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Share the post "Why Has Heterodox Economics Become Orthodox on Wall Street?" I recently noted that heterodox economics is not so heterodox anymore.¹ There’s been a growing trend, especially on Wall Street, in the use of heterodox economic models and particularly Post-Keynesian Economic models.  What’s the cause of this surge in popularity?  I think it’s derived from two primary sources: Orthodox economic models largely ignore the financial system (though this has improved recently) and...

Share the post "Three Things I Think I Think – Monday Funday Edition" Here are some things I think I am thinking about: T-Bonds, Consumerism & Factor Investing… 1 – Why are T-Bonds the safe haven asset?  As the markets have gotten jittery we’re once again seeing Treasury Bonds perform very well in both nominal and risk adjusted terms. I’ve noted this repeatedly over the years based on a rather simple point that, interestingly, is now finding some empirical support in academia....

Share the post "“Heterodox” Economics is not so Heterodox Anymore" Noah Smith says that “heterodox” economics is occult (mystical) because someone in his Twitter feed was bothering him.¹  Noah also says there just isn’t any accessible research on heterodox economics.²  Both of these statements are incorrect. I’ve noticed a strong trend in the last 10 years where heterodox economics is becoming increasingly mainstream where the rubber meets the road – on Wall Street.  Now, Noah has a...

Share the post "Warren Buffett’s Greatest Strength" “The intelligent investor is a realist who sells to optimists and buys from pessimists.”  – Ben Graham I was going to write some general thoughts about Warren Buffett’s annual letter just like I always do, but given the political and economic climate I want to do something else.  I want to talk about a central aspect of Warren Buffett’s investment strategy – his long-term optimism. In a political world where we’re constantly being...

Share the post "Is Indexing Just Another Wall Street Fad?" Here’s an interesting comment from value investor Seth Klarman on the rise of indexing (this is from 1991!): Klarman is obviously biased because he’s in the business of selling a high fee asset management platform. If indexing is right then his form of highly active alpha chasing asset management is wrong. This is basically what Bill Ackman was saying when he lashed out against indexing earlier this year. Anyhow, I think Klarman...

Share the post "Why Stock Market Declines are Good" James Bullard, the St Louis Fed President, gave an interview today discussing how the stock correction has been good because it has helped to prevent a bubble. He’s inferring that lower prices are bad in the short-term and good in the long-term.  And he’s totally right.  I’ll show you why. What happens when the stock market booms is that future returns get pulled into the present. Stock bubbles are dangerous because they pull so much of...

Share the post "Let’s Talk About Helicopter Drops (Again)" I was intrigued by this Martin Wolf piece in the FT which discusses the need for helicopter drops to bolster the global economy.  Señor Wolf writes: If the fiscal authorities are unwilling to behave so sensibly — and the signs, alas, are that they are not — central banks are the only players. They could be given the power to send money, ideally in electronic form, to every adult citizen. Would this add to demand? Absolutely. Under...

Share the post "Bernie Sanders and the Santa Claus Growth Plan" Drama. Major drama in political economics. In case you haven’t been paying attention: Gerald Friedman released some estimates about the Bernie Sanders growth plan with an expected 5.3% GDP. You can read the document here. 4 former Council of Economic Advisers wrote a letter to Sanders saying the plan was wildly unrealistic and undermined progressive economics. Paul Krugman agreed with this calling the plan “voodoo” and stating...

Share the post "Let’s Talk About Berngate" There’s a big fuss on the political left over some claims that the Bernie Sanders campaign has made about potential future economic growth.  Paul Krugman had a good rundown: On Wednesday four former Democratic chairmen and chairwomen of the president’s Council of Economic Advisers — three who served under Barack Obama, one who served under Bill Clinton — released a stinging open letter to Bernie Sanders and Gerald Friedman, a University of...

Share the post "The Fed Doesn’t Own a Helicopter" Josh Brown has a very good post questioning an assertion by Ray Dalio regarding helicopter drops.  Dalio said: “We can say that the range will extend from classic fiscal/monetary policy coordination – in which debt to finance government spending will be monetized – to sending people cash directly – i.e., helicopter money – and will likely fall somewhere between these two -i.e., sending people money tied to spending incentives,” Dalio is...