors (NAR) said that the benchmark slid 3.7% last month. The year-over-year trend looks better, with the latest data showing the fourth straight month of growth in annual terms. There’s also room for mild optimism due to the recent fall in mortgage rates and upbeat numbers in the labor market. But as we’ll see, the sluggish profile in housing of late reflects isn’t limited to pending sales data.
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● US jobless claims drop sharply to near 15-year low | Reuters
● US Consumer Comfort Index Rises to Highest Since July 2007 | Bloomberg
● US Pending Home Sales Unexpectedly Tumble 3.7% In December | RTT
● Eurozone Inflation Falls to Lowest Level Since 2009 | NY Times
● Eurozone Leading Index Higher For Second Straight Month | Conference Board
● Germany Retail Sales Growth Slows In Dec | Alliance/M-star

After reading today’s weekly update on jobless claims the Fed’s comment yesterday that “economic activity has been expanding at a solid pace” carries more weight. Indeed, new filings for unemployment benefits dropped by a staggering 43,000 last week to a seasonally adjusted 265,000—the lowest in nearly 15 years. The shortened business week due to the Martin Luther King holiday no doubt played a role, but for the moment it’s hard to spin today’s numbers into anything other than a positive sign for the economy.
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The Federal Reserve continues to signal that it will start raising interest rates later this year, according to yesterday’s FOMC statement. But the Treasury market begs to differ. The benchmark 10-year yield fell to 1.73% yesterday, the lowest since last May. Notably, the 2-year yield, considered to be the most sensitive to rate expectations, is also trending lower again, slipping to 0.50% yesterday.
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● Fed upbeat on U.S. economy, cites strong job gains | Reuters
● German Unemployment Drops as Growth Strengthens | Bloomberg
● Eurozone M3 Growth Accelerates; Loan To Private Sector Falls | RTT
● Japan Dec Retail Sales Up for 6th Month To Highest Since Mar | MNI
● 401(k) balances rise, but lag market gains | MarketWatch

Suddenly business as usual for small-cap investing is in need of a makeover, thanks to a new research paper (a landmark study for asset pricing) that revisits, reinterprets and ultimately revives the case for owning these shares — after controlling for quality, i.e., “junk”. Cliff Asness of AQR Capital Management and several co-authors have dissected the small-cap effect anew and discovered that there is a statistically robust small-cap premium across time after all, but only for companies that aren’t wallowing in financial trouble of one kind or another. The paper’s title says it all: “Size Matters, If You Control Your Junk.”
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The stock market crashed; it collapsed; it tanked. Or as MarketWatch.com described yesterday’s 1.34% decline: “S&P 500 plunges from major resistance.” Oh, my… that sounds serious. But before we dig a bunker, let’s put yesterday’s price action into perspective. Was the slide unusual? Well, maybe, although “unusual” depends on your expectations for volatility. What does that mean? Depends on who’s speaking. But no worries. A quick tour of market stats will (hopefully) clear up the ambiguity.
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The site’s servers are having a bit of a hissy fit this afternoon and so the computer seems to have eaten today’s posts. I’ll repost shortly, but there’ll probably be some broken links. Apologies…