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

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    <p>What if the anticipated apocalypse is postponed yet again? What if the looming depression merely manifests as a harsh recession instead? While we may not have all the answers, we do know how to pose the critical questions and analyze the probabilities.<br/>The markets find their lowest point when the last investor has sold their shares and the appetite for risk has completely diminished. Identifying the exact moment when this occurs is an inherently speculative endeavor. Investors with weaker nerves may wish to look away, protecting both their eyes and their portfolios. For those who remain, it’s time to roll up your sleeves and start working.<br/>This begins with acknowledging that waiting for a definitive sign that the turning point has arrived might cause you to miss significant gains that often come in the initial weeks and months of a recovery. Balancing between these two extremes represents a considerable risk. Establishing a sensible equilibrium—which varies for each investor—constitutes the core challenge of investing at this stage.<br/>A common strategy is to maintain full investment in assets regardless of market conditions while also keeping a reserve of cash. However, this approach can be daunting when a downturn actually unfolds. While it’s easy to focus on long-term data, enduring the immediate pain of a bear market—especially one as severe as the current one—can be torturous for all but the most disciplined investors.</p>
    <p> <a href="https://www.capitalspectator.com/a-fresh-look-at-an-old-idea-the-futures-coming-still/#more-928" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/a-fresh-look-at-an-old-idea-the-futures-coming-still/" title="9:59 am" rel="bookmark"><time class="entry-date" datetime="2009-03-16T09:59:39-04:00">March 16, 2009</time></a>
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    <p>Looking forward by analyzing the past may be challenging, yet it remains a popular endeavor.<br/>This is especially true in the realm of economic forecasting where reliance on historical data is crucial. Unfortunately, the recent <a href="http://www.census.gov/marts/www/retail.html">update</a> on February's retail sales is disappointing, but it may not be worsening, creating a glimmer of progress and potential hope.<br/>According to our chart, retail sales experienced a slight contraction of 0.1% on a seasonally adjusted basis in February. While this isn’t something to celebrate, it’s certainly better than the drastic 1%-3% monthly declines seen in the last four months of the previous year.<br/><a href="https://www.capitalspectator.com/wp-content/uploads/0312091.html" onclick="window.open('https://www.capitalspectator.com/wp-content/uploads/0312091.html','popup','width=582,height=456,scrollbars=no,resizable=no,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0'); return false"><img fetchpriority="high" decoding="async" src="https://www.capitalspectator.com/wp-content/uploads/031209-thumb.GIF" width="460" height="360" alt=""/></a><br/>January’s increase of 1.8% in retail sales may suggest that the downward trend has halted, although February's slight drop raises questions about this potential recovery.</p>
    <p> <a href="https://www.capitalspectator.com/a-slim-reed-of-hope-maybe/#more-927" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/a-slim-reed-of-hope-maybe/" title="10:09 am" rel="bookmark"><time class="entry-date" datetime="2009-03-12T10:09:29-04:00">March 12, 2009</time></a>
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    <p>Japan has presented ongoing challenges for portfolio strategy over the past decade, and this trend looks set to continue.<br/>As the second-largest global economy after the United States, Japan holds substantial sway over the capital and commodity markets. Regrettably, its influence has largely been detrimental since the early 1990s, particularly in relation to asset allocation.</p>
    <p> <a href="https://www.capitalspectator.com/the-trouble-with-japan/#more-926" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/the-trouble-with-japan/" title="9:13 am" rel="bookmark"><time class="entry-date" datetime="2009-03-10T09:13:53-04:00">March 10, 2009</time></a>
