If a Monarch butterfly flaps its wings in Mexico, how does it affect the weather in Virginia Beach? A group of bright young mathematicians, econometricians, and old-fashioned computer nerds from MIT started a little company called Hidden Levers which looks at the quantitative relationships between many, many things. Their goal is to predict the impact on individual portfolios from some exogenous shock, such as a credit…
Four times a year, corporations are required to state their earnings. This is called the “earnings season” or the “confession period.” Before the companies make their announcement, analysts at various investment firms predict what those earnings will be. The expectations of the analysts are usually priced into the current price of the company stock before the earnings announcement. If the corporation does better than analysts…
Despite their reputation, I think Goldman Sachs has an excellent research department. Here are some of their latest thoughts: 1. Our GDP growth rate of about 1.6% will double next year. (This would be huge!)2. Inflation is not on the horizon, due to slack labor and weak commodities. (Why wouldn’t it be affected by such strong GDP growth?)3. Fed tapering of QE will be announced…
Years ago, I was asked by my employer to consider a transfer to a newly-created hedge fund department, and I’m so glad I did not do so. After World War II, an Australian journalist in New York wanted to create an investment fund that was “hedged.” In other words, the fund would retain its value regardless of whatever the stock market did. This is sometimes…
If there is anything good about the soul-numbing hassle of air travel, it is the opportunity to catch up on your reading. On my trip last week, I read eight different trade journals on the market and was struck by the uniform “wall-of-worry.” It was depressing. Yes, the sky may be falling but is it falling today? While it sounds like Warren Buffett, I’m not…
The camaraderie that exists in the military is unlike any other. In particular, I miss the deep beer-soaked philosophical discussions with my fellow young, inexperienced, infantry lieutenants. Such discussions usually ended in one of two ways, i.e., hilarity or moroseness. Most often, we ended with the hilarity that everything we said or did was hysterically funny. Sometimes however, we became morose and reflected on the…
I keep returning to this graph. It bothers me! I do believe history is a good guide to the future — but only until it isn’t. History is less important in a society where the rate of change is increasing. But first, take a few minutes to study this graph: In the last 112 years, the Dow has fallen 30% or more thirteen times. This…
Today’s news carried a story about the benefit of working past normal retirement age. It cited a French study that each additional year of work decreased our probability of getting dementia by 3.2%. All I could say was . . . surprise, surprise? Recently, a good friend said I was becoming positively Calvinistic in my zeal for advocating work as good and healthy. He knows…
The London Interbank Offered Rate or LIBOR was designed to measure the cost of borrowing between banks in London when they borrowed overnight to cover minimum liquidity requirements. The rate would increase whenever the banking system had too little liquidity or too little cash-on-hand. It was an early-warning-system for the Bank of England that it might need to increase liquidity by increasing the money supply.…
My latest quarterly column for Inside Business on the economy and the stock market can be found at: http://insidebiz.com/news/q2-was-swoon-time-movement-away-bonds
There is an old expression on Wall Street that it is always “climbing a Wall of Worry.” We saw that last month when the stock market had a temper tantrum following Ben Bernanke’s press conference. Most such emotional outbursts are more annoying than instructive. But, there is something bothering me that I don’t think the market has focused on . . . yet. And, that…
Consumer confidence reached a six-year high in May before falling slightly in June. This is good news, but we always looks for some confirmation of economic data. One of Alan Greenspan’s favorite economic indicators was the Men’s Underwear Index (MUI). Because so few people ever see men’s underwear, replacing it is an expense that men readily defer when the economy is weak. Sales of men’s…
The Department of Labor issued their latest Jobs Report yesterday. Of the 130 economic reports issued each month, the stock market focuses most intently on this one. While the stock market is famous for over-reacting, it is most famous for over-reacting to this report. Yesterday, we learned that non-farm payrolls increased by 195 thousand in June, which was more than expected. Private sector jobs increased…
It may be the best advice my father ever gave me: Never discuss politics or religion! That was good advice, which has helped over the years. Sometimes, my love of economics would cause me to slip into a political discussion, but I’ve faithfully avoided any discussion of religion. It is simply too important and too private to discuss with mere mortals. In fact, I would…
When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes…
The second quarter of this year was the worst quarter gold has ever experienced, since markets began trading it many years ago. From over $1,900 per ounce a few years ago to less than $1,200 at quarter-end, what happened? The truth is seldom flip, and neither is this. First of all, since we measure the value of gold in dollars, the value of gold falls…