Recently, discussions around economic uncertainty have surged, driven by a notable decline in the Economic Policy Uncertainty Index. The Washington Post’s Wonkblog boldly states, “‘Uncertainty’ isn’t a problem anymore.” Paul Krugman references this sentiment, highlighting that “the index of uncertainty that was frequently cited has sharply decreased, showing no significant boost to the economy.”
Risk management is a focal point in the investment community, and justifiably so. Simply chasing returns often leads to disappointment. In essence, effective risk management is vital. However, while discussions around risk management abound, translating these discussions into actual practice that yields successful outcomes is a different challenge. Although concrete data on practitioners’ methods is scarce, it’s likely that many investors do not fully grasp this essential concept. With this in mind, let’s delve deeper into this often confusing area for the average investor, as missteps here can be financially detrimental.
Is the current climate as favorable for US stocks as it seems? As we review various major asset classes through ETF proxies, the US stock market appears robust, demonstrating a remarkable 22% increase in total returns up until August 5. Developed foreign markets are showing signs of strength as well, even though their approximately 11% year-to-date growth pales in comparison to US stocks.
US economic conditions show relative stability following a brief decline in June, based on a market-based macro trend profile. The Macro-Markets Risk Index (MMRI) registered at 12.6% on Friday, August 2—indicating that the risk of a business cycle downturn remains low. This reading is safely above the critical level of 0%. A drop below this threshold would signal heightened recession risks. A reading above 0% suggests ongoing economic growth; notably, the MMRI is now computed as the daily median change of four key market indicators, with a brief review of this modification provided below.
Projected real gross domestic product (GDP) growth for the third quarter in the US is anticipated at 1.9% (seasonally adjusted annual rate), according to the average econometric nowcast from The Capital Spectator. This initial estimate is based on limited Q3 data and will be revised as new economic data emerges. The final nowcast will be released just before the official Q3 GDP report, which the Bureau of Economic Analysis (BEA) will present on October 30, including three estimates.
● Wealth and Power: China’s Long March to the Twenty-first Century
By Orville Schell and John Delury
Interview with authors via The Diane Rehm Show
Experts suggest that China may surpass the United States by 2016 to become the leading economic superpower. The world’s most populous nation has not only a rapidly growing military but also an expanding influence on global matters. These developments come after a long history of dynastic decline, foreign invasions, and civil unrest. According to China scholars Orville Schell and John Delury, the pursuit of national prominence following decades of humiliation has shaped the Chinese identity. They argue that this determined quest for wealth and influence is crucial in understanding many of China’s contemporary actions.
July marked a significant rebound across major asset classes, with previous losses from June giving way to widespread gains. Leading the sector, US stocks showed impressive performance. The Global Market Index (GMI), an unmanaged mix of the major asset classes, posted a robust increase of 3.5% in July—its best monthly gain in over a year. As of the end of July, GMI has appreciated a noteworthy 6.5% for 2013.
According to the Labor Department, private payrolls increased by a seasonally adjusted 161,000 in July. While this figure falls short of predictions, this modest growth aligns with the trend observed throughout the year. When analyzed in light of recent economic reports, there is still a compelling argument for believing that the economy continues to expand at a moderate pace.
Forecasts indicate a rise of 192,000 in private nonfarm payrolls (seasonally adjusted) in the upcoming July report from the Labor Department, based on The Capital Spectator’s average econometric prediction. This anticipated increase is slightly less than the previously reported rise of 202,000 for June. In comparison with various consensus forecasts based on economist surveys, the July projection is relatively mediocre.
Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, recently appeared on Bloomberg TV, asserting that the US entered a recession last year. He contends that existing data fails to truly represent the situation, maintaining that future revisions will validate his perspective on the business cycle.
