Higher Oil Prices Will Stymie Reform in Russia [View article]
I must respectfully disagree with the core argument. It is sometimes fun to hold a totally opposing view to others-particularly when others are missing a crucial perspective or argument. However, I think you might be on your own on this issue because your perspective is just off the mark.
Russia might very well gain or lose hegemonic-like power with the rise or fall of oil prices, but in terms of their economic/political fundamentals internally...there is practically nothing compelling about the viewpoint that higher oil prices actually work against the liberalization/evolution of Russia.
I think Ian Bremmer's simplistic J-curve model is a far better framework for explaining Russian political/economic development. I personally believe (although I am sure many will disagree) under Putin there was substantial progress for development until the global financial crisis struck. In fact, quite frankly, one of the reasons Russia (from an economic perspective) has handled the global recession so well is that during the period of high commodity prices the government was able to build up a mammoth capital base in their Sovereign Wealth Fund which has no doubt helped offset a significant amount of the fallout that would have otherwise occurred in Russia.
Of course, there has been some retracing of political freedom/economic liberalization as of late. In my opinion, to a large extent, this is more likely a result of anxiety/nervous fear on the part of Medvedev/Putin...AND perhaps their decisions have been flat out wrong. BUT, I find it more compelling that they made these bad decisions out of fear of political instability getting out of control vs. your view that higher oil prices have given them a shot of testosterone in which they just decide to be more aggressive and move backwards in favor of authoritarianism instead of liberalization.
Under your viewpoint, Putin would have passed (which he had full support for at the time) the constitutional amendment to make him president for life. Why didn't he? Because, in my view, in the end he wants to see Russia as a liberalized economic/political power house that is as stable as any Western country - even though the path can be rocky as hell at times.
Putin (and to a lesser extent Medvedev) might very well believe that Russia should take full advantage of their natural resources to gain as much of a competitive advantage over their sphere of influence but that does not equate to retracing towards an authoritarian state.
Russia is on a long, and at times rocky, journey towards a more liberalized political/economic climate. They are still quite unstable and have a long ways to go. BUT I think the trend in Russia is clear...it is from the lower left to the upper right AND in direct correlation with commodity prices (not the other way around).
Commodities Are Sizzling, Risks Are Building [View article]
I can easily own that criticism, I didn't mention anything about energy demands from developing economies although I am well aware that the majority of incremental demand for energy is stemming from developing economies. It does seem to me that Chris is in agreement with me to a large extent, he just believes I should have included a contrary data point in my post. I don't believe including comments surrounding increasing demand from emerging economies is a game changer in my analysis though...as short term price seems to be getting stretched (a point that Chris concedes in his second comment). I did cherry pick, to some extent, as I wanted to manage the size of the posting. Thanks for reading and I appreciate all the comments.
Why David Tepper Is Only Half Right [View article]
"A better metric would be to use the price of gold, which has increased 30% YoY."
My cost of living hasn't gone up 30% in the past year. In the business I work in, numerous contract prices are adjusted annually to reflect inflation. Many of these contracts use a straight up CPI measurement while others use more esoteric formulas that are oriented around more specific CPI data. Imagine tieing these contracts to the price of gold. We would be in and out of real businesses like day traders...which is entirely unfeasible. Real economics in business just don't work that way.
Directionally, maybe gold does contain some kind of pertinent information on inflation (although I am not entirely sure) but it definitely isn't correct in terms of magnitude. GLD is up 175% over the past 5 years. How many readers have actually seen an increase of 175% in their cost of living? I suspect not many. In part most Americans would be homeless-given their propensity to live pay check to pay check. If those folks, living pay check to pay check, had an increase in their cost of living of 35% annually...they would be homeless, starving, and probably on the cusp of death.
Don't Let Talk of a Bubble Scare You Out of Bonds [View article]
Bruce Krasting's comments provide a great point. Whether you agree or disagree about the merits of investing in bonds is actually somewhat irrelavent to the discussion. The central argument in the entire discussion is how you define a bubble.
