In my judgment, the biggest stories of 2014 were falling interest rates and oil prices. I’ve written that most people expected interest rates to rise and no one expected a major drop in oil prices. The combination of those two things, plus the unexpected rise in the U.S. dollar (a big story, but not as big as the first two) means that inflation expectations have fallen dramatically in the U.S…. Read More
I almost always skip the opinion section in nearly every publication that I read. When I do read an opinion piece, it’s because it’s written by someone that isn’t affiliated with the editorial board and someone that I admire. Back in November, I read an editorial in the Wall Street Journal by John Cochrane, a respected University of Chicago professor and one of the world’s leading experts on central banks… Read More
The talking heads on CNBC have been talking a lot about how the first few days of trading this January are a lot like the first few days of last year: the polar vortex, nervousness about the economy and sharply falling stock prices. In fact, that’s all true, but I’m hard pressed to draw any implication from the similarities. First of all, we’re talking about five data points – almost nothing… Read More
Bond investors were expecting a lemon going into 2014 and got lemonade instead. Institutional investors tend to look down their noses at ‘retail’ investors, but they are frequently guilty of the same problems, which in this case, was recency. In general, recency refers to applying what’s happened in the recent past into the indefinite future. For bond prognosticators, interest rates rose and bond prices fell in 2013, so it was… Read More
Each month, Bloomberg asks 75 professional economists to forecast a variety of economic indicators. At this time last year, the median forecast among the economists for inflation-adjusted (or real) economic growth was 2.6 percent. At this point, we don’t have enough data to say what actually happened, but it looks as though the estimates won’t be too far off base. Assuming that the fourth quarter numbers come in as… Read More
Last year was a mixed bag for stocks. The headline index that most professional indexes follow, the S&P 500 had a great year, up 13.68 percent. I looked at all of the annual returns since 1926, the year when good quality data is thought to begin, and found that 2014 ranks 46th out of 89 years, putting it in the 51st percentile – basically the center of the distribution of returns. Early… Read More
On the last day of the year, it’s natural to reflect on the year that’s passed and wonder about what the 2015 might bring. In the next few weeks, I will do my fair share of post-mortem analysis and offer a few thoughts about the year to come. Of course, one of the lessons from 2014 is that it’s tough to predict the future. I’m thinking about how ‘everyone’ thought interest… Read More
Just before the 2008 financial crisis, a Wall Street insider tipped off the Securities and Exchange Commission (SEC) to insider trading at a large, successful, but largely little known hedge fund, the Galleon Group. The founder, Raj Rajaratnam, had a vast network of contacts that he would pay in exchange for confidential information about a company that would affect its stock price when the information became public. Ultimately, he was… Read More
One of the complaints that I hear about index funds is that their returns are average and buying them guarantees mediocre returns. Not so! If that were true, you would expect that the returns for the Vanguard S&P 500 index fund (VFINX) would be around the 50th percentile when measured against its peer group. The actual percentile might shift around some from year-to-year, in the 40th percentile one year and… Read More
Returns for stocks are great everywhere you look in the developed world. One of the best places though is in small US stocks. The Russell 2000, the most common small cap benchmark is up 39.3 percent, much higher than the 32.4 percent return for the S&P 500 (through Dec 26). Microcap stocks, as measured by Russell, are up an astounding 45.46 percent this year through yesterday. In this context, it’s… Read More
