● The Big Secret for the Small Investor: A New Route to Long-Term Investment Success
By Joel Greenblatt
Summary via publisher, Crown Business/Random House
Let top hedge fund manager, Columbia business school professor, former Fortune 500 chairman and New York Times bestselling author, Joel Greenblatt, take you on a journey that will reveal the Big Secret for both individual and professional investors. Based on path-breaking new research, find out how anyone can beat the market, the index funds and the experts by following a new approach that relies on the principles of value investing, common sense and quantitative discipline. Along the way, learn where “value” comes from, how markets work, and what really happens on Wall Street. By journey’s end, small investors (and even not-so-small investors) will have found their way to some excellent new investment choices.
More Thoughts On Estimating Equilibrium Returns
Several readers responded to my post on estimating equilibrium returns by claiming that the concept is seriously and hopelessly flawed. But the notion that analytical techniques must be all or nothing is dangerous and more than a little impractical.
Weekly Jobless Claims Drop By 10k
Weekly filings of new jobless claims continue to drift lower, and that’s encouraging. But oil prices remain elevated and various global risks continue to bubble. That raises the question of whether the falling trend in new filings for unemployment benefits has legs. The recent strength in jobs creation is one reason for answering “yes,” although the fall in new jobless claims is beginning to look weak again.
Measuring Inflation
Economist Mehmet Pasaogullari at the Cleveland Fed reviews inflation from several angles. If nothing else, he offers a timely reminder that there’s more than one way to skin this statistical cat. Inflation comes in a variety of flavors. But while the numbers vary, there’s a common trend afoot, he reports, noting that “all measures of short-term inflation expectations we have looked at show an upward trend since last summer.”
Demystifying Monetary Policy (Again)
Ramesh Ponnuru of The National Review does a first-rate job of summarizing the counterintuitive nature of monetary policy and how it applies to recent history. In particular, he explains in clear and (mostly) non-technical terms how and why the Fed’s “passive tightening” in late-2008 helped turn what might have been a relatively modest recession into something much worse. He also outlines why the subsequent QE2 was necessary and how many commentators (primarily conservatives) have misunderstood the necessary monetary policy solution, along with the fact that low interest rates of late aren’t a sign of loose money.
A Brief Look At Estimating Equilibrium Risk Premiums
MarketWatch’s Robert Powell reports that “two legendary investors have conflicting points of views” on stocks and bonds. Rob Arnott is cautious on the outlook for equities and Bill Gross is anxious about expected returns for bonds. Putting the two together suggests it’s time to avoid stocks and bonds.
Will Mr. Market’s Asset Allocation Suffice?
The concept of a world allocation fund is a good one, although the “pickings are slim, so consider building your own,” Morningstar advises. Even if the menu was better, the case for designing and managing your own multi-asset class fund is still compelling. One reason is cost. You can probably build your own asset allocation strategy for less if you do it yourself. Another reason is that you can optimize the management of the asset classes according to the particulars of your financial profile. That’s sure to provide superior results compared with a one-size-fits-all strategy.
Strategic Briefing | 4.5.2011 | Inflation
Bernanke Says Fed Must Monitor Inflation ‘Extremely Closely’
Bloomberg | Apr 5
Federal Reserve Chairman Ben S. Bernanke said policy makers must watch inflation “extremely closely” for evidence that rising commodity costs are having more than a temporary impact on consumer prices. “So long as inflation expectations remain stable and well anchored” and the rise in commodity prices slows, as he’s forecasting, then “the increase in inflation will be transitory,” Bernanke said yesterday in response to audience questions after a speech in Stone Mountain, Georgia. “We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability,” he said.
Will The Surge In Corporate Profits Bring Stronger Job Growth?
Corporate profits have soared since the Great Recession was formally declared at an end as of June 2009. Employment, by contrast, has had a tepid recovery. Is this a mismatch with legs? Or is job growth finally set to impress the crowd?
Book Bits For Saturday: 4.2.2011
● Government’s Place in the Market
By Eliot Spitzer
Summary via publisher, Boston Review Books
As New York State Attorney General from 1998 to 2006, Eliot Spitzer successfully pursued corporate crime, including stock price inflation, securities fraud, and predatory lending practices. Drawing on those experiences, in this book Spitzer considers when and how the government should intervene in the workings of the market. The 2009 American bank bailout, he argues, was the wrong way: it understandably turned government intervention into a flashpoint for public disgust because it socialized risk, privatized benefit, and left standing institutions too big to fail, incompetent regulators, and deficient corporate governance. That’s unfortunate, because good regulatory policy, he claims, can make markets and firms work efficiently, equitably, and in service of fundamental public values.
