By Brian Langenberg, CFA

The easy money has been made. I am not referring to picking the market bottom reached on May 9, 2009. That would have been speculation, not investment. In fact, just six months before I attended a conference where Emerson Chairman and CEO Dave Farr spent 10 minutes explaining that his cash and liquidity position could withstand a two-year depression with no profit. Every presenter who followed did likewise. I never want to see that again and neither do you. Many attendees, of course, are no longer in the business.

Stabilized conditions + Fire sale asset prices = Alpha. This sounds trite, but once conditions stabilized, easy pickings were available. Stability meant that 1) capital markets were functioning thanks to global government action, 2) unemployment had stopped rising, and 3) data points were improving (and "getting less bad" counts as improving). Fire sale prices

By David Larrabee, CFA

In the first quarter of 2013, institutional investors added to their equity holdings in the healthcare sector while reducing their exposure to the technology stocks. Among the most widely held stocks, portfolio managers as a group added to positions in Citigroup (C), Johnson & Johnson (JNJ), Microsoft (MSFT), and BlackRock (BLK), and trimmed positions in Apple (AAPL), Oracle (ORCL), Pfizer (PFE), and Coca-Cola (KO).

In his book, One Up on Wall Street, renowned fund manager Peter Lynch said of the perfect stock, “The institutions don’t own it, and the analysts don’t follow it.” With institutional ownership of equities nearly doubling in the past 30 years, it has become harder to find such undiscovered gems. Despite Lynch’s advice, the fanfare associated with the recent Sohn and SALT hedge fund conferences, and Buffett-palooza, is clear evidence that the investing public is intently focused on

By Paul Smith, CFA

Throughout Singapore and elsewhere in Asia where it operates, we see an advertisement from one of the region’s biggest banks that says, “Asia’s safest bank.” Five years after the global financial crisis, depositors, investors, and the general public still worry about risk, and assurances seem necessary for them to trust the financial system.

Surveys conducted by various organizations have shown similar findings: The public has ranked the financial services industry rock bottom in trustworthiness. If collateralized debt obligations (CDOs) did not kill off confidence in the financial markets, the Libor-rigging scandal probably did. In the eyes of the investing public, financial markets have been manipulated by a few for their own benefit and have ceased to serve society’s needs.

This erosion of trust has far-reaching effects — on pensions, capital allocation, investments, and ultimately, the welfare of society. Globally, lack of trust has led

Reviewed by Alon Bochman, CFA

Financial statement analysis and security valuation are a big part of our training as CFA charterholders; for many of us, they are the most important part. We pride ourselves on the thoroughness, sophistication, and level of detail of our analysis. A friend of mine in private equity explained that his due diligence process for buying a company was so thorough it included learning "the first name of the CEO's second mistress." But how much impact does that particular detail have on investment performance? How many of the myriad qualitative facts that we gather about a company ahead of an investment decision actually make a difference?

Wesley Gray and Tobias Carlisle offer a different approach in their fascinating book Quantitative Value. They begin with two simple observations. First, value stocks -- as a group and over the long term -- outperform growth stocks. Second, value

By Rodney Sullivan, CFA

Aging and the Macroeconomy: Long-Term Implications of an Older Population. National Academies Press. 2012.

Reviewed by Murad J. Antia, CFA

The United States and many other countries are in the infancy of significant demographic changes. Over the next four decades, the retiree demographic will constitute an increasingly large percentage of the population. In the United States, the old-age dependency ratio — the ratio of people aged 65 years and over to people aged 20–64 years — will likely increase by 80% by 2050.

In 2010, the U.S. Congress asked the National Research Council (NRC) to prepare a report on the long-run macroeconomic effects of the aging population. The NRC appointed an ad hoc committee to survey the academic literature and create a knowledge base for the ongoing debate on the demographic shift and its effects on Social Security, Medicare, and Medicaid. Aging and the Macroeconomy:

By Paul Smith, CFA

What do we make of the frenzy in Asia’s debt capital markets? In a span of five days last month, a staggering US$8 billion was raised in Asia ex-Japan. In the week that followed, Sinopec (SNP), China’s state-owned oil company, issued the largest bond in Asia in a decade — worth US$3.5 billion. As of mid-April, Chinese debt capital markets deals reached US$129.7 billion, up 34% from the same period last year, according to data provider Dealogic.

Debt is back with a vengeance — thanks to record-low interest rates and excess liquidity. Nowhere is that more apparent than in Asia’s high-yield debt market. As of mid-April, Asian high-yield issuances have reached US$18 billion, already exceeding the total for the full year of 2010. Foreign investors

By Ron Rimkus, CFA

Japan’s Nikkei index is on fire. In just the past six months, the benchmark is up 55% as of this writing. Why? Pretty simple: New Bank of Japan Governor Haruhiko Kuroda has announced that the Bank of Japan (BOJ) will begin purchasing approximately ¥7 trillion worth of bonds annually in a major new quantitative easing program. In short, Japan will be printing gobs of money and all of this money has to go somewhere. That may look like great news for investors who hold Japanese equities, but from where I sit, this has all of the classic makings of one big investment bubble.

