By Steve Keen
Review via NakedCapitalism
At first glance, this book appears quite concise at just 147 pages. However, much like a meticulously crafted atomic bomb, it is designed to deliver a powerful impact against its intended target.
In his analysis, Steve Keen sheds light on why the current debt situation has transformed the economies of the United States, Britain, and southern Europe into so-called zombie economies. He argues that the neglect of debt is a critical oversight within neoliberal economics, which typically adopts a simplistic, almost “don’t worry about debt” stance. This superficial mathematical approach disguises its failure to recognize the scientific importance of debt. Therefore, the inability of the US, British, and southern European economies to recover can largely be attributed to mainstream economic doctrines and their dismissal of debt’s significance.
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The rate of job creation saw a significant boost in April, according to a report from the Labor Department here. This robust uptick suggests that the modest growth observed in March, which was subsequently revised downward, was likely an anomaly. This development is a positive sign, lending further credibility to the notion that the US labor market is still experiencing growth at a steady, if not remarkable, pace. However, the latest statistics also confirm that the year-over-year comparisons still indicate a deceleration trend, which has persisted over the last two years.
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Credit Spreads, Daily Business Cycle, and Corporate Bond Returns Predictability
Alexey Ivashchenko (University of Lausanne)
May 4, 2017
The component of credit spread that cannot be attributed to forecasts of corporate credit risk is predictive of future economic activity. This research demonstrates that the relationship between aggregate business risk and bond liquidity risk elucidates this conclusion. By incorporating these two measurable risk factors alongside corporate credit risk, the predictive utility of the residual spread diminishes significantly for several macroeconomic variables and vanishes entirely for others. Nevertheless, this residual remains a viable out-of-sample predictor for corporate bond market returns. An investment strategy informed by these predictions yields risk-adjusted returns that are 50% higher than those of the corporate bond market.
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Recently, technology stocks have outperformed the struggling financial sector in terms of one-year returns, according to a series of proxy ETFs as of yesterday (May 3, 2017). While financials still enjoy decent gains over the past year, the technology sector has firmly claimed the top position among major US equity sectors in recent days.
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The dominance of US equities in the race among the major asset classes is impressive. By nearly every measure, the stock market in the world’s largest economy has remained a formidable force in global finance.
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The anticipated risk premium for the Global Market Index (GMI) declined in April, marking the first decrease since last August. The GMI, an unmanaged market-value weighted blend of the major asset classes, is projected to yield an annualized return of 5.2% (above the “risk-free” rate) in the long term – a drop of 20 basis points compared to last month’s assessment.
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April proved to be a favorable month for global markets. Major asset classes saw widespread positive returns, driven by a significant rise in inflation-linked bonds overseas. The sole downturn was observed in broadly categorized commodities, which experienced a decline for the second consecutive month.
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By Andrew W. Lo
Summary via publisher (Princeton University Press)
With nearly half of all Americans invested in the stock market, the debate among economists about whether investors and financial markets behave rationally or irrationally remains unresolved. This question weighs heavily on the efficacy of investment management and the potential for meaningful financial regulation. In this innovative book, Andrew Lo introduces the Adaptive Markets Hypothesis, offering a fresh perspective where rationality and irrationality coexist.
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The VIX Index, a key indicator of US stock market volatility, dropped to a three-year low on Thursday (April 27), indicating that investors are surprisingly calm about the risk outlook. Indeed, investor sentiment is almost unprecedentedly tranquil, as reflected by the VIX. The record low for this “fear index,” established in 1990, is 9.48 on December 23, 1993, according to daily data. Given the recent trends, it’s plausible that the VIX could set a new record low in the forthcoming days.
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The likelihood of another interest rate hike during the Federal Reserve’s June meeting continues to rise, as indicated by futures data, although no changes are anticipated at next week’s FOMC meeting.
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