The Rise of Policy

By |2014-09-05T19:48:07+00:00July 15th, 2010|Global Market Update|

Trading is dead. Long live policy. Over the past few years we’ve seen the results of trading on the global economy. The trading mentality encouraged the big banks to relax their credit standards because they could always sell loans on the secondary market. The trading mentality caused buyout firms to pay ever-higher prices for ever-more questionable deals. The trading mentality caused Goldman to engineer a hybrid bond with the “leftovers” on its mortgage desk that ultimately cost it $650 million. For years the trader [...]

50/50 World

By |2014-09-05T19:47:24+00:00July 14th, 2010|Global Market Update|

Well, we have another hung parliament. Earlier this week the Democratic Party of Japan failed to win a majority in their upper house elections. This is the latest 50/50 election. England, Canada, and Israel all have minority governments that require the leading party to form a coalition. Hung parliaments are often seen as negative. It’s hard for a coalition to make the hard choices necessary to deal with domestic crises. Indeed, gridlock can sometimes paralyze a government when bold steps are needed. But the [...]

Northern Exposure

By |2014-09-05T19:46:50+00:00July 13th, 2010|Global Market Update|

Can Canada serve as a financial regulatory model? At its heart, banking moves cash from those who have it to those who need it. It may be small depositors and large borrowers, or the other way around. This intermediation is essential. Otherwise, the cash can’t get where it’s needed and growth opportunities go undeveloped. The more sophisticated the economy, the more complex the banking system. So in the US we have a complex system of commercial banking, shadow-banking, and consumer banking which includes banks, [...]

Building Pressure (BP)?

By |2014-09-05T19:46:03+00:00July 12th, 2010|Global Market Update|

Could BP go bankrupt? A lot of people are asking that question. The company has already spent $3.5 billion on the cleanup and has pledge to spend at least $20 billion on reparations. But since civil fines could total tens of billions, and punitive measures are often three times this, could a court decision force BP into bankruptcy? After all, the company has a net worth of only $100 billion. Legal judgments are senior to ordinary debt, so bankruptcy seems possible. Only, in the [...]

Exchanging Places

By |2014-09-05T19:45:28+00:00July 11th, 2010|Global Market Update|

A lot of people are interested in currencies. With Exchange Traded Funds linked to currencies, it’s easier than ever to take a position on the dollar. For those folks, I have just one word: don’t. When you look at an investment, you need to understand what you’re buying. In a market economy, wealth is created by enterprise. Stocks represent ownership of those businesses. Bonds are loans to those businesses—or the governments that support them. Investments in stocks and bonds (and funds that hold them) [...]

Lake Wobegon Investing

By |2014-09-05T19:44:53+00:00July 9th, 2010|Global Market Update|

“Raise your hand if you’re an above-average driver.” Ask that question in any group and see how many hands go up. Usually it’s way more than half. That’s because we’re pretty overconfident. We think we know more than we do, and we think that we’re better than we are. It’s not just because people are arrogant. It’s also because the folks who lack a true expert’s abilities can’t discern what makes someone really good. For example, if you’re not very good at learning languages, [...]

The Emotional Investor

By |2014-09-05T19:44:25+00:00July 8th, 2010|Global Market Update|

“Don’t tell me not to be emotional!” How often have we heard these words yelled, implied, or quietly affirmed. But our own lack of rationality is often a major obstacle to our own success. Or at least, our failure to acknowledge our lack of rationality gets in the way. Let’s face it: we’re emotional creatures. We hope, dream, panic, and run away. We’re built that way for lots of very good reasons. Our emotions help us survive in a challenging world. But when money [...]

Successful Failures

By |2014-09-05T19:41:16+00:00July 6th, 2010|Global Market Update|

Why is it so hard to invest successfully? Study after study has shown that the average investor doesn’t do as well as a low-cost index fund. Since low-cost index funds are everywhere, why is this? One reason is that we think that no one has faced what we’re facing. So don’t listen to those who have gone before. But we know that what has been done will be done again and that there is nothing new under the sun. Just because you haven’t seen [...]

I Love to Hear the Story

By |2014-09-05T19:40:17+00:00July 5th, 2010|Global Market Update|

Are we wired to believe in stories? Our brains seem to be programmed to connect discrete events and fashion a narrative around them. This has been known for thousands of years. How else to explain the durability of the classics, from Homer to Homer Price? And if for some reason we can’t connect the dots, we’ve lost a part of ourselves. But there’s a downside. Since forever, hucksters and charlatans have been spinning stories attempt to separate us from our savings. As an investor, [...]

Dividends and Investors (Part 4)

By |2014-09-05T19:38:26+00:00July 1st, 2010|Global Market Update|

So are dividends the secret sauce? Are dividends the best way to divine a stock’s future? Lots of folks think so. We’ve discussed how steady and growing dividends can indicate financial health, commitment to investors, and provide a stable real income stream. So many folks have gotten the dividend bug that there are some 800 mutual funds with over $400 billion in assets that focus on a dividend strategy. So what’s not to like? Well, like anything, you can have too much of a [...]