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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

Risk Premia Forecasts: Major Asset Classes | 2 December 2021

4 days ago

The expected risk premium for the Global Market Index (GMI) ticked lower in November, but remains elevated relative to recent history. Today’s revised estimate is 6.0% annualized, down slightly from the previous forecast.

The forecast is defined as the projected long-run return over the “risk-free” rate, according to a risk-based model (detailed below). GMI is an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash) and represents a theoretical benchmark of the optimal portfolio for the average investor with an infinite time horizon. On that basis, GMI is useful as a starting point for research on asset allocation and portfolio design. GMI’s history suggests that this passive benchmark’s performance is competitive with active asset-allocation

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Macro Briefing: 2 December 2021

4 days ago

* Government-shutdown risk is rising again as Congressional negotiations stumble* First US case of Omicron coronavirus variant detected* Does Omicron pose a risk to the economic recovery?* Is OPEC’s power over oil prices rebounding?* UN gauge of global food prices near record high, boosting inflation anxiety* Global mfg continues to expand at moderate pace amid supply shortages* US ISM Mfg Index increases in November, signaling stronger sector growth* Execs of major cryptocurrency firms called to testify in Congress* OECD forecasts inflation will peak in late-2021:

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Major Asset Classes | November 2021 | Performance Review

5 days ago

Red ink swept over monthly results for most of the major asset classes in November. The two exceptions: US investment-grade bonds and inflation-indexed Treasuries. Otherwise, losses dominated global markets last month, based on a set of proxy ETFs.

Inflation-indexed Treasuries (TIP)  topped performance list in November with a 0.9% gain. A broad measure of US bonds (BND) was in second place with a 0.2% return.
Elsewhere, losses held sway. The biggest setback: a broad measure of commodities (GCC), which tumbled 5.5%.
The downside bias of late has pulled more asset classes into the red for year-to-date results. US real estate investment trusts (VNQ) and US stocks (VTI) are the upside outliers, but gains for the year are becoming increasingly scarce across global markets as 2021’s close

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Macro Briefing: 1 December 2021

5 days ago

* Fed prepared for quicker end to stimulus program, Powell says* Omicron raises uncertainty around inflation risk, warns Fed chair* Russian President Putin warns West on ‘red line’ for NATO, Ukraine* Could oil surge to $150? It’s possible, says analyst at Jefferies* China mfg activity expanded slightly in November* Eurozone mfg output stabilized in November at solid growth rate* UK mfg grew at strong rate in November as input prices surged* US home prices continue to run hot, but growth rate eased in September* Chicago PMI reflects softer growth in November* US Consumer Confidence Index slipped to 9-month low in November:

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Do Treasury Yields Rise During Economic Expansions?

6 days ago

Yes, at least sometimes, and this is one of those times – big time!

Comparing several maturities on the Treasury yield curve during US economic expansions since 1970 shows that rates have exploded higher – relatively speaking — since the current recovery began in May 2020. Unusual circumstances explain much of this outlier performance, but the sharp change from historical norms over the past half century is certainly worth a closer look.

For benchmarks, we’ll look at the 5-, 10- and 20-year maturities. As a preview, all three show similar behavior in the current economic recovery: sharp upward spikes.

Let’s start with the 5-year yield. Note that the rates in all the charts have been indexed to 1.0 at the start of recoveries for easier visual comparison. For the 5-year

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Macro Briefing: 30 November 2021

6 days ago

* Biden says Omicron lockdown unnecessary, at least for now* Fed Chair Powell: Omicron poses threat to US economy* Moderna CEO says vaccines will struggle with Omicron* Pandemic unleashes historic burst of entrepreneurship and self-employment* Eurozone inflation reaches record high in November: 4.9% year on year* China Mfg PMI in Nov posts growth for first time in 3 months* Dallas Fed Mfg Index continues to indicate strong sector growth in November* US pending home sales up sharply in October, pointing to strong market ahead:

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Only US Bonds Were Spared From Last Week’s Widespread Losses

7 days ago

Was Friday’s selling wave overdone? Too early to tell, but the damage from last week’s sudden bout of risk-off left all the major asset classes in red – except US bonds, based on a set of ETFs as of Friday’s close (Nov. 26).

Vanguard Total US Bond Market (BND) bucked the trend and posted a fractional 0.05% weekly gain. The slight advance marks the second straight weekly increase for the fund, which holds a variety of investment-grade fixed-income securities.

Otherwise, it was losses across the board for the major asset classes, ranging from a mild -0.1% retreat in foreign government bonds in developed markets (BWX) to a hefty 4.0% tumble in emerging markets stocks (VWO).