Nikkei 225 Index
(click to enlarge)

Sources: CFA Institute, Dow Jones.

Even though Japan has been providing monetary stimulus for many years, the new policy represents a major expansion of the country’s existing response to deflationary pressures in the economy.

By Paul Smith, CFA

If you can’t make it in China, try Southeast Asia.

This seems to be the mantra these days among international banks and financial firms that want a foothold in Asia’s most coveted market but are turned off by regulatory requirements or stiff competition. If China has 1.2 billion people and a rising middle class, Southeast Asia has 600 million people, growing wealth, and plenty of investment banking deals too.

According to the Wall Street Journal, investment banking and trading revenues in Southeast Asia reached $13 billion last year (the second biggest in Asia ex-Japan after China’s $19 billion) on the back of mega deals such as Thailand’s C.P. Pokphand’s acquisition of Singapore food and beverage giant Fraser and Neave.

Without doubt Southeast Asia is on the ascendancy, largely a result of relative political stability in the region. I have recently traveled to a number of

By Tan Chin Hwee, CFA

What is the most important event over the past decade? Many would say that the rise of China completely changed the global economic, political, and social landscape. Since China’s entry into the World Trade Organization in 2001, China’s GDP has grown 4.5 times larger, making its economy a growth engine of the world.

In doing so, China has helped reshape the private sector in not only emerging economies but also the developed world. In the past decade, China Exim Bank has extended $12.5 billion more in loans to sub-Saharan Africa than the World Bank. China National Offshore Oil Corporation spent $18 billion to buy Nexen in Canada, while the Chinese sovereign wealth fund China Investment Corporation bought 8.68% of Thames Water, the UK utility group — examples of recent Chinese transactions in strategic industries.

China’s story has been central in discussions about the “Asian Century.”

by Ron Rimkus, CFA

Japan's Nikkei index is on fire. In just the past six months, the benchmark is up 55% as of this writing. Why? Pretty simple: New Bank of Japan Governor Haruhiko Kuroda has announced that the Bank of Japan (BOJ) will begin purchasing approximately ¥7 trillion worth of bonds annually in a major new quantitative easing program. In short, Japan will be printing gobs of money and all of this money has to go somewhere. That may look like great news for investors who hold Japanese equities, but from where I sit, this has all of the classic makings of one big investment bubble.

Nikkei 225 Index
(click to enlarge)

Sources: CFA Institute, Dow Jones.

Even though Japan has been providing monetary stimulus for many years, the new policy represents a major expansion of the country's existing response to deflationary pressures in the economy. Moreover,

by David Larrabee, CFA

In his 2007 book, The Emerging Markets Century, author Antoine van Agtmael, argued that the world's economic center of gravity was decisively tipping toward emerging markets, a term he is said to have coined in 1981 while at the World Bank. Recently, Van Agtmael spoke at the CFA Institute 2013 Asset and Risk Allocation conference, and while he asserted that the shift in competitive edge which he had written about six years earlier remains intact, he sees it slowing because of a series of game changers that will spur an industrial renaissance in the United States.

Make no mistake, Van Agtmael remains bullish on emerging economies. In fact, he sees opportunities beyond the BRICs (Brazil, Russia, India and China), with the MIST countries (Mexico, Indonesia, South Korea, and Turkey) offering particular promise. But what Van Agtmael called the "creative response" from the United States,

By David Schawel, CFA

Monday morning on CNBC, TrimTabs CEO Charles Biderman noted that "the Fed's balance sheet is up a few trillion, and the equity market caps are up a few trillion. To me, there's nothing else that's going on." The popular pundit line has been that QE (quantitative easing) is mainly psychological, but do the data support this claim? Is the reason for the steady move up in equity markets really just as simple as the Fed's balance sheet expanding?

Although many charts have compared when the QE programs have started/stopped with the S&P 500 Index or 10-year U.S. Treasury yields, I can't recall many that have used the Fed's balance sheet size as a direct comparison. The benefits of this comparison are relatively obvious. The actual size of the Fed's balance sheet reflects when securities have actually settled and the trades (excess reserves into the financial system

By Rodney Sullivan, CFA

The Federal Reserve and the Financial Crisis. 2013. Ben S. Bernanke.

Reviewed by Marc L. Ross, CFA

It is fitting that The Federal Reserve and the Financial Crisis should be published in the centennial year of the institution. Adapted from a series of four lectures given by Ben Bernanke at George Washington University in March 2012, the book is a good primer on the workings of the central bank throughout its history, including its role in the recent financial crisis. Concepts are introduced with clarity, and the prose is straightforward. The book is appropriate for students of central banking, and experienced readers will find it a worthwhile account of the historical record for what it both does and does not reveal.

Each lecture builds on the preceding one. The book begins with the formation and objectives of the Federal Reserve, moves on to the

by Jason Voss, CFA

Evaluating the quality of a money manager is a perennially important topic. It's all the more important when that money manager charges 2% of assets under management and 20% of any gains. Yes, that age-old conundrum of how to choose a good hedge fund for your portfolio remains a difficult task. But Mark J.P. Anson, CFA, CAIA, thinks he has bright light to shine on the problem. As the person responsible for alternative assets at the Bass Family Foundation, he enjoys wider sight lines than many other investors who have taken the plunge into hedge funds.

