12 Sep 2016

The End of Summer Break

The end of summer was notably quiet, but summer is over and judging from Friday’s market reaction, it appears that volatility may be back. The chart below shows the expected volatility priced in to options as measured by the Chicago Board of Exchange (CBOE) Volatility Index (VIX). You can see the volatility was high at the start of the year when we suffered a 10 percent correction.  Expected volatility cooled… Read More

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6 Sep 2016

Lower For Longer: The View from Tokyo

Several years ago, I was convinced that bond yields were likely to move higher simply because they were at historic lows.  As time went on and bond yields fell to even more historic lows, I changed my tune. People asked me how much lower they could go and while I didn’t really know the answer, I would simply quote the yields in Germany and Japan, which were lower. Then, I… Read More

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29 Aug 2016

Yellen Speaks, Market Yawns

Yellen’s long-awaited speech delivered little in the way of surprises, but she did say that ‘the case for an increase in the federal funds rate has strengthened in recent months.’ Still, consistent with previous statements, she reiterated that the outlook remained uncertain and that Federal Reserve policy is not on a preset course. The bulk of her speech outlined the Fed’s current toolkit, which includes rate cuts, asset purchases (quantitative… Read More

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25 Aug 2016

Dow Falls 1,000 (One Year Later)

Last year at this time, deep fears about China’s economy caused US markets to drop sharply.  The Shanghai market -8.5 percent one day drop spread to our shores and the Dow Jones Industrial Average (DJIA) fell -1,000 points in a single day. The week before, markets that had dropped by the massive one day plunge sent all of the stock market indexes into a correction, generally defined as a decline… Read More

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24 Aug 2016

Investors Behaving Badly

Yesterday, when discussing the volatility of emerging market stocks, I have to admit that I was a little surprised by the year-to-date return, which is up 16.15 percent through yesterday as measured by the MSCI EAFE EM index. That’s pretty amazing because three months ago, the index was basically flat for the year – the entire return occurred almost exclusively since the Brexit (not that they are related – I… Read More

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23 Aug 2016

Allocating to Risky Assets

What’s the right allocation to a risky asset class like emerging markets stocks? Since the launch of the MSCI EAFE EM index that tracks emerging markets in 1988, the returns have outpaced the S&P 500 by 0.33 percent per year: 10.56 percent versus 10.23 percent.  (All data from Jan 1988 through Jun 2016). As you might expect, the extra return has come with extra risk: the emerging markets index has… Read More

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22 Aug 2016

Awaiting a Positive Economic Shock

Last week, I attended a ‘first annual’ Wealth and Asset Management research conference held at Washington University’s Olin School of Business. The basic idea behind the event was to connect top tier academics with local practitioners, which seems obvious given Wash U’s stature and the fact that St. Louis has more people working in financial services than any other city outside of the big apple. I was drawn by presentations by… Read More

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29 Jul 2016

The Peril of Company Stock

Like most 22-year olds, I didn’t know how to invest my 401k when I started making contributions.  I asked some of the people that I worked with and they told me to put 100 percent in the company stock, Mark Twain Bancshares (ticker: MTWN at the time, but long gone!). Thanks to the magic of my Bloomberg terminal, I can see why they said to buy the stock: in the… Read More

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28 Jul 2016

Fed Seems Hawkish to Media, Not Markets

As expected, the FOMC left rates steady following its July meeting, noting that the labor market had strengthened since June and that economic activity had been expanding at a moderate rate. Ryan Craft noted that the media is talking as if the Fed was quite hawkish, but the markets didn’t behave that way.  He noted that yields were falling sharply, stocks were largely unchanged after the news and that fed… Read More

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21 Jul 2016

Modest Results for Public Pensions

As you probably already know, I’m always interested in the goings-ons at large institutional investors.   This week yielded two interesting stories, one from each of the two largest California public pensions, Calpers and Calsters (the public employees and the teachers).   Calpers, the larger of the two, manages $295 billion and lost -0.6 percent during their calendar year, which ends on June 30.   Broadly speaking, the portfolio is… Read More

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