Category: Uncategorized
The Correlation within the Financial Cycle – Not Good for Those Looking for International Diversification
One of the core strategies for portfolio diversification is increasing exposure to international stocks and bonds. This risk reduction strategy is easy to achieve, yet the value of this asset class diversification has diminished over the last few years. […]
The Overton Window and Finance – Thinking through the Process from Extreme Views to Acceptance
The Overton Window is called the window of discourse for any range of ideas. It has mostly been used to describe differences in political discussions. Extreme views will be unacceptable, but as they are either adjusted or gain traction, there is a window of acceptance or common ground between extremes. The viability of any idea is determined by whether it falls into the window between extremes. Any idea is constrained if it falls out side the window.
Spend Your Time On “What Is”, Not “What If”
Spend your time on “what is”, not “what if”. I picked up the phrase from The 10 Pillars of Wealth by Alex Becker. It seems apt given many recent discussions on the global economic environment. I am a strong believer in scenario analysis and have talked about scenarios as good tools even for trend-followers to assess potential risks, yet there is a hidden or implicit assumption that is more important for any financial discussion – what is the current environment.
Keynes on Money – Do Not Hold Any as a Store of Value
“…for it is a recognized characteristics of money as a store of wealth that it is barren; whereas practically every other form of storing wealth yields some interest or profit. Why should anyone outside a lunatic asylum wish to use money as a store of wealth.
Because, partly on reasonable and partly on instinctive grounds, our desire to hold money as a store of wealth is a barometer of the degree of our distrust of our own calculation and conventions concerning the future.”
-Keynes
The Dollar is Sending Signals if You Care to Listen
I am concerned about tariffs. They are strong effects on importers and exporters in industries affected by tariffs and we don’t really know how tariffs will impact the supply chain and logistics for many companies. Nevertheless, the strong dollar will have a bigger impact on US exporters across the board.
Fisher on Debt – It is a Cycle and When Optimism Falls, So Will Financial Assets
…the public psychology of going into debt for gain passes through several more or less distinct phases:
(a) the lure of big prospective dividends or gains in income in the remote future;
(b) the hope of selling at a profit, and realizing a capital gain in the immediate future;
(c) the vogue of reckless promotions, taking advantage of the habituation of the public to create expectations;
(d) the development of downright fraud, imposing on a public which has grown credulous and gullible.
“The Debt-Deflation Theory of Great Depressions” Irving Fisher
Things That Make Me Stay Up At Night This Weekend – From Music to Ambiguity
I have fewer concerns this week; however, there is significant risk with inflation. Inflation is growing around the world. We are pass 2% in the US by any number of measures. Let the overshoot begin. There is little reason so see the Fed changing their behavior and there is a stronger case for further money reduction around the world. The trade rhetoric is still high and there is general agreement that further trade action will slow growth, yet we continue to move down this path.
Technical and Practical Knowledge – You Need Both for Asset Management
Can anyone who has technical knowledge become a good money manager? This is a fundamental question for the quant revolution.
Manage Investments Like Leonardo da Vinci – Think Out of the Box, Be Curious
I have just finished reading the insightful biography of Leonard da Vinci by Walter Isaacson. Isaacson makes da Vinci accessible as a person. HIs description really struck me. Da V+inci should not be placed on a pedestal of genius. He had a humble beginning. He did not have the schooling that others received during the period. What he did have was relentless curiosity. If you look at his notebooks or his art you will see his incredible power of observation and a mind that was not limited by conventionality.
Bear Markets Are Unavoidable – So What Are You Going To Do About It?
How often should you expect equity bear markets? Using the global diversified MSCI EAFA index, we calculated the number of bear markets, moves down greater than 20%, and corrections, move down greater than 10%, since 1970 by decade. (Hat tip to Ben Carlson of “A wealth of Common Sense” for providing the raw data for developing these charts.) The numbers suggest that you will get 2-3 bear markets per decade. The number of corrections or bear markets total 4 to 7. The average decline of the bear markets is variable. The 2000s decade was horrible with two bear markets more than 50%.
Alternative Risk Premia Showed Varied Performance Over The Last Year
The new HFR bank systematic risk premia indices provide a wealth of information on this growing and important investment area. All alternatives risk premia are not created equal. A review of the return performance over the last year shows that there were clear winners and losers.
2/20 Fees – DOA, Dead on Arrival – The Changing Market Structure for Hedge Funds
The film noir, “DOA”, had a great premise – a man staggers into a police station and wants to report a murder – his own. He was poisoned and had a limited time to find his killer and why. The hedge fund industry 2/20 fee schedule is dead. Some managers may not know it yet, some are in denial, but it happened and now it is just a matter of sifting through the suspects to find the killer.
If You Need Something To Give You Financial Worries This Weekend, This List Will Do It.
The employment report for June was positive with both job creation strong and the participation rate higher. This is reflected in the stock market, but there are still growing clouds of economic and financial concern.