The best measure of consumer purchasing power is due out today. The monthly personal income and spending report will give us an insight into future consumer demand. No debating that the consumer is a vital part of the activity occurring in our economy accounting for nearly 70% of all activity. One of the most important numbers in the entire report will be the personal consumption expenditures (PCE). This is the amount spent by consumers on both durable and non-durable goods and services. Other categories to pay attention to are the “Interest paid by persons” and “expenditures on capital goods”. Last week’s GDP report was arguably a dud. The 1.9% preliminary for the fourth quarter was close to the average growth we’ve seen over the past 8 years. More is needed. The political shift we saw in November is evidence. Monetary policy has run its course. Fiscal policy is next in the queue. At least this time it will be different.
Much of my discussion with advisors involves performance. Understandable. Clients want to know. Advisors want to know. How have we performed on a relative and absolute basis? Is it meeting expectations? The answer is yes. Our performance is in line with our expectations and we’re close to having a technology based solution for both you and your clients. Our team has been working hard to produce the reporting that will be in line with industry standards. We’re confident you’ll be pleased. There is one thing I do find a little puzzling. There seems to be very little interest in risk adjusted performance. Returns are important but only in the context of the amount of risk taken to achieve them. Perhaps the assumption is that an asset allocation platform implies risk reduction because of non-correlation. Assumptions are dangerous. Don’t forget the return profile of an asset allocation strategy in 2008. Of the eight major asset classes only one produced positive returns and the other seven lost in excess of 20%. Systemic risks cannot be eliminated and are very difficult to predict. On the other hand, idiosyncratic risks can be understood and should be a part of analysis you perform for your clients when making investment decisions.