Wrong-Footed

By | 2017-07-17T12:21:54+00:00 June 30th, 2016|Global Market Update|

How did so many folks get it wrong? Source: Morguefile The Brexit vote reminds me of the comment that came from a New Yorker writer who was shocked by the 1972 landslide re-election of President Nixon. “I only know one person who voted for him,” she noted. There was a lot of insularity and wishful thinking in the analysis of and reaction to the Brexit vote. Folks who live in cosmopolitan London—where most of the British press is located—favored Remain. And why not? They [...]

Discounts and Discount Rates

By | 2017-07-17T12:21:54+00:00 June 29th, 2016|Global Market Update|

Are equities cheap or expensive? Photo: Joe Zlomak. Source: Morguefile Earlier this year we discussed what goes into determining the fair value of a stock. It’s sum of all the future cash flows, discounted to present value. The lower the discount rate used to calculate present value, the higher the present value. That’s why it’s called a discount rate. If the discount rate is 5%, then a dollar a year into the future is worth 95 cents today. If the discount rate is 2%, [...]

“With or Without You”?

By | 2017-07-17T12:21:55+00:00 June 28th, 2016|Global Market Update|

Now what? U2 Performing “With or Without You.” Source: Wikipedia The short answer is, volatility will increase. But it doesn’t take the deductive powers of Sherlock or Mycroft Holmes to figure that one out. It’s cold comfort to investors who have lost money to know that most other investors did as well. And comments about this taking us back to the days of the Maastricht Treaty of 1992 aren’t helpful. This isn’t 1992, and Brexit isn’t taking us back there. But the “lookback” commentary [...]

A Few Quick Thoughts …

By | 2017-07-17T12:21:55+00:00 June 27th, 2016|Global Market Update|

In no particular order: Source: Econlib Scottish independence: the conventional wisdom is that Scotland will now have a referendum and vote to leave the UK and re-join the EU—even the Euro-zone. This will be messy. During the last Scottish independence vote, they wanted to immediately adopt the Euro, but Brussels said the Scots would have to apply like any other nation—a process that would take years. A new independence referendum must be authorized by the British—not Scottish—Parliament. They’re going to be pretty busy. I [...]

Brexit Blues

By | 2017-07-17T12:21:55+00:00 June 24th, 2016|Global Market Update|

After the Brexit vote, will London Bridge come falling down? Source: Morguefile Like most observers, I was surprised by the Brexit vote. Yesterday the betting markets in London had the odds of a “Leave” vote at 25%. This morning, European markets are adjusting to the new reality: UK shares are down 5%; German and French stocks are down a little more; global interest rates are falling as investors look for shelters from the coming market storm. EU leaders will meet next week in Brussels [...]

The Myth of New

By | 2017-07-17T12:21:55+00:00 June 23rd, 2016|Global Market Update|

The Myth of “New” We’ve never seen this before! Meerkat. Source: Animal Photos That’s what people say when they run into a novel situation. Whether it’s Brexit or Venezuela’s economic meltdown or Puerto Rico’s default, people want to marvel at their situation’s unique status. But there’s nothing really new under the sun. The writer Malcom Muggeridge once observed that there’s no new news, just old news happening to new people. Take the immigration crisis in Europe. While millions of people coming into Europe from [...]

The Myth of Equilibrium

By | 2017-07-17T12:21:55+00:00 June 22nd, 2016|Global Market Update|

Will we ever get back to normal? Photo: Reza Tizz. Source: Morguefile Everyone wants the economy to normalize—normal interest rates, normal economic growth, normal inflation. But we never seem to get there. Something always seems to come up. Ten years ago, the wheels came off the bus with the housing boom and financial crisis. Five years ago we had a Euro crisis and fears of “Grexit.” Now it’s “Brexit” and the most bizarre presidential contest in memory. Economists are debating whether we’re in a [...]

Borrowing the Future

By | 2017-07-17T12:21:55+00:00 June 21st, 2016|Global Market Update|

Are young people being eaten by their student loans? Source: St. Louis Fed The outstanding level of student loans has increased by 10% per year for the past 9 years. The amount student borrowing has grown from about $540 billion in 2007 to over $1.3 trillion now, surpassing the level of credit card and auto loan debt. With college enrollment increasing and the cost of college rising, this balance is only going to grow. On one level, this is encouraging: kids are investing in [...]

Growing, Growing, Gone

By | 2017-07-17T12:21:55+00:00 June 20th, 2016|Global Market Update|

Is growth worth it? “Enchanted Forest.” Photo: Dave Meier. Source: Picography We live in a deflationary time. Excess investment in productive capacity has provided more and more goods at cheaper and cheaper prices. Global trade and technology means that the marginal cost of labor minimal. Even professional services will be affected by globalized labor. The Microsoft-LinkedIn merger means that there will be millions of human “Clippies” waiting for us inside our Word or Powerpoint files, offering to do our animations and graphics or edit [...]

Rating Agency Issues

By | 2017-07-17T12:21:55+00:00 June 17th, 2016|Global Market Update|

Can the ratings agencies be saved? Blind Justice. Photo: Itojyuku Themis. Source: Wikipedia Investors, companies, and regulators all benefit from having a cheap and easy way to measure credit risk. There are all kinds of institutions with a public mission that need to invest in bonds, and they need their bonds to be low-risk. Investment-grade or A-level credit ratings provide this. But the credit agencies are paid by the bond issuers—a clear conflict of interest. Can this be solved? This conflict has been with [...]