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The Keynesian Bridge to Nowhere
by Tad Rivelle of TCW Asset Management,
All of us want growth and to see unemployment back down to where it belongs. In pursuit of these objectives, our national govern- ment has ?manufactured? liabilities ? Treasury bills, notes, and bonds ? and sold them to investors, many of which are based overseas. In so doing, the U.S. Treasury laid claim to resources ?released? by these lenders and put those re- sources to work in the U.S. today with a promise to return those resources, with interest, tomorrow. Economic pain inside the U.S. has been reduced in the here and now as a result of obtaining access to these borrowed resources.
An Important Challenge to ?Stocks for the Long Run?
by Geoff Considine,
Jeremy Siegel's dictum - to invest in stocks for the long run - faces a new challenge. A recent paper by Robert Stambaugh, a Wharton colleague, and Lubos Pastor of the University of Chicago says that once you take into account the uncertainty of estimating future returns, stocks are not nearly as attractive to retirement-oriented investors as Siegel has claimed.
The Consequences of Policy Failure
by Michael Lewitt,
Investment performance for the rest of the year will be determined by the macro-economic views of investment managers. While microeconomic factors are always extremely important in charting investment strategies, they are particularly important today as the U.S. and global economies continue to fight their way through the detritus of the global debt crisis. A compelling case can be made for weaker 2Q112 growth based on a combination of factors.
Expert Roundtable on Risk
by Mark W. Riepe, Liz Ann Sonders, Randy Frederick, Rob Williams, & Brad Sorensen of Charles Schwab,
The word "risk" has a negative connotation-something to steer clear of whenever possible. However, in the investing world, risk and performance are intertwined. Market sentiment can shift quickly depending on economic or political news, geopolitical events and even natural disasters and these shifts can sometimes send investors fleeing for safety or taking on more risk as they seek higher returns. Mark Riepe, led a roundtable discussing the concept of risk in investing, strategies for reducing portfolio risk, and investment suggestions tailored to both risk-seeking and risk-averse investors.
Hedging In an Inflationary World
by Andrew Foster,
These days, given the complex web of global financial transactions in which companies are enmeshed, it is unrealistic to expect management to avoid hedging. When I invest, however, I search for companies that follow simple, consistent, and short-term hedging policies ? and whose business models are strong enough to adapt to the inherent volatility and uncertainty of the marketplace.
Housing Fears Still Lurk in the Shadow
by Milton Ezrati of Lord Abbett,
Housing remains a focus of uncertainty and anxiety. Its collapse largely created the 2008 financial crisis and recession. Housing concerns formed the basis of last year?s ?double-dip? recession scare. Many fear that further problems in the area could thwart the present economic recovery. Of particular concern now is the still large overhang of vacant, unsold properties and the even larger overhang of properties on which lenders have delayed foreclosure, the so-called ?shadow inventory.? The inventory situation will hold back real estate prices and building activity for a long time to come.
The WikiLeaks of the Economics Profession
by Michael Edesess,
What Caused the Financial Crisis presents the most comprehensive account I have seen of the regulations that, when considered as a whole, have incentivized unprecedented self-delusion and risk-taking in the subprime mortgage market. To put it in a manner that financial advisors will understand, the book shows that the policies and regulations greatly increased the Sharpe ratio of the financial industry - they increased the return for taking risk.
The Smooth Illusion
by Michael Lewitt,
In retrospect, the Federal Reserve's interminable zero-interest policy and its quantitative easing programs are likely to be seen not only as ineffective but damaging to the prospects for sustainable long-term economic growth. A number of asset classes are beginning to exhibit bubble-like behavior, something that would be far less likely to occur were interest rates normalized.
Ethics Among Thieves
by Michael Edesess,
'Inside Job' is a thoroughgoing indictment of the financial industry that has its virtues but relies on some unsavory vices. On the one hand, through interviews, congressional testimony, and other video, the film exposes cronyism, corrupt ethics, and excessive power at the core of the financial industry. On the other, the movie at times unfortunately feels more like a polemic than a hard-hitting, fact-finding investigative reporting piece.
Are You Watching Your Brokered Deposits? Bob Eisenbeis: What's a Central Bank to Do?
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a comment from Bob Eisenbeis, Chief Monetary Economist of Cumberland Advisors. Bob clearly states the obvious in his excellent analysis of the choices facing the Federal Open Market Committee, namely that the Fed continues to steer monetary policy based upon largely domestic factors, this even as the global role of the dollar creates dangers for the US and other nations as they flee the perils of deflation.
