Why a Stock Market Double Would Not be Weird
This morning we got a sad note from a famous former hedge fund manager (a friend of the firm who shall remain nameless): What if the [stock] [...]
Tactical Asset Allocation: A Practitioner’s Defense of Return Predictability
The prospect of being able to successfully anticipate and predict future market returns is irresistible to practitioners and academics alike, although success has proven elusive. Many [...]
Was the Financial Crisis Really a Valuation Crisis?
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings [...]
Asset Pricing with–and without–garbage.
If you are into consumption-based asset pricing theory and the associated empirical attempts to reconcile the theory with the data from the realized equity premium, garbage is a [...]
Will Bonds Deliver Crisis Alpha in the Next Crisis?
Bonds are often viewed as being great diversifiers due to the perception that they perform well during tough times for stocks. Historically this has been a [...]
A Remarkable View of China’s Official GDP — It’s Not What You Think
A few weeks ago, the WSJ announced that in the third quarter the growth rate of China’s economy had declined to 6.9% -- the lowest [...]
Turn Off Your Chief Economist: GDP Growth Doesn’t Predict Stock Returns
In a sustained effort to try too hard, investors are constantly analyzing and assessing the growth rates of various markets around the world. The key [...]
Daily Academic Alpha: Fed Forecasts–Folly or Fact?
Macroeconomic forecasting is incredibly difficult. The results from this paper suggest that the brainpower of the Fed's 100 person economics team can predict 3 to 6 months out [...]
Chinese Stock Market — Full Meltdown Approaching?
Last night, China's principal benchmark, the Shanghai Composite index, collapsed 7.4%. Ouch! Now that's what we call a drawdown! Hundreds of stocks hit their daily [...]
Sobering 10-Year Market Predictions from CFOs
The Graham-Harvey survey is complete and the expectations of CFOs are available for review. As the figure below highlights, expected returns on the S&P 500 [...]
Low or High Inflation? Nope, Stealthy Government Debt Liquidation!
The Liquidation of Government Debt Carmen Reinhart and M. Belen Sbrancia A version of the paper can be found here A video of Prof. Reinhart [...]
Global Debt: A Scary Situation with Limited Solutions
Earlier this month, McKinsey published a remarkable report on trends in global debt, and concludes that the world's debt, rather than decreasing, is in fact [...]
The Hated. The Feared. The Amazing. The US Treasury Bond.
As "everyone" seems to know, the US 10-year Treasury bond has a low relative yield and is "inevitably going to rise at some point in [...]
Valuation Spreads Over Time: A Unique Market Timing Signal?
The blogosphere is spammed with commentary related to the current high market valuations and the inevitable crash that "must" ensue. We've even been involved in [...]
How to Build Expected Return Forecasting Models
Investors are enamored with various investment houses and personalities who claim insight into the prospects for long-term expected market returns. Some classic examples include Nouriel Roubini, John Hussman, David Rosenberg, or Jeremy Grantham. All really smart people. But have you ever asked "How" these folks came to their conclusions? In most cases, the answer is probably "No" and the reason is because there is a lack of transparency from the author(s) and/or a lack of knowledge/understanding on behalf of the reader. We also want to highlight that one can develop incredibly complex return forecasting models -- super sexy, super interesting, super compelling, etc. -- but that still doesn't mean they are any good at forecasting much of anything.
Walmart delivers Low Prices…and High Home Prices
When Walmart Comes to Town: Always Low Housing Prices? Always? Devin Pope and Jaren Pope A version of the paper can be found here. Want a [...]
Recent Resarch on Predicting Bubbles
Fulcrum Asset Management has an interesting overview piece related to some recent research that attempts to predict bubbles: http://www.fulcrumasset.com/files/frn201401.pdf The source article is below: http://cowles.econ.yale.edu/P/cd/d19a/d1914.pdf [...]
Buffett versus Asness on Bonds: Terrible Investment or Good Diversifier?
Financial news TV shows are a great place to wage philosophical battles, particularly with respect to investing, which tends to gets people’s juices flowing. Warren [...]
Is the Chronic Unemployment Here to Stay?
The famous (perhaps infamous to some folks) John Maynard Keynes has a great quote related to technological unemployment from his essay, "Economic Possibilities for our [...]
The Rocky Road to Economic Liberalization in China
China's banks are being buffeted by the winds of change. Earlier this month, the Shanghai Composite had its longest losing streak in 19 years, which [...]