The major asset classes dispensed a wide range of performances last week, based on a set of proxy ETFs. Although losses dominated the five trading days through Oct. 7, a handful of markets bucked the trend, led by equities in emerging markets. But the week was overshadowed by the red ink brigade, with US real estate investment trusts (REITs) suffering the biggest setback.
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● Messy: The Power of Disorder to Transform Our Lives
By Tim Harford
Review via Publishers Weekly
Journalist Harford (The Undercover Economist) explores the counterintuitive theory that disorder is at the heart of innovation. His evidence includes the creative genius inspired by the randomness of record producer Brian Eno’s Oblique Strategies and the rich history of MIT’s hastily assembled Building 20. In the business world, Amazon’s Jeff Bezos is extolled for the risk taking that carried the company through the dot-com bust. The book also examines what goes wrong in a system that is too organized.
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US companies added new jobs at a slightly lower rate than expected in September, according to this morning’s update form the Labor Department. Private payrolls increased by 167,000 last month, a touch below the consensus forecast. The moderate increase is below the 192,000 average gain for the past year, which suggests that today’s release will leave the crowd guessing about the timing of the next interest rate hike by the Federal Reserve. But while the latest report reflects a moderate increase at best, the year-over-year gain for private payrolls held steady at a healthy 1.9% rate for the fifth month in a row.
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The formerly high-flying utility sector has stumbled in recent weeks, shifting the leadership baton to the technology sector, based on a set of proxy ETFs. Expectations that the Federal Reserve could raise interest rates before the year is out is weighing on yield-sensitive utility stocks. Meantime, the tech sector continues to trade near record highs.
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Ilya Kipnis at QuantStrat TradeR reminds us that the Hidden Markov Model (HMM), which can be a powerful tool for detecting regime change in markets and macro, has its limitations and pitfalls. In particular, Kipnis reports that HMM’s value as a prediction tool for the stock market is dubious. That’s not surprising. Predicting, after all, is always difficult bordering on impossible. But all’s not lost. HMM is still quite useful as a framework for providing relatively objective and reliable signals on the current regime state for equities. A solid forecast would be preferable, of course, but mere mortals have to take what they can get.
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US payrolls rose less than expected in September, according to this morning’s release of the ADP Employment Report. Private-sector jobs increased by a seasonally adjusted 152,000 last month, moderately below Econoday.com’s 170,000 consensus forecast and well below the 175,000 gain in August, based on ADP’s numbers. The softer rise, which left the year-over-year gain for payrolls at a three-year low, raises questions about expectations for a rebound in growth in the government’s labor market report for September that’s scheduled for this Friday.
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The 10-year Treasury Note’s term premium (an estimate of the extra compensation that the market demands for holding longer rather than shorter maturities) has been moderately negative for most of 2016, and there’s no sign that the red ink will fade any time soon. The sub-zero readings, based on New York Fed data, aren’t surprising in the current economic climate. The appetite for safe havens remains strong, largely because growth is expected to remain modest at best—in the US and around the world. But as the term premium ticks lower, the slide suggests that the bond market is moving deeper into uncharted territory.
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The Global Market Index’s expected risk premium ticked higher in September, rising to a 17-month high. GMI—an unmanaged market-value weighted mix of the major asset classes—is expected to earn an annualized 3.9% risk premium over the long term, moderately above last month’s estimate.
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Broadly defined commodities led the way higher in September for the major asset classes. The Bloomberg Commodity Index climbed 3.1% last month, posting its first increase since June for the monthly comparison.
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● Among the Bankers: A Journey into the Heart of Finance
By Joris Luyendijk
Review via The Atlantic
How can bankers live with themselves after the destruction wrought by their industry? That’s in part what the Dutch journalist Joris Luyendijk sets out to uncover in his new book, Among the Bankers: A Journey Into the Heart of Finance, which was published overseas last year under the title Swimming with Sharks. The book attempts to lay bare not the technical workings of a very opaque industry, but the emotional and moral considerations of those who operate within it.
Luyendijk, a reporter at The Guardian who has a background in anthropology, poses that question of conscience over and over again. To answer it, he conducted hundreds of interviews with people who work in the City, London’s version of Wall Street.
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