In my opinion the two biggest fads, in the past 24 months, (which I cannot wait until they disappear) is using these two terms: bubble and ponzi scheme. These are the two most over used misunderstood terms in existence right now. Every week countless commentators ask, "are bonds in a bubble...are hedge funds a bubble...are agg products a bubble...where's the next bubble going to be...what's the next bubble to pop?"
As Mr. Krasting correctly points out...a bad investment does not constitute a bubble...it constitutes a bad investment. Roche, in my mind, wasn't arguing that bonds are a great investment he was merely pointing out that based on price action bonds are not on some unsustainable path that is destined to for a catastrophic debacle of mythic proportions that will likely unfold over some mind numbingly short time period.
Bubbles are often associated with dramatic price declines in a short period of time. I don't see the merits in defining what will probably be a slow process of change over the course of many years as a bubble. Sure investors in bonds might catch some undesirable opportunity costs...but hell...at the end of the year have you ever checked the stocks with the biggest % gains for the previous 12 months and calculated your opportunity cost? I haven't. But I know it is HUGE. The fact that you missed that opportunity doesn't mean the stocks you actually did invest in were in a bubble. It just means they weren't as good of an investment as others.
Jeff Saut: 'Equity Risk Premium Exceptionally Large'- A Bullish Sign [View article]
It would be interesting to scale the equity risk premium and corporate bond risk premium by some measure of risk. While some may argue that volatility and risk are not the same thing...I would still be interested in seeing if scaling this expected return differentials by some risk measure would actually change the results. I am positive it would definitely cause a little extra head scratching for people evaluating stocks - after all nothing is free so how much extra risk is assumed to earn this extra return?
Global Macro Notes: Forget Copper, What About Oil? [View article]
You seem to like oil despite the influence of OPEC in the oil market without even questioning the accuracy of DOE data or entertaining the notion that official statistics could potentially be manipulated to present data in such a way that it is favorable for certain parties. I am not saying this is the case...but if you are telling me you don't like copper because of rubber futures, surely it seems worth mentioning.
"Copper fell the most in a week after a report that Chinese regulators are investigating positions in rubber futures spurred speculation that some traders may be forced to sell commodities…"
That sounds like a worthless rationalization of a price move in the absence of fundamental data on the part of Bloomberg.
Should the Bush Tax Cuts Be Extended? [View article]
I think you are missing the point. Maybe the bush tax cuts were a dismal failure for the last 8-10 years. I am not arguing that the Bush tax cuts paid for themselves. I might not have been clear enough in my original post...but I am trying to focus in on the hoards of cash and what kind of stimulative effect it could have on the real economy.
Argue what you will about the Bush tax cuts...but refute my argument that a zero dividend tax rate would add incentives for companies to payout more of their retained earnings - which could compound into some much needed stimulative support, provided by the private sector, for the economy.
Should the Bush Tax Cuts Be Extended? [View article]
Truth be told, I do my best to keep my rhetoric under control. I really am not a fan of most government entitlement spending at all. Thus I tend to find myself supporting, on philosophical grounds, any tax cut that can be found. But as you correctly point out, these tax cuts have not been met with any reduction in spending, so there is a real pickle.
A very typical argument against government meddling in the economy is that the government is poor at the allocation of scarce resources when compared to the private sector. Most large scale bankrupt government insitutions such as medicaid or medicare, social security, etc. are used as examples of how ineffecient governments can be. Energy policy with respect to ethanol is another perfect example of horrible resource allocation that has failed miserably but probably succeeded at increasing world hunger.
While many put their faith in the ability of the private sector to allocate resources in a superior fashion, hoarding unnecessary cash is not allocating resources at all - which is not really an improvement over the government mis-allocating resources. By recycling idle cash back through the economic system individuals will be able to allocate that capital how they see fit. Perhaps that would be buying corporate bonds. It could be some much needed repairs on their car. Maybe it is some new clothes for their kids.
I cannot recall the precise quote, but somewhere I have seen something along the lines of, "the decision to take no action is still an action". This is shown as a quote at the beginning or end of some movie. And I am literally beating my head against my desk to recall what movie it is so I can find the exact quote.
Nonetheless the quote is fitting in this situation. Corporations are hoarding cash because they do not see easy growth on the table. Yet, while they believe they are making a decent decision, they are abdicating their sole responsibility. If they do not see the opportunities to maximize shareholder value it is incumbent upon them to return retained profits to their shareholders to be recycled back into the economy as the shareholders see fit.
