As uncertainty lingers about the implications of Donald Trump’s presidency on the U.S. economy in the coming years, current sentiment in the Treasury market is clear. The benchmark 10-year yield spiked to its highest point since January within just two days after the billionaire reality TV star claimed the presidency.
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Donald Trump’s election as the 45th President of the United States on Tuesday shattered the predictions from various data models that anticipated otherwise. Some analysts have drawn parallels between the breakdown of quantitative political forecasting and efforts to assess real-time recession risks. However, these two approaches differ significantly, depending on how the models are constructed. The intricacies are crucial, but a well-structured macroeconomic model aimed at evaluating the likelihood of economic contraction can sidestep many of the issues that plague election forecasting.
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In a surprising turn of events that caught many political experts off guard, Donald J. Trump was elected the 45th President of the United States. His populist victory contradicted the predictions of numerous experts, polls, and political models that anticipated defeat for the real estate mogul and reality TV star.
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As the United States gears up to elect a new president today, discussions about inflation have resurfaced. While pricing pressures remain subdued, there are indications that the next president may oversee an economy experiencing a slight uptick in inflation trends. We have encountered this prediction before, only to witness the reflation initiatives falter. Is this time different? Perhaps, though it’s too early to draw conclusions. Meanwhile, let’s examine some figures to gain insight into what lies ahead.
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The first week of November proved challenging for stocks, commodities, and real estate investment trusts (REITs). However, a declining U.S. dollar favored foreign bonds, marking the only segment of the major asset classes to experience notable gains, as indicated by a selection of proxy ETFs.
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● The Econocracy: The Perils of Leaving Economics to the Experts
By Joe Earle, et al.
Summary via publisher (Manchester University Press)
A century ago, the concept of ‘the economy’ was virtually nonexistent. Today, improving the economy is perceived as perhaps the most significant challenge facing contemporary societies. Politics and policymaking are largely conducted in economic terms, which can alienate many citizens who do not understand this language. Consequently, political decisions are increasingly entrusted to experts. This book explores how economics became a dominant force and highlights its detrimental effects. It also aims to make economics accessible to the public, fostering a movement towards reclaiming democracy.
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Today’s U.S. employment report indicates that slower growth has indeed taken hold in the labor market. Companies added a modest 142,000 jobs in October, a decrease from a revised increase of 188,000 in September, according to the latest update from the Bureau of Labor Statistics. Notably, the year-over-year growth rate has dipped to its lowest level since 2011.
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Measuring Factor Exposures: Uses and Abuses
Ronen Israel and Adrienne Ross (AQR Capital Management)
September 19, 2016
An increasing number of investors perceive their portfolios—especially equity portfolios—as collections of exposures to risk factors. The most commonly harvested of these factors is the equity risk premium, along with others such as value and momentum.
Accurately measuring these exposures can be complex. Investors must understand how these factors are constructed and implemented within their portfolios, as well as the appropriate application of statistical analysis. Without a proper model, the rewards from factor exposures can be mistaken for alpha, leading to potential misjudgments about the risks faced by their portfolios.
This paper serves as a practical guide for investors seeking to measure portfolio factor exposures, discussing the pitfalls of regression analysis and emphasizing the significance of factor design. Ultimately, understanding risk sources in existing portfolios, as well as evaluating other portfolios, grants investors an advantage in constructing better-diversified portfolios.
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The Federal Reserve decided to keep interest rates steady yesterday, but their monetary policy statement suggested a potential increase in December. A day earlier (Nov. 1), the 30-day average of the effective Fed funds rate surpassed 0.40% for the first time in eight years.
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The expected risk premium of the Global Market Index remained unchanged in October, holding steady at its highest level since May 2015. The GMI—a market-value weighted mix of the major asset classes—is projected to yield an annualized 3.9% risk premium over the long term, consistent with last month’s forecast.
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