The Paradox of Choice

By | 2017-07-17T12:35:02+00:00 August 18th, 2011|Global Market Update|

If choice is a good thing, is more choice better? Not necessarily. Researchers put consumers in front of a shelf of a hundred types of jam and a different group in front of a dozen types. Consistently, the consumers faced with a hundred different choices had a hard time deciding what to buy, compared with the folks that only had a dozen to choose from. Academics call this phenomenon “choice overload.” We’ve seen choice overload apply to consumer products companies, like Smuckers or Gillette, [...]

Rush to Irrelevance

By | 2014-09-11T10:47:35+00:00 August 17th, 2011|Global Market Update|

Last week S&P affirmed France’s AAA credit rating. What? S&P’s widely expected downgrade of the U.S. from AAA to AA+ was greeted with yawns, scorn, and concern. Republicans are trying to figure out how to pin this on the President; Democrats want to blame the Tea Party; economists point to S&P’s $2 trillion error; and most folks wonder how it would affect them. A week later, interest rates are dramatically lower; the stock market is roughly where it started out; and France has had [...]

Trolling for Dollars

By | 2017-07-17T12:35:02+00:00 August 16th, 2011|Global Market Update|

Google bought Motorola Mobility. Is it trolling? In fishing, trolling is when you run a boat under low power and let your line dangle, pulled along by the boat. When I grew up in Minnesota, my family went trolling for certain fish all the time. But there’s another type of trolling happening in the technology market. It’s patent trolling. That’s where investors buy a series of patents and use them to sue others for patent infringement. They don’t have any intention of manufacturing the [...]

Running for Profit

By | 2014-09-11T10:46:35+00:00 August 15th, 2011|Global Market Update|

"Let your winners run and cut your losses quickly.” This is pretty good advice when it comes to investing. Jesse Livermore coined this “trading commandment” almost 100 years ago. But it’s hard to put into practice. Studies show that investors fear losses more than they enjoy winners. So when a stock goes up they take the gain, often too early, in order to eliminate the risk of having a loss later. On the other hand, they often hang onto a losing stock in the [...]

The Age of Deleveraging

By | 2014-09-11T10:46:06+00:00 August 12th, 2011|Global Market Update|

In 2000 technology firms were over-capitalized. They had too much investment capital to put to work profitably. During the ensuing recession consumers kept spending. The result was that by 2007 consumers were over-leveraged. They were over-housed, over-borrowed, and under-productive. During the pullback governments kept borrowing, but now we see a political push to curb government spending. So over-levered governments will now begin, if not to save, then at least to reign in their spending. If consumers pull back and governments pull back, who will [...]

Calling Alexander Hamilton

By | 2014-09-12T10:42:47+00:00 August 11th, 2011|Global Market Update|

Many people have written about how the European debt crisis parallels the Lehman crisis. But in my view, it’s the crisis of 1789 that is really similar. When the United States became a Federal Union the thirteen States had varying levels of debt. Most of this had been contracted during the Revolutionary War. US debt was $54 million; state debt was $25 million. That’s roughly equal to $4 trillion and $2 trillion in today’s dollars, respectively. Federal notes, or scrip, had been trading at [...]

Ratings Ravings

By | 2014-09-12T10:42:55+00:00 August 10th, 2011|Global Market Update|

As expected, S&P cut our rating. What does this mean? Late Friday S&P announced that US Government debt is rated AA+. This puts our debt on par with Belgium, Italy, and Japan. In its comments, S&P blamed lawmakers for failing to reign in our long-term fiscal deficit. They kept the outlook negative, and noted that they may drop our rating another notch to AA within two years if the deficit remains at such an elevated level. In practical terms, not much will change. Moody’s [...]

Emerging Issues (Part 2)

By | 2014-09-11T10:31:42+00:00 August 9th, 2011|Global Market Update|

So, emerging markets are risky. We already knew that. But since they’re going to be the locus of growth for a while, how should we invest? Certainly direct investing in emerging market companies is possible. Many of these are listed in the US via American Depository Receipts, or ADRs. These allow foreign companies to list their shares on a US exchange. And if you had purchased Infosys, the giant Indian information systems outsourcer back when they listed in 1999, you’d have grown your money [...]

Time to Panic?

By | 2014-09-12T10:43:23+00:00 August 8th, 2011|Global Market Update|

The stock market went down an awful lot yesterday. Is it time to panic? The market shifted from concern over the debt ceiling to panic over Europe. Some investors are running a bear-raid on Italy and Spain, just as they did earlier with Greece, Portugal, and Ireland, and just as they did three years ago with Lehman. Many folks are understandably nervous. To them, the European debt crisis looks eerily like the sub-prime debacle did in ’07-’08. Like then, officials tried to downplay the [...]

Hitting the Ceiling

By | 2017-07-17T12:35:02+00:00 August 5th, 2011|Global Market Update|

I feel like I must be the only person out there actually pleased with the outcome of the debt-ceiling debate. One of the hallmarks of a compromise is that nobody gets everything. A little bit of this, a little bit of that, and the deal goes through. But in this case, it seems like everyone is unhappy. Tea-partiers decry the phony accounting that calls previously scheduled troop draw-downs “savings.” Democrats are incensed that revenues were taken off the table. Economists see that little of [...]