The recent run of soft economic data inspires some pundits to claim that a new recession is brewing. They could be right, but they could just as easily be wrong. Although some numbers published to date have been weaker than expected, a broad profile of economic activity still reflects low recession risk. Near-term projections tell a similar story. From a probability standpoint, betting that a recession has started or is about to start still stacks up as a long shot.
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Estimates for next week’s “advance” report on GDP growth for the second quarter continue to point to a rebound after Q1’s sluggish pace, but the outlook has been revised down in recent weeks.
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All the major asset classes were higher last week, led by stocks in emerging markets. Reversing widespread losses from the previous week, all the broad categories of global markets advanced in the five trading days through July 14, based on a set of exchange-traded products.
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● Machine, Platform, Crowd: Harnessing Our Digital Future
Andrew McAfee and Erik Brynjolfsson
Review via The Economist
In 2014 Andrew McAfee and Erik Brynjolfsson of the Massachusetts Institute of Technology published “The Second Machine Age”. The book was a balanced portrait of how new digital technologies were poised to improve society, even as they increased unemployment and depressed wages. In their latest work, “Machine, Platform, Crowd”, the authors seek to explain the business implications behind these developments.
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Stocks that exhibit low volatility are prized as a risk factor that’s expected to beat the broad market over time with a smoother rise, according to academic research and countless backtests. Real-world returns, however, reflect mixed results in recent years, based on representative ETFs. Meanwhile, some analysts have been warning in recent months that low-vol stocks climbed too far too fast and are vulnerable to a correction. The warning carries more weight these days in the wake of low vol’s stumble relative to equities generally and other factor strategies.
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The US stock market’s ongoing run of low volatility has inspired a torrent of commentary as the crowd struggles to make sense of the trend. Analysts at JP Morgan, for example, recently wrote that “a very low supply of economic surprises currently is by itself enough to explain the low level of market volatility.” Meanwhile, a strategist at Wells Fargo Investment Institute advised that the slide in volatility isn’t particularly useful for developing insight into future market activity. Whatever an unusually calm stock market implies, or doesn’t imply, here’s one more fact to consider: low vol is widespread across the major asset classes.
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Fed funds futures are currently pricing in a low probability that the Federal Reserve will squeeze monetary policy at any one of the next three FOMC meeting (Jul. 26, Sep. 20, Nov. 1). The Sep. meeting has recently been identified by some analysts as the most likely date for another rate hike. But the futures market estimates the probability at just 13% that the central bank will lift its target rate (currently at a 1.0%-to-1.25% range) on Sep. 20 (based on early trading on Jul. 12).
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The market portfolio, in theory, is a simple concept. Buy and hold everything in market-value weights. But the road from concept to implementation is rocky. Some asset classes are relatively illiquid and therefore difficult to own directly. There’s also debate about how to estimate weights. Minds, in other words, will differ on devising a market portfolio benchmark for use in investment analytics and/or real-world investing. And now there’s one more perspective to consider thanks to the arrival of a new entry in this niche: “Historical Returns of the Market Portfolio” by Ronald Doeswijk, an independent researcher, and two co-authors.
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Red ink dominated the first week of trading in July. The main exception: equities in the US, which edged higher. Otherwise, across-the-board losses weighed on the major asset classes, based on a set of exchange-traded products.
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● Will Robots Take Your Job?: A Plea for Consensus By Nigel M. de S. Cameron
Summary via publisher (Polity)
The trend that began with ATMs and do-it-yourself checkouts is moving at lightning speed. Everything from driving to teaching to the care of the elderly and, indeed, code-writing can now be done by smart machines. Conventional wisdom says there will be new jobs to replace those we lose – but is it so simple? And are we ready? Technology writer and think-tank director Nigel Cameron argues it’s naive to believe we face a smooth transition. Whether or not there are “new” jobs, we face massive disruption as the jobs millions of us are doing get outsourced to machines. A twenty-first-century “rust belt” will rapidly corrode the labor market and affect literally hundreds of different kinds of jobs simultaneously.
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