In The Long Run?

By |2014-09-11T11:07:17+00:00July 16th, 2011|Global Market Update|

Why bother? Over the last 15 years the S&P 500 returned 6.5%, dividends included. The Treasury market has returned 6.1%. If you had purchased 15-year notes you could have gotten 7% and saved yourself a lot of trouble. The same types of returns hold for the last 10 or 5 years. Treasuries have returned about the same or better than the stock market, without all the heartache. So why bother having a balanced portfolio at all? One reason is diversification. We don’t know what [...]

Trading Banks

By |2014-09-11T11:06:30+00:00July 15th, 2011|Global Market Update|

The results are in. Per the Dodd-Frank bill, the Government Accounting Office reviewed the profits and losses that six major banks experienced on their proprietary trading desks over the past 4 ½ years. The result? After slinging hundreds of billions of bonds, bills, and CDOs around the banks lost … wait for it … 221 million dollars. That’s right: I didn’t miss a decimal. Their net losses were a couple hundred million. Less than they spent on their Bloomberg terminals, probably. Certainly less than [...]

Playing Chicken

By |2014-09-11T11:05:46+00:00July 14th, 2011|Global Market Update|

It’s hard to rent a copy of “Rebel Without a Cause” these days. Some folks see it as an analogy to the debt-ceiling debate. In the movie, James Dean and a teenage rival race two cars to the edge of a cliff in a game of chicken. Both intend to jump out at the last moment. But the other guy’s jacket gets caught and he goes over the cliff with his car. So people are looking at the political brinksmanship going on in Washington [...]

The Power of Three

By |2017-07-17T12:35:04+00:00July 13th, 2011|Global Market Update|

Many good things come in threes: the Apollo space program used three astronauts to land on the moon; the Defense Department oversees forces on land, sea, and air; the simplest stable platform is the tripod: it has three legs. In finance, it's recognized that there are fundamentally only three types of assets: bonds, the senior claim on an enterprise's cash flow; equities, the residual claim on that cash flow, and real estate, which is an operating claim on cash flow. Sensible investment policy mirrors [...]

Known and Unknown

By |2014-09-11T11:04:48+00:00July 12th, 2011|Global Market Update|

“I know something you don’t know.” In The Princess Bride Mandy Patinkin smiles during an epic sword fight as he is forced back, step-by-step, towards the edge of a cliff. When his assailant asks why, he says that he knows something the other doesn’t: he’s not left-handed. As he changes hands, the tide of the fight turns. As the market struggles with fears about Greece, concerns about employment, and questions about bank solvency, many participants are smiling: they know something many don’t: we’ve been [...]

Breaking Even

By |2014-09-11T11:03:42+00:00July 11th, 2011|Global Market Update|

“When it gets back to break-even I’ll sell it.” That’s what a lot of people say when faced with a market downturn--whether it’s individual equity holdings or the entire market. But how do you tell that you’ve broken even? By most people’s estimates, the market is about 10% below its high point. Back in late 2007, the Dow hit 14,100 and now its 12,600. But that ignores dividends. If you reinvested your dividends back into the market, the Dow is basically back to its [...]

Market Mayhem

By |2014-09-11T10:45:00+00:00July 10th, 2011|Global Market Update|

What does the latest market silliness mean? One day the market is up 500 points, the next it is down 500. Sometimes the market has moved almost 1000 points inside of one day. There is no rationality with this market right now. Market volume is spiking. There is panic selling followed by institutional buying followed by more selling. The market seems to be divorced from the fundamentals: luxury goods sellers are seeing record sales. Oil is up but energy stocks are down. There’s a [...]

What a Tangled Web…

By |2014-09-11T11:03:01+00:00July 8th, 2011|Global Market Update|

Bernie Madoff may have created a messy legal issue for the US Supreme Court. At issue is a legal conflict between Federal securities law, Federal bankruptcy law, and the common-law institution of fraudulent transfer, which is usually part of State law. Federal securities laws specify that when you get a statement from your broker as to your holdings, your broker is obligated to deliver these securities on demand. It is a legal obligation. But of course the statements that Madoff’s customers received were complete [...]

Of Rules, Rubes, and Rubicons

By |2017-07-17T12:35:04+00:00July 7th, 2011|Global Market Update|

Yesterday Moody’s downgraded some European debt. Does anybody care? On the face of it, a lot of investors care. Yields on 5-year Portuguese bonds rose 2.8%. Some folks think it’s because this change has made a lot of people care who would rather be spending time on the beach, but the reality is a little more messy. Portuguese bonds are still rated investment grade by S&P and Fitch, although they are watch-listed for a downgrade by Fitch. There’s no forced selling —yet. The downgrade [...]

A Movable Feast

By |2011-07-06T00:06:49+00:00July 6th, 2011|Economics, Global Market Update|

When Ernest Hemingway published his memoirs, he called Paris “a movable feast.” He was lucky enough to live there as a young man during the ‘20s, and the intellectual fellowship he experienced then remained with him for the rest of his life. He could always reflect back on that time and feed, as it were, on its nourishment. […]