● Juggling with Knives: Smart Investing in the Coming Age of Volatility
By Jim Jubak
Review via Kirkus Reviews
Investment guru Jubak analyzes the growing volatility of both the financial markets and everyday life (jobs, housing, an aging population, climate change, etc.) and offers strategies for profiting in a topsy-turvy world… In this informative, often entertaining book, he details the many ways in which frequent zigzags since 2000 in the financial markets—especially abrupt changes of acceleration and direction—have combined with events in the housing, job, and retirements markets to increase our expectations about the degree of volatility in everyday life. Heightened volatility is now “embedded” in the stock market, writes Jubak.
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US economic output weakened in last year’s fourth quarter, according to this morning’s initial estimate of GDP. The pace decelerated to 0.7%, down from Q3’s 2.0% rise (seasonally adjusted annual rate). That’s the slowest pace since last year’s first quarter. The softer trend was broad based, showing up in virtually every corner of the major components in the calculation of the GDP data. The question now: Is the Q4 stumble a sign of things to come or just a slow patch that, as in previous years, will quickly right itself via stronger growth?
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A New York Times op-ed piece from earlier this week has reignited discussion about housing and the Federal Reserve as factors in the 2008-2009 Great Recession. Minds will differ on exactly how much of the financial crisis/economic contraction was triggered by the housing crisis. As for assigning blame to the Fed’s monetary policy, there’s a popular but misleading narrative that deserves attention: the central bank wasn’t culpable because it was cutting interest rates in late-2007 through 2008. True, but the Fed still deserves criticism based on other measures of monetary policy during that period—measures that arguably offer more insight for quantifying the central bank’s influence on the business cycle and for providing insight going forward for assessing macro risk.
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● US Jobless Claims Fall More Than Expected | Bloomberg
● US Durable-goods-orders slide in Dec, point to Q4 GDP slump | MarketWatch
● US Pending home sales rise just 0.1% in Dec | CNBC
● KC Fed Mfg Index Now Down 11 Straight Months through Jan | 24/7 Wall St
● Euro zone inflation jumps in Jan, core inflation up too | Reuters
● Bank of Japan Introduces Negative Interest Rate | RTT
● Zika Virus ‘Spreading Explosively’ in Americas, W.H.O. Says | NY Times

There’s good news and modestly bad news in today’s weekly update on initial jobless claims. Let’s start with the positive. New filings fell 16,000 last week to a seasonally adjusted 278,000. That’s an encouraging sign for two reasons: the latest slide pulls claims back from the six-month high in the previous update and pushes filings closer to the multi-decade low of 255,000 from last summer. Unfortunately, the latest decline isn’t enough to keep the year-over-year comparison from rising—the first annual increase, in fact, since last August.
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The Federal Reserve kept the target Fed funds at the 0.25%-to-0.50% range in yesterday’s policy announcement. The Treasury market’s reaction was muted, with yields sticking close to the levels we’ve seen all week. But one curious development that’s worth keeping an eye on in the days ahead: the modest rise of late in the Treasury market’s implied inflation forecast, which continued to tick higher yesterday (Jan. 27), based on daily data via Treasury.gov.
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● Fed acknowledges slower growth, leaves rates unchanged | WaPo
● New US home sales surge in Dec to 10-mo high | Bloomberg
● US mortgage applications rise 3 weeks straight | HousingWire
● UK Q4 GDP Growth Accelerates On Stronger Services | MNI
● Saudi Arabia Keeps Pumping Oil, Despite Risks | NY Times

Recession chatter is on the rise… again. And for an obvious reason: there are fresh signs of weakness in several key indicators. But there’s also ample evidence of strength, at least for the moment. How can we separate the signal from the noise? Carefully, methodically, and with a healthy dose of skepticism when we’re told that a single number marks the tipping point. Let’s dig slightly deeper into these guidelines via a summary of best practices for analyzing the mother of all known risk factors.
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● PMI: US Service sector expands at slowest pace since Dec 2014 | Markit
● US consumer confidence inches high in Jan | Conf Board
● S&P Case-Shiller: US home prices continue to rise in Nov | S&P
● Redbook: US Retail Sales Fall 1.4% in First 3 wks of Jan | WSJ
● Richmond Fed: Slightly Slower Mfg Growth in Jan | 24/7 Wall St
● German consumer confidence remains stable: GfK survey | RTE
● The 5 Scenarios Now Facing the Federal Reserve | Bloomberg

The wheels of the US stock market’s discounting machine are spinning rapidly these days as the crowd continues to price in the risk of slower economic growth. The S&P 500 is off a bit more than 8% for the year so far and is lower by nearly 7% over the past 12 months in total-return terms through yesterday (Jan 25). Formal estimates of GDP are on board with the market’s bias for downsizing expectations. The main debating point at this stage centers on one question: How much deceleration is lurking?
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