One of the more striking headlines yesterday was that Swiss government bonds now have negative yields out 50 years – that’s right, 50 years! That’s a little hard to fathom, partly because we don’t have bonds that extend that far, but also because 50 years is such a long time. I mean, if I bought a 50 year bond, I’d be in my 90s before I got my money back. Forget inflation, I’m just talking… Read More
One of the interesting things about the stock rally last week is that bonds also rallied. Over longer periods, stocks and bonds are lowly correlated, which means that they are generally independent from each other. Over very short periods, especially when there is a lot of activity, stocks and bonds are usually negatively correlated. If you had told me that stocks would rebound sharply last week and gain 3.27 percent, which reversed most… Read More
One of the phrases that I hear over and over, but simply don’t like, is that ‘markets hate uncertainty.’ Forget the fact that markets are just made up of people and don’t have independent emotions, I’m talking about hating uncertainty. From a theoretical standpoint, let’s think about how uncertainty affects markets. Let’s start with the idea that the value of an investment is the present value of its future cash… Read More
Legendary investor Benjamin Graham wrote in his 1940 classic book, The Intelligent Investor, about a fictional character named Mr. Market. Graham asks you to imagine jointly owning a business with Mr. Market, who frequently offers to buy or sell your shares. The trouble with Mr. Market is that he’s manic depressive and the prices that he offers swing wildly over short periods. Even though the true value of the business… Read More
Brexit backlash has continued to build in various forms. There has been a growing chorus of calls for Britain to hold another referendum, or to opt not to invoke Article 50 and instead push for fresh concessions. Article 50 refers to five short paragraphs of the Lisbon Treaty, which was signed in 2007 and updated past agreements including the Maastricht Treaty in 1993 and the Treaty of Rome in 1958…. Read More
The Brexit has caused legions of analysts, economists, strategists and other pontificators to busily rework their assumptions about the world economy incorporating what seemed like an outside possibility last week to the new lay of the land. Markets fiercely incorporated their new assumptions into prices almost instantaneously – looking a chart of the British pound, you can see when the polls started to show that the Remain camp wasn’t a… Read More
While markets were obviously down, one piece of good news is that they weren’t chaotic. You may think I’m grasping at straws here for a silver lining, but wild macro events can cause markets to get sloppy and that didn’t happen Friday. Last August, when markets were selling off, the heavy trading volume caused a number of stocks and ETFs to behave erratically in what some people described as a… Read More
I stayed up later than usual last night to see how the vote would turn out and by the time I turned out the lights, it looked like the Leave camp was going to win. Personally, I thought that they would vote to Remain, partly because of the polls, partly because I thought it was in their best economic interests and partly because voters in Scotland and Quebec stayed in their… Read More
Back in March of last year, S&P and MSCI jointly announced that they would reorganize the Global Industry Classification Standards (GICS) so that REITs will be its own stand-alone sector instead of a component of financials. Most of the time, S&P and MSCI are competing index providers, but for reasons that I don’t know, they have worked together defining sectors (10), industry groups (24), industries (68) and sub-industries (156) around… Read More
In the market summary section above the performance table yesterday, I mentioned that St. Louis Fed President James Bullard had broken ranks with his fellow Fed members and his previous statements and said that he expected rates to stay even lower for longer. I made a quick reference to the famous ‘dot plot’ and said that his dots were pretty far from the consensus. I thought today I would show the dot… Read More
