Wednesday , December 11 2019
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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

US Q4 GDP Growth Outlook Strengthens… Slightly

1 day ago

Economic activity in the fourth quarter edged higher in the latest round of estimates, based on the median for a set of nowcasts compiled by The Capital Spectator. Output is still on track to slow vs. previous quarters, but new data point to a mildly firmer increase.

Q4 GDP is expected to rise 1.8%, according to the median nowcast. That compares with a 2.1% gain in Q3, according to the Bureau of Economic Analysis. BEA is scheduled to release the initial Q4 data on Jan. 30.

Today’s revised Q4 estimate continues to reflect a borderline sluggish expansion, although the current nowcast marks a modest improvement over the 1.5% estimate published on Nov. 26. That’s a sign that a degree of strengthening may be underway.

Learn To Use R For Portfolio Analysis Quantitative

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Macro Briefing | 10 December 2019

1 day ago

House set to announce impeachment articles against Trump today: USA Today
White House and House eye deal on North American trade agreement: The Hill
No sign of US-China trade deal, but China buys more US-grown soybeans: CNBC
Will upcoming UK election offer a preview for Trump in 2020? BBC
UK economy stagnated in October: Bloomberg
Ukraine’s Zelensky and Russia’s Putin talk about possible peace process: CNN
China reportedly bans foreign computers: CNBC
US mfg sector’s demand for college-educated workers is rising: WSJ
Germany’s ZEW economic sentiment index up sharply in Dec: ZEW

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Commodities Led Most Asset Classes Higher Last Week

2 days ago

Breaking a three-week losing streak, broadly defined commodities topped last week’s returns for the major asset classes, based on a set of exchange traded funds. Other than US bonds and real estate investment trusts (REITs), all the primary slices of global markets posted gains for the trading week through Friday, Dec. 6.

The iShares S&P GSCI Commodity-Indexed Trust (GSG) rose 3.2%, the fund’s first weekly advance since early November. By the end of trading, GSG reached its highest weekly close since July.

A key driver of GSG’s
rise: OPEC, Russia and other oil producers agreed to a cut in output to address
a supply glut. “The Saudi goal was not necessarily to push oil prices
significantly higher, but rather… to put a firm floor under them during the
first quarter to temper

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Macro Briefing | 9 December 2019

2 days ago

Will new US tariffs on Chinese goods kick in next week? WSJ
US payrolls surged in November: CNBC
True alpha is elusive in active bond strategies, AQR research finds: InstInv
Jobs of the future found mostly in small number of US cities: Reuters
US Consumer Sentiment Index rises to 7-month high in December: Bloomberg
Consumer credit rose at second-strongest monthly rate this year in Oct: MW
The World Trade Organization’s days may be numbered: NY Times
German exports rose in Oct, defying global trade tensions: BT
Are foreign stocks poised to outperform US? CNBC

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Book Bits | 7 December 2019

4 days ago

● Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance
By Laurence B. SiegelSummary via publisher (Wiley)
Why do so many people fear the future? Is their concern justified, or can we look forward to greater wealth and continued improvement in the way we live? Our world seems to be experiencing stagnant economic growth, climatic deterioration, dwindling natural resources, and an unsustainable level of population growth. The world is doomed, they argue, and there are just too many problems to overcome. But is this really the case? In Fewer, Richer, Greener, author Laurence B. Siegel reveals that the world has improved—and will continue to improve—in almost every dimension imaginable. This practical yet lighthearted book makes a convincing case for having gratitude for

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Is The November Payrolls Report As Good As It Looks?

5 days ago

US companies hired substantially more workers than economists expected in November, providing an upside jolt to economic sentiment. From a monthly perspective, the 254,000 increase in private payrolls marks the best gain since January. No matter how you slice it, it’s a strong increase. But a closer look suggests that the slow-growth trend is still with us, even though a myopic focus on the latest employment number inspires thinking otherwise.

