In recent statements, Lakshman Achuthan from the Economic Cycle Research Institute reiterated his recession prediction made last September. In an interview with CNBC, he declared, “our call stands.” He pointed out that the tangible data typically used to officially designate business cycle recessions has been worsening despite the prevailing narrative of an improving economy.
● The Oil Curse: How Petroleum Wealth Shapes the Development of Nations
By Michael L. Ross
Summary via publisher, Princeton University Press
Nations endowed with petroleum resources tend to experience diminished democracy, increased economic instability, and a higher frequency of civil unrest compared to their oil-less counterparts. This so-called “oil curse” raises significant questions: What causes this trend, and can it be reversed? In this groundbreaking study, Michael L. Ross explores how the mineral wealth of developing nations influences their growth trajectories and suggests pathways to convert this curse into a blessing. He attributes the origins of the oil curse to the tumultuous events of the 1970s, marked by soaring oil prices and the subsequent government takeovers of oil industries in various developing countries. Before nationalization, many oil-rich nations paralleled global trends, but today they are noticeably more likely to be under authoritarian rule and to suffer civil conflicts compared to their non-oil peers. The Oil Curse elaborates on why oil wealth often hampers economic growth, creates job disparities across genders, and causes more challenges for poorer states than wealthier ones. Furthermore, the relentless global demand for petroleum could lead corporations to exploit even poorer nations, perpetuating the oil curse.
The new abnormal continues to thrive, particularly manifested in the correlation between the stock market and inflation expectations. As inflation concerns rise, the stock market tends to rally, and the reverse happens as well. Although this trend may not endure indefinitely, just earlier this month, I considered whether this new abnormal might be nearing its end. However, for now, assertions claiming the decline of this correlation seem hasty.
David Glasner recently delved into a newly acquired edition of Ralph Hawtrey’s Trade Depression and the Way Out from 1933, prompting difficult questions for proponents of hard currency.
Today’s initial jobless claims report revealed no significant changes, with last week’s new unemployment benefit filings matching the previous week’s slightly revised total. However, these latest statistics do not raise doubts about the recently observed decline trend in this data series. The seasonally adjusted figure for new claims remained steady at 351,000, marking the lowest level since early 2008.
Earlier this month, I discussed the impending launch of two foreign bond index funds by Vanguard, marking the company’s first foray into the realm of international fixed-income products. While foreign bond funds are not novel, these Vanguard offerings have a unique feature: the portfolios will include foreign exchange risk hedging. Vanguard advocates that this hedging approach mitigates volatility, which is a valid point. However, I have previously suggested that volatility itself is not inherently detrimental within the context of a well-diversified multi-asset class strategy. In fact, it can serve as a beneficial factor in such scenarios. Although I touched on this topic briefly, it warrants further exploration, especially in relation to rebalancing considerations.
European shares slip on euro zone recession worries
Reuters | Feb 22
The service sector in the euro zone unexpectedly contracted this month, reigniting concerns over a potential recession, according to a recent business survey. The Markit Eurozone Services Purchasing Managers’ Index (PMI) fell to 49.4 from January’s 50.4, failing to meet even the most pessimistic predictions in a Reuters poll. Analysts highlighted that significant uncertainties lingered following the Greek bailout agreement. “Serious questions remain: does Greece have sufficient funds even after the second bailout? Can they stimulate the necessary growth?” queried Henk Potts, an equity strategist at Barclays Wealth, while also noting that other factors might limit equity downturns. “Overall, there has been a more optimistic sentiment in the markets since the year’s beginning. Recent actions have alleviated some concerns regarding the euro zone crisis, and the U.S. economy is gaining traction.”
For the first time in a year, the Chicago Fed National Activity Index (CFNAI)—representing a comprehensive gauge of the U.S. economy—registered a positive reading for the second consecutive month. However, the pace of growth diminished, as the CFNAI decreased to +0.22 in January from December’s +0.54. Meanwhile, the three-month moving average (CFNAI-MA3) slightly increased to +0.14 last month, up from +0.06 in December, indicating that “growth in national economic activity was slightly above its historical trend,” as reported by the Chicago Fed here.
Gasoline prices are on the rise again, averaging $3.52 per gallon in the U.S. for the week of February 13, according to the Energy Information Administration. Prices have been steadily increasing since mid-December and now sit at their highest since last September. Some analysts predict that the national average could soon hit $4 a gallon. If that occurs, will the increase in fuel costs impede the ongoing economic recovery?
Do Socially Responsible Investment Indexes Outperform Conventional Indexes?
Shunsuke Managi (Tohoku University), et al. | Feb 2012
The ongoing debate regarding whether socially responsible (SR) firms outperform their conventional counterparts has garnered significant attention within economic literature. This study examines the performance of socially responsible investment (SRI) indexes juxtaposed against traditional stock indexes in the U.S., the UK, and Japan. Using the Markov switching model, both the first and second moments of firm performance distributions are analyzed. The findings reveal the existence of two distinct market regimes (bear and bull) in both SRI and overall stock markets, exhibiting synchronized timing across the different market types. Importantly, no statistical differences were found regarding the mean performances or volatilities of SRI and conventional indexes across all regions. Additionally, robust co-movements were observed between the two indexes within both market conditions.
The discussions and analyses reflected within these articles underscore the complexities facing economic markets today. From recession forecasts to the rising costs of living, each aspect reveals the intricate ties between economic data and future trends. Staying informed is crucial for navigating these challenging waters.
