November 5, 2013
Cutting Through Market Noise With Boxplots
Separating the noise from the signal is the bane of modern investment analytics. An excess of opinion and data confound and complicate our capacity to focus on the key decisions for designing and managing investment portfolios. One of my favorite tools for cutting through the clutter is a graphical tool known as boxplots. If I could only choose one charting methodology for analyzing performance data, I’d go with boxplots. Here’s why.
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November 4, 2013
Q3:2013 US GDP Nowcast: +2.1% | 11.04.2013
US GDP is expected to rise 2.1% in this year's third quarter (real seasonally adjusted annual rate), according to The Capital Spectator’s average econometric nowcast. Today's revision is slightly higher than the previous 2.0% average nowcast for Q3, which was published on September 25. The government's initial estimate of this year's Q3 GDP is scheduled for release this Thursday, Nov. 7.
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November 2, 2013
Book Bits | 11.2.13
● Keynes's Way to Wealth: Timeless Investment Lessons from The Great Economist
By John F. Wasik
Summary via publisher, McGraw-Hill
Few people know, however, that he was also a daring, steel-nerved investor who built a multi-million-dollar fortune in the stock market while providing financial counsel to the likes of Winston Churchill and FDR. Now, you can learn from--and imitate--Keynes's success by examining the story of his life and investment strategies, masterfully told by awardwinning author John F. Wasik. As you follow Keynes from his early years with the Bloomsbury Group, through two world wars and the Great Depression Keynes's theories and practices come to life by way of the historic and personal events that shaped them. Like today's investors, Keynes faced markets roiled by panic, inflation, deflation, widespread unemployment, and war--and he developed a core set of principles to prosper in every climate.
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November 1, 2013
ISM Manufacturing Index Inches Higher For October
Manufacturing output surprised the crowd with an upbeat number in today’s ISM Manufacturing report for October. This cyclical slice of the US economy expanded a slightly faster rate last month, according to ISM's index, leaving this benchmark at 56.4--its highest level in 2-1/2 years. That's something of a shock vis-a-vis the consensus forecast, which warned of a substantial decline for this benchmark to 55.0. That overall prediction from economists contrasts with yesterday’s econometric projection on these pages that anticipated a steady reading for today's October’s release by way of a slight uptick to 56.3.
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Major Asset Classes | October 2013 | Performance Review
October has a reputation for trouble when it comes to market behavior, but you wouldn't know it from looking at last month's numbers. There was minimal turbulence in asset prices in October. Aside from commodities, the major asset classes posted another solid batch of gains, building on September’s bull run. The Global Market Index (GMI) posted a 2.8% increase last month, leaving it higher on the year by a solid 12.0%.
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October 31, 2013
New Unemployment Claims Fall Again
It's Halloween, but there are no goblins in today's labor market report. New filings for unemployment benefits fell again last week, slipping 10,000 to a seasonally adjusted 340,000. That’s still at an elevated level relative to recent history, but we’re again moving in the right direction. The data glitches that harassed this series over the past month or so are receding. In turn, we’re left with the encouraging sight of claims returning to a downward trend, or so it appears. Exhibit A is the 7% year-over-year decline in claims for the week through October 26. That’s the biggest slide since late-September and it suggests that the labor market, although wobbly these days via recent updates on payrolls, continues to grow.
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ISM Manufacturing Index: October 2013 Preview
The ISM Manufacturing Index is expected to increase marginally to 56.3 in tomorrow’s October update (scheduled for release on November 1), based on The Capital Spectator's average econometric forecast. The estimate reflects a trivial rise from the previously reported 56.2 for September. Meanwhile, the Capital Spectator's average projection is substantially higher than three consensus forecasts for September via surveys of economists. Indeed, all three surveys project that today's ISM number will decline sharply vs. the previous month.
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October 30, 2013
ADP: Slower Payrolls Growth In October
Payrolls increased this month by the smallest amount since April, according to this morning’s update of the ADP Employment Report. The 130,000 gain for October is near the slowest pace of growth in recent years for this data series and so today’s release raises new concerns for the economy’s outlook. “Any further weakening would signal rising unemployment,” says Mark Zandi, chief economist of Moody’s Analytics, which partners with ADP to produce the payrolls data. “The weaker job growth is evident across most industries and company sizes,” he notes in a press release (pdf) that accompanies today’s report.
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October 29, 2013
A Drop In Auto Purchases Pinches Retail Sales In September
If you ignore the 2.2% decline in auto sales last month, today’s update on September retail sales looks ok. But cherry-picking the numbers offers a thin if not misleading veil of comfort at the moment. Indeed, the year-over-year change in retail spending dipped last month to a rate that’s close to the slowest pace in three years. Is this a sign of trouble? No one really knows at this point. It’s possible that all the talk last month of a government shutdown and the possibility of a Treasury default skewed the data. Some optimists also reason that the relative shortage of shopping days last month is a factor. Deciding what’s really going on will take a few more monthly updates to sort it all out. Meanwhile, there’s enough weakness in today’s data if you include auto numbers to keep the crowd wondering what happens next.