Let’s start with the obvious caveat: monthly data is noisy and subject to hefty revisions. For the same reason that you shouldn’t use yesterday’s poll to assess a politician’s overall electability rating, the data point du jour for any economic indicator can be misleading (and usually is by more than a trivial frequency). Revisions and

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Does Recession Risk Rise As The Expansion Ages?

5 days ago

With each passing month,
the current US economic expansion sets a new record for duration (125 months and counting through
November). That’s a good thing, of course, but for some analysts it’s a
warning sign. Expansions, like milk and airline tickets, have a limited shelf
life, or so this line of thinking goes. But the hard evidence to support this
view is thin, particularly for the post-World War Two era. That doesn’t mean
that recession risk is zero these days, or that storm clouds aren’t gathering.
But expecting a downturn to start because the expansion’s clock has been
ticking longer than before is mostly myth rather than fact.

It’s tempting to argue otherwise, particularly if you’re looking for compelling headlines to attract eyeballs. But econometric analysis suggests

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Macro Briefing | 6 December 2019

5 days ago

House to draw up articles of impeachment against Trump: Reuters
N. Korea reacts to Trump’s Nato comments with fiery rhetoric: USA Today
Opec and Russia plan on deeper oil-production cuts: CNBC
Germany’s industrial recession deepened in October: FT
Looking ahead to today’s November employment report: NY Times
Atlanta Fed’s GDPNow model: Q4 GDP growth estimate ticks up to +1.5%: AF
US trade gap narrowed to 16-month low in Oct as Chinese imports decline: MW
Factory orders in the US rebounded in Oct after 2 monthly losses: Reuters
Job cuts in US fell 13% over the 12 months through November: CG&C
US jobless claims fell to a 7-month low last week: CNBC

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Is US Employment Data Flirting With An Economic Warning Sign?

6 days ago

Depending on the employment
indicator, the US economic outlook is upbeat or worrisome. Focusing on
yesterday’s ADP Employment Report for November leans toward the latter.

US companies added a thin 67,000 jobs last month, according to ADP’s estimate, the weakest gain since May. Monthly data is noisy and so it’s best to use the one-year change for a more reliable measure of the trend. But there’s a worrying slide afoot here as well: job growth ticked down to a 1.5% year-over-year gain, the slowest since 2011.

“The job market is losing its
shine,” says
Mark Zandi, chief economist of Moody’s Analytics, which co-produces the data with
ADP. “Manufacturers, commodity producers, and retailers are shedding jobs. Job
openings are declining and if job growth slows any further

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Macro Briefing | 5 December 2019

6 days ago

China wants US tariffs cut before agreeing to a trade deal: Reuters
US considering new deployment of troops to Middle East to counter Iran: WSJ
Iran has secretly moved missiles into Iraq: NY Times
Eurozone retail spending fell more than forecast in October: MW
Japan is planning a $120 billion economic stimulus program: Reuters
Global economic growth remains slow but pace strengthened in Nov: IHS Markit
ISM Non-Mfg Index: US services sector slowed more than forecast: CNBC
Services PMI for US reflects modest growth in November: IHS Markit
US private employment growth slowed sharply in November: MW

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Quality Is The Lone Equity Factor Beating The Market This Year

7 days ago

Volatility has returned to the stock market this week after a couple months of relative calm. Not surprisingly, the sharp wave of selling on Monday and Tuesday has reordered the horse race for primary equity factors. As a result, the so-called quality factor is the last man standing for outperforming the broad market year to date, based on a set of exchange-traded funds.

The iShares Edge MSCI USA Quality Factor (QUAL) is up 28.3% so far this year (through Dec. 3). Although the fund has taken a hit this week, courtesy of the broad-based selloff, QUAL is the only ETF on our factor list that’s still outperforming the market overall, based on SPDR S&P 500 (SPY), which is ahead by 25.6% year to date.

