Choices, Choices (Part 1)

By |2014-09-05T20:24:55+00:00September 17th, 2010|Global Market Update|

How do you choose? Many people have a hard time figuring out how to pick stocks and bonds, so they use mutual funds where they pay an expert. But how do you pick which mutual fund? There are about 8000 mutual funds, and they all say that past performance does not predict future results. Do you go with the hot fund of the moment? Lots of folks do that, and it almost never works. Hot funds often stand out because they invest in a [...]

Simplify, Simplify

By |2014-09-11T15:49:39+00:00September 16th, 2010|Global Market Update|

We’re finally seeing what the Financial Reform Act produced. One of the little-noticed tenets of the Financial Reform Act was that it gave regulators the authority to implement the Basel III accords. Now we know what those accords specify, and it’s confusing. Instead of simple, clear rules, we now have a 3 x 3 matrix of different types of capital, a five-tiered weighting of credit-risk, and a 20-year implementation schedule. The whole mechanism is supposed to reduce the risk of another global financial contagion [...]

Free Parking

By |2017-07-17T12:35:18+00:00September 15th, 2010|Global Market Update|

Have you played Monopoly lately? When I was growing up, it was the game of choice. Four to six players would try to buy property and corner the market. But my favorite place to land was Free Parking. We had a house rule that Free Parking always had $500. And any fines or taxes paid went in to Free Parking. The person who landed there got all that loot. So imagine our surprise when, upon reading the rules, we found that Free Parking was [...]

The Success That Dare Not Speak Its Name

By |2014-09-09T10:02:21+00:00September 14th, 2010|Uncategorized|

Two years ago the global financial system teetered on the brink. What happened? By now the explanations of the housing bust and global financial panic are commonplace. Excessive leverage multiplied a modest correction in home prices into a capital-sucking vortex. Many financial institutions that made bad decisions during the boom—AIG, Lehman, Wachovia—went bust because of losses on mortgages The failure of some key institutions initiated a domino effect in the overnight credit markets, where institutional investors began pulling their deposits and putting the money [...]

Multiple Choice

By |2014-09-05T20:23:10+00:00September 12th, 2010|Global Market Update|

What’s going on with the markets? Stocks are historically cheap or headed for a crash. Bonds are rationally priced or a sucker’s bet. And earnings are either under or overestimated. Looking at the stocks, we’ve recovered about half of the value lost during the great bear market. Stocks are discounting a slow-growth recovery. But earnings have not grown slowly, and as a result the market is as cheap now as it was in 1979 or 1974. Bond yields have fallen to historically low levels. [...]

The Broad View

By |2014-09-05T20:22:26+00:00September 9th, 2010|Global Market Update|

Whenever economists discuss the world economy, they peg growth at somewhere between 3 and 4 percent. But in the US, we’re lucky to get growth of 2 percent. Why? Until recently the US led global growth. Because our economy was open, transparent, and entrepreneurial, innovations in one place quickly spread through the rest of country and improved productivity, lifting both wages and profits. Think of just-in-time inventories, hub-and-spoke distribution, and GPS systems that route trucks so they minimize left-handed turns, saving gas. But the [...]

Veritas Humiliat

By |2014-09-11T15:47:30+00:00September 8th, 2010|Uncategorized|

School’s back in session. Across the country college students are picking up books and trying out new classes. But school is back in session for portfolio managers, too. Harvard Management Company just released the performance of its $27 billion portfolio. In the past year the portfolio rose 11%. This lags both the S&P 500 at 14% and a blended mix of stocks and bonds which returned 12%. But it does beat the school’s internal benchmark, which was up 9%. The last couple years have [...]

Home Sweet (Upside-Down) Home

By |2014-09-11T15:48:04+00:00September 7th, 2010|Global Market Update|

So why the long slog? For months economists have been going on ad-nauseum about the long slog that this economy is presenting us. While sharp recessions are often followed by sharp recoveries, that doesn’t seem to be the case this time. Why is it different? One big issue is housing. In the past, economic slowdowns led to lower interest rates, which allowed homeowners to refinance and improve their household cash-flow. The extra cash allowed households to improve their finances, and helped get us out [...]

Not So Bad …

By |2014-09-05T20:21:29+00:00September 6th, 2010|Global Market Update|

While the jobs report looked dreary on the surface, there was more to it than first appeared. Employment fell last month by 54 thousand, led by the loss of 114 thousand census workers. Private sector employment rose by 67 thousand jobs, and in July the private sector added 107 thousand jobs, 36 thousand more than originally reported. Unemployment ticked upwards, but that was because the labor force grew by 550 thousand workers. And the number of people unemployed 26 weeks or longer fell by [...]

American Dreamin’

By |2014-09-05T20:20:08+00:00September 3rd, 2010|Global Market Update|

Is the American dream of home ownership still alive? Many people don’t think so. The appreciation from ’03 through ’07 seemed to make it impossible to buy in unless you used special financing. Demand grew and prices soared across much of the country. But then the loans started to turn sour and unqualified borrowers defaulted. The bubble burst and home prices declined by up to 50%. Is the dream dead? It depends on what that dream is. If homeownership means investing in something that [...]