For many decades now, Modern Portfolio Theory (MPT) has been the “gold standard” for investment management. Basically, it shows that an investor can achieve above-average returns with below-average risks by spreading his risks or allocating his portfolio across many “asset classes,” i.e. large company stocks, small company stocks, international stocks, bonds, real estate, cash, etc. … Continue reading When One Is An Ugly Number
The Flinchum File
Thoughtful Economic Analysis and Existential Opinions
Each month, the Bureau of Labor Statistics publishes the “jobs report,” which the media and the markets watch closely . . . too closely. It is a flawed measure for several reasons. One is that people get discouraged and quit looking for jobs, which decreases the available pool of labor and therefore makes the unemployment … Continue reading Thank You, Wells Fargo
Republicans tend to believe that marginal income rates will not be raised if we experience strong economic growth. Democrats tend to believe entitlements can be increased if we experience strong economic growth. While they disagree on the methods to achieve it, they agree that the solution to all our problems is strong economic growth. What … Continue reading Down-Shifting Social Expectations
The latest forecasts from investment banking giant Goldman Sachs predict the following: 1. GDP growth this year will average only 1.6%, reflecting damage of the government shutdown, but will jump to 2.9% for next year and unemployment will be “only” 6.6% by the end of 2014.2. Inflation remains tame at 1.8% at the core level … Continue reading Giving the Devil His/Her Due
Due to the government shutdown, the all-important Jobs Report was delayed from October 4th to October 22nd. While the delayed report showed the unemployment rate dropped from 7.3% to 7.2% and average hourly earnings up a bit, the other numbers were disappointing. Private sector jobs grew 161 thousand in August and were expected to grow … Continue reading One Cost of Uncertainty
I should have watched the film classic by the famous Ingmar Bergman called The Seventh Seal many years ago. It plotted the emotional trail for so many combat veterans. In the mid-fourteen century, a priest convinces a young Swedish knight to leave his wife and castle to serve in the bloody Crusades. Seeing death up close, … Continue reading Just Another 56-Year-Old Movie
Many laws have unintended consequences, whether at the national, state or local level. Republicans believe that is proof the government never understands what it is doing. Democrats believe that unintended consequences are a normal part of legislating. Existentialists find unintended consequences to be absurdly amusing. Over the last few years, there have many changes in … Continue reading The Joy of Unintended Consequences
Novice investors either expect the stock market to be efficient, according to Efficient Market Theory where all information is known by all investors, or they expect to invest based on hunches or even inside information. However, experienced investors know to study the specialized analysts, and make rational decisions supported by careful analysis, but always expect … Continue reading Rationalized Irrationality
Congress finally did their job last night to prevent America from defaulting. Yes, the international community had to get involved, with a host of “shame on you, America” comments and China asking the world to be de-Americanized. The debacle in Washington was certainly not the best promotional piece for democracy. But, that is minor. Take … Continue reading The Morning After
The pieces are already falling into place for the worst-case scenario to the current debt debacle in Washington. On Friday, mutual fund giant Fidelity announced they had sold all short-term Treasury notes and bonds, expecting they would be hammered if Congress cannot agree to raise the debt ceiling. Yesterday, a small auction of Treasuries was … Continue reading Falling Into Place ?
During the national embarrassments that Congress creates ever more frequently, it is nice to read a little good news, such as three Americans winning this year’s Nobel Prize for Economics. They were Eugene Fama and Lars Peter Hansen of the University of Chicago and Robert Shiller of Yale University. Congratulations to each of them! Although … Continue reading A Refreshing Change of Pace
As someone who tries very hard to keep political opinions out of his writing, I’ve always respected The Kiplinger Letter for keeping their political opinions private. However, their newest letter said “For now, Republicans favor ideological purity over winning . . .” I’m trying to judge whether their political opinion is showing or whether that is … Continue reading Ceiling Uncertainty?
Everybody knows you cannot trust information you find on the internet or receive in emails. But, sometimes, it doesn’t matter, because the idea is more important. I’m quoting from an email a honest friend sent me. While I don’t know if Warren Buffett said this or not, the idea is more important than the facts. … Continue reading Truth or Who Cares?
Long-term readers know I write a column for Inside Business, which is affiliated with The Virginian Pilot and owned by Landmark Communications. My latest column can be found here: http://insidebiz.com/news/third-quarter-saw-us-get-past-abyss-almost
My favorite professor at Wharton has always been the brilliant Jeremy Siegel. Today, I’m quoting from his latest Commentary: With the current stalemate in Congress, I began imagining the formation of a third political party that would be fiscally conservative, socially fairly liberal, and strongly dedicated to solving the tough problems that face our country. Many of … Continue reading Wake Up, Ronnie!
Communist theorist Karl Marx once said “religion is the opium of the people.” That may be true in some places and during some times. But, in America, it is more true that “credit card debt is the opium of the people.” Since the global financial crisis in 2008, Americans have taken a twelve-step program and … Continue reading American “Opium”
A government shutdown is not new. It has already happened eighteen times. But, how has the stock market reacted in the past? Take a look at this interesting graph: The market falls for a few days before rising sharply, when investors realize the world did survive. After a little over-enthusiasm, the market then resumes its … Continue reading Different This Time ?
As a boy, I thought the ideal life was being a low-level bureaucrat, doing as little work as possible and spending as little money as possible, until I would finally got a hand-shake and a pension. However, once I read my first Ian Fleming novel, bureaucracy lost its charm for me forever. When my curiosity … Continue reading Just Another 61-Year-Old Movie
The impasse in Washington is difficult to understand. Is it just the tired, old Republican versus Democratic conflict? Is it more of a philosophical conservative versus liberal conflict? I have viewed it as Tea Party versus Reagan Republican conflict. But, one pundit suggested the obvious, i.e., that it is all the above but complicated by … Continue reading Generation Shutdown
Wall Street pundits, from coast-to-coast, have been worrying themselves sick about the possible failure of Congress to raise the debt ceiling, followed by the first default in history by a country with the reserve currency. Only a fool would not be worried about this. It could indeed be frightening, and I have spent quite a … Continue reading Uncomfortable Bedfellow