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    <p>Another monthly employment report reveals yet another bleak outlook. This cyclical recession continues unabated.<br/>Let’s summarize the unfortunate figures from this morning’s report. Nonfarm payrolls fell sharply once again, with the U.S. Bureau of Labor Statistics <a href="http://stats.bls.gov/news.release/empsit.nr0.htm">reporting</a> that the economy lost 651,000 jobs in February. This marks the 14th consecutive month of decline, with three months showing losses exceeding 600,000 jobs. Over the first two months of this year, nearly 1% of total nonfarm payrolls have already disappeared. Unfortunately, the forecast for March remains grim.<br/>This prompts a pressing question: When will this distressing situation come to an end? Unfortunately, there are no definitive answers available. An honest analysis of economic data, coupled with a review of historical recessions, suggests that the pain may continue for a while longer. But is there a way to draw stronger conclusions rather than relying on guesses?</p>
    <p> <a href="https://www.capitalspectator.com/when-will-it-end/#more-925" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/when-will-it-end/" title="10:06 am" rel="bookmark"><time class="entry-date" datetime="2009-03-06T10:06:45-05:00">March 6, 2009</time></a>
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    <p>The bear market is fierce, prompting investors to seek shelter as the repercussions are felt widely. A casual observation suggests that asset allocation may be among the casualties, or so it seems.<br/>These days, it’s tempting to dismiss multi-asset class investing as a viable option. Many sectors of capital and commodity markets are facing significant difficulties, leaving little room for safety. However, abandoning asset allocation at this time would be a mistake, as emphasized by our two guests in today’s episode of The Inside View.<br/>A strategic outlook is crucial for recognizing the importance of asset allocation over time, even during challenging periods. However, this perspective tends to wane in bear markets, leading most investors to focus solely on recent trends. This mindset can overlook valuable opportunities that surface during times of great stress and increased price volatility. Our first guest, Gary Brinson, is a seasoned money manager known for co-authoring a pivotal research study in 1986 that highlighted the significance of asset allocation. Currently, he serves as president of GP Brinson, an investment firm in Chicago, and holds a position on the board of <a href="http://www.brinsonfoundation.org/home.shtml">The Brinson Foundation</a>.<br/>Additionally, our guest Adrian Cronje, director of asset allocation at <a href="https://www.wilmingtontrust.com/wtcom/">Wilmington Trust</a>, offers insights on strategic portfolio design in today’s landscape.<br/>As a preview, this is not the moment to abandon asset allocation. To learn more, tune in...</p>

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        <em>Please visit <a href="http://capitalspectator.podbean.com/2009/02/23/interview-with-ron-surz-target-date-analytics/">CapitalSpectator.podbean.com</a> for more episodes of The Inside View.</em></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/talking-about-asset-allocation-on-the-inside-view-podcast-2/" title="11:43 am" rel="bookmark"><time class="entry-date" datetime="2009-03-04T11:43:09-05:00">March 4, 2009</time></a>
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    <p>In the editor’s “other” life as an independent financial journalist, stories have been published in various outlets. The latest appears in <a href="http://www.fa-mag.com">Financial Advisor</a>. In the February issue, I explore how we are all becoming value investors, or at least how we should be. You can read the article <a href="http://www.fa-mag.com/component/content/article/3900.html?issue=103&amp;magazineID=1&amp;Itemid=73">here...</a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/the-value-proposition/" title="12:42 pm" rel="bookmark"><time class="entry-date" datetime="2009-03-03T12:42:17-05:00">March 3, 2009</time></a>
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    <p>Since the market turmoil began last fall, February marks the third consecutive month of declines. The months of September and October in 2008 were dismal, and last month continued this unfortunate trend. The only exception was a fractional gain in cash, as indicated by the 3-month T-bills, as shown in our chart below.<br/><img decoding="async" alt="030209.GIF" src="https://www.capitalspectator.com/wp-content/uploads/030209.GIF" width="469" height="358"/><br/>The significant distress currently affecting capital and commodity markets requires no elaboration. The global recession enveloping the world drives a trend of selling and cash hoarding while retreating at all costs from debt. This combination is toxic, explaining the persistent economic challenges that continue to emerge. While this unwinding process is necessary to address the issues plaguing the global economy, it is expected to be neither pleasant nor swift.</p>
    <p> <a href="https://www.capitalspectator.com/and-february-makes-three/#more-922" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/and-february-makes-three/" title="7:52 am" rel="bookmark"><time class="entry-date" datetime="2009-03-02T07:52:36-05:00">March 2, 2009</time></a>
