Recent evaluations suggest that the economy’s notable performance in recent months may have been positively influenced by an unusually mild winter. This assertion gains credence when considering the March report on industrial production. Following robust increases in December and January, March showcased the second consecutive month of stagnation in the Federal Reserve’s industrial production index.
According to the Census Bureau’s report, new residential construction saw a significant slowdown last month, while the number of new permits issued in March soared to levels not seen since September 2008. In essence, the data presents a mixed picture for the housing sector, although the sustained rise in new permits indicates that construction activities are likely to ramp up soon.
Tactical Asset Allocation Using Relative Strength
John Lewis (Dorsey Wright Money Management) | March 2012
Strategies focused on relative strength have a long-standing history of outperforming the market. Much of the existing research has concentrated on models utilizing common stocks. Although some studies indicate that relative strength is effective with asset class data, the volume of research in this area is less extensive. Our findings suggest that relative strength serves as a vital component in asset class selection. There exists the potential to achieve superior returns compared to traditional broad-based benchmarks, particularly by examining the relative performance of various asset classes over an intermediate-term horizon. However, it is essential to be patient since relative strength strategies may lag the market at times. Yet, their adaptive nature allows them to stay relevant amidst shifting leadership within markets.
If you’re still not convinced by the ongoing resilience in retail sales, it’s time to rethink that stance. Current data indicates that consumption increased by a robust 0.8% in March, as reported by the Census Bureau reports. While this represents a slight decline from February’s impressive 1.0% surge, there’s little evidence in the latest figures to suggest that consumers are feeling pressured or planning to curtail their shopping habits anytime soon.
There is compelling evidence supporting indexing as a strategy, and it is increasingly hard to ignore. However, finance is notably short on definitive laws, leading researchers to continuously present findings that promote active management as a strategy capable of achieving superior returns. Two interpretations emerge from these studies: one takes a more optimistic view, suggesting that these findings validate the allure of seeking alpha for those dedicated to rigorous effort. Conversely, viewing this research through a more cautious lens implies that pursuing alpha demands considerable time and energy for uncertain returns, which may be unattainable for most investors in the long run.
● Breakout Nations: In Pursuit of the Next Economic Miracles
By Ruchir Sharma
Review via Kirkus Reviews
Ruchir Sharma, head of Morgan Stanley’s emerging markets division, embarks on a brisk global exploration to identify new markets poised for growth. With substantial experience writing for renowned publications like Newsweek and The Wall Street Journal, his approachable writing style makes complex economic concepts accessible. Sharma emphasizes the importance of first-hand observations, sharing insights gained from visiting the countries he discusses. Acknowledging the ever-evolving nature of growth factors, he offers a few broad principles to guide investors. For instance, he illustrates why the structure of a nation’s government may be less relevant than the economic vision of its leaders and highlights the significance of a country’s secondary cities and the profiles of its wealthiest individuals.
It’s widely acknowledged that actively managed investment strategies often struggle against passive indexing. The evidence to support this has accumulated over time, revealing persistent trends across numerous studies of actual performance. The Wall Street Journal reminds us that this applies to individual asset classes just as much as it does to multi-asset class strategies. This provides substantial reasoning to consider indexing from a strategic perspective, but there are additional motivations to do so. Furthermore, seeking guidance from financial advisors may inadvertently erode your wealth, as highlighted in a study analyzing advisor recommendations.
Recent spikes in new jobless claims suggest that the recovery momentum in the labor market might be waning. Initial applications for unemployment benefits increased by a significant 13,000, reaching a seasonally adjusted total of 380,000 for the week ending April 7, as reported by the Labor Department reports. This development raises several concerns. It marks the largest weekly increase in over three months, bringing new claims to the highest level since late January. Additionally, the deviation from the trend—defined as the latest weekly claims number compared to its four-week moving average—is the most significant in nearly a year.
Generally, lending activity is viewed as a lagging indicator of the business cycle, and rightly so. A glance at historical data on business loans indicates that this metric tends to rise well after the onset of a recession. However, in the current environment, characterized by collective awareness of the ongoing credit crunch, can the significance of this indicator be more timely?
Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2012 Edition
Aswath Damodaran (NYU Stern School of Business) | March 2012
Equity risk premiums serve as a foundational element in all risk and return models within finance, also playing a crucial role in assessing the costs of equity and capital in both corporate finance and valuation. Despite their significance, the methods used to estimate equity risk premiums can be rather haphazard. This paper begins by examining the economic factors influencing equity risk premiums, including investor risk tolerance, uncertainty surrounding information, and macroeconomic perceptions of risk. The conventional method for estimating equity risk premiums relies on historical returns: the difference in annual returns between stocks and bonds over extended periods indicates the expected risk premium. However, we highlight the limitations of this approach, especially in markets with scant and volatile historical data like emerging markets. We also explore alternative methods: the survey approach, which solicits assessments from investors and managers about the expected risk premium, and the implied approach, which generates forward-looking estimates based on current equity prices or risk premiums from other markets. Additionally, we investigate the connections between equity risk premiums and risk premiums in the bond market (default spreads) and real estate (cap rates), revealing how this interplay can yield insights into expected equity risk premiums. Finally, we discuss why different approaches result in varying values for equity risk premiums and how to select the most suitable figure for analysis.
