So said J.P. Morgan one day when he was asked for a prediction about the stock market. The cagey banker gave us the only market forecast that’s always right. Prices bounce around a lot. They always do. Sometimes they bounce higher (or fall lower) than usual. When that happens, cries of market inefficiency and irrational investors take flight. The alternative view is that markets are simply repricing assets based on new expectations for risk and return. What’s the evidence that rational pricing prevails? One clue is that the underlying fundamentals of the market change in line with prices.
Category Archives: Uncategorized
SOROS, BUFFETT, BETA & ALPHA
Who has more talent for minting alpha? Warren Buffett or George Soros? Nassim Taleb, author of The Black Swan
BOOK BITS FOR FRIDAY: 9.24.2010
● Running Out of Water: The Looming Crisis and Solutions to Conserve Our Most Precious Resource
by Peter Rogers and Susan Leal
Water: The Epic Struggle for Wealth, Power, and Civilization
by Steven Solomon
Bottled and Sold: The Story Behind Our Obsession with Bottled Water
by Peter H. Gleick
Review via Foreign Affairs
“Three new books about water agree that the world is facing serious water crises but have very different ideas about how to address them, especially when it comes to deciding what roles the public and private sectors have to play.”
ANOTHER DURABLE GOODS REPORT, ANOTHER ENCOUNTER WITH THE NEW NORMAL
New orders for durable goods fell 1.3% in August, the Census Bureau reported this morning. The drop more than reverses July’s 0.7% rise, which was the first since April. But the news isn’t quite as bad as the headline number suggests. Most of the decrease was due to a steep fall in orders from the volatile transportation sector. Excluding this group shows that new orders actually rose 2%. Meanwhile, new orders for capital equipment excluding aircraft jumped 4.1%, rebounding from the 5.3% drop in July. Corporate investment, in sum, rebounded last month.
THE RISING INFLUENCE OF BETA
The Wall Street Journal has an intriguing story today that highlights the case for thinking that macro forces are running the investment show these days. Or, to cite James Bianco of Bianco Research, as he opines in the article: “Stock picking is a dead art form. Macro themes dominate the market now more than ever.”
THE BEST GOLD QUOTE I’VE READ THIS YEAR…
“What makes the gold story so interesting is that bullion has so many different correlations — with inflation, with the dollar, with interest rates, with political uncertainty,” according to David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto. “This year, for example, gold has shifted from being a commodity toward being a currency — the classic role as a monetary metal that is no government’s liability.”
–Bloomberg News
JOBLESS CLAIMS RISE. A SIGN OF STRUCTURAL UNEMPLOYMENT?
Today’s update on new jobless claims for last week is a reminder that the labor market is still stuck in neutral. After a month of declines in new filings for unemployment benefits, the trend reversed last week. New claims jumped 12,000 for the week ending September 18, the government reported. That’s discouraging, but nothing’s really changed in terms of the broad trend this year. We’re still going nowhere fast in the labor market.
SHOULD WE WORRY ABOUT STRUCTURAL UNEMPLOYMENT?
Unemployment is still high—9.6% as of last month. But is it structurally high? In other words, is the rise of joblessness due to fundamental changes in the economy? Or is the fallout from the recession the main problem? The answer matters. If structural unemployment dominates, the case for additional stimulus—monetary or fiscal—is weakened. A new round of quantitative easing, for instance, would be of little if any value if the economy is suffering from structural unemployment.
A CHANGE OF STRATEGY FOR BERNANKE & CO? MAYBE, BUT NOT YET
The Federal Reserve announced it would keep Fed funds at a target rate of zero to 0.25%. No surprise. The economy is weak and the central bank intends to hold nominal rates at virtually nada for the foreseeable future. Tell us something we didn’t know. How about detailing more of the internal thinking on the contentious issue of whether the Fed is set to roll out more quantitative easing (QE), such as buying Treasuries. QE, in its various forms, is the only policy option left at the zero bound and Bernanke and company appear to be laying the groundwork for rolling out a new round of this monetary medicine…maybe. Okay, that’s a bit more intriguing.
READING ROUNDUP FOR TUESDAY: 9.21.2010
►18-month recession ended in June 2009
Megan Woolhouse/Boston Globe
“The Great Recession officially began in December 2007 and ended in June 2009, making the 18-month-long recession the longest since the end of World War II, according to the National Bureau of Economic Research, the Cambridge nonprofit that declares the start and end of such downturns.”
►Why There’s No Joy Over the Recession’s End
Rick Newman/US News & World Report blog
“Maybe we need a new definition of ‘recession.'”