* $70 billion as of 12/31/09.
After four straight quarters of negative growth, U.S. real GDP turned positive (+2.2%) in 3Q09, fueled by
consumer and government spending and inventory restocking. But with the economy just emerging from the
deepest-ever post-war recession, pricing pressures remain well contained, which should keep interest
rates very low as the economy heals. Recent economic indicators have surpassed expectations, prompting
economists to increase average 4Q09 real GDP forecasts to the 4% range, about double the average estimates
of last August. The Consensus mean forecasts for 2009 and 2010 call for -2.5% and +2.7% real GDP growth
and -0.4% and +2.1% CPI inflation, respectively.
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As 2009 unwound, the massive improvement in financial conditions fed back on
the real economy and green shoots blossomed into a recovery that
looks increasingly sustainable. The strength of the economy remains a key source
of uncertainty, however. Looking forward to 2010, the macro environment still
looks pretty positive, but the valuation starting point is not nearly as
attractive. Hence we think the returns on risk assets will again beat the
returns on safe assets but the level of return and the margin of outperformance
should be considerably more modest.
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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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