Tag Archives: Most Recent Stories

Share the post "Three Things I Think I Think – Financial Crisis Edition" Here are some things I think I am thinking about: Warren Buffett on the financial crisis, investing with a sound premise & silly Congressional ideas. 1 – What Caused the Financial Crisis according to Warren Buffett?  The National Archives released documents related to the Financial Crisis late last week. Among them were some interviews with Warren Buffett on the crisis. I noticed that, aside from being nerdy white...

Share the post "The Single Entity Risk Problem" One of the points I emphasize in my new paper on portfolio construction is the risk of owning individual securities relative to indexing. A lot of people don’t know this, but since 1980 the S&P 500 has seen 320 departures from the index due to distress.  This means that about 10% of the S&P 500 leaves every 5 years because of distress.  So, if you’d bought all 500 individual stocks in the S&P 500 in 1980 you would have ridden a...

Share the post "Passive Investing – I Doth Protest Too Much" One of my favorite blogs, The Monevator blog, did a brief write-up on my new paper this weekend.  If you don’t read their website you’re missing out because they consistently post some of the best financial content around. Anyhow, they had a very fair and objective view of the paper and approach to portfolio construction.  However, one point that I seem to lose a lot of people on is my discussion of active and passive investing....

Share the post "Passive Investing isn’t Hurting the Economy" The new sales pitch for the high fee active manager goes something like this: “passive investing has gotten so large that this creates greater opportunities for us to take advantage of these inefficiencies and outperform the market.” In fairness, this comment is partly true because more passive investors should create the need for more active investors (in the form of market making, index arbitrage opportunities, etc.) but it...

Share the post "Are Debt Financed Booms/Busts a “Theory”?" Noah Smith has another piece up taking a swipe at heterodox economics and what he calls the “Folk Theory of the Business Cycle”.  He says: A lot of people seem to subscribe to what I call the Folk Theory of business cycles (not to be confused with the Folk Theorem of game theory). Roughly speaking, this is the idea that: 1. Debt growth is necessary for GDP growth. 2. As GDP grows, debt levels become too large, leading to an...

Share the post "The Perils of the Safe Income Illusion" Here’s Josh Brown with a good piece on dividends. He asks, “are we too obsessed with dividend income?” Tricky question, but I would tend to answer by saying that, when we substitute equity income for bond income, we’re often searching for “safe income” in all the wrong places. As I noted in a recent piece, corporations don’t have to pay out dividends and we should expect capital appreciation to accurately reflect the true value of...

Share the post "The Fed Should Sit Tight Despite Good Jobs Report" With the recent market and global economic turmoil the Fed has signalled some hesitancy to raise rates this year. Fed Funds Futures were pricing in a 30% chance of a rate hike this year as of one month ago, but after a 10% stock rally and another good jobs report for February the odds of a rate hike in 2016 have jumped to over 70%.  So, where do we stand? I have been vocally against rate hikes for the last few quarters. My...

Share the post "Understanding Modern Portfolio Construction [New Research]" My newest research paper, Understanding Modern Portfolio Construction, is available on SSRN.  This paper is the culmination of years of work and I consider it to be the most important piece of research I’ve published. I wrote this paper in much the same way that I wrote my paper, Understanding the Modern Monetary System, however, since I’m not an academic economist, this paper is more along the lines of my...

Share the post "Scarcity VS Abundance" Josh Brown and Gavin Jackson have both written excellent pieces on the current environment and the state of the business cycle.  Josh argues that we’re in a state of “abundance” and that we’re due for a recession whereas Gavin argues that there is not so much a broad abundance, but a more fragmented abundance.  Let’s explore this a bit more. This has become an increasingly difficult conversation in the global economy because there are several...

Share the post "How Could the Fed Implement a Helicopter Drop?" In a recent post I said that the Fed doesn’t have a helicopter in the current environment.  That is, political and realistic constraints mean that the Fed won’t implement anything close to what we think of as a helicopter drop.  My thinking is more complex than this, but here’s the short story: When the Central Bank “monetizes” debt it is acting in an ex-post manner that responds to fiscal policy.  That is, it can only...