If This is Recovery, Where Are the Taxes?
Last Business Standing
Stimulus, What Stimulus?
The Reality of Unemployment
Let the Good Times Roll
The Quick Double-Dip Scenario
Phoenix, New York, and Thoughts on the Internet

No one goes into Wal-Mart and asks to pay extra sales tax. Thus sales taxes are reasonable barometers for retail sales. This week we look at how taxes are doing in a period of economic recovery. Then we turn our eyes to a very interesting (and sobering) analysis of possible future unemployment rates. This is an anecdote to the happy-face analysis of employment numbers you get from establishment economists. There will be a lot of charts and tables, so this letter may print a little longer, but I think you will find it very interesting.

….read John’s full comment HERE.

“It’s amazing; the US is doing everything that Japan did wrong,” said a friend yesterday.

Let’s see, in the 1980s Japan’s corporate leaders thought they were going to take over the world. Investors thought so too. They expanded. They wheeled. They dealed. Prices shot up and they all thought they were geniuses.

In the ’80s, everyone wanted to be Japanese. Management consultants used Japanese words to describe commonplace insights. For example, instead of saying that businesses always need to try to do things better, they referred to “kaizen” as if it were the secret of success. And US economists urged the Reagan Administration to have an “industrial policy” – because that was what Japan had. Japanese businesses were the envy of the world. Japan was the world’s second largest economy. But in growth and stock prices it was Numero Uno.

It turned out, as it always does, that Japan did not have the secret to everlasting success. Instead, what it had was what comes before a fall. The stock market crashed in Tokyo in 1989. The Japanese economy entered a recession. At first, the experts believed it was temporary. They urged investors to take advantage of the opportunity to buy into Japan, Inc. at record low prices. They thought Japanese industry was unstoppable…unbeatable. It would recover in no time, they said.

But Japan, Inc. didn’t recover. Instead, it went into a long, drawn-out recession that lasted year after year…with on-again, off again deflation…and several stock market rallies. Each time stocks rallied, they fell again. Each…

…..read more HERE.

Here’s something that oughta give the marketing wizards at traditional Wall Street firms a heart attack: Timing beats buy and hold, according to a study by  finance professors at the New York University Stern School of Business.

I doubt its pure timing — my best guess is, the fund managers involved more likely used aggressive risk management tools and capital preservation strategies. To the unknowing, these look like timing but are not.

The profs found that fund managers who invest based on macroeconomic trends — and are willing to adjust their portfolios as those trends change — are the managers most likely to add value for investors.

How you define “macroeconomic trend changes” and the basis of portfolio adjustments is a key factor — one that is not delineated all that clearly:

“By analyzing data from January 1980 through December 2005, the study identified the top 25% of actively managed equity mutual funds based on their ability to select stocks during expansionary economic periods. The report noted that this same group showed proficiency at market timing during recessions as well.

This group outperformed other funds in both risk-adjusted terms and after expenses, according to the study.”

Cash has beaten stocks for the past 10 years; Even worse, Bonds have beaten Stocks since 1966. To me, this suggests that an active asset allocation program (rather than pure market timing) is the way to go for most high net worth investors.

Despite the weak stock performance, expect massive pushback on this from the long-only, fully-invested, fee-based actors on the street.

Already, we see critiques from Morningstar. Russel Kinnel, the director of mutual fund research, carped that “the 1980s were littered with funds that blew up because managers tried to follow macroeconomic trends.”

The Street will this line of thought tooth and nail, but given the horrific performance if the LOFIFB firms, they have their work cut out for them . . .

Source:
Market timing trumps buy-and-hold strategies during market swings, says NYU study
Investment News, David Hoffman

About Barry Ritholtz:

A frequent commentator on economic data and financial markets, Barry L. Ritholtz is a regular guest on CNBC, Bloomberg, Fox, CNN, ABC, CBS, PBS, MSNBC, and C/SPAN.  He has appeared on many shows, including Nightline, ABC World News Tonight, Fast Money, Kudlow & Co, and Power Lunch, and has guest-hosted Squawk Box on numerous occasions. He appears regularly on Bloomberg Radio, NPR, CBS, and other radio broadcasts.

In this Issue:

The Present Contains All Possible Futures
The Ugly Unemployment Numbers
Argentinian Disease
The Austrian Solution
The Eastern European Solution
Japanese Disease
The Glide Path Option

…read the whole thing HERE.