* $46 billion as of 3/31/09.
As the calendar flipped to 2009, the U.S. economy was entering the fourteenth month of the worst recession in the post-WWII era.
The Q408 plunge in real GDP—more than 6% on an annualized basis—was the third-largest drop in 50 years, with all major segments
of the economy contracting except government expenditures. Consumers are retrenching, by increasing savings and paying
off debt after watching their average net worth collapse 18% in 2008. With demand plummeting, corporations are
struggling: Q408 profits fell at a pace not seen since the 1950s. Companies continue to cut back workers and hours,
driving the unemployment rate to above 8% from a cycle low of 4.4%. Capital expenditures are also being slashed. The Consensus
mean forecasts for 2009 and 2010 call for -2.8% and +1.7% real GDP growth and -0.9% and +1.5% CPI inflation, respectively.
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We are experiencing the worst global economic crisis since the 1930s. Notwithstanding forceful policy efforts, global economic activity
continues to deteriorate. According to IMF estimates, global GDP fell by an unprecedented 5% annualized in Q408, with advanced
economies contracting by 7%. There is great uncertainty regarding the economy’s near-term trajectory. Most forecasts assume that the
economy will continue contracting in 2009, and then experience positive but anemic growth in 2010. Also possible is a W-shaped pattern,
where the economy would “bounce” in the second half of the year, given the massive thrust of policy stimulus, only to weaken anew in
2010 once the policy thrust fades. Either way, it seems we a face a long, arduous work-out period.
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Why Have Estimate Revision Measures not Worked in Recent Years
(Journal of Portfolio Management, Spring 2008)
An alpha indicator can lose its efficacy if too many investors use it in their trading decisions. Thus, a robust alpha factor model should consider how much of the information in a signal may already be reflected in stock prices.
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