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    <p>No one anticipated positive news, and expectations were met.<br/>Today’s release on fourth-quarter 2008 GDP proved dismal, representing the worst performance in 25 years. The economy contracted by 6.2% at a real, annualized, seasonally adjusted rate in the last three months of 2008, greatly surpassing the initial estimate of a 3.8% decline by the government.<br/>While painful, this outcome was not surprising considering the prevailing economic and financial landscape. However, it’s important to note the critical message contained in today’s <a href="http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm">revised figures</a> from the Bureau of Economic Analysis. The primary concern is that a major component driving economic activity has faltered, making a swift recovery improbable—comparable to the likelihood of waking up on the surface of Neptune tomorrow.</p>
    <p> <a href="https://www.capitalspectator.com/the-great-unwinding/#more-921" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/the-great-unwinding/" title="9:43 am" rel="bookmark"><time class="entry-date" datetime="2009-02-27T09:43:32-05:00">February 27, 2009</time></a>
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    <p>The primary focus for revitalizing the economy—or at least halting the decline—must be to restore prices to an approximate equilibrium. Additional efforts are still needed, as suggested by inflation forecasts derived from the spread between nominal and inflation-indexed 10-year Treasuries.<br/>Our chart below illustrates that the market remains unconvinced that the risks of deflation have been resolved. Cautiously open to the notion, the market isn’t fully convinced just yet.<br/><a href="https://www.capitalspectator.com/wp-content/uploads/022609.html" onclick="window.open('https://www.capitalspectator.com/wp-content/uploads/022609.html','popup','width=555,height=427,scrollbars=no,resizable=no,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0'); return false"><img decoding="async" src="https://www.capitalspectator.com/wp-content/uploads/022609-thumb.GIF" width="460" height="353" alt=""/></a><br/>As of last night’s close, the Treasury market predicts an inflation rate just below 1% for the coming decade. This is an improvement from the near-zero inflation expectations at last year's end and early January. However, compared to normal conditions, recent trends point to renewed concerns about potential deflationary pressures.</p>
    <p> <a href="https://www.capitalspectator.com/desperately-seeking-equilibrium/#more-920" class="more-link">Continue reading <span class="meta-nav">→</span></a></p>
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    By James Picerno | <a href="https://www.capitalspectator.com/desperately-seeking-equilibrium/" title="10:48 am" rel="bookmark"><time class="entry-date" datetime="2009-02-26T10:48:47-05:00">February 26, 2009</time></a>
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    <p>Next month, the editor will visit Philadelphia to discuss familiar topics: asset allocation and rebalancing.<br/>On March 19, at 11 a.m., I will be presenting in Philadelphia about strategic portfolio issues, both large and small, at the local <a href="http://www.napfa.org/">NAPFA</a> study group. The meeting will be graciously hosted by <a href="http://www.wescott.com/">Wescott Financial Advisory Group</a> at 30 South 17th Street, Philadelphia.<br/>For more details regarding the meeting and attendance costs, please contact the study group leader, Chip Addis of <a href="http://www.addishill.com/">Addis & Hill</a> Financial Advisors. His contact information is:<br/><strong>caddis-at-addishill.com</strong><br/>Topics on the agenda include:<br/><small><strong>* Comparing passive and active asset allocation strategies<br/>* Reviewing lessons learned from the 2008 bear market regarding asset allocation<br/>* Analyzing rebalancing strategies for asset allocation management<br/>* Contrasting tactical asset allocation with rebalancing<br/>* Implementing asset allocation strategies via ETFs and index mutual funds<br/>* Considering investing as a risk-management approach rather than a return-chasing exercise</strong></small><br/>As an incentive, all attendees will receive a complimentary copy of the March issue of <a href="http://www.betainvestment.com/">The Beta Investment Report</a>. Hope to see many of you there!</p>
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    By James Picerno | <a href="https://www.capitalspectator.com/the-capital-spectator-on-the-road/" title="8:59 am" rel="bookmark"><time class="entry-date" datetime="2009-02-25T08:59:36-05:00">February 25, 2009</time></a>
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