Monthly Archives: April 2016

Is The 9-Year Drought For Value Investing History?

The notion that value outperforms in the long run is a staple in the financial literature, and for an obvious reason: the historical record tells us so. But the last nine years tell a different story, based on the return spread for the Russell 1000 Value Index less the Russell 1000 Growth Index. As AJO Partners in Philadelphia advised in an investment note last week, the current run of growth’s outperformance in the US large-cap space is the longest period of superior results over value since the history of the Russell indexes, which dates to the 1970s.
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Initial Guidance | 12 April 2016

● US inflation survey slips in cautious sign for Fed | Reuters
● Obama, Fed’s Yellen discussed economic risks | Reuters
● Buckle up — Q1 earnings look to be awful | CBS MW
● Strong investment flows into emg mkts in early Apr | Reformed Broker
● Why no economic boost from lower oil prices? | Econobrowser
● All the Job Growth is in “Alternative” Jobs | Conversable Economist
● Hedge Funds Abandoning Dollar’s Biggest Bull Run in a Generation | Bloomberg

Commodities In The Lead Last Week For Major Asset Classes

Commodities delivered a solid performance last week, posting the strongest gain among the major asset classes via a set of proxy ETFs. Firmer prices in raw materials are widely considered a plus for emerging market economies, but there was no sign of a positive connection last week in the associated equities, at least in US dollar terms. Indeed, last week’s big loser among the major asset classes: emerging market stocks.
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Initial Guidance | 11 April 2016

● GDPNow forecast for Q1 US growth is nearly flat at 0.1% | Atlanta Fed
● The Incredible Shrinking ‘GDPNow’ Forecast; Could it Be Right? | Barron’s
● US Wholesale Inventories Drop More Than Expected In Feb | RTT
● Dollar drops to fresh 17-month low against the yen | MarketWatch
● China’s producer price deflation eases, monetary support may slow | Reuters
● World Bank: China’s Growth to Ease to 6.7 % in 2016 | AP
● IMF supports negative rates at central banks around the world | IMF

Book Bits | 9 April 2016

● The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore
By Michele Wucker
Summary via publisher (St. Martin’s Press/Macmillan)
A “gray rhino” is a highly probable, high impact yet neglected threat: kin to both the elephant in the room and the improbable and unforeseeable black swan. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence. The bursting of the housing bubble in 2008, the devastating aftermath of Hurricane Katrina and other natural disasters, the new digital technologies that upended the media world, the fall of the Soviet Union…all were evident well in advance. Why do leaders and decision makers keep failing to address obvious dangers before they spiral out of control? Drawing on her extensive background in policy formation and crisis management, as well as in-depth interviews with leaders from around the world, Michele Wucker shows in The Gray Rhino how to recognize and strategically counter looming high impact threats.
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Does The US Economy Still Have A Money-Demand Problem?

The ongoing collapse of the velocity of M2 money supply screams loud on clear: YES. As the St. Louis Fed pointed out yesterday, M2 money velocity—the ratio of nominal GDP to the average of the money stock—has fallen to record lows, based on numbers dating to 1959. That’s a powerful sign that the crowd has a strong—and still growing–appetite for safe-haven liquidity. Therein lies Exhibit A for explaining why the post-2008 economic recovery has been unsatisfying.
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Initial Guidance | 8 April 2016

● US Jobless Claims Fell Last Week, Showing Layoffs Remain Low | WSJ
● US Consumer Comfort Index Slips to Weakest in Over 3 Months | Bloomberg
● US Consumer Credit Climbs More Than Expected In Feb | RTT
● Fed’s Yellen Joins With Predecessors to Calm Recession Fears | WSJ
● Yellen Says U.S. Near Full Employment, Some Slack Remains | Bloomberg
● Mortgage rates plummet to lows not seen in more than a year | WaPo

Testing Asset Allocation Results With Random Market Selection

Skill is a slippery concept in finance, courtesy of the shady influence of chance in asset pricing. It’s also an awkward topic in just about every corner of money management because discussing it in detail invariably raises serious doubts about our ability to engineer investment results that are satisfactory much less stellar. But ignored or not, randomness is a factor and perhaps a far more powerful one than generally assumed.
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Will Falling Treasury Yields Create New Headwind For US Equities?

The risk-off trade is back in high gear, according to Treasury yields. The downside momentum in the benchmark 10-year yield is particularly conspicuous, based on daily data through yesterday (Apr. 5) via Treasury.gov. One theory making the rounds: the slide in the 10-year yield to 1.73% on Tuesday — a five-week low — is the crowd’s way of pricing in expectations that the first estimate of US GDP growth for this year’s first quarter that’s due later this month will slip to the slowest pace in two years.
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