Is Europe at the Tipping Point? Sol Sanders & Bill Alpert on Keynes, Keynesianism -- and Keynesianit
by Team of Institutional Risk Analyst,
With the world preparing for the collapse of the post-WWII, post-Bretton Woods economic order, we thought it might be useful to look at what Keynes actually said. We depart from our optimism due to the situation in Europe. Forget the threat of a ratings downgrade by S&P, Washington on debt ceilings or our part-time POTUS, the final collapse of the southern states of Europe is accelerating. Most banks in the EU are insolvent and the states supposedly backing them cannot access the global markets. The collapse of the EU bank bailout effort could be the next catalyst for global contagion.
A Close Look at the PIMCO-Met Life Retirement Strategy A Marriage Made in Investment Heaven?
by Michael Edesess,
If you embrace their recently announced co-marketing strategy, when you're relatively young you use PIMCO's Real Income Funds for stable income in the near term. When you're older Met Life's Longevity Income Guarantee kicks in and takes it from there. You're set with secure income for life. We examine these products more closely and analyze whether they are good deals, either separately or together.
Expert Roundtable on Inflation: Should You Be Worried?
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
The Inflation Knuckleball
For the past 40 years or so, every country on the planet has relied on fiat money. To a very large extent, this means that the national economies are far more exposed to the whims of their central bankers than they have been in the past. So, if central bankers go off their meds, the danger to the currency becomes profound. Unfortunately, at America's Federal Reserve, it seems the inmates are now running the asylum.
Statistical Insights into Everyday Problems
by Sam Parl,
You know that the volatility of an investment matters as much as its overall return. But you may not know that research into this fundamental investment principle has been applied in many other disciplines to explain phenomena as unexpected as waiting times in lines at Disney World.
Running on Empty
by Michael Lewitt,
Despite the increasing undercurrent of negative news creeping into the financial markets, the stock market remains strong. HCM expects equities to continue to perform well for the foreseeable future (i.e. through the end of June) although most of this letter will discuss the reasons why it shouldn't. In some ways, this market is a lot like Charlie Sheen. It pretends to have tiger blood and the powers of a warlock, but deep inside it is suffering from an addiction to a substance (i.e. debt) that will ultimately kill it.
Fed and ECB - A World Apart
by Axel Merk of Merk Investments,
The U.S. Federal Reserve and the European Central Bank are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. The Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light.
Subsuming the Efficient Market Hypothesis
A recent article highlighted important gaps in the efficient markets model (EMH) that limit its practical applications. It encouraged a search for a new theory of markets that builds upon EMH by rendering it as a special case within a broader, more general theory. Mordecai Kurz? Rational Belief Equilibrium is such a theory.
Simon Johnson on the Unconscionable Risks We Face - Video
by Dan Richards,
Simon Johnson is a professor of economics at MIT and was the chief economist for the International Monetary Fund. In this interview, he explains why the underlying factors which led to the financial crisis remain unresolved. This is the video; a transcript is also available.
Understanding Variable Annuities with GMWBs
by Robert Huebscher,
It's very tempting: a variable annuity with minimum lifetime payout that can increase - but never decrease - based on market performance. That temptation comes in the form of an increasingly popular variable annuity rider known as a guaranteed minimum withdrawal benefit. We explain the flaws in a widely publicized study by Morningstar/Ibbotson, and provide our own analysis of the product.
Debt Limit Brinksmanship
Don?t get us wrong. The budget is a total mess. The equivalent of a financial root canal is necessary. We fully support newly elected lawmakers who want to maximize the political leverage created by the debt limit issue to move in this direction. In fact, we?d like to see only short-term increases so the issue can be revisited time and time again, to hold the spenders? feet to the political fire. But ripping all the teeth out at once is not the answer.
Journey to the Center of the Average
by Mariko Gordon,
Averages, while comforting in their simplicity, often do more to hide the truth than reveal it. This article is inspired by a recent conversation with author and statistician extraordinaire, Kaiser Fung, who shares my suspicion of this often-abused mathematical construct.
The Stuxnet Paradigm
by Michael Lewitt,
Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.
