As anticipation builds for tomorrow’s Fed announcement, expectations suggest that the gradual pace of tapering will persist. While we await Wednesday’s monetary policy statement, adjusted economic projections, and press conference, it is worth noting that the real (inflation-adjusted) year-over-year growth in the monetary base is continuing to slow down. Although this is expected, it distinctly indicates that monetary stimulus is advancing towards normalization.
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In recent years, the trend of securitizing a larger portion of global market betas presents investors with theoretically improved chances to bolster risk-adjusted returns. Gaining access to a wider array of assets with low to negative correlations draws us closer to the goal of crafting optimal portfolios. However, the practical execution of this idea is laden with challenges. One significant hurdle is setting realistic expectations for these relatively “new” betas that emerge. Accessing an obscure market through an ETF may seem beneficial, but the lack of historical data often leads to uncertainty. For some investors, this ambiguity creates hesitation. Yet, playing it safe can introduce its own risks. The crux of the matter is how to build confidence in new products lacking a robust track record. The concise answer lies in a careful, systematic approach leveraging various techniques, including some statistical modeling.
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The August report from the Federal Reserve is expected to show a 0.3% increase in US industrial production compared to the previous month, as per The Capital Spectator’s median econometric forecast. This anticipated growth indicates a slight deceleration from July’s 0.4% rise.
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● The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis
By Martin Wolf
Review (FiveThirtyEight.com)
For Freud, everything revolved around sex; for Marx, the center was the struggle between capital and labor. These scholars applied their key theories unhesitatingly, much like a person with a favorite tool, where every problem resembles a nail. For Martin Wolf, chief economics commentator for the Financial Times and a leading voice in macroeconomics and international finance, his guiding principle revolves around “global imbalances.” Many contemporary economic and financial issues can be seen through this lens. His recently released book, “The Shifts and the Shocks: What We’ve Learned — and Have Still to Learn — from the Financial Crisis,” is a compelling read. It challenges any notion that the financial system has stabilized. Wolf argues that the financial sectors in many advanced economies still face potential crises, and that the reforms put in place have not gone far enough.
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Spending on retail goods and services rose by 0.6% in August, aligning with several consensus forecasts and reinforcing the belief that the US economy is maintaining a trajectory of moderate growth. Excluding gasoline sales and general merchandise stores, all primary categories reported increased sales last month. The overall data from August is robust, showcasing a healthy consumption pace. Additionally, there was a positive revision for July’s initially reported flat performance, adjusted to a 0.3% gain.
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I will be a panelist at the upcoming 360 Exchange conference (Thursday, September 18) at the Bloomberg headquarters in New York City. I’ll join co-panelist Dan Farley, chief investment officer for the investment solutions group at State Street Global Advisors, for a session at 10:20 am focusing on volatility in macroeconomic conditions and markets. The conference will feature an impressive lineup of speakers and discussions on finance and economics throughout the day. For more details, check out the agenda below or visit the conference website.
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The upcoming August report is anticipating a 0.3% rise in US retail sales compared to the previous month, according to The Capital Spectator’s median econometric forecast. This projection marks an improvement over July’s flat retail performance.
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The significance of volatility in monitoring, modeling, and forecasting risk within the context of portfolio management cannot be overstated. The challenge lies in determining the focus of our analysis. Even defining volatility can be complex, as signals can differ substantially based on whether one analyzes market performance through standard deviation of returns or the price trading range of an asset. I appreciate Professor Ser-Huang Poon’s description in his book A Practical Guide to Forecasting Financial Market Volatility
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The economic outlook for the US remains optimistic in early September, showing readings close to the year’s highest levels, based on a market-based analysis of macroeconomic conditions. The Macro-Markets Risk Index (MMRI) closed at +13.2% on September 8, just shy of this year’s peak value of 16.0% observed on August 26. This consistent stream of positive readings suggests that the risk of a business cycle downturn remains low. A drop below 0% in the MMRI would indicate heightened recession risk, while readings above 0% imply potential economic expansion in the near future.
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With Scotland poised to vote on independence from the United Kingdom next week, a recent poll reveals that pro-independence supporters hold a narrow lead for the first time. However, what is particularly noteworthy, and perhaps concerning, is the apparent disregard for the economic ramifications of such a decision. The potential macroeconomic risks are significant. We have ongoing real-world evidence regarding the challenges faced by small economies trying to balance their fiscal responsibilities while being linked to a foreign-controlled currency. While this could yield positive outcomes, it’s beneficial to consider perspectives from nations like Spain or Greece regarding the pitfalls of shared currency in times of fiscal strain.
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