Investors from Mars and Venus

By | 2017-07-17T12:21:18+00:00 June 7th, 2017|Global Market Update|

Can we ever understand one another? Photo: Amshudhagar. Source: Wikipedia In 1959 English novelist C.P. Snow gave a lecture on “The Two Cultures,” bemoaning the lack of understanding between literary intellectuals and scientists, between science and the humanities. At the time, folks were worried that scientists had never read Shakespeare or Dickens, and that the Atomic Age would usher in a technocratic tyranny, along the lines of Huxley’s “Brave New World.” But to these humanities scholars Snow asked, “Can you describe the Second Law [...]

Pennies from Dividends

By | 2017-07-17T12:21:39+00:00 October 25th, 2016|Global Market Update|

What good are dividends? Public Domain. Source: PD Photo It’s a good question. Dividends can limit a company’s options, forcing them to cough up cash that could be used to run the business. If they money flows out of the company, they might have to increase their borrowings. Ford paid a big special dividend in 2000—they called it their “Value Enhancement Plan.” Management probably wished they still had that cash a few years later during the financial crisis. You’d expect that paying dividends would [...]

Molasses?

By | 2017-07-17T12:21:40+00:00 October 18th, 2016|Global Market Update|

Why is the economy growing so slowly? Source: St. Louis Fed Since the Great Recession, the economy has never gotten back into high gear. We’ve always seemed to be teetering on the edge of another downturn. Quarterly economic growth has averaged 2%, while a normal recovery is usually above 3.5%. Why? First, the workforce is changing. We are now entering the period where baby-boomers are beginning to retire. Like most things the boomers have gotten involved with, they are transforming retirement. Their family finances [...]

Chinese Fortunes

By | 2017-07-17T12:21:41+00:00 September 30th, 2016|Global Market Update|

What’s happening in China? Forbidden City in Beijing. Photo: Saad Aktar. Source: Wikimedia Anyone who wants to understand the global economy needs to have a sense of what’s happening in China. China has the second largest economy in the world--almost 2/3rds the size of the US. Last year they grew more than the US and Europe combined. They’re essentially tied with Canada as our largest merchandise trading partner, providing 15% of our imports and exports--$300 billion worth. So what happens in China affects the [...]

Incomes and Outcomes

By | 2017-07-17T12:21:42+00:00 September 23rd, 2016|Global Market Update|

What can investors do about low rates? Source: St. Louis Fed Low interest rate around the world are challenging investors and savers everywhere. And it isn’t just households: state and local pension funds—once fully funded—are now underfunded by almost $2 trillion. With expected returns so low, governments and employees are being called upon to increase their contributions to make up for the shortfall. The resulting strain on public budgets has led to credit-rating cuts in places as diverse as New Jersey, Kentucky, and Chicago. [...]

The Political Roots of Prosperity

By | 2017-07-17T12:21:43+00:00 September 16th, 2016|Global Market Update|

Why do some economies grow faster than others? Photo: Paul Anderson. Source: Morguefile In his recent book, “The Origins of Political Order,” Francis Fukuyama argues that democracy is a stool that stands on three legs: a stable society, political accountability, and the rule of law. Without any one of these elements, democracy is not possible. A stable society means it is safe to come and go. Political accountability provides a way to discipline leaders. And the rule of law means that the law is [...]

The Elusive Steady-State

By | 2017-07-17T12:21:45+00:00 August 26th, 2016|Global Market Update|

Will the economy ever get back to normal? Source: Wikipedia Everyone wants the economy to normalize—normal interest rates, normal economic growth, normal inflation. The Fed is talking about that issue this week in Jackson Hole, Wyoming. But we never seem to get there. Something always seems to come up. Ten years ago, the economy crashed during the financial crisis. Five years ago we had a Euro crisis and fears of “Grexit.” Now “Brexit” and the most bizarre presidential contest in memory are roiling expectations. [...]

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 [...]

Stock Market Values (Part 3)

By | 2017-07-17T12:21:57+00:00 May 13th, 2016|Global Market Update|

Now what? Photo: Dave Meier. Source: Picography Once you have a sense of a firm’s business-lines, how do you put numbers on those realities? Financial theory states that the fair value of an ongoing business is the present value of its expected cash flows. This requires that an analyst estimates the cash flows, the discount rates, and how fast a company can grow. Simple, right? All you need to know is the cash from here to eternity. That’s the rub. Because nothing ever works [...]

A Dragon in the Mist?

By | 2017-07-17T12:22:39+00:00 September 2nd, 2015|Global Market Update|

How fast is China growing? Part of “Nine Dragons" by Chen Rong - Museum of Fine Arts (Boston). Source: Wikipedia That’s what everyone wants to know. Their economy represents 15% of global GDP—the second largest in the world. Officially, they’re growing at 7% per year, down from the double-digit growth they boasted a decade ago, but still more than twice the rate of the developed world. China has been following the same script that every other developing nation has--turning farmers into factory workers, making [...]