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

As economic indicators continue to fluctuate, recent reports highlight several key trends impacting the U.S. economy and beyond:

• ● Small-business confidence has declined, reaching a two-year low as reported by MarketWatch.
• ● U.S. import prices saw a modest increase of 0.2% in March amid ongoing inflationary signs, according to WSJ.
• ● The Redbook report shows U.S. same-store sales grew by 1.1% in April, although they dropped by 2.8% month-to-date.
• ● The IMF has once again revised down its forecast for global growth, as discussed in The Economist.
• ● In a positive twist, a surge in Chinese exports has alleviated concerns regarding growth, boosting international markets, as detailed by Reuters.
• ● Eurozone industrial output showed a decrease in February after a robust January performance, reported by RTT.
• ● The rise of institutional investors has sparked concerns over potential market collusion, according to a recent article in The NY Times.

Anticipation builds around the upcoming March retail sales report, with expectations of a recovery from the previous month’s figures. Insights from The Capital Spectator predict a 0.3% rise compared to the spending total from the prior month. If realized, this boost would mark the first month of increased consumer spending in 2016.
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The longstanding belief that value investing outperforms over time has been a fundamental principle in financial literature, and historical data supports this view. However, the past nine years tell a different story, highlighting a contrasting trend between the Russell 1000 Value Index and the Russell 1000 Growth Index. Recent insights from AJO Partners reveal that the current stretch of growth equities outperforming value stocks is the most prolonged period in the history of these indices, dating back to the 1970s.
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● U.S. inflation survey declines, raising concerns for the Federal Reserve, as noted by Reuters.
● Discussions between President Obama and Fed Chair Yellen centered on economic risks—details uncovered in Reuters.
● Experts warn that Q1 earnings may be dismal, as detailed by CBS MW.
● Strong investment inflows into emerging markets were observed in early April, noted by Reformed Broker.
● Questions arise about why lower oil prices haven’t translated into economic benefits, as explored in Econobrowser.
● Job growth is largely concentrated in “alternative” employment sectors, according to Conversable Economist.
● Hedge funds are retreating from the dollar’s significant bull run—further discussed in Bloomberg.

Commodities demonstrated strong performance last week, leading among the major asset classes as measured by a set of proxy ETFs. Despite rising raw material prices, there was no significant positive correlation observed in associated equities, particularly in U.S. dollar terms. In fact, emerging market stocks emerged as the biggest losers among the major asset classes last week.
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● GDPNow models suggest that U.S. economic growth for Q1 is nearly stagnant at just 0.1%, according to Atlanta Fed.
● An analysis highlights the dramatic decline of the GDPNow forecast—could it be accurate? Insights from Barron’s.
● Unexpected drop in U.S. wholesale inventories in February surpasses forecasts—details from RTT.
● The dollar has fallen to a fresh 17-month low against the yen, as reported by MarketWatch.
● China’s producer price deflation is easing; however, monetary support may be tapering off, according to a report from Reuters.
● The World Bank predicts that China’s growth will moderate to 6.7% in 2016, as covered by AP.
● The IMF supports the implementation of negative interest rates at central banks globally—details from IMF.

● The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore
By Michele Wucker
Summary via publisher (St. Martin’s Press/Macmillan)
A “gray rhino” represents a recognizable but often ignored threat that is likely to have substantial consequences. Unlike random surprises, these events emerge following a series of warning signs and tangible evidence. Historical examples include the housing bubble burst in 2008 and other significant crises that have been evident before they escalated. Why do leaders frequently fail to address these looming dangers? Michele Wucker, leveraging her extensive background in policy and crisis management, explores in The Gray Rhino how to identify and effectively respond to these imminent threats.
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The significant decline in the velocity of M2 money supply serves as a glaring indicator of underlying economic issues. As the St. Louis Fed elaborates, the velocity of M2 money—the ratio of nominal GDP to the average money supply—has reached unprecedented lows since data collection began in 1959. This trend reflects a growing demand for safe-haven liquidity among the public, which contributes to the unsatisfactory recovery experienced since 2008.
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● Last week, U.S. jobless claims reported a decrease, showing that layoffs remain at low levels, as stated by WSJ.
● The U.S. Consumer Comfort Index has fallen to its lowest level in over three months, as highlighted by Bloomberg.
● Consumer credit in the U.S. rose more than anticipated in February, according to RTT.
● Fed Chair Yellen reassured the public of a gradual path for rate increases, aiming to mitigate recession fears—details from WSJ.
● Yellen also indicated that the U.S. is nearing full employment while acknowledging that some slack still exists, as reported by Bloomberg.
● Mortgage rates have plunged to their lowest levels in over a year, according to a news report by WaPo.

The concept of skill in finance is complex, influenced heavily by the role of chance in asset pricing. Discussing skill raises inherent doubts about our ability to consistently deliver satisfactory investment outcomes. Despite this, the impact of randomness cannot be ignored and may be more significant than often thought.
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