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James Picerno

James Picerno

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers. Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg Markets, Mutual Funds, Modern Maturity, Investment Advisor, Reuters, and his popular finance blog, The CapitalSpectator.

Articles by James Picerno

Book Bits | 15 June 2019

2 days ago

● Equity Smart Beta and Factor Investing for Practitioners
By Khalid Ghayur, et al.Summary via publisher (Wiley)
Equity Smart Beta and Factor Investing for Practitioners offers a hands-on guide to the popular investment opportunities of smart beta, which is one of the fastest growing areas within the global equity asset class. This well-balanced book is written in accessible and understandable terms and contains an in-depth manual filled with analytical information and new ideas. The authors—noted experts in the field—include a definition of smart beta investing and detail its history. They also explore the distinguishing characteristics of smart beta strategies, offer an overview of factor investing, and reveal the implementation of smart beta approaches. Comprehensive in scope, the

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Simulating Survey-Based Consensus Forecasts With Econometrics

3 days ago

Surveying economists for their projections on a variety of economic and financial indicators and aggregating the results has wide appeal, and for good reason. The wisdom of the crowd, such as it is, tends to be more reliable through time compared with any one forecaster. But there are challenges with standard consensus forecasts—challenges that can minimized if not solved with econometric-based applications.

The challenges include the time and expense in surveying and aggregating the data. The Wall Street Journal, for instance, surveys 60-plus economists each month for their expectations on ten key economic indicators. The question is whether there’s an easier, quicker and low-cost methodology to approximate the task with econometric modeling? As we’ll see, there’s a case for

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Macro Briefing: 14 June 2019

3 days ago

US Secretary of State blames Iran for attacks on tankers: CNNIran says it’s not responsible for tanker attacks: ReutersIEA predicts global oil demand will fall to lowest level in years: CNBCTrump and Warren: a pair of economic populists: BloombergChina’s mfg growth rate slowed to 17-year low in May: ReutersGold rises to 14-month high: WSJUS mfg job growth accelerated in first 2 yrs of Trump admin: EIGImport prices for US fell in May–biggest decline in five months: ReutersUS jobless claims rose 1.4% last week vs. year-ago level:

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Treasury Market’s Inflation Outlook Tumbles

4 days ago

The Treasury market continues to downgrade US inflation
expectations, which suggests that the case is strengthening for a rate cut by
the Federal Reserve.

The widely followed spread for nominal and inflation-indexed 5-year Notes fell to 1.53% yesterday (June 12), based on daily data published by Treasury.gov. That’s the lowest implied inflation rate for this maturity since January 3. It’s also a forecast that’s well below the Fed’s 2.0% inflation target and the core rate of consumer inflation, which rose at an annual 2.0% pace in May.

 Although the inflation outlook is subdued and appears to be edging lower, some analysts advise that macro conditions still remain neutral and so there’s room for debate on whether a rate cut is required. “Inflation at the current run rate

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Macro Briefing: 13 June 2019

4 days ago

Beijing will likely prevail in Hong Kong despite protests: NY TimesSmaller protests continue in Hong Kong on Thursday: ReutersTrump: US will deploy 1,000 troops to Poland: BBCOil prices rise after tanker attack in Gulf of Oman: BloombergEurope’s industrial output fell again in April: ReutersBusiness inflation expectations hold at 2.0% in 6th Fed district: Atlanta FedUS core consumer inflation ticks down to 2.0% annual pace in May:

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Global Equities Hold On To 2019 Gains As Headwinds Build

5 days ago

Economic and political risks appear to be rising, but the global stock market remains resilient in terms of maintaining a strong year-to-date performance, based on an exchange-traded fund. Within the major components of this global ETF proxy, however, lies a dramatic evolution of leaders and laggards in recent weeks.