Another week of widespread losses weighed on the Global Market Index (GMI.F) — an unmanaged benchmark

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Macro Briefing: 29 November 2021

7 days ago

* Will vaccines stop Omicron? Scientists are looking for the answer* Omicron Covid variant symptoms described as ‘extremely mild’* Omicron variant vaccine could be ready in early 2022, says Moderna* Global markets set for anxious week of digesting Omicron news* No deal in sight as US nears Dec. 15 deadline to raise debt limit* US Dollar Index fell from 16-month high on Friday:

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Book Bits: 27 November 2021

9 days ago

● The Allocator’s Edge: A modern guide to alternative investments and the future of diversificationPhil HuberInterview with author via MorningstarOur guest this week is Phil Huber. He is chief investment officer at Savant Wealth Management, a fee-only registered investment advisor. Previously, Huber worked for Huber Financial Advisors, which Savant acquired in 2020. Huber is active in the financial blogosphere with his blog bps and pieces.com. He has a bachelor’s degree in finance from the Kelley School of Business at Indiana University and has earned both the Certified Financial Planner and Chartered Financial Analyst designations. Huber is also the author of a new book, The Allocator’s Edge: A Modern Guide to Alternative Investments and the Future of Diversification.

● American

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Research Review | 26 November 2021 | Bitcoin and Crypto

10 days ago

Introducing the Cryptocurrency VIX: CVIXYosef Bonaparte (University of Colorado at Denver)October 25, 2021We present a theoretical and empirical methodology that reflects the Cryptocurrency version of VIX, which we name it as CVIX (Crypto VIX), and captures the future 30 days forward Crypto risk (fear). Our framework is built on idiosyncratic and systematic Crypto risk, and is not based on the option implied volatility model, that developed by the CBOE for the S&P Volatility Index VIX. For back testing, our CVIX projected with accuracy of over 89% the 30 days forward Crypto realized volatility. We apply our CVIX framework on the S&P index, and show it projects the 30 days forward realized S&P volatility with accuracy of 91.8%, while VIX’s accuracy is only 63.4%. Our framework is

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Macro Briefing: 26 November 2021

10 days ago

* High-mutation Covid-19 variant discovered in South Africa* New Covid-variant fears take a bite out of global markets on Friday* Flights from Europe, Asia to southern Africa suspended amid new Covid variant* Money markets reverse rate-hike bets amid new coronavirus fears* Beijing presses ride-sharing giant Didi to delist from US* Fed prepared to hike rates if inflation stays hot, minutes show* 10-year US Treasury yield pulls back sharply in early Friday trading:

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The US Stock Market’s Epic Recovery Is A Sight To Behold

12 days ago

Economic recoveries routinely fuel bull markets in stocks, but almost no one expected this.

The S&P 500 Index’s rebound since the economy began to emerge from recession in May 2020 has been, well, epic. To be precise, the current bounce has so far outpaced the previous seven market recoveries during economic expansions since 1970.

It’s anyone’s guess how long this bull can run, but at the moment it’s unusually strong. Equities are up more than 61% in the current expansion. The next-strongest rise at this stage in the recovery (19 months and counting) is a distant 39.9% (posted during the recovery following the 2008-2009 recession).

The astonishing gain to date in the stock market is an upside outlier in the extreme, but it’s not unusual relative to gains in employment,

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Macro Briefing: 24 November 2021

12 days ago

* World’s biggest energy-consuming nations coordinate release of oil reserves* Russian, Ukraine stage military drills amid rising tensions with EU and US* US invite to Taiwan to attend democracy summit may anger China* Germany considering a full Covid lockdown and mandatory vaccines* Surging inflation forcing big investors to reassess portfolio strategies* Turkey’s increasingly unpredictable policies will keep investors away* Apple sues Israeli spyware firm to keep it from accessing phones* Japan’s economy rebounds for second month in November via PMI data* US economic growth eased in November but remains strong via PMI data:

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Jerome Powell’s Big Adventure, Part II

13 days ago

Jerome Powell emerged victorious in the political war that threatened to derail his re-nomination to lead the Federal Reserve for a second term. Winning the economic war that awaits, however, will likely be a much tougher battle.

In choosing Powell to head the Fed for another four-year term, President Biden “chose the status quo for monetary policy and financial regulation,” says Mark Zandi, chief economist at Moody’s Analytics. “The Fed’s going to slowly but steadily take its foot off the monetary accelerator.”

The question that will come increasingly into sharper focus: Is the status quo up to the task that awaits?

The critical variable for answering intelligently is closely linked to how inflation evolves in the months ahead. Unfortunately, the future’s uncertain as

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Macro Briefing: 23 November 2021

13 days ago

* Biden chooses Jerome Powell for second term as Fed chair* New economic challenges await Powell in his second term as Fed chair* US expected to announce release of oil from strategic reserve* Turkish lira crashes as President Erdogan vows more rate cuts as inflation surges* Eurozone economic growth rebounds in November via PMI survey data* UK input inflation reaches new record high in November via PMI survey data* Will higher rate of women attending college vs. men change the economy?* US existing home sales rose to 9-month high in October* US economy rebounded sharply in Oct via Chicago Fed Nat’l Activity Index:

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Risk-Off Sentiment Hit Most Markets Last Week

14 days ago

US bonds edged higher for the trading week through Friday, Nov. 19, but red ink took a toll on the rest of the major asset classes, based on a set of ETFs.