That is a possible private sector solution. That is capitalism. Now, we just need the government to encourage it. And it would certainly help if shareholders become a bit less complacent with companies holding so much idle cash.
Should the Bush Tax Cuts Be Extended? [View article]
I like your ideas. A 3-5 year tax holiday on profits for newly formed businesses sounds like a great idea. Perhaps that could be extended to include some sort of tax relief on costs incurred from adding to payrolls.
I hope I was clear that I don't find the trickle down theory of tax cuts particularly compelling...but I do find the notion of a massive corporate dividend, to recycle the uneccessary idle cash back into the real economy, very compelling. Sure dropping dividend taxe rate to zero doesn't by default trigger a massive increase in dividend payments, but it sure seems like it would increase the incentives for such a transaction. Market forces of extremely unpleasant shareholders would definitely start to take hold of corporations hoarding unneccessary cash. Couple that with some Obama led roadshows/marketing campaigns and maybe this could gain some momentum resulting in a massive private sector stimulus.
Japanese Economic Problems Are Positive for the Yen [View article]
I have to concur with Japan20000. I find the argument from the mad hedge fund trader moderately compelling which is to say interesting. But overall I think your view on the economics of Japan is quite wrong on several levels.
One, your assessment of stagflation is incorrect in terms of definition and policy implications. Staglfation is defined by a weak economy (i.e. high unemployment) coupled with high inflation. There are policy prescriptions for dealing with this scenario. Recall, Paul Volker who is generally speaking given the credit with ending the staglfation period of the 1970's by raising interest rates in a dramatic fashion? Deflation occurs when the price level of an economy falls. There appears to be very little policy options for dealing with deflation which is precisely why Japan has struggled for 20 years and the Federal Reserve is forced to experimenting with new options in the hopes that something works.
Two, your assessment of what quantitative easing seems to be misplaced as well. While a seemingly new term, quantitative easing has been defined by monetary authorities intervening in capital markets to force interest rates of various assets in the capital markets to a level that they hope will stimulate some level of demand in various markets.
Three, your claim that the Japanese government is driving policy to raise the value of the JPY in an effort to spur domestic demand seems to be false as well. I say that only because key government officials have been utterly outspoken about the appreciating Yen represent serious negative risks for their economy. In fact there has been significant jaw boning about a tentative BoJ intervention in the forex markets just to send the JPY the other direction.
Four, if your intentions are to grow your economy, I can't possibly imagine it is a wise idea to destroy your export sector in an effort to spur a domestic spending spree. Given that Japan is a high tech exporting nation whose main competitor is Germany, they have far more to lose from a strong Yen than they have to gain from a weak Yen.
Five, in terms of risks inherent with holding U.S. Government debt vs. Japanese debt, explain what in the world is safer about Japense debt? They have tremendous demographic challenges and their national debt level is insanely higher than in the United States. In fact, by numbers alone, I believe Japan is technically in a worse financial position than Greece.
Six, I am pretty convinced you were intending to write about China. If you take out Japan and put in China almost everywhere throughout your post, it seems like accuracy would have increased.
I just can't find myself agreeing with most of your arguments in your post. But I anxiously await a rebuttal so that I can become more educated on the Japan situation.
To Mr. Mad Hedge Fund Trader: how does an international investor (i.e. an investor outside of Japan) benefit from holding Japanese debt with a nominal return of 1.1% given that the deflationary pressures occur on the local Japanese level-the benefits of which do not seemingly flow to the international bond holder unless he/she plans on travelling to Japan? What am I missing?
Fixed-Income Bubble: Should Investors Just Buy Stocks? [View article]
First of all, I appreciate all of the responses.
