Taking Up Slack

By |2014-09-18T09:46:58+00:00August 18th, 2014|Global Market Update|

Does our economy have too much slack? Central to the debate about monetary policy is the question of economic slack. If there’s a lot of slack in the economy, Fed policy needs to be easy, and rates need to be low. If there isn’t enough slack, rates need to get back to normal, or inflation will pick up. Slack is a slippery concept—simple in theory, but hard to pin down. Policy errors in the ‘60s and ‘70s led to overly-easy policy and double-digit inflation. [...]

Repos: No Place to Run

By |2014-09-18T09:47:49+00:00August 15th, 2014|Global Market Update|

Finally, an official gets it. Six years, 848 pages, and 280 Dodd-Frank rules later, a Fed official is getting to the heart of the Financial Crisis. Eric Rosengren, President of the Boston Fed, gave a substantive speech about the repo market three days ago. Repos—or repurchase agreements—are a critical part of our financial infrastructure. They’re how major broker-dealers fund themselves. And Dodd-Frank barely mentions them. In a repo, a firm sells a security and agrees to buy it back a day or so later [...]

Productively Growing

By |2014-09-18T09:48:14+00:00August 14th, 2014|Global Market Update|

Why does productivity matter? The textbooks tell us that rising productivity is essential to rising real wages. That is, as workers do more, they can be paid more. But why? Won’t employers just pocket the extra earnings? That’s what seems to be happening now. Rising productivity following the Great Recession has led to rising profits and stagnant wages, soaring stocks and a lagging labor economy. In the short run, yes, when firms can expand production using the same number of workers, they will, and [...]

Uh Oh ….

By |2014-09-18T09:50:31+00:00August 13th, 2014|Global Market Update|

Is Europe headed into another recession? Europe’s industrial production fell last month, after falling the previous month. Unemployment is stuck at almost 12%. Credit is contracting. Two-year German government bonds have negative yields. Short-term interbank rates are already negative. Even as the US appears to be accelerating, Continental Europe looks like it’s running out of gas. This is important. The Euro-zone is almost 20% of the world’s economy—bigger than China. From BMWs to Pirelli Tires to Hotel Sofitel, their goods and services compete with [...]

Developing Employment

By |2014-09-18T09:50:56+00:00August 12th, 2014|Global Market Update|

Why is unemployment so high in the developing world? When we see pictures of massive want and privation in places like Gaza, Ghana, and other poor nations, it makes us wonder: how can economies with such tremendous shortages fail to employ up to 40% of their workers to meet their needs? Part of the answer lies in government mismanagement. It’s easy for experts to think they know best—especially when they use sophisticated mathematical models. During the 1970s the government of Bulgaria attempted to optimize [...]

Liquid Illiquidity

By |2014-09-18T09:51:27+00:00August 11th, 2014|Global Market Update|

Will ETFs be part of the next crisis? ETF investing is taking over the investing world. In the last 15 years the product has gone from a curiosity with a few generic funds to a major investment alternative. There are now over 1500 funds traded in the US with over $1.7 trillion in assets. Investors can use ETFs to gain exposure to stocks, bonds, commodities, and futures in various countries, regions, and sectors. ETFs offer diversification, transparency, and tax-efficiency. One of their most attractive [...]

Cash: Trash or Treasure?

By |2014-09-18T09:51:52+00:00August 8th, 2014|Global Market Update|

What good is cash? Central banks around the world have pushed interest rates to zero. In Europe, short rates are negative. Most bank deposits and money market funds pay almost nothing. Why should investors hold cash? Cash used to be thought of as a weapon, or a market sector. Mutual funds held up to 10% of their portfolios in cash. After all, cash allows managers to move quickly when they see opportunities. And when the market falls, cash looks pretty good. It may not [...]

The Center of Investing

By |2014-09-18T09:52:20+00:00August 7th, 2014|Global Market Update|

What’s with all the Shakespeare? A little over a month ago I noted that I planned to review some literary classics and derive some investment lessons from them. But I’ve been lingering over Shakespeare for a while now. Lingering is probably the wrong word. I’ve been stuck on Shakespeare, unwilling to move on. Why? Part if it is the sheer immensity of his work. Shakespeare’s plays are so diverse and cover so much ground that they provide commentary on an almost limitless number of [...]

Ebola and Africa

By |2017-07-17T12:34:16+00:00August 6th, 2014|Global Market Update|

What is happening in Africa? The Ebola outbreak in West Africa has infected over 1300 people. This has many worried that its economic effects could retard progress in an area that badly needs growth. Ebola is particularly virulent, spread through contact with any kind of body fluid, such as sweat or blood. And there’s no specific treatment or vaccine. Shakespeare was well-acquainted with disease and death. The bubonic plague swept through London several times during his life, killing three of his sisters, his brother, [...]

The Foolishness of Fools

By |2014-09-18T09:53:10+00:00August 5th, 2014|Global Market Update|

Sometimes fools are just foolish. We talked yesterday about the wisdom of fools—that in many of Shakespeare’s plays, the fool speaks the truth—sometimes unwittingly—while the lead characters dissemble and dissimulate. While the main characters deceive one another and themselves, the central conflict of the play grinds forward, and the truths spoken by the fool ends up being more astute than anyone expects. But sometimes fools are just that. A case in point is Nick Bottom in A Midsummer Night’s Dream. Bottom is a prominent [...]