Random Thoughts from the Lone Star State
by David A. Rosenberg of Gluskin Sheff,
I still consider this to be a bear market rally. With respect to the economy, the illusion of sustainable prosperity has done wonders for consumer spending in the U.S. The consumer has been an upside surprise and the ISM was a whopper too as these manufacturing indices have been in general around the globe. There are so many other headwinds out there. Dramatic cutbacks and tax hikes at the state and local government levels are in motion. Federal government austerity is next. The housing market has not yet stabilized.
Pie in the Sky
by John Browne of Euro Pacific Capital,
Investors would be well-advised to retain a jaundiced view of all political statements, especially those of central bankers and politicians positioning themselves for the next election. In 2011, investors should focus their eyes not on the sky, but at the brick wall our Union is fast approaching.
Is Bank America the Most Sued Company in America? Sol Sanders on Charting the Arab Dark
With more than half of Tunisia's population under 30, increasing unemployed youth want more. It remains to be seen who will come out on top in Tunis. But across North Africa - from Egypt to Morocco - underground religious Muslim opposition festers. Alas! in Tunisia, as elsewhere, the Iranian mullahs' total corruption and Saudi Arabian hypocritical lifestyle notwithstanding, the Islamicists' appeal is growing.
The Two Elephants Facing the US Economy
by Michael Lewitt,
The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.
The Squam Lake Report: Reforming the Financial System
by Dougal Williams,
Ken French and Robert Shiller were among a group of leading economists who, in the fall of 2008, convened what was to become known as the Squam Lake Group. Their recently released and much-talked about book offers its authors' collective best answer to a defining question of our day.
Looking Back at a Year of Policy Mistakes
by Michael Lewitt,
As we approach the end of 2010, the global economy remains captive to a boom-and-bust cycle resulting from years of pro-cyclical monetary, fiscal and regulatory policies. With very limited exceptions, the same policies that contributed to the 2008 financial crisis remain in place. The only difference is that government balance sheets are far more leveraged than they were heading into that crisis.
Keynesian Confusion
by Michael Lewitt,
Keynesian policies are inflicting untold damage on the U.S. and global economies today. Keynes did not have to be misread. The reason that the current recovery is below par is that the economy is experiencing a massive paradox of thrift. We doubt that reducing already low rates is going to stimulate much of anything other than more frustration on the part of savers. Sooner or later, everything being earned on the upside of this liquidity-induced rally will be given back in spades - the only question is when.
Employment is Main Focus of Fed Policy
by Asha Bangalore of Northern Trust,
The Fed is widely expected to announce the details of the second round of quantitative easing following its two-day meeting ending November 3. Advocates of QE2 expect lower interest rates to lift all interest-sensitive expenditures, including home purchases, mortgage refinances and business expenditures. In addition, bankers could be more likely to lend given paltry earnings from excess reserves and Treasury securities. Finally, the benefit of increased exports from a depreciation of the dollar may reflect in headline GDP.
Triple Down: Fannie, Freddie, and the Triumph of the Corporate State
What we need from the Federal Reserve is some leadership on the issue of making the White House take responsibility for restructuring the economy. The Fed should be telling the healthy banks to start taking a bit of risk, making some loans instead of buying Treasury bonds and agency mortgage-backed securities. A bit of increased competition in the origination channel so that performing borrowers can get a refinancing closed will unblock the economy and also do wonders for the efficacy of Fed policy.
An Exceptional Resource for Asset Allocation
by Michael Edesess,
Roger C. Gibson's fine and exemplary book, Asset Allocation: Balancing Financial Risk, Fourth Edition, shows that character and conscience-based counseling still exist, even in the financial profession. It is still possible for advisors to look out for their clients' long-term interests.
Misconceptions in the Great Bond Bubble Debate
by Robert Huebscher,
Interest rates, many claim, have bottomed, making bonds the latest asset class worthy of the dreaded "bubble" label. Others counter that deflationary forces will prevail and that bonds offer the best risk-adjusted returns in the market. Which side of this debate you take matters profoundly, but making that call is not simply a matter of predicting the direction of interest rates, as is the typical focus of analysts.
Beggar Thy Neighbor, Beggar Thyself
by Michael Lewitt,
In the latest edition of the HCM Market Letter, Michael Lewitt argues that reported attempts by countries to devalue their currencies will only result in higher inflation and not economic growth. QE2 will similarly fail, and the necessary "heavy lifting" for the economy should be through fiscal, not monetary, policy. A continuation of Keynesian policies, as advocated by Paul Krugman, will also fail. Lewitt warns of dangers in ETFs and offers his investment recommendations.