Is Recession Risk Rising? Monitor the outlook with a subscription to:The US

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Macro Briefing | 4 December 2019

7 days ago

House impeachment report: Trump abused power: The Hill
Trump suggests US-China trade war could continue beyond 2020 election: WSJ
Despite recent tension, US and China reportedly closer to trade deal: BBG
Will a new round of US tariffs on Chinese goods roll out on Dec 15? CNBC
China Composite PMI for Nov shows solid rebound for economy: IHS Markit
Eurozone economy continued to post near-stagnant growth in Nov: IHS Markit
10-year Treasury yield falls sharply to 1.72% — lowest since Oct 31:

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Risk Premia Forecasts: Major Asset Classes | 3 December 2019

8 days ago

The outlook for the Global Market Index’s risk premium ticked higher for a third month in a row in November. The adjustment, due to evolving market conditions, lifted GMI’s expected long-term return to an annualized 4.9% (before factoring in a “risk-free” rate). The new estimate is fractionally above last month’s forecast (4.8%) and modestly higher vs. the year-ago estimate (4.6%). GMI is an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash).

Adjusting for short-term momentum and medium-term mean-reversion factors (defined below) pares GMI’s current ex ante risk premium to an annualized 4.6%.
Learn To Use R For Portfolio Analysis Quantitative Investment Portfolio Analytics In R:An Introduction To R For Modeling Portfolio Risk and ReturnBy

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Macro Briefing | 3 December 2019

8 days ago

US threatens new tariffs on French goods in response to digital tax: CNBC
France says it will retaliate over new US tariff threat: Bloomberg
Global Mfg PMI reflects growth in November–first gain in 7 months: IHS Markit
Is the fate of global economy tied to the health of US consumers?: Bloomberg
US construction spending fell in Oct but 1yr trend returns to growth
In contrast with ISM data (see below), US Mfg PMI rebounds in Nov: IHS Markit
US ISM Mfg Index continues to show mild contraction for sector in Nov: ISM

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Major Asset Classes | November 2019 | Performance Review

9 days ago

The US stock market was the clear performance leader for the major asset classes in November. The strong gain in American shares was all the more striking in a month that was otherwise skewed to the downside.
US companies, however, roared higher last month. The Russell 3000 Index jumped 3.8%, delivering its best gain since June. Year to date, the index is up 27.3%, which is also the leading performance for the major asset classes so far in 2019.
The second-best performer in November: foreign stocks in developed markets. The MSCI EAFE gained 1.1%, marking its third straight monthly increase.
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An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno
Most of the major asset classes

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Macro Briefing | 2 December 2019

9 days ago

UN chief: ‘War against nature must stop’: Reuters
China suspends US Navy visits to Hong Kong, sanctions US groups: Reuters
China’s mfg sector expanded by more than expected in Nov: CNBC
US mfg data in focus in today’s releases: CNBC
Euro area’s mfg sector continues to contract in November: IHS Markit
UK mfg contracts as Brexit uncertainty weighs on sector: IHS Markit
Global debt on track to rise to a record $255 trillion-plus in 2019: Bloomberg

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Book Bits | 30 November 2019

11 days ago

● The AI Economy: Work, Wealth and Welfare in the Age of the Robot
By Roger BootleSummary via FT
Bootle, chairman of Capital Economics, argues that the economic effects of artificial intelligence may not be as different from those of previous technological transformations as many suppose; that the speed with which the changes occur may not be all that fast; and that, in all probability, piecemeal changes in policy, rather than a radical shift towards universal basic income, are the right response. We need to hear his arguments.● Why We’re Wrong About Nearly Everything: A Theory of Human Misunderstanding
By Bobby DuffyReview via Inside Higher Ed
“Almost all existing analysis,” Duffy says, “tends to focus on one side or the other: on our fallible human brains or a manipulative

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Off The Charts: Extreme Moves In ETFs — 29 November 2019

12 days ago

Today begins a semi-regular column that focuses on a handful of ETFs that have recently posted extreme changes. The playing field starts with nearly 100 equity funds (US and foreign). For a complete list, see a recent edition of The ETF Portfolio Strategist. The goal: highlighting some of the gains and losses at the outer edge of market action of late, where the odds may be slightly higher for developing quasi-reliable near-term expectations, perhaps for use in adding context to strategic-oriented return estimates. In any case, all the standard caveats still apply and so proceed accordingly.

