July was anticipated to be a pivotal month for economic trends, but recent reports on retail sales suggest a different narrative. According to the U.S. Census Bureau, consumer spending showed a robust rebound last month, with retail and food services sales rising by a notable 0.8%. This increase marks the highest monthly growth since the 1% surge recorded in February. Economists had anticipated a more modest increase of around 0.3%, as highlighted by Bloomberg.
Are you considering an opportunity for portfolio rebalancing? Here’s one valid reason: as of Friday, August 10, all major asset classes—including a curated list of proxy ETFs—have experienced gains this year.
● The Clash of the Cultures: Investment vs. Speculation
By John Bogle
Excerpt via publisher, Wiley
When I began my career in 1951, the annual turnover of U.S. stocks was approximately 15 percent. By the mid-1960s, this figure rose to an average of 35 percent. Fast forward to the late 1990s, and turnover had escalated into the 100 percent range, peaking at 150 percent in 2005. The figure took a dramatic leap to 280 percent in 2008, before settling at around 250 percent in 2011.
To put these rates in perspective, consider that 60 years ago, daily stock trading volumes averaged about 2 million shares. Nowadays, we see trading volumes reaching around 8.5 billion shares daily—an increase of 4,250 times. Annualized, this translates to over 2 trillion shares, worth an estimated $33 trillion. Remarkably, this amount equates to 220 percent of the $15 trillion market capitalization of U.S. stocks.
Dynamic Portfolio Choice
Andrew Ang (Columbia Business School) | July 2012
A successful long-term investment strategy hinges on the practice of rebalancing to fixed asset class positions, determined through a one-period portfolio choice problem where the asset weights resonate with the investor’s risk tolerance. Rebalancing, a counter-cyclical tactic, has shown its effectiveness even during historical downturns, such as the Great Depression of the 1930s and the Lost Decade of the 2000s. This strategy contradicts common investor behavior and is also viewed as a short volatility strategy. In the presence of liabilities and fluctuating asset returns, the ideal portfolio for long-term investors comprises (i) a liability-hedging portfolio, (ii) a market (or myopic demand) portfolio that mirrors optimal short-term asset positions, and (iii) an opportunistic (or long-term hedging) portfolio that empowers long-term investors to capitalize on varying investment returns.
In the latest weekly update on initial jobless claims, the data reveals little change—a positive development when assessing the current business cycle. The leading indicator showed a modest decrease of 6,000 claims last week, settling at a seasonally adjusted figure of 361,000, according to the Labor Department. This figure is close to a four-year low, indicating that the risk of recession remains minimal.
Recent weeks have seen an uptick in the market’s inflation expectations. Alongside this, the stock market has also been experiencing growth. In short, the new abnormal continues to hold.
For the first time since late 2010, the monetary base in the U.S. has begun to contract on a year-over-year basis as of June. This development may signal a significant shift in evaluating potential risks for the business cycle, particularly if this contraction continues.
What poses the greatest challenge for investors today? Is it macroeconomic instability, geopolitical threats, sluggish growth, or a faltering euro? A strong case can be made that the overwhelming volume of information and advice—often contradictory—represents the largest obstacle to clear thinking and effective portfolio design for both medium- and long-term strategies. To mitigate the confusion inherent in our digital environment, it is wise to focus on the major asset classes along with benchmarks like the Global Markets Index, which is consistently updated on our platform.
● Red Ink: Inside the High-Stakes Politics of the Federal Budget
By David Wessel
Interview with author via Yahoo’s Daily Ticker
Many are aware that the U.S. government spends extensively, often exceeding its revenue. However, a significant portion of the public lacks a comprehensive understanding of the federal budget mechanism—where the money originates and how it is allocated. In “Red Ink: Inside the High-Stakes Politics of the Federal Budget,” journalist David Wessel aims to illuminate the intricacies of the federal budget and address various ‘myths and misconceptions’ regarding fiscal policy…
Certain economic commentators often find themselves bogged down by the complexities of interpreting data. A prime example lies in today’s release of the Labor Department’s employment report for July. While economists prioritize the establishment survey for tracking nonfarm payrolls, the government also provides a household survey as an alternative measure of labor force dynamics. These two methodologies, not surprisingly, do not always align on a month-to-month basis, and July’s data exhibited an unusually large discrepancy. This divergence can lead to confusion; however, a clearer perspective emerges when assessing year-over-year changes, offering a remedy to the typical noise of monthly statistics.