Recession or not: Tough Times Still Ahead

8/23/2010

Life In The Great Recession

- As the

Wall Street Journal

reported in “From Ordering Steak and Lobster, to Serving It,” (June 2, 2009, page A17), nearly 25,000 jobs have been lost in the financial sector since August 2007 and another 30,000 are expected to be lost through 2011. This is just in New York City. The potential for the bulk of those people to find similar employment in terms of income is extremely limited. The main person profiled in the article lists the changes: His wife has returned to work, they quit dining out, they pulled their daughters out of ballet and tumbling, and they canceled cable TV. They also missed a mortgage payment and fear foreclosure and possibly bankruptcy.

Will Housing Become Your ATM Again? - Due to a modest recovery in home prices and a more pronounced recovery among financial assets, the decline in household net worth has reversed over the past 4 quarters by approximately $6.3 trillion. This amounts to a recovery of approximately one-third of the decline in asset values since household net worth began to deteriorate in 2007.

U.S. incomes down second year in a row - Personal income took a hit in most of the U.S. last year with the only gains coming from government support, according to new data from the Commerce Department. Income declined in 223 metro areas last year, increased in 134 and was unchanged in nine regions. Even though prices declined last year — down 0.2% from a year earlier as measured by the national price index for personal consumption expenditures — incomes fell even more. On average, personal income dropped 1.8% in 2009, following a 2.7% increase in 2007.

State Street Cautions users of Modern Portfolio Theory - The report notes that one of the greatest failures of risk management in recent years was using average risk numbers rather than regime-specific risk analysis to gauge risk – something MPT doesn’t incorporate or address in the new era of extremes...

The bottom line, according to State Street, is that MPT still remains deeply relevant in terms of portfolio construction, diversification and risk management. But given new and updated techniques in contemporary financial markets that take advantage of computational and information aggregation capabilities, it makes more sense to cut back a little rather than kick the MPT habit outright.

Stack of Stuff:

Life In The Great Recession

U.S. 2010 Budget Deficit at $1.342 Trillion

Economic data points to darker outlook

Will housing ever become the consumer's ATM again?

Uncle Sam - That's You & Me Taxpayer - are venture capitalists - like it or not!

U.S. incomes down second year in a row

Modern Portfolio Theory: Break Free Dude!

Secular Bear Markets Tend To Be Long Term

State Street Cautions users of Modern Portfolio Theory

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