Headed for euphoria (Sober Look)
Economics and the perils of big data (Barry EichenGreen)
“Statistics are helpful. But in economics, as in other lines of social inquiry, they are no substitute for proper historical analysis.”
While Wronged Homeowners Got $300 Apiece in Foreclosure Settlement, Consultants Who Helped Protect Banks Got $2 Billion.. When I read this type of article I think of financial concentration camps… (hat tip Joe Killoran)
Top Incomes and the Great Recession: Recent Evolutions and Policy Implications – Thomas Piketty, Paris School of Economics & Emmanuel Saez, University of California, Berkeley
The Setting Sun – Japan’s Forgotten Debt Problems – From Economonitor
“What we find is that the greatest clustering of fraud in the financial markets occurs, as you might imagine, during and immediately after the biggest bull markets. As I like to tell my students, it’s basically a period in which people suspend their disbelief. Everybody’s getting rich and it becomes increasingly easy to sell more questionable schemes and investments to investors.”
PURSE STRINGS ATTACHED: TOWARDS A FINANCIAL PLANNING REGULATORY FRAMEWORK – PIAC (Public Interest Advocacy Centre)…hat tip Ken Kivenko
“Although the financial planning and financial advisor industries have recognized a need for reform of standards of care towards investors and have acknowledged the need for disclosure of, and transparency of, fee and commission structures, their progress towards solving the issue has been slow. Reforms in this area continue apace in other jurisdictions: the U.S., the U.K. and in particular Australia have tackled the difficult issues of compensation structure and disclosure, as well as duty to clients head-on. Canada has, by contrast, a large vacuum in political leadership on reform efforts in financial services…”
“In the literature on optimal portfolio choice, the outperformance of the 1/N portfolio strategy relative to the optimal portfolio strategy in out-of-sample asset allocation tests is largely attributed to estimation error in the optimal portfolio strategy…….academic research proposes various extensions of the Markowitz model to reduce estimation errors with the goal of improving the performance of the Markowitz model.
However, despite the considerable effort required to handle estimation error in the optimal portfolio strategy, this approach does not consistently dominate naive diversification. Recently, DeMiguel, Garlappi, and Uppal (2009b) report that none of the sample-based mean–variance models and almost none of the sophisticated extensions of the Markowitz rule consistently outperform the 1/N strategy.”
Hussman’s latest weekly commentary: I tend to agree with him, although I would say that because the supply of money has indeed grown relative to other assets, the market portfolio holds more cash as a % of its total than market participants might otherwise wish in a normal environment. Additionally while overall credit market debt has gone up, much of this increase has been taken out of the system by the fed. In a normal growth environment, with the current available supply of cash and risky assets, people would under own units of real growth, in other words equities.
Leverage strategy breached suitability obligations: MFDA panel (Hat tip Ken Kivenko from his Feb Fund Observer). In my opinion leverage based sales strategies are de facto legal criminal activities.
Room for improvement from financial literacy stakeholders (another hat tip to Ken Kivenko) – but things are not always what they seem. Financial advisors should be the main source of financial advice rather than the press, the government or the education system. But, it is the interests of that advice and the accountability for that advice that matters most.
Whistleblower prompts call for more debate on whether bills violate Charter – well done Edgar (hat tip Joe Killoran).
A tempest in a spreadsheet – if you are developing models you should also have a) independent verification of the key outputs and b) a brain that is also capable of modelling the likely boundaries of the output, meaning that you should be able to pick up most significant errors.
Asia’s fading economic miracle – the following excerpt from this report accords vey much with my own views on the dynamics of this particular juncture:
Asia may now be at a point that we can call ‘the end of extrapolation’. The export dependent models of ASEAN countries and, to a degree, China, have been shown up by the financial crisis. Roughly three quarters of Asian exports end up outside the region, predominantly in Europe and the US, and the short- to medium-term prospects for Western demand are very weak. China’s investment-heavy growth model has to succumb to significant economic rebalancing and lower economic growth, if the country is to avoid a damaging bust. In China, India and several other countries, political and structural economic reforms are the key to steering clear of the so-called middle income trap, where growth in income per head is prone to stall. In short, Europe and the US are looking to Asia to carry the baton of global economic expansion at a time when Asia’s economic development has arrived at an important crossroad
Print me a jet engine – additive manufacturing…
Economic Policy Institute’s Charting the state of the U.S. economy
The most common complaints heard in ShareClub meetings include frustration with low returns compared to the market as a whole, being gouged by high fees, portfolio churning, front running, lack of contact with their advisor, being sold inappropriate products, nondisclosure of all the risks and potential loss related to a product, and continued sales pressure from their advisors. In short, they felt their advisor’s interests were not aligned with their own. Trust, the most necessary ingredient in a wholesome client-advisor relationship, was missing. Some of these grievances went far beyond simple dissatisfaction…
Europe clings to scorched-earth ideology as depression deepens – a neat little dark summary of Europe’s woes
Google sheltered almost $10bn in Bermuda last year – companies need consumers to spend, and when consumers spend government needs part of that expenditure to flow back through to taxes which are used to help support a stable financial and social framework in which consumers can earn and spend and companies produce and sell. It does not take to much thought to work out what happens if you continue to siphon off capital from this structure. At the present moment in time when governments need revenue to reduce debt and manage expenditure, corporations are building up their cash reserves and cutting back on hiring, R&D and fixed capital investment. Again, it does not take too much thought to work out where this is all going. An economy needs balance and harmony to continue to grow.
ECRI Recession Call
December Fund OBSERVER 2012 – Ken Kivenko’s investor advocate update…
On the Road to Zero Growth – Jeremy Grantham – “Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal. Remember, it is led by a guy who couldn’t see a 1-in-1200-year housing bubble! Keeping rates down until productivity surges above its last 30-year average or until American fertility rates leap upwards could be a very long wait!”
Brokers Eat Their Own – “It would be difficult to find an industry as ethically bankrupt as those involved in “managing” your investments.“
Euro Area Business Cycle Dating Committee: Euro Area Business Cycle Peaked in Third Quarter of 2011, Has Been in Recession Since – “Investment and employment had started to decline slightly even before 2011Q3. This is quite unusual, since employment generally lags behind output”
The Perils of Feeding a Bloated Industry – hat tip Joe Killoran
interesting if you apply the analysis to investor purchase of financial services’ products.
Neil Barofsky Discusses “Incestuous Orgy” Between Washington and Wall Street on Bill Moyers – “…play ball and good things will happen..” Anyone who has ever stood up for what is right and stood against wrong will most definitely have been on the wrong end of similar comments. This is a must see video…
According to his Eton schoolmaster, the 15-year-old Gurdon did not stand out as a potential scientist. Writing in 2006, Gurdon quoted a school report as saying: “I believe Gurdon has ideas about becoming a scientist; on his present showing this is quite ridiculous; if he can’t learn simple biological facts, he would have no chance of doing the work of a specialist, and it would be a sheer waste of time, both on his part and of those who would have to teach him.”
That year, Gurdon scored the lowest mark for biology in his year at Eton. “Out of 250 people, to come bottom of the bottom form is quite something, and in a way the most remarkable achievement I could have been said to make,” he said.
This is a problem with the school system – if the teacher cannot see that their input is more or less equal to, or less than the student’s output, they consider that there is nothing there of value. Some people cannot be measured by conventional means!
Jimmy Savile’s toxic legacy – and what of all the people who were complicit in hiding all this? The world has a lot to answer for!
A useful link from Ken Kivenko for Canadian investors who might want to check out the disciplinary records of their prospective advisers, or indeed current advisers.