● Bonds Are Not Forever: The Crisis Facing Fixed Income Investors
By Simon Lack
Summary via publisher, Wiley
In “Bonds Are Not Forever: The Crisis Facing Fixed Income Investors,” Simon Lack combines engaging, often humorous stories from his impressive thirty-year career as a financial professional with solid economic data. This book illuminates the increasingly precarious status of bonds—once deemed a steadfast source of income for investors—and emphasizes the necessity for caution in current markets. Lack also outlines a clear framework designed to help investors navigate the future of fixed income markets and crucially addresses the burning question: “Where should I invest next?”
Today’s update on personal spending and income for July presents a mixed picture. While there isn’t a standout issue, the numbers for July do not paint an impressive portrait either. The prevailing trend demonstrates sluggish growth, managing just enough momentum to keep the economy from faltering. Despite the economy’s resilience, recent adjustments to these vital measures leave little room for optimism in the event of an unexpected downturn. On a positive note, the overall economic outlook remains relatively robust, as highlighted by yesterday’s significant upward revision of Q2 GDP growth, adjusted from 1.7% to 2.5%. Nevertheless, considering today’s consumer spending and income news, it appears unlikely that the US will escape its current moderate growth trajectory anytime soon.
The ISM Manufacturing Index is anticipated to rise to 55.8 in the upcoming August update (set to be released on September 3), according to The Capital Spectator’s average econometric forecast. This forecast indicates a modest increase from the previously reported 55.4 for July. Additionally, our average projection for August is slightly above the consensus expectations derived from an economist survey.
The latest report on personal consumption spending for July (to be released shortly at 8:30 AM Eastern) is expected to show an increase of 0.2% from the previous month, according to The Capital Spectator’s average econometric forecast. This figure is lower than the previously recorded 0.5% rise for June. Moreover, the average anticipations for July slightly trail behind consensus predictions compiled from economists’ surveys.
Jobless claims have decreased last week, nearing a five-year low. Compounding today’s data release, the government has also revised the second-quarter GDP growth upward to 2.5%, compared to the initial estimate of 1.7%. This latest Q2 figure surpasses Q1’s 1.1% increase significantly. The overarching message from these reports is that the economy appears to remain on a moderate growth trajectory. This observation has held consistently, despite occasional fluctuations. However, persistent arguments from bearish macroeconomic perspectives suggest a tendency to overlook broader trends in the data.
This year, investors are once again learning about the nature of risk, particularly regarding emerging markets, which have faced significant challenges in 2013. The MSCI Emerging Markets Index has dropped approximately 14% as of yesterday (August 28), while US stocks, represented by the S&P 500, have risen nearly 15%, and foreign developed-market equities have gained close to 7% year-to-date. While fluctuations among different markets are expected, the considerable disparity in performance this year prompts a reevaluation of the challenges associated with consistently outperforming an unmanaged, market-value-weighted portfolio of all the major asset classes.
Oil prices are rising, Treasury yields are declining, and investors are showing a renewed preference for holding US dollars. The catalyst for these developments: concerns surrounding potential US military action in Syria, as reported. The predictability of this situation raises questions. Are we expecting a formal announcement detailing targets and specific times for potential strikes? This seems plausible, considering the current strategic focus appears to be more about punitive measures than achieving a traditional military victory.
The Global Market Index (GMI), frequently referenced on this site, serves as a comprehensive benchmark because it encompasses all major asset classes in market-value weights without rebalancing. Essentially, GMI represents a measure of global beta that is accessible and cost-effective for anyone in a framework devoid of forecasts. In simple terms, this index could easily be replicated by even a novice investor, and studies have shown that this approach can yield impressive results over time. However, readers occasionally inquire why the relatively short historical record of GMI should be trusted as a reliable predictor of future performance. This is a great question that warrants a thorough response.
According to The Capital Spectator’s average econometric nowcast, US GDP is projected to rise at a rate of 1.7% (seasonally adjusted annual rate) in the third quarter of this year. This estimate is slightly lower than the 1.9% nowcast average for Q3 released on August 5. The government’s initial estimate for Q3 GDP is scheduled for publication on October 30.
● Made in the USA: The Rise and Retreat of American Manufacturing
By Vaclav Smil
Summary via publisher, MIT Press
In “Made in the USA,” Vaclav Smil compellingly counters the belief that manufacturing is an outdated concept and that the decline of American manufacturing is a necessary step toward a service-driven economy. Smil posits that no advanced economy can thrive without a robust, innovative manufacturing sector and the employment it fosters. He famously turns around a well-known principle about the information economy, asserting that producing microchips is far superior to merely distributing potato chips.
