Call us old fashioned, but we think fundamentals still count. Yes, this is like part IV of our rant about stock markets versus a market of stocks. Fundamentals are the revenues, earnings, dividends of companies that allow us to separate the wheat from the chaff in stocks. We recently read an article that quoted a dire prediction that the US stock market will have to go below 1000 (Dow points) before it completes some super-duper cycle target based on what the market did back in 1871 (or was it 1873?). Read more
Category: Finance
Where are all the long-term investors?
Back In The Good Old Days
Yes, this is another of those “back in the good old days, when men were men” kind of stories from the old guy in the back. We have to report these to you just because it helps give some perspective on what is going on today and how that differs from how things used to be. Read more
Keynes’ theory of recovery – a lesson forgotton
John Maynard Keynes lived from the later 19th century until the 1940s. He saw a world that developed right before his eyes. He was a major economic voice during the period immediately after World War I and developed his General Theory of Employment, Interest and Money as he watched the economies of Europe fall into depression in the 1920s. Keynes’ theory was all about demand management (our economist friends will get us for that one). As Keynes saw the world, you could pretty much count on producers producing stuff in the hopes of getting rich. The issues surrounding the post-World War I world were all about demand rather than production. Simplistically, Keynes theorized that when private demand for stuff failed, public demand for stuff should step up and fill that gap. If we were producing too much steel, the government should buy steel so the steel mills will keep operating. If we were producing too much food, the government should buy the excess food to maintain prices. You probably see where this is going. Keynes described the world where we all now live with the government as a major economic actor. Read more
Lots of Little European Stuff
European package – if you can’t fix it, smother it with money. The IMF, the ECB, the member states of the European Union are all throwing money at the problem of the miscreant states of southern Europe. The package of loan guarantees, liquidity tools, austerity packages and such that was assembled is supposed to buy the PIIGS enough time to tighten their belts and learn to live within their means. Well, not really within their means, but at least close to their means. Perennial deficits of up to 3% of GDP are perfectly okay with the ECB and EU. We can’t recall a single European government that has run a surplus in their fiscal budget lately, maybe the Norwegians during the height of their energy boom. (Keynes is probably rolling in his grave.)
European Financial Contagion
We have been asked by several of our advisors why this European Financial Contagion is so important and we are stumped. It shouldn’t be all that big a deal. Whether the Euro stays or goes won’t matter much in ten years time, unless it is still causing trouble for the member states then, too. We have beaten to death the idea that Greece doesn’t really matter on the world economic stage or that Portugal doesn’t matter or that Spain doesn’t really matter all that much. Read more
Investment Risk
Count Your Blessings
Let’s talk about risk, which is much in the news these days. What is risk? For many of us, risk is standard deviation, beta, tracking error. For most people, risk is the chance of losing money. There is a debate these days about how much risk we should be allowed to take and what risks we should not be allowed to take. That is at the heart of the financial re-regulation bill before Congress (the opposite of progress). Who can take what risks has been a bedeviling question for regulators since we first started modern finance 50 years ago. Read more