Before we dive in, note that the funds below are ranked at or near the extremes of momentum (negative and positive) via a methodology based on the average of ten metrics (moving averages and

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Macro Briefing | 29 November 2019

12 days ago

Trump restarts talks with Taliban during visit to Afghanistan: The Hill
North Korea fires two short-range missiles in latest provocation: AP
Will US law on Hong Kong derail trade talks with China? Maybe not: NY Times
Is a tight US job market Trump’s ticket to re-election? WSJ
Signs of financial stress are rising in China: Bloomberg
Poll sees UK’s Conservatives set for big win in December election: Reuters
German retail spending tumbled in October: Reuters
Industrial output in Japan fell sharply in October: Nikkei Asian Review
Japan’s retail sales tumble after tax hike: Japan Times
US stock market begins November’s last trading day at record high:

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Happy Thanksgiving!

13 days ago

“As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them.”
– John F. Kennedy

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Is The Recent Rebound In Interest Rates Fading?

14 days ago

For much of this year through
early September a downside bias in interest rates was conspicuous. The driving
force: economic pessimism. The 10-year/3-month yield curve inverted in the
spring and for the most part remained below-zero, offering what is widely seen
as a recession forecast. But over the last three months the yield curve turned
positive and key interest rates rebounded. But economic data doesn’t look any
better today vs. the macro profile of three months ago—in fact, the economic
trend has weakened slightly. Is that a clue for thinking that interest rates
will resume a downward bias in the final month of 2019?

There are hints that the autumn bounce in yields is rolling over. Let’s start with the benchmark 10-year Treasury yield. After slumping to under 1.5% in early

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Macro Briefing | 27 November 2019

14 days ago

US opens criminal probe into role of drug companies in opioid crisis: WSJ
China’s economy continues to slow in November: Bloomberg
Pondering the economic iron curtain that’s dividing the world: NY Times
US trade gap narrowed sharply in October: Reuters
Sales of new US homes unexpectedly fell in October: CNBC
Home prices in the US picked up in September: CNBC
Richmond Fed Manufacturing Index turned slighty negative in Nov: RF
US Consumer Confidence Index ticked lower again in November: MW

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US Economy Remains On Track To Slow In Fourth Quarter

15 days ago

Tomorrow’s revised GDP data for the third quarter is expected to hold at a 1.9% increase, according to the consensus point forecast via Econoday.com. That’s a moderate gain but it’s may be a bridge too far based on estimates for Q4 via a set of nowcasts compiled by The Capital Spectator.

The median for the October-through-December quarter is a 1.5% gain, which marks another slowdown from Q3’s 1.9% rise. The good news is that the nowcast is unchanged from the previous Q4 estimate published two weeks earlier. But today’s median Q4 nowcast anticipates that economic activity will tick down for a third straight quarter and ease to the slowest pace since the 1.1% gain in 2018’s Q4.

A 1.5% advance is enough to keep the US out of recession, but it’s weak enough to gin up chatter

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Macro Briefing | 26 November 2019

15 days ago

Yet another hint of progress in US-China trade-deal talks: Bloomberg
Fed Chairman Powell: strong labor market still has room to run: NY Times
2% inflation remains Fed’s target, says Powell: CNBC
Americans expect to raise their Christmas spending at a strong pace: Gallup
Financial advisers worry they’ll get squeezed in Schwab-TD Ameritrade deal: WSJ
Dallas Fed Mfg Index reflect modest contraction in November: DFed
US economic activity continued to slow in October: Chicago Fed

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US Bonds, Foreign REITs Were Haven From Selling Last Week

16 days ago

Most of the major asset classes lost ground last week, according to a set of exchange-traded funds. Bucking the downside trend: US investment grade bonds and foreign real estate shares. Otherwise, red ink prevailed in global markets over the five days of trading through November 22.

Last week’s top performer: iShares TIPS Bond (TIP). The fund, which targets inflation-indexed Treasuries, rose 0.6%, lifting the ETF close to its highest level since early October. So far in 2019, TIP is up 8.1%.