To Mr. Fish, I don't find myself compelled to buy into the fixed income bubble argument. It could turn out that 2010 represents a secular low for interest rates, but this does not directly lead to a major bout of losses for investors...just lost opportunity to invest in higher yielding securities. The case for a government bond bubble seems much more compelling...but the unfortunate fact is that if the U.S. Government actually goes through some serious distress in the debt markets, it will have severe ramifications in ALL OTHER CAPITAL MARKETS. For instance take a look at the 10 Year Treasuries in comparison to the JPY/USD exchange rate. If memory serves the correlation between the two is in the vicinity of 70-80%, and that was based on 20-30 years of data. The simple fact is that the USD and U.S. interest rates (short term and long term) are the fundamental building blocks that a subtantial portion of all risky/financial assets are built on. If the U.S. goes through any meaninful distress, the fabric of all capital markets will be shaken and there is no where to hide in that environment. Needless to say I am hopeful that the government will actually find the intestinal fortitude to restructure the debt/obligations before it is too late. But, who ever said it first was spot on..."hope is not a strategy".
With respect to the core level of demand, I would argue that the core level of demand is WAY below existing demand currently. Think about all the discretionary purchases that lots of people make per pay check. The issue at hand is that as savings rates tick up (a good thing in the long run) discretionary spending decreases. I don't really have a feel for the exact numbers...but if discretionary spending was reduced 30-50% total GDP would fall pretty dramatically.
A the present time, I find myself most compelled by the argument that the U.S. is the new Japan. Essentially, the decision makers have elected to work off the 30 years of excessive living standards in the least efficient way possible (i.e. slowest). Even these latest policies of buying mortgages, reinvesting proceeds into treasuries, and possibly outright purchases of equities (if that actually occurs) do very little to the real economy. Perhaps it adds some degree of stability to the capital markets, but nonetheless the real problems of 30 years of debt accumulation are still present slowly being resolved one paycheck at a time. In the context of substantial macro financial risk, I am not convinced quantitative easing is more than a flea on the elephant in terms of reducing volatility.
Is Standard & Poor's Any Better With Stocks Than Asset Backed Debt? [View article]
Steve, I appreciate the comment and because of that I just took a look at what the dividend for the portfolio would be. The approximate yield of the portfolio is 2.183% which compares to the S&P 500 Yield (seekingalpha.com/symbo...) of 1.88%. This was calculated using the data from the SPDR website and using the weights of the portfolio as shown in the article. I did use google for the telecom ETF dividend yield. Thanks for reading.
Since this particle article has developed a very nice depth of discussion, the same audience might be interested in an article I that just posted a couple of days ago. It is on a related topic of asset allocation. But I differ somewhat by discussing the notion of allocating capital by risk alone and not focusing on return. I utilize 10 sector etf's and assume an equal risk exposure in each to examine whether the S&P 500 is really the best passive investment strategy out there for the average investor looking to gain exposure to equities.
It is definitely not as well written, but it might be of interest.
Mr. Fish you are correct. MPT, in effect, chases risk adjusted returns. I didn't say it works well or fails miserably. I am simply trying to accurately describe what MPT is all about in the context of asset allocation.
In my view you are spot on...locking yourself into either generalization can prove catastrophic. MPT in effect can be guilty of both because it by definition chases risk adjusted returns, but inherently incorporates mean reversion into the process via rebalancing (which the asset manager controls the frequency of).
Higher Oil Prices Will Stymie Reform in Russia [View article]
Russia might very well gain or lose hegemonic-like power with the rise or fall of oil prices, but in terms of their economic/political fundamentals internally...there is practically nothing compelling about the viewpoint that higher oil prices actually work against the liberalization/evolution of Russia.
I think Ian Bremmer's simplistic J-curve model is a far better framework for explaining Russian political/economic development. I personally believe (although I am sure many will disagree) under Putin there was substantial progress for development until the global financial crisis struck. In fact, quite frankly, one of the reasons Russia (from an economic perspective) has handled the global recession so well is that during the period of high commodity prices the government was able to build up a mammoth capital base in their Sovereign Wealth Fund which has no doubt helped offset a significant amount of the fallout that would have otherwise occurred in Russia.
Of course, there has been some retracing of political freedom/economic liberalization as of late. In my opinion, to a large extent, this is more likely a result of anxiety/nervous fear on the part of Medvedev/Putin...AND perhaps their decisions have been flat out wrong. BUT, I find it more compelling that they made these bad decisions out of fear of political instability getting out of control vs. your view that higher oil prices have given them a shot of testosterone in which they just decide to be more aggressive and move backwards in favor of authoritarianism instead of liberalization.
