The (Greater) Wealth of Nations (Part 2)

By | 2017-08-18T06:17:08+00:00 August 18th, 2017|Global Market Update|

Is trade enough? Source: Brookings Institute In order to understand the effect of trade on the global economy, it’s not enough to map out gross flows from one economy to another. Countries and companies are enmeshed in a complex web of relationships – called the Global Value Chain. Cars aren’t just built in Japan from Japanese steel and glass and plastic and then shipped to the US or Europe anymore. They might have Chinese steel and Mexican seats and a Canadian motor and software [...]

The (Greater) Wealth of Nations

By | 2017-08-17T07:06:58+00:00 August 17th, 2017|Global Market Update|

How can nations get richer? Source: US Mint Ever since Adam Smith and David Ricardo, the path to national wealth was assumed to be specialization. Scotland should spin wool, and Portugal should make wine, Smith argued. Then they should trade, and everyone will be better off. It’s possible to grow wine grapes in Scotland, but the cost of doing so – in labor and materials – would make a Scottish winery far less productive than one in Portugal. Ricardo expanded this notion to relative [...]

Desperately Seeking Safety

By | 2017-08-16T06:24:20+00:00 August 16th, 2017|Global Market Update|

Is anything safe? Photo: Josh Rogan. Source: Morguefile For many, safety means credit risk, full stop. Johnson & Johnson bonds are less risky than Ford bonds—the company has less leverage, stronger cashflow, and more steady revenue growth. But safety is more than just having a AAA rating. A few years ago US was downgraded from AAA to AA by S&P and interest rates still fell rather than rising. Clearly, the market was looking at something other than credit risk. Liquidity risk is real, too. [...]

Healthy Competition (Part 2)

By | 2017-08-15T06:52:28+00:00 August 15th, 2017|Global Market Update|

What is a “wolf tree”? Photo: Michael Gaige. Source: American Forests A wolf tree is a large forest tree with a wide-spreading crown. We often find them in the middle of a dense woods, and they seem to contradict the notion of “crown shyness.” There’s nothing shy about these giants. They appear to push everyone else out of the way. But that’s an illusion. They’re older than the stand around them, sometimes by several centuries. They have gnarled and broken limbs, and the forest [...]

Healthy Competition (Part 1)

By | 2017-08-14T07:22:41+00:00 August 14th, 2017|Global Market Update|

How does competition work? Photo: Doug Tengdin Sometimes we can learn about economics observing how species operate in the wild. Nature is supposed to be “red in tooth and claw” – plants and animals in a ruthless struggle for survival. But that’s not always what you see. The next time you walk through a forest, look up. There’s something interesting overhead. Mature trees spread their branches just far enough to so they don’t quite touch the neighboring tree’s crown. It’s called “crown shyness,” and [...]

Roads vs. Schools

By | 2017-08-11T07:32:29+00:00 August 11th, 2017|Global Market Update|

Should emerging economies build more schools or build highways? Photo: Jogi Don. Source: Wikipedia The short answer would be “both.” Moving goods and services around is critical to an economy, but developing human capital is also essential. An educated populace is going to be able to operate complicated equipment, manage more effectively, develop new products and respond to markets more readily. But unless you can deliver your output where it’s needed, your improved skills aren’t very useful. When I lived in North Africa I [...]

All-Weather Billionaire

By | 2017-08-10T08:03:45+00:00 August 10th, 2017|Global Market Update|

Is Ray Dalio insane? Source: Wikipedia The hedge-fund manager founded his firm, Bridgewater Associates, in 1975. The firm now managers over $150 billion, and Dalio is worth more than $15 billion. Bridgewater has about 1600 employees and bets on global macroeconomic trends using active asset allocation across stock indices, bonds, currencies, and commodities. They primarily uses a set of algorithms to trade their massive positions across markets. About 5-10% of their algos are revised or added each year. Dalio is also known for his [...]

Making Banking Boring Again

By | 2017-08-09T08:34:46+00:00 August 9th, 2017|Global Market Update|

Were banks ever boring? “Jewel Box” bank in Owatonna, MN. Photo: Jonathunder. Source: Wikipedia. License: GDFL1.2 Since the Financial Crisis many critics have called for a return to “boring banking”—by which they mean banks that are limited to taking deposits and making loans, restricted from nontraditional activities like securities underwriting, insurance, investments, and other activities that led up to the Great Recession. The implication is that if we could just restore the Glass-Steagall act, banks would be boring again and the world would be [...]

Getting Critical

By | 2017-08-08T07:35:08+00:00 August 8th, 2017|Global Market Update|

What is a critical mass? Photo: US Department of Energy. Source: Wikipedia A critical mass is the amount of fissile material needed to sustain a nuclear chain reaction. The amount depends on the nuclear properties, its density and shape, the surroundings, even the temperature. Enough atoms are splitting and spitting off energy and neutrons to make more atoms split and generate more neutrons and more energy. The chain reaction continues until all the fuel is consumed. In society, a critical mass is the number [...]

Reading the Signs

By | 2017-08-07T08:04:19+00:00 August 7th, 2017|Global Market Update|

Is the market showing signs of divergence? Photo: Emily Beeson. Source: Morguefile The Dow is over 22,000. The S&P 500 is making new records. So’s the Russell 2000—a widely followed small stock index. Everyone is excited about the market making new highs. Well, not everyone: doomsayers and perma-bears aren’t thrilled. They thought the Fed’s stimulus of our post-Financial Crisis economy created a “sugar high,” and when they took the stimulus away, the markets would fall back to earth. Well, that didn’t happen. The economy [...]