Vanguard Total US Bond Market (BND) bucked the selling and edged up 0.1% last week. Despite the gain, the fund still looks caught in a trading range (with a slight downside bias) as the market continues to process the conflicting signals for inflation, interest rates and the economy, which may be vulnerable this winter amid a rebound in the coronavirus cases.

By some accounts, however, favoring stocks is still warranted, if only because the possibilities elsewhere look worse, says a prominent market pundit.

“I am still pretty fully invested [in stocks] because, you know, there is no alternative,” Wharton professor

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Macro Briefing: 22 November 2021

14 days ago

* Rebounding US Covid-19 cases suggest a holiday surge is coming* US intel suggests Russia preparing for possible Ukraine invasion* Protests turn violent in Europe against new Covid-19 restrictions* Migrant crisis on EU-Belarus border may get worse, warns Poland’s PM* Japan working on plan to release crude-oil reserves to help tamp down prices* Supply chain bottlenecks may be easing, but labor shortages could persist* Inflation appears pandemic-driven v. excessive spending generally* US 10yr-2yr yield curve near four month low:

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Book Bits: 20 November 2021

16 days ago

● To the Brink of Destruction: America’s Rating Agencies and Financial CrisisTimothy J. SinclairSummary via publisher (Cornell U. Press)To the Brink of Destruction exposes how America’s rating agencies helped generate the global financial crisis of 2007 and beyond, surviving and thriving in the aftermath. Despite widespread scrutiny, rating agencies continued to operate on the same business model and wield extraordinary power, exerting extensive influence over public policy. Timothy J. Sinclair brings the shadowy corners of this story to life by examining congressional testimony, showing how the wheels of accountability turned—and ultimately failed—during the crisis. He asks how and why the agencies risked their lucrative franchise by aligning so closely with a process of financial

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High Beta Continues To Lead US Equity Factor Returns In 2021

17 days ago

With just over a month to go until we put a fork in 2021, high beta stocks look set to deliver the strongest performance among US equity factors this year, based on a set of ETFs.

Invesco S&P 500 High Beta (SPHB) is up more than 43% year to date through yesterday’s close (Nov. 18). That’s well ahead of the second-best performer – small cap value (IJS), which is ahead by nearly 35% so far in 2021.

The broad stock market – SPDR S&P 500 (SPY) – is having a good year, too, although it’s far behind SPHB’s red-hot run. As of Thursday’s close, SPY gained nearly 27% year to date.

There’s a wide variety of performances this year, but it speaks volumes that all of our ETF proxies for US equity factors are higher this year. Even the weakest performer – low volatility (USMV) – is up a

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Macro Briefing: 19 November 2021

17 days ago

* Dems delay wide-ranging spending bill after GOP leader stalls vote* Pressure among Democrats builds for Biden to combat inflation* Japan approves new stimulus spending bill to boost economy* Austria announces new national lockdown as coronavirus crisis deepens* German producer prices in October rose at fastest rate in nearly 60 years* CVS will close 900 stores to respond to changing “consumer buying patterns”* US Leading Economic Index rose sharply in October, point to strong growth* Philly Fed’s manufacturing index reports accelerating growth in November* US jobless claims fall for seventh straight week:

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10-Year Treasury Yield ‘Fair Value’ Estimate: 18 November 2021

18 days ago

The 10-year US Treasury yield has been moving higher in recent weeks. Does the shift signal an extended run higher? There’s a firmer upside bias lately, although this change doesn’t yet look decisive, although our average fair-value estimate of the 10-year rate continues to indicate that the path of least resistance is up.

Let’s start with a simple profile of recent trending behavior. A set of moving averages now point to an upside bias for the first time since the spring. The recent change could be noise, of course. Much depends on how the trending signals evolve in the weeks ahead. But for the moment, it appears that downside bias that prevailed through the summer has faded.

One reason for reserving judgment: the 10-year rate has traded in a tight range since our previous

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Macro Briefing: 18 November 2021

18 days ago

* Rising shipping costs could drive consumer inflation higher next year, UN warns* Has loose Fed policy become a threat to jobs?* Inflation call on Wall Street linked with extreme career risk* Biden calls for FTC investigation of “illegal conduct” re: surging gas prices* Japan, S. Korea consider releasing oil from strategic reserves after US request* Turkey’s currency falls to record low vs. dollar ahead of central bank meeting* Amazon says it will stop accepting Visa credit card payments in UK* US housing starts were surprisingly soft in October:

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Rebounds In US Payrolls, Industrial Output Are Unusually Strong

19 days ago

October data for the labor market and the industrial sector continue to paint a bright profile of recovery in absolute and relative terms vs. previous economic expansions. Retail sales data through last month, updated earlier in the week, suggest the same for personal consumption expenditures, which will be updated for October on Nov. 24. The weak outlier is personal income and it’s unclear if this key indicator will deliver more encouraging results in the upcoming report.

