History Traps?

By |2019-05-02T05:56:13-05:00May 2nd, 2019|Global Market Update|

Who was Thucydides? Source: US Army, Wikipedia Thucydides was an ancient Athenian general who wrote about the Peloponnesian War between Sparta and Athens. Sparta had been the dominant power in Greece. They had a harsh military culture built around their seemingly invincible army. Athens was a rising power, commercially and at sea. They had built the most powerful navy in the Mediterranean Sea. War between the two city-states was inevitable, according to Thucydides, because Athens’ growth challenged Sparta’s dominance. An irresistible force met an [...]

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Flat and Flatter

By |2017-12-06T06:30:34-05:00December 6th, 2017|Global Market Update|

What does a flat yield curve mean? Photo: Billy Hathorn; Source: Wikipedia 130 years ago the English schoolmaster Edwin Abbot wrote the novella “Flatland” about a two-dimensional world inhabited by geometric shapes. There’s no depth in Flatland, only height and width. It seems like investors today are entering a “flatland” of their own. Normally, long-term bonds yield significantly more than short-term bonds. We call this the “yield curve,” because it curves downwards. A year ago, 10-year US Treasury bonds yielded almost 2% more than [...]

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Collective Losses

By |2017-09-29T07:16:35-05:00September 29th, 2017|Global Market Update|

Are people just selfish? Soviet propaganda poster from the 1930s. Source: Eurasianet That’s the question I asked when looking back at the some of the big collectivization movements in the 20th century. After the Communist Revolution in Russia, the central government set food prices too low. Peasants in the countryside chose to consume their produce rather than sell it, and there were food shortages in the cities. The government’s response was to collectivize the farms – giving farmers a small share of a larger, [...]

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Healthy Competition (Part 2)

By |2017-08-15T06:52:28-05:00August 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 [...]

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The (In)Effectual Fed?

By |2017-07-31T07:40:57-05:00July 31st, 2017|Global Market Update|

What good is the Fed? Federal Open Market Committee. Public Domain. Source: Federal Reserve The conventional wisdom is that the Fed controls the economy in the short run by controlling short-term interest rates. But folks didn’t always think this way. In the ‘60s and ‘70s Keynesian economists thought that interest rates only had a tiny effect on spending, and therefore a minimal impact on the economy. Then came Paul Volker. He made ending inflation the goal of Fed policy, and he did this by [...]

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Rumors of War

By |2017-07-17T12:21:18-05:00May 31st, 2017|Global Market Update|

What happens when an irresistible force meets an immovable object? Map: US Army. Source: Wikipedia That’s an old philosophical question. The answer, of course, is that no force is really irresistible and no object is truly immovable. But when they seem that way, spectacular conflict can be the result. That was the case during the 5th century BC in Greece. Sparta had been the dominant power in Greece. They had a militant, military culture built around their army. Athens was a rising power. It [...]

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The Merchants of Venice

By |2017-07-17T12:21:20-05:00April 27th, 2017|Global Market Update|

How do we know what a company is worth? Photo: X. Source: Pixabay We want to base our investments on facts, not feelings. One reason Apple is worth more than GM, even though GM has twice as many employees, is that Apple earns more – five times more – than the car giant. Both companies have iconic brands with global scale. But Apple is far more profitable . But how do we know this? We know it because of double-entry accounting: debits, credits, income, [...]

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No Safety in Numbers

By |2017-07-17T12:21:38-05:00October 28th, 2016|Global Market Update|

When are sovereign bonds no longer safe? Global Yield Curves, 10-28-16. Source: Bloomberg For decades people have invested in stocks for growth and in bonds for safety. But the global financial crisis and its economic aftermath have changed that. Now sovereign bonds around the world have extremely low yields. 30-year bonds in the US yield just over 2.5%, and that’s the highest yield anywhere. You can get higher yields in emerging markets, but those come with currency, credit, and inflation risk. There have been [...]

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Mixed Money Messages

By |2019-02-20T13:04:44-05:00August 8th, 2016|Global Market Update|

Where does money come from? Source: Morguefile Money is a funny thing. Most people around the world look at yen and euros and dollars and say that that’s money. But banknotes are only a small fraction of the money in the world. Most money exists in the form of bank deposits. When we buy a house or a car or pay our credit card bill, we just instruct our banks to make ledger entries transferring some of our account to someone else. When a [...]

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Finding Our Way

By |2017-07-17T12:22:39-05:00September 4th, 2015|Global Market Update|

It’s obvious. Photo: George Bosela. Source: Morguefile That’s the way everything looks in hindsight. When we look at a chart of the stock market in the late ‘90s, it’s “obvious” that tech stocks were in a bubble and that everything was overpriced. When we look at early 2009, it’s “obvious” that everything was on sale, and that great companies were on sale. When you look at the past year, it’s “obvious” that the market had lost momentum and was due for a significant correction. [...]

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