The Fed's Zero Rate Policy is Destroying America
If the Federal Open Market Committee does not soon allow interest rates to rise and thereby rebalance the policy equation between American savers and borrowers, then gold prices will climb further. Federal Reserve Chairman Ben Bernanke and the FOMC will hand the detractors of the central bank led by U.S. Representative Ron Paul the political issue they need to eliminate the Fed once and for all. And President Barack Obama will be wearing the concrete booties that once belonged to President Herbert Hoover. Unlike your worthless greenbacks, you can take that to the bank.
In a Word, Surreal
by David A. Rosenberg of Gluskin Sheff,
Why do so many people think bonds are in a bubble when they are actually the most detested asset class out there? After all, as we saw in the tech mania of the late 1990s and the housing mania of 2003-2006, bubbles usually involve a mix of adulation, admiration and adoration with the asset class in question, which is obviously missing in the current case as it pertains to Treasury securities. You can't lift up a newspaper or watch a business program on TV and not see pundit after pundit talking about the dangers of being invested in bonds. Something here is amiss.
The Future of Oil
by Robert Huebscher,
No commodity impacts the global economy more than oil. When geopolitical threats loom, two questions often dominate discussion: Will the price of oil rise? And what will be the economic consequences? We review the key drivers of recent, current, and forecast oil prices, including a template for the necessary eventual alignment of supply and demand.
The Centre Cannot Hold
by Michael Lewitt,
"A refusal to shed discredited monetary and fiscal policies and embrace creative and politically bold solutions is keeping our economy mired in high levels of structural unemployment and below-trend growth," writes Michael Lewitt in the latest edition of the HCM Market Letter. He also believes that "misguided faith in Keynesian solutions to debt crises, a near-religious belief that mild deflation must be avoided... and uninformed media hype about the alleged benefits of mergers and acquisitions" should be added to the list of bad ideas that lead economic policy and markets astray.
The Alternative to Big Bonuses
by Charlie Curnow,
Do bankers deserve big bonuses? Economists will tell you that bonuses improve employee productivity by rewarding good work. But did the large performance-based payments given to Wall Street securities traders, for example, really steer them to better choices during the run-up to the recent financial crisis? What about financial advisors who base their fees on a percentage of the assets they manage? We take a critical look at Dan Ariely's latest research and the insights it provides.
Mel Brooks and the Bankers
by Thorvaldur Gylfason of VoxEU,
In Mel Brooks' hit film and Broadway musical The Producers, those charged with making their musical a success instead try to profit from making it a spectacular failure. This column argues that some bankers may have been playing the same game in the run-up to the global crisis. If so, just as in The Producers, the perpetrators should be heading to jail.
This is No Way to Run a Railroad
by Michael Lewitt,
In the latest edition of the HCM Market Letter, This is No Way to Run a Railroad, Michael Lewitt says the railroad known as the United States economy is chasing its own tail these days. Driven by misbegotten fiscal and monetary policies that ignore the lessons of history in favor of discredited financial and economic theories, the economy is trapped in a cycle of boom and bust. Lewitt also comments on the bond market, the European stress tests, GM, and the private equity industry.
Mr. Gross Goes to Washington
by Bill Gross of PIMCO,
Americans now know that housing prices don't always go up, and that they can in fact go down by 30-50 percent in a few short years. Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending. Private mortgage lenders will demand extraordinary down payments, impeccable credit histories and significantly higher yields than what markets grew used to over the past several decades.
Fed Downgrades Economic View
by Brad Sorensen of Charles Schwab,
The Fed isn't yet ready to raise interest rates, even though doing so could be beneficial. Raising rates would give savers a bit of a return in money market-type vehicles, potentially spur those now on the sidelines of the market into action, and give the Fed some wiggle room down the road should it need to slash rates again.
Is the Market Efficient?
by Adam Jared Apt,
After Marxism, no economic theory today may be as derided and despised as the hypothesis of market efficiency. The idea is often misunderstood, sometimes willfully. So what does "market efficiency" mean? In the latest installment of his series for the educated layman, Adam Jared Apt provides some answers.
Who Cheats More?
by Dan Ariely of Predictably Irrational,
Dan Ariely provides a video of a short talk on cheating he gave on July 7 in San Francisco. While most people think that citizens of other countries cheat more than Americans do, Ariely's research has found that people from Israel, Italy, China and the U.S. all cheat about the same amount. Ariely has also found that bankers cheat twice as often as politicians do.
Results 3,251–3,300
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