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

Investing in real estate investment trusts (REITs) has become increasingly appealing, especially when considering their robust performance compared to the U.S. stock market and their relatively high yields above Treasury rates. Currently, U.S. REITs present an enticing opportunity among asset classes.

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● U.S. factory orders unexpectedly drop for the second consecutive month | LA Times

Orders for durable goods fell unexpectedly in September for the second month in a row, signaling potential concerns for the U.S. economy.
● Wall Street watches for the Fed’s next move as QE comes to an end | USA Today
The Federal Reserve is expected to conclude its quantitative easing program during a two-day meeting ending Wednesday.
● Consumer confidence soars in October | Reuters
U.S. consumer confidence reached its highest level since October 2007 in October, driven by improved perceptions of the job market, according to a private sector report released Tuesday.
● World Bank: China needs economic reform, not growth targets | AP
According to the World Bank, China’s growth may slow to around 7 percent next year, urging Beijing to prioritize economic restructuring over maintaining specific growth targets.
● U.S. home-price growth continues to decelerate | HousingWire
The most recent S&P/Case-Shiller Home Price Indices for August 2014 show a continued slowdown in home-price growth.
● The reduction of global imbalances | VOX
Global current-account imbalances have significantly diminished over the past eight years, resulting in a decrease in associated systemic risks.

The Federal Reserve is anticipated to officially declare the conclusion of QE3 in tomorrow’s FOMC monetary statement. However, as quantitative easing (which involves purchasing assets with newly minted money) comes to an end, inflation expectations are trending downward, which raises concerns.

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● Seeking unity, U.S. revises Ebola monitoring rules | NY Times
On Monday, the federal government took steps to manage the escalating debate over handling individuals who have come into contact with Ebola patients by announcing guidelines that avoided strict measures in New York and New Jersey. Officials stated these guidelines were carefully crafted to support the recruitment of much-needed medical personnel for West Africa.
● Sweden’s central bank cuts benchmark rate to zero | MarketWatch
In an effort to stimulate inflation, Sweden’s central bank lowered its main interest rate to zero on Tuesday after inflation fell below expectations.
● Italy’s business confidence unexpectedly rises in October | Reuters
Italian manufacturing morale showed a surprising improvement in October, reversing four consecutive months of declines, according to recent data.
● ECB Praet: Limited risk of deflation in the Eurozone | MNI
European Central Bank board member Peter Praet stated on Tuesday that the risk of deflation in the Eurozone is limited and that he expects the economy to avoid slipping into recession.
● Oil prices fall further due to weak outlook | AFP
Oil prices decreased during Asian trading on Tuesday after Goldman Sachs revised its price predictions downward for the next two years due to a surplus in global supply.

The recent uptick in volatility within the U.S. stock market has raised concerns and prompted some analysts to declare the onset of a bear market. The S&P 500’s dip below its 200-day moving average earlier this month has accentuated these fears. While a bearish outlook cannot be entirely dismissed, the latest decline in stock prices appears to be a fleeting moment of apprehension rather than the beginning of a prolonged downturn. This perspective is supported by a key factor in the economy that continues to lend support to a bullish outlook. Not surprisingly, an econometric analysis for bear-market signals in U.S. stocks shows little indication of danger.

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The U.S. economy is projected to grow at a significantly slower rate in the third quarter compared to Q2, according to the Capital Spectator’s median econometric nowcast. The revised GDP estimate for the July to September period predicts a 2.6% increase (real seasonally adjusted rate), which is markedly lower than the previous quarter’s 4.6% growth, as reported by the Bureau of Economic Analysis (BEA) in late September.

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● Bank stress test relief boosts European assets | Reuters
European equities, lower-rated government bonds, and the euro rose on Monday as the financial markets reacted positively to the health metrics of banks in the eurozone.
● German business confidence dips once again in October | Wall St Journal
The well-regarded lead indicator from the Ifo Institute fell to 103.2, down from 104.7 last month, marking the sixth consecutive decline in this indicator.
● Dilma Rousseff re-elected as president of Brazil | RT
Brazil’s leftist president Dilma Rousseff secured re-election with over 51% of the vote in a closely contested presidential runoff on Sunday.
● As Ebola spreads, Asia recognizes its vulnerabilities | NY Times
Governments and healthcare professionals across Asia are increasingly concerned that populous cities may be at risk if infected individuals travel from Africa.
● Goldman slashes 2015 oil price prediction | Reuters
Goldman Sachs has significantly reduced its 2015 oil price forecasts, becoming the most pessimistic among major financial institutions following a nearly 25% decline in crude prices in the last five months.

● Berkshire Beyond Buffett: The Enduring Value of Values
By Lawrence A. Cunningham
Q&A with the author via ValueWalk
Q: What motivated you to write this book and what are its central themes?
A: The book celebrates Berkshire Hathaway’s 50 years under Warren Buffett’s leadership. For over two decades, there has been curiosity about Berkshire’s future should Buffett, now 84 years old, no longer be at the helm. The common inquiry became paradoxical: Buffett sought to create a lasting institution at Berkshire, yet even his staunch supporters question its ability to endure without him. This book illustrates how Berkshire’s corporate ethos is structured to outlast any single individual, thus making it integral to its succession strategy.
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Healthcare is thriving, while energy is faltering. This is the narrative emerging from the one-year total return data for ETFs tracking the major sectors of the U.S. equity market (refer to the list below for tickers and links).

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● Treasuries surge as New York Ebola case boosts demand for safe assets | Bloomberg
Treasuries gained the most in a week following reports of an Ebola case in New York City, increasing demand for safe-haven assets amid concerns that any outbreak could adversely impact the global economy.
● German consumer sentiment improves heading into November | Reuters
Consumer confidence in Germany increased as November approaches, following slight declines in the prior months, signaling that consumers feel positive about their incomes and are willing to spend despite slowing economic conditions.
● UK GDP expands by 0.7% in the third quarter | BBC
The U.K. economy grew at a slower pace in the three months leading to September, with a modest increase of 0.7%, according to the Office for National Statistics.
● China’s Leading Economic Index rises 0.9% in September | RTT
An index for China’s economy saw a 0.9% increase in September, as reported by the latest survey from the Conference Board, following a 0.7% gain in August and a 1.3% rise in July.
● Europe’s economic and political destiny hinges on upcoming events | Reuters
Europe stands at a critical juncture. Two significant events occurring on Sunday will greatly shape the continent’s future: the parliamentary election in Ukraine and the European Central Bank’s bank “stress tests” and Asset Quality Review.