The Return of Risk

By |2019-08-06T06:26:40-05:00August 6th, 2019|Global Market Update|

Why are the markets so volatile? Photo: Phoebe Tengdin. Used by permission. Happy markets are all alike. Each unhappy market is unhappy in its own way. It started with a dispute between the Fed and the Administration. Like every first-term president since Harry Truman, Donald Trump wants lower interest rates. And he wants them now. Lower interest rates will improve the short term performance of the economy and help his chances for reelection. The Fed has its own institutional priorities. They want to maintain [...]

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Mountains of Risk

By |2019-08-01T05:39:22-05:00August 1st, 2019|Global Market Update|

Can mountains teach us about risk management? Photo: Janna Michael. Used by permission. Mountains can be beautiful. But when you go hiking in the mountains, the first thing you learn is to respect them. No one ever “conquers” a peak. Sir Edmond Hillary didn’t “conquer” Everest; Whymper didn’t “conquer” the Matterhorn. The men and women who made these first ascents did something unprecedented, but the mountains are still there. And what we respect is the mountain’s weather, its terrain, its remoteness, its unpredictability. Mountains [...]

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Getting Scared?

By |2019-07-01T09:44:48-05:00July 1st, 2019|Global Market Update|

Is this market scary or is it dangerous? “The Scream” by Edvard Munch. Source: National Gallery of Norway Scary things can hurt us, but they aren’t very common: shark attacks or terrorism or radiation poisoning. We read news stories about them and we get worried. Dangerous things are things we tend to ignore but do long-term damage more often that you think: like avoiding your annual physical, or working on our budgets, or changing the oil. We underestimate these risks because dealing with them [...]

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Ready, Set, What?

By |2019-05-13T05:30:13-05:00May 13th, 2019|Global Market Update|

How can we be ready for what comes next? Photo: Russographer. Source: CC BY-SA-2.0 “Be prepared” is the Boy Scout motto, and it’s good advice if we’re headed into the mountains. We need to be physically ready for challenge of the peaks – core body strength, cardio-vascular endurance, and mental focus. We need to have adequate clothing and emergency supplies, like a headlamp and compass. And we need to know the terrain and trails we’re headed into. Maps, guides, and experienced friends help [...]

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Bumpy Roads

By |2018-10-05T06:51:09-05:00October 5th, 2018|Global Market Update|

How good is your car’s suspension? Photo: Kenneth Allen. Source: Geograph. CC-BY-2.0 Driving along the back roads in New England can be an adventure. There are twists and turns and frost heaves that rise up in the late winter / early spring and then degenerate into potholes in the summer and fall. These can make our highways and byways hazardous to a vehicle’s undercarriage. How fast we travel depends on how firm a grip we have on the wheel and whether we have dental [...]

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Visions of Greatness (Part 1)

By |2018-04-30T16:42:52-05:00April 30th, 2018|Global Market Update|

Visions of Greatness (Part 1) What makes for greatness? Photo: Ronnie Macdonald. Source: Wikimedia There’s a telling exchange in the movie “Lawrence of Arabia” where King Faisal tells British Lieutenant Lawrence that the medieval Arab city of Cordova had two miles of public lighting while London was still a village. “You were great then,” Lawrence replies. “Time to be great again, my Lord.” When Chinese leader Xi Jinping came to power in 2012, people were curious. He was largely an unknown quantity. Would he [...]

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Odds-On Investing

By |2018-04-18T06:27:32-05:00April 18th, 2018|Global Market Update|

“Don’t tell me the odds.” Photo: Michael Parzchowski. Source: Unsplash That’s how a lot of people approach gambling. For them, it’s entertainment. The risk associated with placing a bet and waiting for the outcome creates a certain exhilaration, independent of the outcome. It’s why slot machines and horse tracks are so popular, even people know that the odds are against them. People don’t want to know the odds because that information detract from the excitement. It’s fun to dream of making that big score, [...]

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Risk, Uncertainty, and Balance

By |2018-03-02T07:31:03-05:00March 2nd, 2018|Global Market Update|

The Era of Low Volatility is Over. Photo: NOAA. Source: Wikimedia That’s what I thought when I looked at last month’s returns. Equity markets around the world were down around 5% last month, led by economic stalwarts like Johnson & Johnson and Samsung Electronics. Growth-oriented companies, like Amazon and Microsoft, still keep chugging along. But the market’s unbroken string of monthly advances – with barely a pause to admire the scenery – ended in February. A series of scary stories has spooked market participants. [...]

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Markets, Matter, and Risk

By |2018-02-06T07:39:25-05:00February 6th, 2018|Global Market Update|

Risk is conserved. S&P 500 member returns, 2-6-18. Source: Finviz That’s what I thought as I looked at the recent sell-off. Ever since the recovery of the oil patch in March of 2016, the markets have seemed like a one-way, upward bet. Normal volatility has been suppressed. For decades, the market returns averaged 8%, with 15% variance. That is, most returns were spread between 22% and negative 7%. While the average was pretty reliable, any particular year could happen to fall between really positive [...]

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Gold, Lead, and Collateral

By |2017-12-12T06:19:55-05:00December 12th, 2017|Global Market Update|

Collateral dominates structure. Page from Alchemy treatise, c. 1300. Source: Wikipedia That’s an investor’s way of saying that you can’t turn lead into gold. It’s been an investment theme of mine for as long as I’ve been managing money. I started my investment career trading bonds in the mid-‘80s. Mortgage-Backed Securities were a new thing. Investors were starting to learn about prepayment risk, as interest rates fell and borrowers refinanced their double-digit mortgages. All those full-faith-and-credit Ginnie Maes were paying off early, and investors [...]

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