From a top-down perspective, the 2019 rally appears relatively steady and is holding on to nearly all of this year’s gains via Vanguard Total World Stock (VT), which is up 14.1% year-to-date through yesterday’s close (June 11). Note that VT’s increase this year eclipses all but two of the major equity regions: only Eastern Europe/Russia (Central and Eastern Europe Fund (CEE)) and US stocks via SPDR S&P 500 (SPY) are posting higher gains. Otherwise, the remaining

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Macro Briefing: 12 June 2019

5 days ago

Low expectations prevail for possible Trump-Xi trade talks: ReutersTrump calls Fed policies ‘ridiculous’; says board is clueless: WSJUS Energy Sec: US will maintain oil output despite lower prices: CNBCHong Kong protests against extradition bill continue on Wednesday: CNNBusinesses in Hong Kong are concerned as protests roll on: NY TimesConsumer inflation in China increased to 15-month high in May: CNBCWhite House economic adviser predicts US growth at 3% pace in 2019: CNBCUS Small Business Optimism Index rose to 7-month high in May: NFIBUS wholesale inflation barely rose in May: MWCore Consumer Price Index for May expected to slip to +2.0% annual pace:

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US Growth Nowcast For Q2 Stabilizes At Modest Pace

6 days ago

Recent volatility in US economic indicators has trimmed the outlook for the upcoming second-quarter GDP report (due at the end of July), but the current estimates show a degree of stability after a period of downgrades. That’s an encouraging sign, although with another month-plus of data releases to digest before the government’s preliminary Q2 GDP data is published leaves plenty of room for surprises.

Meantime, the current run of nowcasts compiled by The Capital Spectator reflect a slightly higher increase vs. the previous update. Real (inflation-adjusted) economic output appears on track to rise 2.0% in Q2, based on the median estimate. Although that’s down from Q1’s healthy 3.1% rise, a 2.0% advance is strong enough to keep recession risk under control, at least for now.

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Macro Briefing: 11 June 2019

6 days ago

Trump will raise Chinese tariffs if Xi doesn’t meet at G20: BloombergMnuchin: China is letting its currency weaken to offset tariffs: SCMPWill more tariffs on China push US into recession? CNBCCalifornia to offer health care to illegal immigrants: BBCHalf brother of N. Korean leader was a CIA source: WSJAre the Hong Kong protests the last battle for Chinese democracy? SlateSwollen rivers are economic headache for US Midwest & South: NY TimesUS job openings fell slightly in April as hiring rose to record high: Reuters

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Across-The-Board Gains For The Major Asset Classes Last Week

7 days ago

Global markets rebounded last week, posting gains in all corners of the major asset classes, based on a set of exchange-traded funds. The broad sweep of positive returns marks the first across-the-board price increases on a calendar-week basis in three months.

Leading the way higher: US
equities. Vanguard Total Stock Market (VTI) surged 4.3% for the trading week
through June 7. The gain marks the ETF’s first weekly advance in five weeks and
its best weekly increase since November.

Last week’s revival in animal spirits for US stocks was initially bound up with fears that the President Trump was poised to impose new tariffs on Mexico, which would weaken economic growth and thereby force the Federal Reserve to cut interest rates. The market seemed to focus on the rising odds of

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Macro Briefing: 10 June 2019

7 days ago

Trump claims victory over Mexico border conflict but is it a mirage? CNNRevised US-Mexico trade bill’s future uncertain due to politics: BloombergTreasury Sec. Mnuchin defends using security and economics as US policy: CNBCG-20 finance officials vow to protect global growth: MWHong Kong pushes China extradition bill despite protests: ReutersA Fed rate cut appears likely, but when? BloombergChina’s imports fell sharply in May due to soft domestic demand: WSJBrexit woes weigh on UK economy, which fell sharply in April: ReutersChina warns tech firms against cooperating with US ban: NY TimesWill fighting economic wars near and far pay off for the US? NY TimesUS hiring in May slows to 1.6% annual pace, slowest in over a year:

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Book Bits | 8 June 2019

8 days ago

● Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us about Economics and Life
By Alan B. KruegerReview via The New York Times
Mr. Krueger has a “knack of identifying important questions that he could convincingly answer with the data and data-analysis tools at his disposal,” as his former teacher, Lawrence Summers, wrote in a Washington Post op-ed after his death. And while “Rockonomics” does make ample use of data, it is the dozens of interviews Mr. Krueger conducted with industry artists, lawyers and executives that frame its highly personal preoccupations. Rather than just provide a tutorial in media economics, Professor Krueger schools us in the costs and benefits of creativity itself.
The result is a wide-ranging work that touches on topics as diverse as

