Flying Too High

By | 2017-07-17T12:22:19+00:00 December 14th, 2015|Global Market Update|

Have junk-bond investors flown too close to the sun? Artist Ceasare d’Arpino. Source: British Museum Icarus was the son of Daedalus, the master craftsman who built the Labyrinth for King Minos. In order to escape from Minos’s realm, he fashioned two pairs of wings out of wax and feathers for himself and his son, warning Icarus not to fly too close to the sun, nor too close to the sea—but to follow a middle path. Icarus couldn’t resist soaring high in the sky, however, [...]

Carbon Taxes and OPEC

By | 2017-07-17T12:22:19+00:00 December 11th, 2015|Global Market Update|

Are worries about climate change destroying OPEC? Source: Photoeverywhere.uk Last week OPEC died. Nigerian oil minister Ibe Kachikwu announced that OPEC would abandon its nominal target of 30 million barrels per day. Instead, every country would set its own target. Saudi Arabia will continue to pump around 10 ½ MMBD—close to a record. Iran won’t accept any curbs until after they restore their oil shipments. A cartel is supposed to limit supply in order to raise prices. If the members can’t agree on production [...]

Nature’s Diversity and Portfolio Diversification

By | 2017-07-17T12:22:19+00:00 December 10th, 2015|Global Market Update|

Nature is diverse. Source: NOAA Whether down in the depths of the sea or soaring in the Himalaya Mountains or out on the African veldt, we find a broad array of plants, animals, fungi, and microorganisms. Wherever there’s a source of energy, there’s something out there that uses that energy to grow, reproduce, and spread. That’s why the discovery of deep sea geothermal vents by the crew of the Alvin in 1977 was so revolutionary. They found a whole community of tube worms, clams, [...]

Gaining Perspective

By | 2017-07-17T12:22:19+00:00 December 9th, 2015|Global Market Update|

Are we all doomed? Source: NASA It’s easy to get worried about the economy. Alarmist news media tend to focus on the most negative trends. “If it bleeds, it leads” still sells papers—or page-views. And, to be fair, there’s a lot to worry about. Plunging oil prices may be just due to OPEC pumping more than expected—or they might indicate a lack of demand. Falling commodities could be due to China’s shift from a manufacturing to a service economy, or they could be part [...]

The Danger of Safety

By | 2017-07-17T12:22:19+00:00 December 8th, 2015|Global Market Update|

Do safety measures encourage us to take more risks? Photo: Magnus Manske. Source: Wiki The US Forest Service was created in 1905. Teddy Roosevelt signed the bill in response to a series of disastrous forest fires, like the Great Hinckley Fire of 1894. These fires threatened future commercial timber supplies, and the Federal Government had begun to establish national forest reserves. Why create them, people wondered, if they were just going to burn down? So the Forest Service established a systematic approach to fire [...]

“We Have Liftoff”?

By | 2017-07-17T12:22:19+00:00 December 7th, 2015|Global Market Update|

“We Have Liftoff?” What happens when the Fed starts to raise rates? Photo: Kim Shiflett. Source: NASA Many investors are worried about the value of their bond portfolios. When interest rates rise, bond prices fall. It’s simple mathematics: bonds have a contractual future payment stream, and that payment stream isn’t worth as much when the discount rate rises. With the Fed now poised to raise rates, their portfolios may be at risk. As a result, many investors have shifted to short-term bonds, because short-term [...]

Quarter-by-Quarter

By | 2017-07-17T12:22:19+00:00 December 4th, 2015|Uncategorized|

Is a focus on short-term earnings irrational? Swiss Railway Clock. Photo: Jürgen Götzke. Source: Wikipedia People often buzz about the pernicious effects of a focus on short-term profits. A company’s market value can rise or fall by over 10% when they meet (or miss) their quarterly financial projections. Observers decry short-termism in corporate finance and investment management. Some politicians have called it “quarterly capitalism.” In response, some companies have stopped giving quarterly guidance. They provide an annual projection of the next year or two, [...]

Doing Their Homework

By | 2017-07-17T12:22:19+00:00 December 3rd, 2015|Global Market Update|

Is China getting a gold star? Photo: Kristine Kisky. Source: Morguefile When I was a little boy, my teachers would sometimes put a gold star on top of my homework. It wasn’t’ a grade, but it meant that I had done a good job. That’s sort of what happened with China and the International Monetary Fund. The IMF decided to include China’s currency in its basket currencies, the SDR. SDRs aren’t a currency, they’re a claim on reserves held by the IMF. Member countries [...]

Business Investment Blues

By | 2017-07-17T12:22:19+00:00 December 2nd, 2015|Global Market Update|

Why is business investment so weak? Photo: Folkert Gorter. Source: Superfamous Business investment is critical to the economy. Our economy consists of about 70% consumer spending, 20% government spending, and 10% investment spending. But that 10% is the basis for future economic growth. This is how companies make themselves more productive, how they improve their processes, how they expand into new markets. But business investment has been weak during this expansion, and most recently has fallen to just 2.2%. For an economic component that [...]

Moody Market Returns

By | 2017-07-17T12:22:19+00:00 December 1st, 2015|Global Market Update|

Do happy people make better investors? Photo: Laura Musikanski. Source: Morguefile We know that people often behave irrationally—taking the market’s recent performance and projecting it forward. Depending on whether it’s up or down for the last 12 months, people either think that we’re headed upwards towards a glorious bright-and-shining future or a dismal, grey doom. But do our moods affect our investment decisions? Interestingly, the answer appears to be yes. Investor sentiment is generally a contrary indicator—when other investors are overwhelmingly bullish, people need [...]