Google Trends: Recession

Just for fun, search using the keyword "Recession" on Google Trends and you'll see results above. FWIW, folks aren't searching for a recession as much today as they were in 2008.

CME Price Limit Guide

On days like these, it's nice to review the price limits for equities and futures. You can find information on the CME Price limits at this URL:

http://www.cmegroup.com/trading/equity-index/price-limit-guide.html

The limits are (generally) 10%, 20% and 30%. According the the CME, here's how the 10% limit works:

The 10 percent limit is initiated if the lead month futures contract is limit offered. Once this has occurred, the limit is in effect for 10 minutes. This means you cannot trade below the limit, but it doesallow you to trade at or above it. Once the 10 minutes has expired one of two things can happen. If the lead month futures contract is not limit offered after 10 minutes, trading will continue with the 20 percent limit in effect. If the lead month futures contract is limit offered after 10 minutes, trading will halt for two minutes. Once the two minutes has expired, trading will resume with the 20 percent limit in effect.

Under NYSE Rule 80B, the 10 percent price limit is not in effect after 2:30 p.m. ET (1:30 p.m. Chicago time). Therefore, after 1:30 p.m. Chicago time, the 10 percent limit is removed and the 20 percent limit would be in effect. For example, if E-mini S&P 500 futures were down 5 percent at 1:30 p.m. ET, the 10 percent limit

See the CME Equity Index Price Limits FAQ (pdf) for more information.

As we age, should we 'cut back' on equities?

We've long maintained that the investor should tilt their asset allocation away from stocks as they grow older. Professor, Jeremy Siegel in his book "Stocks for the Long Run"argues a contrasting view. However, a recent article by University of Chicago's Lubos Pastor and University of Pennyslvania's Robert F. Stambaugh in The Journal of Finance, "Are Stocks Really Less Volatile in the Long Run?" suggests that we rethink the use of stocks in our retirement planning, even for distant time horizons. Here's the abstract:

According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast, we find that stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance, but it is more than offset by various uncertainties faced by the investor, especially uncertainty about the expected return. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-date funds.

View Full Article (pdf).

Mark Thoma looks at Fed's exit strategy

Comparing American and Japanese Economics

Michael Schuman at The Curious Capitalist asks, "Is America facing a Japanese future?" and Clive Crook at The Financial Times examines the American flirtation with a Japanese fate.

The global recovery may backslide

In a Project Syndicate commentary, Stephen Roach writes:

The global economy is in the midst of its second growth scare in less than two years. Get used to it. In a post-crisis world, these are the footprints of a failed recovery.

The reason is simple. The typical business cycle has a natural cushioning mechanism that wards off unexpected blows. The deeper the downturn, the more powerful the snapback, and the greater the cumulative forces of self-sustaining revival. Vigorous V-shaped rebounds have a built-in resilience that allows them to shrug off shocks relatively easily.

But a post-crisis recovery is a very different animal...

Read More

Brad Delong and Jim Grant talk about QE3