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There's Nothing "Regular" About The Business Cycle
I’m reluctant to disagree with a newly minted Nobel laureate in economics, but I just can’t let Robert Shiller’s remark about the business cycle pass without comment. “The world economy is softening a bit,” he told Yahoo Finance yesterday. “There’s always a chance of another recession. It’s been six years since the last recession started -- they tend to come along with some regularity.” Regularity? Well, actually that’s the wrong word to use on this subject for a simple reason: there's nothing regular when it comes to the timing of recessions.
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October 28, 2013
Industrial Output Picks Up But Manufacturing Is Soft
Industrial production beat expectations and increased 0.6% in September vs. August, the best monthly comparison since February, the Federal Reserve reports. The year-over-year change turned higher as well, with output expanding 3.2% last month vs. a year earlier—the biggest annual gain since last November. But the upside surprise was due mostly to factors other than manufacturing, which rose a sluggish 0.1% last month. Is the mismatch a sign of trouble ahead? When ever the cyclically sensitive manufacturing sector wobbles, there's always room to wonder about what comes next. It’s too early to say, of course, although today's mixed report won’t be easy to dismiss until or if we see better numbers in the economic updates to come, starting with tomorrow’s delayed retail sales numbers for September.
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Where's Inflation When You Need It? Or Do We Need It?
Some economists say that more inflation is (still) just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment. A New York Times article over the weekend advises that “as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.”
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October 27, 2013
An Afternoon Of Asset Allocation In New York
I'll be attending the half-day conference on "The Evolution of Active Asset Allocation" in New York on Tuesday, Oct. 29. Maybe you should too? The price is certainly affordable: free, in fact, courtesy of S&P Dow Jones Indices. Even better, the lineup of speakers and topics looks intriguing. What's the catch? You've got to register in advance. I'm particularly interested in the final session: "Ideas and Innovations in Asset Allocation using ETFs".
October 26, 2013
Book Bits | 10.26.13
● WRONG: Nine Economic Policy Disasters and What We Can Learn from Them
By Richard Grossman
Q&A with author via Boston.com
Q: You have a book coming out this October about economic policy disasters and what we can learn from them. Tell me about that.
A: I found nine economic policy mistakes over the last couple hundred years and did a sort of economic autopsy to explain why they happened and find themes that runs through the mistakes.
Q: What did you find?
A: The main theme seems to be that things go really wrong when policymakers are taken up by ideology. For example, if some percent of your political party sign a pledge saying they would never under any circumstances vote to raise taxes, I would say that is based purely on ideology. My book is sort of a plea for non-ideological, analysis-based economic policy.
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October 25, 2013
Will The Recent Government Shutdown Derail The Economy?
How much damage, if any, did the recent government shutdown inflict on the US economy? The answer will remain a mystery until we see how the macro trend looks in the post-shutdown data. That’s going to take at least a month or two as we wait for reliable numbers across the economic spectrum. Meantime, we can look to the financial markets and a handful of economic data points that have been published this week for clues on what to expect.
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October 24, 2013
The Crucial Connection: Asset Allocation & Rebalancing
The link between asset allocation and rebalancing is widely recognized, but it’s not always widely respected. This is a subtle point, but it has major implications for risk management and earning a respectable risk premium through time. Most investors understand this, at least intuitively. But in practice, it’s not unusual to see portfolio designs that are victimized by what I call subjective neglect.
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October 23, 2013
Asset Allocation & Rebalancing Review | 23 Oct 2013
If there’s reason to worry about the global economy, it’s not obvious in asset prices these days. Positive momentum seems to have the upper hand, at least for the moment. The winners keep winning and the losers are trimming their losses.
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October 22, 2013
September Employment Growth Slows
Today’s nonfarm payrolls report finally arrived, but it wasn’t worth the wait. Private-sector employment increased by a net 126,000 jobs last month on a seasonally adjusted basis, according to the US Labor Department. That’s not the slowest pace this year, but it’s close. Only July’s meager 100,000 rise is lower so far in 2013. There’s nothing to cheer about in today’s employment release, but it’s still not obvious that the jig is up for the business cycle. True, the latest monthly perspective looks discouraging, but that's not the only statistical lens at our disposal. Consider that the year-over-year percentage change for private-sector employment continued to expand by just over 2% through last month. That rate is unchanged from the previous month and is in line with the annual pace of growth we’ve seen so far this year.
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Why This Year's Nobel Award In Economics Makes Perfect Sense
Last week’s news on the choice of this year’s winners of the Nobel prize in economics perplexed and even disturbed some pundits. How could two economists—Eugene Fama and Robert Shiller—with such diametrically opposed ideas on asset pricing be awarded a Nobel at once? (A third winner, Lars Peter Hansen, shared the prize for his work in econometrics.) By some accounts, elevating the two names, and their respective bodies of work, in one Nobel award is misguided at best because it mistakenly suggests a degree of equality in the underlying methodologies for evaluating markets. I've heard some people argue over the past week that one or the other name should be stricken from the list. But that’s a foolish read on this year’s award. Giving the prize jointly to Fama and Shiller makes perfect sense because it reminds us that no one theory can tell us everything we need to know in the money game.
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