Limits

By | 2014-09-04T15:26:49+00:00 November 28th, 2008|Global Market Update|

Everyone’s telling our new president to spend, spend, spend. They may well be right. But there are limits. Eighty years ago Keynes noted that additional government spending, funded by debt, can change the economy’s direction. But that assumes people don’t know or care where the money comes from. That is, if the government borrows from the future to spend more today, Keynes assumes that people won’t adapt their behavior But the beauty and curse of our society is that we do know where the [...]

One

By | 2014-09-04T15:25:36+00:00 November 26th, 2008|Global Market Update|

“In a crisis, all correlations approach one.” This is the counter-argument to my note about diversification yesterday. In other words, there are limits to how much you can reduce your risk. To use an agricultural metaphor, planting corn, beans, and squash may limit your losses if corn-borers proliferate, but it doesn’t help much when a swarm of locusts appears. That’s what we’ve witnessed over the past year. The best performing stock markets, globally, are still down around 40%. Bonds usually hedge stocks, but the [...]

Classical Investing (Part 1)

By | 2014-09-04T15:24:32+00:00 November 25th, 2008|Global Market Update|

The classics are often filled with sound advice for investors. And no wonder. Good investment guidelines are usually common sense tripped out in financial language. But since the best of the classics address timeless truths of human nature, it's no surprise that they contain sage exhortations that have stood the test of time. As an example, the biblical book of Ecclesiastes says: "Give portions to seven, yes to eight, for you do not know what disaster may come upon the land." Here is a [...]

You Get What You Pay For

By | 2014-09-04T15:10:49+00:00 November 24th, 2008|Global Market Update|

Twenty-nine years ago Tim Geithner had just arrived on the Dartmouth College campus. The prospective Treasury Secretary was a studious, quiet student, who did quite well as an Asian Studies major. After some time with the Foreign Service and Kissinger Associates, he distinguished himself at Treasury during the Asian Contagion with his understanding of East Asia markets and their cultures. His success in that crisis propelled him to the leadership of the New York Fed, and now to the Treasury Secretary’s office This seems [...]

Getting What We Pay For

By | 2014-09-04T14:56:31+00:00 November 21st, 2008|Global Market Update|

Everyone wonders why we got into this mess. One place to look is tax policy. Back in the ‘80s, we lowered the tax rate and eliminated a lot of deductions. But a few stayed. Specifically, mortgage interest is deductible for consumers but corporate dividends are not deductible for companies. Since that time, mortgage debt has exploded and corporate equity has contracted a percent of our economy. This isn’t an issue of national irresponsibility. This is a matter of getting what we pay for. Washington [...]

Whitewater (Part 5)

By | 2014-09-04T14:52:54+00:00 November 20th, 2008|Global Market Update|

When markets get scary and volatility gets crazy, you need to adapt your attitude. An ancient Chinese curse goes something like, “may you live in interesting times.” Well we’ve been living through interesting markets. But they don’t have to be a curse if we have the right mind-set. And that’s rule #5 for whitewater investing: enjoy the ride. We have to change our approach to the market if we want to profit from today’s turmoil. Some compare a bear market to a sale at [...]

Whitewater (Part 4)

By | 2014-09-04T15:21:40+00:00 November 19th, 2008|Global Market Update|

Whitewater rules are different than flat-water rules. And if you want to survive and even thrive when things get rough, you need to adapt to the new conditions. Rule number four is to be flexible. Your strategy may not need to change, but your tactics probably do. Rapidly changing investment conditions may make some securities extremely cheap or expensive. You may need to adjust your thinking to take advantage of them. An example right now would be TIPs, inflation-protected bonds issued by the Treasury. [...]

Whitewater (Part 3)

By | 2014-09-04T14:49:06+00:00 November 18th, 2008|Global Market Update|

We’re in a period of extreme volatility right now—what I call “whitewater investing.” And whitewater investing calls for whitewater rules. Rule number three is to work with a team. Calm markets and calm water allow you to work by yourself. But when the water starts to roar you need to have a team you can trust, especially if anything goes wrong. For example, taxes aren’t much of an issue if you can invest and hold on for decades. But when you need to make [...]

Whitewater (Part 2)

By | 2014-09-04T14:44:15+00:00 November 17th, 2008|Global Market Update|

There’s rules for running the rapids. Follow them and you can prosper and even have fun. Ignore them and you’ll end up in the soup. Rule number two is don’t avoid trouble—plan for it. Kayakers don’t try to avoid going over. They roll with the current and come up on the other side. And they always, always wear a life vest. That way if the worst happens, you can still float. The investment analogy is to plan for investment errors. Nobody gets it right [...]

Whitewater (Part 1)

By | 2014-09-04T14:42:48+00:00 November 14th, 2008|Global Market Update|

Where I grew up in Minnesota, when we went canoeing the river was usually flat and peaceful. We’d reach our destination, but it was mostly paddle power and a smooth current. Occasionally the river would get a little rough, and we’d encounter some rapids. Now normal people usually avoid the whitewater. But if you develop certain skills, you can read the rapids, avoid the rocks, and even thrive. It’s like that in the market right now. We’re in a period of rapid, roiling change. [...]