Also in the winner’s circle last week: a broad measure of investment-grade US bonds (Vanguard Total Bond Market Index Fund ETF Shares (BND)) and a portfolio of foreign real estate shares (Vanguard Real Estate (VNQI)).

Losses dominated the rest of the major asset classes, led by US

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Macro Briefing | 25 November 2019

16 days ago

US Navy Secretary forced to resign over controversial SEAL case: Reuters
Pro-democracy candidates win big in Hong Kong election: Reuters
German business sentiment improved slightly in November: Bloomberg
Capital spending by S&P 500 companies slows, creating economic headwind: WSJ
Security forum focuses on rising stress weighing on West’s democracies: Politico
US consumers remain upbeat in November: CNBC
KC Fed Manufacturing Index falls again in November: Mstar
US economic growth picked up in November but remains slow: IHS Markit
Slightly firmer slow-growth sign expected in today’s CFNAI (3mo avg) data for Oct:

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Book Bits | 23 November 2019

18 days ago

● The Deals of Warren Buffett Volume 2: The Making of a Billionaire
By Glen ArnoldSummary via publisher (Harriman House)
In this second volume of The Deals of Warren Buffett, the story continues as we trace Warren Buffett’s journey to his first $1bn. When we left Buffett at the end of Volume 1, he had reached a fortune of $100m. In this enthralling next instalment, we follow Buffett’s investment deals over two more decades as he became a billionaire. This is the most exhilarating period of Buffett’s career, where he found gem after gem in both the stock market and among tightly-run family firms with excellent economic franchises. In this period, Berkshire Hathaway shares jumped 29-fold from $89 to $2,600.● For Good Measure:
An Agenda for Moving Beyond GDP
Edited by Joseph E. Stiglitz,

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Research Review | 22 November 2019 | Factor Investing Strategies

19 days ago

ETF Momentum
Frank Weikai Li (Singapore Management University), et al.October 12, 2019We document economically large momentum profits when sorting ETFs on returns over the past two to four years. A value-weighted, long-short strategy based on ETF momentum delivers Carhart (1997) four-factor alphas of up to 1.20% per month. Neither cross-sectional stock momentum nor co-variation with macroeconomic and liquidity risks can explain ETF momentum. Instead, the post-holding period returns are most consonant with the behavioral story of delayed overreaction. While ETF momentum survives multiple adjustments for transaction costs, it may be difficult to arbitrage as the profits are volatile and concentrated in ETFs with high idiosyncratic volatility or that hold low-analyst-coverage stocks.The

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Macro Briefing | 22 November 2019

19 days ago

Bridgewater, world’s largest hedge fund, bets big on market drop: WSJ
Eurozone economy virtually stagnant for third month in Nov: IHS Markit
UK economy contracting at deepest rate in three years in Nov: IHS Markit
Japan’s economic activity is essentially flat in Nov: IHS Markit
Negotiations on NAFTA successor roll on; vote possible in weeks ahead: NY Times
US Leading Economic Index fell for the third month in October: CB
Existing home sales in US rose 1.9% in October: WSJ
Philly Fed’s regional mfg index posted stronger growth in November: Philly Fed
US jobless claims held steady at five-month high last week: CNBC
US business cycle index (ADS) rebounds after falling close to recession signal:

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US Small-Cap Stocks Continue To Trail Large Caps In 2019

20 days ago

Advocates of small-cap equities keep talking about the possibility of a revival for these shares, but year-to-date results suggest otherwise, based on a set of exchange-traded funds.

Three flavors of small-cap stocks remain well behind the usual suspects that track large caps, including SPDR S&P 500 (SPY). This year’s best small-cap performer on our list —  iShares S&P Small-Cap 600 Value (IJS) – is up 18.9% so far this year through Nov. 20. That’s a solid performance, except when you compare it to SPY’s 26.1% year-to-date surge.

The strongest performer this year among a set of US equity factors is iShares Edge MSCI USA Quality Factor (QUAL), which Morningstar classifies as a large-cap portfolio. At the moment, QUAL’s 2019 gain is a stellar 28.2%.

Small caps, by

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