Great Skier Theory

How important is an individual manager?

Source: Sports Illustrated

Tom Watson, Jr. liked to ski. He was also chief executive of IBM during a critical period of the company’s history. By all accounts he was quite successful, growing revenues over 15% per year during his 17 years at the helm from 1954 to 1971. He also directed IBM’s investment in a production facility in Essex Junction, Vermont, beginning in 1958. Over time the Essex facility grew from 500 to 8000 employees, and now directly or indirectly affects 10 to 20% of Vermont’s economy.

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Slacker Market

How much slack is there in the labor market?

Source: Wikipedia

It depends what you mean by slack. Most people think the unemployment rate is a good measure of slack, and it’s intuitively appealing: divide the number of job-seekers by the number of people in the workforce, and that tells you what percent of people want to work, but can’t find a job. After falling for the last five years, the unemployment rate—currently 5.9%–is almost back to its post-World War II average of 5.8%.

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The Last Laugh?

“I am a man of the desert; nobody is going to laugh at my beard!”

Source: Wikipedia

That’s what the Saudi oil minister exclaimed as he stormed out of an OPEC meeting some 30 years ago. The $34 oil price—equal to $100 today—had been supported by massive cuts in Saudi production. They were the “swing producer” that allowed the cartel to maintain its higher price. But OPEC was being torn apart by over-pumping, price discounting, and increased non-OPEC production. So the Saudis decided to pump all they could. The price then fell over 75%, to $8 per barrel.

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Go With the Flow?

Does momentum investing work?

Source: Callen Associates

Investors have a tendency to chase returns. That’s why mutual fund companies hype their most recent performance in big, bold letters, just above the fine-print disclaimer: “Past performance does not guarantee future results.” There’s a reason they advertise this way: everyone loves a winner.

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Budget Busting Battles

Can we talk about budgets?

Source: St. Louis Federal Reserve

It’s October. The time of year when the leaves fall, the woodbin gets filled, and budgets are proposed for next year. Budget season is about as attractive as a trip to the dentist for most people. But budgets are necessary. If you don’t know how much you can spend, you’ll usually spend too much.

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African Market Contagion?

Is Ebola a threat to the economy?

Source: Healthmap.org

It’s certainly a threat to Africa’s economy. The West Africa epidemic has resulted in almost 10,000 cases and over 3500 deaths. Two cases have been reported outside of Africa: one in Texas and one in Spain. Exxon Mobil and other mining operators have suspended many of their West African operations. In Liberia, Guinea, and Sierra Leone it has overwhelmed the health care system. And of course any tourism has ceased.

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It’s the Process, Stupid

The dollar is strengthening. Is it time to sell? Stocks have pulled back. Is it time to buy? Interest rates are rising–wait, no they’ve fallen. And the economy is uncertain. What’s an investor to do?

Source: Wikipedia

When investors get caught up in the latest economic or political news, their portfolios can begin to look like a “Rube Goldberg” device: over-engineered and underperforming. This became clear last week, Continue reading

Douglas Tengdin's Global Market Update