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US Labor Market Growth Was Surprisingly Weak In May

9 days ago

US companies added just 90,000 workers in May, according to today’s payrolls report from the Labor Department. The soft gain surprised analysts and marks a hefty slowdown from April’s solid 205,000 increase. The deceleration in growth is worrisome, although mostly because it reflects uncertainty about President Trump’s trade war with China and, more recently, Mexico. If and when these battles end, or at least cool, it’s reasonable to assume that the labor market will rebound. Meantime, employers are taking a cautious approach to hiring.

Michael Feroli, chief U.S. economist for JPMorgan Chase, says that “it definitely looks like we’ve downshifted in the pace of job growth.” The catalyst, he adds, seems largely bound up with the recent trade conflict. “Overall it’s a disheartening

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Profiling Monetary Policy’s Influence On The Stock Market

10 days ago

Most investors recognize that central banks are a key driver in the ebb and flow of equity prices through time. But the relationship between interest rates, monetary policy and the stock market is constantly evolving. Some analysts advise that in recent years this link has become unusually influential. As we’ll see, that’s a theory that finds support in the data.

As a general proposition, the connection between stocks and monetary policy is hardly mysterious. One of Wall Street’s favorite maxim’s captures this relationship: Don’t fight the Fed. The reasoning is that when the Federal Reserve is easing monetary policy and injecting liquidity into the economy, some (perhaps a lot) of the newly minted money sloshing around finds its way into the stock market and drives up prices.

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Macro Briefing: 7 June 2019

10 days ago

Trump plans to declare new nat’l emergency to impose tariffs: The HillProgress reported in US-Mexico trade talks: ReutersStrong US job growth expected in today’s update for May: ReutersIs US recession worry overblown? WSJFed faces challenges in offsetting headwinds from trade conflicts: CNBCGerman industrial product fell sharply in April: MWUS imports and exports tumbled in April as trade gap narrowed: BloombergUS job cuts surged in May, lifting annual change to +86%: CG&CJobless claims in US hold steady at low level: CNBC

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Real Estate Leads US Equity Sector Performance In 2019

11 days ago

The US stock market has been
on a roller coaster this year, but the volatility hasn’t dented the relatively
smooth bull market in securitized real estate shares. In the wake of the tech
sector’s slide in recent weeks, real estate investment trusts (REITs) have
become the top-performing US equity sector year to date, based on a set of
exchange-traded funds.

Real Estate Select Sector
SPDR (XLRE) is up 20.8% so far in 2019 through yesterday’s close (June 5).
After yesterday’s sharp gain, the ETF closed at a record high, securing its
position as this year’s performance leader for the main US equity sectors.

Technology shares had been on
top for much of the year until the sector suffered a reversal of fortunes that
began in early May. The near-continuous slide in Technology Select

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Macro Briefing: 6 June 2019

11 days ago

Trump: more progress needed to avert new tariffs on Mexico: BBCUS plans arms package for Taiwain despite China’s protests: BloombergFed’s Beige Book: US economy expanded at ‘moderate pace’: MWGerman factory orders rose more than expected in April: BloombergAre markets overpricing the odds of a Fed rate cut? CNBCOil prices slide on weaker economic outlook: NY TimesGlobal growth slowed to 3-year low in May: IHS MarkitUS ISM Non-Mfg Index rose more than expected in May: CNBCUS Services PMI for May reflects slowest growth since 2016: IHS MarkitUS private employment growth slowed sharply in May: ADP

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Two Yield Spreads Are Better Than One For Business Cycle Analysis

12 days ago

The US recession warnings are flying every which way lately in the wake of an inverted yield curve. The spread on the 10-year less 3-month yields in particular has unleashed a wave of predictions that a new downturn is near. But some analysts point out that another widely followed spread — 10-year less 2-year yields – is still positive, albeit modestly so. What’s an informed investor to do? Wait for both spreads to confirm a recession forecast before betting the farm on contraction.

