The Capital Spectator: Investing, Asset Allocation, and Economics Insights

“It is foolish and wrong to mourn the men who died. Rather we should thank God that such men lived.”
–General George Patton

● What They Do With Your Money:
How the Financial System Fails Us and How to Fix It
By Stephen Davis, et al.
Summary via publisher (Yale University Press)
Every year, we spend billions on fees for those managing our financial systems. This money stems from our bank accounts, pensions, and loans, often without our knowledge. Such expenditures could be warranted if the finance industry performed well; however, this book reveals that they frequently let us down. Financial institutions typically prioritize their interests, charging for advice that does little to enhance performance, using detrimental short-term strategies, and sometimes hiding their methodologies and investment tactics from investors.
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William Bernstein authored a captivating e-book several years ago that pondered the increasing correlations among asset classes due to the surge in indexing popularity. “The average investor can now build and manage multi-asset class portfolios to a level once reserved for institutions,” he remarked in Skating Where the Puck Was: The Correlation Game in a Flat World. He suggested that the era of low correlations may have ended. If his hypothesis holds, planners will face new challenges in crafting and managing asset allocation strategies. To evaluate Bernstein’s 2012 insights halfway through 2016, let’s analyze a wide array of ETFs and mutual funds.
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● US durable-goods orders surged in April due to aircraft purchases | MarketWatch
● Orders for US Capital Goods Unexpectedly Decline for the Third Month | Bloomberg
● Pending home sales rose 5.1% in April, reaching their highest level in a decade | CNBC
● US jobless claims dropped more than anticipated last week | Reuters
● US Consumer Comfort Index decreased amidst concerns over personal finances | BBG
● Regional manufacturing activity declined in May, as reported by the Kansas City Fed | Wichita Eagle
● How Would a Donald Trump Presidency Impact Your 401(k)? | NY Times
● Digital Attacks Linked to North Korea Target Global Banks | NY Times

The US economy is projected to rebound in the second quarter following a modest rise of just 0.5% in the first quarter (seasonally adjusted annual rate). The key question is how significant this rebound will be when the Bureau of Economic Analysis (BEA) releases the “advance” Q2 GDP report on July 29.
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● Markit: US Service Sector Weakens in May; Is it an Outlier or a Warning? | Barron’s
● US House Prices Increased by 1.9% in Q1—19th Consecutive Quarterly Rise | Builder
● US Mortgage Applications Show Another Modest Increase Last Week | HW
● The Significance of the Global Trade Slowdown | VoxEU
● Millennials Increase Their Spending Habits | Gallup
● Foxconn Replaces 60,000 Workers with Robots in China | MarketWatch
● Oil Prices Surpass $50: First Time in 6 Months Due to Declining US Supply | Bloomberg

Data from a recent survey by Markit Economics suggests a sluggish economic outlook for the US in May. The latest flash estimate of the Services PMI for this month has slightly dipped to 51.2, remaining just above the neutral threshold of 50 that separates growth from contraction. This follows Monday’s preliminary May figures for the US Manufacturing PMI, which is hovering near stagnation at 50.5. Collectively, these updates indicate a slowdown in economic activity for May.
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The US stock market experienced a significant rally yesterday, marking its largest single-day gain in two months. However, this surge does little to change the overall 10-year returns, which remain notably below the historical median for the past half-century. While this may not provide insights into future performance, it serves as a reminder of how the recent recovery in the US stock market pales compared to the booming periods of the 1980s and 1990s.
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● US New-Home Sales Reach Their Highest Level in Over 8 Years | NY Times
● Richmond Fed Reports a Slowdown in Manufacturing Activity for May | Richmond Fed
● Confidence in the US Economy Remains Steady Among Americans in Mid-May | Gallup
● ECB’s Villeroy Warns of High Brexit Risks for the UK and Eurozone | MNI
● China’s Currency Fixing Weakens Against the US Dollar, Hitting a 5-Year Low | Bloomberg
● The Longer the Correction, the Longer the Recovery | WSJ
● German Consumer Confidence Edges Upward as June Approaches | Reuters