At last week's 2013 Asset and Risk Allocation conference in New York, Anson began his presentation with a Sherlock Holmes-like quote: "When you have eliminated all of the beta, whatever remains, however improbable, must be the alpha." In other words, if you want to identify a skilled

By Alon Bochman, CFA

When I was four, my grandmother would often supervise me at mealtime. Like many grandmothers, she believed her mission was to get me to finish all the food on my plate whether I was hungry or not. First, she would let me eat on my own. Then, when I'd try to leave the table, she'd arch an eyebrow and ask where I was going.

"I'm done eating," I'd reply.

"But your plate is still full!" she would say. It wasn't.

"No - see, I ate some of the oatmeal."

"I didn't see." She would sit next to me and fold her hands. "Show me."

At that point, no evidence I could muster would be enough to convince my grandmother. She would have to witness my eating firsthand.

Institutional investors behave in a similar way to my grandmother when selecting fund managers. After picking a manager for

By Samuel Lum, CFA

With Kim Jong-un declaring that North Korea has entered a state of war with South Korea — not to mention cutting off a military hotline, threatening nuclear strikes, and shuttering Gaeseong, the joint North-South industrial complex — geopolitical tension in the Korean peninsula has been top of mind for global investors, especially those with a stake in the region. Events have been unfolding quickly. Earlier this week, the North Korean foreign ministry rejected overtures from the Obama Administration and U.S. Secretary of State John Kerry, who was in Asia last weekend and is seeking to defuse a potential nuclear crisis while also working to avoid rewarding North Korea for its bellicose behavior.

Meanwhile, South Korea’s KOSPI Index has dropped 4% since the end of March. With foreign investors fleeing, the valuation of the country’s benchmark index now checks in at one times net assets, compared

By Mark Harrison, CFA

Suddenly gold is being proposed as a cure-all for the weakening dollar, allowing it to retain its place as the international reserve currency — a trophy taken, not without a fight, from the British pound at the Bretton Woods conference in 1944. Predictably, many commentators are reducing the most sophisticated, technical economic issues to a paella of nationalism, confusion about basic economic facts, and old-fashioned avarice.

To help throw up some light, let’s start with the simple questions: How is a classical gold standard supposed to work? How did it actually work out in the past? Why did previous versions of the international reserve currency lose their mantle? What is the record of the fiat currency version of the dollar as an international reserve currency? And why is it now rather than some other moment that gold is so much discussed?

The Classical Gold Standard

By Ron Rimkus

China's sovereign credit rating was cut by Fitch Ratings Wednesday. Analysts at Fitch called out China's growing debt burden on local governments. Fitch estimates that total credit in China's economy now exceeds 198% of GDP, much of this is carried by government-sponsored entities and local governments. In addition, the report highlighted the growing problem of shadow banking in China, where, it seems, scant few actually know how it works, let alone how big it is. As highlighted in a Financial Times article, it appears that trusts are at the heart of China's shadow banking.

According to former Chinese finance minister Xiang Huaicheng, local governments owe at least $3.2 trillion - almost double the official figures.

For those following Michael Pettis, this should come as no surprise. Last year at the CFA Institute Annual Conference in Chicago, he laid out the case for

Reviewed by Dennis McLeavey, CFA

What do quant great Edward O. Thorp, behavioralist Jamies Montier, and value investing legends Benjamin Graham and Warren Buffett have in common? These investment practitioners all make a seemingly incongruous appearance together in Quantitative Value, a new book by Wesley Gray and Tobias Carlisle. The authors' objective -- not clearly stated, alas, until the tenth chapter -- is "to develop a sensible quantitative value investment strategy that will deliver returns in the real world." The long-only strategy espoused in the book rests on a checklist of sophisticated stock screens, strict adherence to which delivers on the book's subtitle: "A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors."

In the opening chapter, Carlisle, a portfolio manager, and Gray, a hedge fund manager and assistant finance professor at Drexel University, present an elderly, quantitative Benjamin Graham. This version of Graham

By Ron Rimkus, CFA

A craze is sweeping the nation. Indeed, it is sweeping the world. That craze is Bitcoins, the decentralized, encrypted digital currency, introduced in 2009. Bitcoins, which have a permanently fixed supply, are turning out to be a pretty big deal because of the stark contrast with our present (fiat) currency system - which thanks to central banker largesse is yielding a growing and seemingly endless supply of money (latest entrant to the game: Japan). Eventually, this rampant money printing risks triggering inflation, which destroys currency values.

So, to understand the recent Bitcoin binge, you need to understand inflation. Let’s consider what might happen if inflation applied to other facets of life...like sports.

Take basketball great Michael Jordan. On 20 April 1986, Jordan faced the Boston Celtics in a playoff game on national television. I’ll never forget that game. Watching Jordan school the great