To be clear, The Capital Spectator recommends looking beyond yield curves in search of reliable, timely signals on US recessions. On that basis, recent data indicate that an NBER-defined downturn hasn’t started and isn’t likely to start in the immediate future, as discussed in last month’s profile of

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Macro Briefing: 5 June 2019

12 days ago

Senate Republicans push back on Trump’s plans for tariffs on Mexico: NY TimesMexican officials to meet with VP Pence today for tariffs talk: ReutersTrump: there’s ‘always a chance’ of military action against Iran: CNBCFed’s Powell is open to rate cuts if warranted: WSJWorld Bank cuts forecast for global growth in 2019: WBUS auto sales rebounded in May: Yahoo FinanceUS factory orders’ 1yr trend was subdued in April at +1.0%:

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Risk Premia Forecasts: Major Asset Classes | 4 June 2019

13 days ago

The outlook for the Global Market Index’s (GMI) risk premium fell in May, edging down to an annualized 4.5%. The projection marks a relatively sizable decline from the 4.8% estimate in last month’s update. Today’s revision for GMI — an unmanaged market-value-weighted portfolio that holds all the major asset classes (except cash) — represents the ex ante premium over the projected “risk-free” rate for the long term.

Adjusting for short-term momentum and medium-term mean-reversion factors (defined below) cuts GMI’s ex ante premium, slightly, to an annualized 4.4% forecast — a fractional decline from last month’s estimate.
Today’s update continues to remind that a wide gap exists between GMI’s performance history and the forward-looking estimate. The benchmark earned a solid 7.0%

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Macro Briefing: 4 June 2019

13 days ago

Fed’s Bullard: rate cut may be near: CNBCBig tech may have big problem with new US antitrust probe: ReutersAustralia’s central bank cuts interest rates: MWRising share of companies expect climate change to impact business: NY TimesGlobal manufacturing activity contracted in May: IHS MarkitSoft residential housing sector weighed on US construction spending in April: APMfg PMI for US slumps to lowest print in nearly a decade: IHS MarkitUS ISM Mfg Index fell in May, reflecting weakest growth since 2017: MW

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Major Asset Classes | May 2019 | Performance Review

14 days ago

Stocks around the world took a hit in May as trade-related fears weighed on the outlook for the global economy. The deterioration in sentiment was a boon for US bonds, which attracted a surge of asset flows in the rush for a safe haven last month.

May’s biggest loser for the major asset classes: stocks in emerging markets. The MSCI Emerging Markets Index tumbled 7.3%. The sharp decline marks the index’s first monthly setback this year and the deepest loss since October.

US equities posted the first monthly decline this year. The Russell 3000 fell 6.5%, the steepest loss for the index since December’s 9.3% slide.

US bonds benefited from last month’s risk-off sentiment. The biggest winner in May for the major asset classes: Bloomberg US Aggregate Bond Index, a broad measure

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Macro Briefing: 3 June 2019

14 days ago

China, Mexico open to talks to defuse trade conflict with US: WSJDoes Trump’s trade policy threaten longest US expansion in history? MWTrump has doubts about Mideast peace plan: PoliticoTrump insults London’s mayor ahead of UK visit: BloombergTrump administration considered tariffs for Australia: The HillEurozone mfg sector continued to contract in May: IHS MarkitUK Mfg PMI fell sharply in May, signaling contraction: IHS MarkitWhite House’s top economist, Kevin Hassett, will depart ‘shortly’: NY TimesRevised data shows strong US consumer sentiment ‘eroded’ in late-May: UoMIs inverted 10yr-3mo yield curve predicting recession? Maybe not: EconobrowserUS consumer spending’s 1yr trend slipped to moderate +4.3% in April:

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Book Bits | 1 June 2019

16 days ago

● The Levelling: What’s Next After Globalization
By Michael O’SullivanSummary via publisher (Public Affairs Books)
The world is at a turning point similar to the fall of communism. Then, many focused on the collapse itself, and failed to see that a bigger trend, globalization, was about to take hold. The benefits of globalization–through the freer flow of money, people, ideas, and trade–have been many. But rather than a world that is flat, what has emerged is one of jagged peaks and rough, deep valleys characterized by wealth inequality, indebtedness, political recession, and imbalances across the world’s economies. These peaks and valleys are undergoing what Michael O’Sullivan calls “the levelling”–a major transition in world economics, finance, and power. What’s next is a

