Tag Archives: Most Recent Stories

This note is intended to provide some perspective on what appears to be turning into an increasingly speculative fervor in residential real estate. I hope it provides some practical views on the current environment.  It was just a year ago that I was here saying residential real estate is not a bubble and that hyperbolic narratives were going too far. And then in my 2022 annual outlook I said that speculating on residential real estate looked increasingly dangerous. Today, I feel bearish...

A few years ago I wrote a post about how I was having trouble constructing portfolios that could meet a conservative 4% rate of return. With bond yields near 0% across so much of the global bond market it was becoming increasingly common to hear that “3% is the new 4%” withdrawal rate. But with the recent bump in interest rates the story has changed dramatically and as is so often the case, lower prices today mean better returns in the future. Let me explain. One thing I love about high...

One of the most valuable lessons from the Financial Crisis was that banks don’t lend their reserves to non-banks in the way that the textbook money multiplier implied. This had important implications for inflation since it meant that there was little to no risk of high inflation from the Fed’s “QE money printing” because it was operationally impossible for those reserves to leave the banking system and cause more money to chase fewer goods. Thinking of QE as an “asset swap” was a useful...

In May of 2020 I was on Anthony Pompliano’s podcast describing the likelihood of high inflation in the coming years and the Fed chasing their tail as this became evident in 2021/2022: “I don’t see how there can’t be some inflation that comes out of this…I’m not transitioning into a hyperinflation sort of mentality but I don’t see how there’s any chance that coming out of like, say 2021 or 2022, that if the economy is really rebounding that we don’t have three, four, five percent [core]...

Here are some things I think I am thinking about. 1) 60/40 Stocks/Bonds – Where did this idea come from? Here’s Corey Hoffstein on Twitter asking where did the 60/40 portfolio come from? It’s an interesting question – after all, the 60/40 has become the gold standard of portfolios so you’d think that there’s very strong empirical support for this specific allocation. Except there isn’t really. In fact, when we look at the historical data the exact opposite portfolio (a 40/60) has been the...

I’ve never been a big fan of discretionary Fed policy. In my opinion the overnight rate is something that should be automated rather than being controlled by the subjective views of a few people at the Fed. This is a major point of contention in economic and political circles as many people argue that discretionary Fed policy leads to an unnecessarily subjective management of QE and interest rates. I broadly agree with this view. The basic criticism is that a subjective rate policy leaves...

Here are some things I think I am thinking about: 1) Are we on the verge of a recession? My theory about the COVID recession is that it wasn’t really a recession in the traditional boom/bust sense. It was more like a natural disaster or an exogenous shock to the economy because of the way the government shutdown so much of the economy. It was a self imposed recession as opposed to some naturally developing boom/bust. Then the government responded with unprecedented stimulus, the economy...

The inflation story looked pretty clear to me before Russia invaded Ukraine. COVID had caused supply constraints and unemployment, we responded with $7T of government spending and so we ended up with the perfect recipe for high-ish inflation. By the beginning of this year there were signs that auto prices were rolling over, commodity prices were slowing their rate of change and the global economy was fully opening back up and supply chains were loosening. And then boom. Russia invaded...

The Russian stock market collapse has been jaw dropping with a near 80% loss in just a matter of weeks. Here are some important lessons we can all learn from this epic catastrophe. Lesson #1 – Beware of home bias.  Below is a great chart from Jeffrey Kleintop at Schwab showing how much investors tend to overweight their home country. Virtually everyone does it. And it makes some sense especially if you can access a market like the USA where a good amount of the domestic corporate revenues...

I’m thinking mostly about the war in Ukraine, but here’s some other stuff to distract you (although this will be mostly about the war in Ukraine, sorry).  1) The limits of government solvency.  So much to say about the Russian invasion of Ukraine. Honestly, it has me pretty depressed. Maybe it’s just being a new dad and worrying about the world my daughter’s will grow up in. I’m not sure. I’m usually a very optimistic person, but I think Putin has lost his marbles and I don’t see how this...