The good news is that the labor market is still rebounding at the strongest pace relative to previous US expansions since 1970. It’s debatable how long this strong recovery in jobs can continue, but for the moment there’s no sign that it’s set to stumble.

Nonfarm payrolls rose 531,000 in October, well above

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Macro Briefing: 17 November 2021

19 days ago

* Treasury Sec. Yellen warns US will reach its debt limit on Dec. 15* Fed Chairman Powell’s inflation dashboard starting to show signs of overheating.* US industrial production rebounded in October, rising for first time in 3 months* Biden says he’ll make decision on Fed leadership within days* Inflation in UK picked up to 4.2% year over year in October — a 10-year high* Homebuilder sentiment continued rebounding in Nov after summer slump* US retail spending accelerated in Oct, rising for third month beating estimates:

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US GDP Growth Appears Set For Strong Rebound In Q4

20 days ago

Early estimates of US economic output for the fourth quarter indicate a robust pickup in growth from the mild gain reported for Q3, according to recent nowcasts.

The official Q4 data from the Bureau of Economic Analysis will be released in late-January and so the current estimate should be viewed cautiously – a lot can change over the next two months. But for the moment, the outlook is upbeat.

The current estimate indicates 5.0% growth for the October-through-December quarter, based on the median of several nowcasts compiled by CapitalSpectator.com. Using the median data point for guidance suggests the economy is accelerating following a dramatically softer-than-expected 2.0% gain in Q3.

Although the Q4 profile is encouraging, higher inflation is a risk factor.

“This

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Macro Briefing: 16 November 2021

20 days ago

* Biden signs $1 trillion infrastructure bill into law* China’s Xi warns Biden about ‘playing with fire’ on Taiwan in virtual summit* US jobless rate could drop to 50-year low soon, predicts Goldman Sachs* Inflation expected to be key factor in tight Congressional races in 2022* Rising crude oil supply could soon ease energy short, IEA predicts* Biden’s decision on the next Fed chair is ‘imminent’* Calpers, largest US pension fund, votes to use leverage and alternative assets* NY Fed Mfg Index: sector growth strengthened in November* Today’s Oct update for retail sales projected to maintain strong 1yr growth rate:

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Will Higher Rates Choke The Latest Rally In Emerging Markets?

21 days ago

Shares in emerging markets topped returns for the major asset classes during the trading week through Nov. 15 12, based on a set of US-listed ETFs. But if interest rates are set to rise, triggered by higher inflation, the prospects for an extended rally could be short lived, or so market history suggests.

But hope springs eternal, at least for this month. Vanguard FTSE Emerging Markets (VWO) rose for a second week, gaining 2.3% — the fund’s biggest weekly jump since mid-September and the strongest gain for major asset classes.
Most markets, however, lost ground last week. The downside bias weighed on the Global Market Index (GMI.F) — an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETF

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Macro Briefing: 15 November 2021

21 days ago

* Expectations are low for today’s virtual meeting between Biden and China’s Xi* Energy mkt disconnect could trigger shortages, predicts IHS Markit’s Yergin* US Dollar Index pulls back after approaching 16-month high* Will interest rates stay low forever? Yes, predicts manager at GAM Investments* China’s new home prices post biggest decline since 2015* UK economists expect Bank of England will raise rates in December* Japan’s economy shrank in Q3, falling much more than expected* Higher inflation will boost profits for some companies* Gold at five-month high as inflation surges* Cargo demand expected to boost aerospace industry, predicts Boeing exec* Consumer Sentiment Index for US declines to a 10-year low in early November* US consumer 1-year inflation expectations rise to highest

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Book Bits: 13 November 2021

23 days ago

● The Generation Myth: Why When You’re Born Matters Less Than You ThinkBobby DuffySummary via publisher (Basic Books)Millennials, Baby Boomers, Gen Z—we like to define people by when they were born, but an acclaimed social researcher explains why we shouldn’t. Boomers are narcissists. Millennials are spoiled. Gen Zers are lazy. We assume people born around the same time have basically the same values. It makes for good headlines, but is it true? Bobby Duffy has spent years studying generational distinctions. In The Generation Myth, he argues that our generational identities are not fixed but fluid, reforming throughout our lives. Based on an analysis of what over three million people really think about homeownership, sex, well-being, and more, Duffy offers a new model for

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