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Economic Risk And The Trump Factor

17 days ago

No model can capture it. No
analyst can fully comprehend it. But it’s there and it’s not going away, at
least not until the 2020 election. For good or ill, the Trump factor keeps on
surprising, giving the President’s supporters reasons to cheer and opponents endless
justifications to oppose his policies. The question is whether the escalating
and widening battle on trade will benefit or impair the US economy in the near
term and beyond? No one’s really sure at this point for the simple reason that
Trump’s trade-related decisions are in flux and at times seem to evolve on a
daily basis. This much is clear: the stakes continue to rise.

Indeed, on Thursday the President announced that he is planning to open up a new front in the trade war beyond the already high-stakes conflict

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Macro Briefing: 31 May 2019

17 days ago

Trump threatens new tariffs on Mexico over illegal immigration: ReutersWill revised NAFTA trade deal survive new US tariffs on Mexico? CNBCChina’s mfg activity contracts by more than expected in May: CNBCN. Korea reportedly executed envoy over failed Trump-Kim summit: BBGUS pending home sales in April post 16th straight month of annual loss: MWFed will consider rate cut if inflation eases and global risks increase: NY TimesUS Q1 GDP growth revised down slightly to still-strong +3.1%: CNBC10yr-3mo Treasury yield curve continues to sink deeper into negative terrain:

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Long-Term Bonds Surge As Investors Pile Into Safe Havens

18 days ago

The revival of a risk-off bias in global markets this month has been a boon to long-term bonds. Although every corner of the US fixed-income market has been rallying this year, the latest surge in long-term maturities stands out, based on a set of exchange-traded funds.

Long-term corporates in particular are now the top year-to-date performer in 2019 by a substantial margin through yesterday’s close (May 29). Vanguard Long-Term Corporate Bond (VCLT) is up 10.0% so far this year. That’s comfortably ahead of the second-best performance so far in 2019 for US fixed income: junk bonds. SPDR Bloomberg Barclays High Yield Bond (JNK) is up 7.9%.

Another difference between this year’s performance leader and its runner-up: VCLT has been on a tear in recent days while JNK has

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Macro Briefing: 30 May 2019

18 days ago

China halts US soybean purchases: BloombergMueller: charging Trump with crime wasn’t an option: The HillUS suspects Russia conducting low-level nuclear tests: ReutersActing US Defense Sec: Trump ‘doesn’t want a war with Iran’: CNBCNorway says Venezuelan talks showing progress: FoxUS-China trade conflict is complicating Fed’s policy plans: WSJConsidering the bond market’s warnings about the global economy: NY Times10yr-3mo US yield curve sinks deeper into the red: CNBC

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US Q2 GDP Growth Outlook Continues To Slide

19 days ago

US economic growth remains on track for substantially slower growth in the second quarter vs. Q1, based on a set of nowcasts. Although the current estimates suggest that the economy will avoid a recession in the immediate future, output for the April-through-June period appears to be at risk of decelerating to the softest pace in more than two years.

The economy is expected to expand 1.8% in Q2, based on the median for a set of GDP estimates compiled by The Capital Spectator. Today’s outlook reflects a modestly softer estimate from the 2.1% projection for Q2 published two weeks ago. If today’s median Q2 estimate is correct, the expansion will post a sharply softer gain compared with Q1’s strong 3.2% increase.

Aside from GDP estimates, one factor that’s weighing on economic

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Macro Briefing: 29 May 2019

19 days ago

China prepares to weaponize rare earths in US-China trade battle: BloombergUS Nat’l Security Adviser: Iran likely attacked tankers in Gulf: ReutersECB warns of asset-price declines if trade battle escalates: CNBCGov’t bond yields around the world fall near multi-year lows: WSJ10yr-3mo Treasury yield-curve inversion deepens: BloombergUS home prices rise at the slowest annual pace in 7 years: MWTexas mfg activity weakened in May: Houston ChronicleUS consumer expectations index rise to 6-month high in May: Bloomberg

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