The upcoming April report is anticipated to show a 0.2% increase in US retail sales compared to the previous month, according to the median econometric forecast from The Capital Spectator. This forecast indicates a notable slowdown from March’s previously reported growth of 1.1%.
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● Stress Test: Reflections on Financial Crises
By Timothy F. Geithner
Blog post via Dealbook/NY Times
Timothy F. Geithner is stepping into the spotlight as he prepares to release his book, “Stress Test: Reflections on Financial Crises,” next week. After a year of relative silence following his term as Treasury secretary, Geithner has begun to share his insights. I had the opportunity to speak with him last month while he finalized the book, engaging in discussions about his government experience and his views on managing financial crises. Our conversations revealed a candid side of Geithner, and a preview of these discussions is featured in an upcoming issue of The New York Times Magazine.
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The housing market is currently the weak link in an otherwise positive outlook for the US economy. It remains unclear whether this is merely a temporary setback or a sign of more significant issues ahead. Recent data on residential sales and construction suggests potential challenges. Given the essential relationship between housing and broader economic activity, close monitoring of this sector is vital. While it will take time to obtain a clearer understanding based on essential metrics, many reports have considerable lag times. For instance, figures for April’s housing starts won’t be available until May 16. Fortunately, there are timely data points to consider that may offer early insights on housing trends. Here are three key datasets worth tracking closely.
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The US economic growth has slowed to its lowest rate since last September, based on a market-oriented assessment of macroeconomic conditions. The Macro-Markets Risk Index (MMRI) recorded a reading of 7.8% on May 7. Despite a recent downward trend, this positive score indicates that the risk of a business cycle downturn remains low. Should MMRI decline further below 0%, it would signal an elevated recession risk. In contrast, readings exceeding 0% suggest the economy is likely to continue expanding in the near term.
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The question of whether we are in a “bubble” can depend on how one defines the term and the specific market in question. As highlighted by the OECD, “House prices differ widely across OECD countries, both with respect to recent changes and to valuation levels,” in a report examining global residential real estate.
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Michael Edesess raises important questions regarding the so-called “rebalancing bonus,” suggesting it might be more of a myth within the field of money management. The term was popularized by Bill Bernstein’s influential 1996 study, “The Rebalancing Bonus: Theory and Practice,” which found that “the actual return of a rebalanced portfolio usually exceeds the expected return calculated from the weighted sum of the component expected returns.” Edesess argues, with Bernstein’s agreement, that the initial analysis is somewhat misleading due to less practical underlying assumptions. While his analysis serves as a reminder not to rely solely on rebalancing for boosting returns, it is still crucial for risk management purposes.
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Small- and micro-cap stocks have enjoyed a strong performance recently, but their bullish trend seems to be losing steam. Financial theory suggests that these segments of the equity market will generally yield a risk premium compared to broader stock market benchmarks. However, in the short term, market corrections can occur when performance outpaces expectations.
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The recent annual meeting for Berkshire Hathaway has rekindled admiration for Warren Buffett’s remarkable investing track record. This acclaim is well-deserved, as the company’s stock has appreciated roughly 20% per year over the last nearly fifty years, significantly outperforming the US stock market. According to The Economist, “an investment of $1,000 at the beginning would now be worth over $10 million, compared to around $100,000 for a similar investment in the S&P 500.”
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● The Reckoning: Financial Accountability and the Rise and Fall of Nations
By Jacob Soll
Review by James Grant via The Wall Street Journal
Throughout history, great empires, flourishing city-states, and successful companies have risen and fallen, often undone by debt, corruption, or taxation. In his latest work, Jacob Soll proposes a new theory regarding the decline of global institutions, placing blame on the accountants. As detailed in “The Reckoning,” the most successful societies confront their liabilities while maintaining transparency in their financial practices. However, misfortunes can lead to overflowing red ink and institutional decline.
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According to a report from the Labor Department, the private sector added an impressive 273,000 jobs last month, which surpasses the consensus estimate of 213,000, as reported by Econoday.com. This figure is also notably higher than the March revision of 202,000. While this is positive news, it primarily indicates that the labor market is returning to its pre-winter growth trend, which had been significantly impacted by harsh conditions.
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