Under your viewpoint, Putin would have passed (which he had full support for at the time) the constitutional amendment to make him president for life. Why didn't he? Because, in my view, in the end he wants to see Russia as a liberalized economic/political power house that is as stable as any Western country - even though the path can be rocky as hell at times.
Putin (and to a lesser extent Medvedev) might very well believe that Russia should take full advantage of their natural resources to gain as much of a competitive advantage over their sphere of influence but that does not equate to retracing towards an authoritarian state.
Russia is on a long, and at times rocky, journey towards a more liberalized political/economic climate. They are still quite unstable and have a long ways to go. BUT I think the trend in Russia is clear...it is from the lower left to the upper right AND in direct correlation with commodity prices (not the other way around).
Commodities Are Sizzling, Risks Are Building [View article]
Why David Tepper Is Only Half Right [View article]
My cost of living hasn't gone up 30% in the past year. In the business I work in, numerous contract prices are adjusted annually to reflect inflation. Many of these contracts use a straight up CPI measurement while others use more esoteric formulas that are oriented around more specific CPI data. Imagine tieing these contracts to the price of gold. We would be in and out of real businesses like day traders...which is entirely unfeasible. Real economics in business just don't work that way.
Directionally, maybe gold does contain some kind of pertinent information on inflation (although I am not entirely sure) but it definitely isn't correct in terms of magnitude. GLD is up 175% over the past 5 years. How many readers have actually seen an increase of 175% in their cost of living? I suspect not many. In part most Americans would be homeless-given their propensity to live pay check to pay check. If those folks, living pay check to pay check, had an increase in their cost of living of 35% annually...they would be homeless, starving, and probably on the cusp of death.
Don't Let Talk of a Bubble Scare You Out of Bonds [View article]
In my opinion the two biggest fads, in the past 24 months, (which I cannot wait until they disappear) is using these two terms: bubble and ponzi scheme. These are the two most over used misunderstood terms in existence right now. Every week countless commentators ask, "are bonds in a bubble...are hedge funds a bubble...are agg products a bubble...where's the next bubble going to be...what's the next bubble to pop?"
As Mr. Krasting correctly points out...a bad investment does not constitute a bubble...it constitutes a bad investment. Roche, in my mind, wasn't arguing that bonds are a great investment he was merely pointing out that based on price action bonds are not on some unsustainable path that is destined to for a catastrophic debacle of mythic proportions that will likely unfold over some mind numbingly short time period.
Bubbles are often associated with dramatic price declines in a short period of time. I don't see the merits in defining what will probably be a slow process of change over the course of many years as a bubble. Sure investors in bonds might catch some undesirable opportunity costs...but hell...at the end of the year have you ever checked the stocks with the biggest % gains for the previous 12 months and calculated your opportunity cost? I haven't. But I know it is HUGE. The fact that you missed that opportunity doesn't mean the stocks you actually did invest in were in a bubble. It just means they weren't as good of an investment as others.
Jeff Saut: 'Equity Risk Premium Exceptionally Large'- A Bullish Sign [View article]
Global Macro Notes: Forget Copper, What About Oil? [View article]
"Copper fell the most in a week after a report that Chinese regulators are investigating positions in rubber futures spurred speculation that some traders may be forced to sell commodities…"
That sounds like a worthless rationalization of a price move in the absence of fundamental data on the part of Bloomberg.
Can Retail Sales Prosper Despite the Weak Labor Market? [View article]
Should the Bush Tax Cuts Be Extended? [View article]
Argue what you will about the Bush tax cuts...but refute my argument that a zero dividend tax rate would add incentives for companies to payout more of their retained earnings - which could compound into some much needed stimulative support, provided by the private sector, for the economy.
Should the Bush Tax Cuts Be Extended? [View article]
A very typical argument against government meddling in the economy is that the government is poor at the allocation of scarce resources when compared to the private sector. Most large scale bankrupt government insitutions such as medicaid or medicare, social security, etc. are used as examples of how ineffecient governments can be. Energy policy with respect to ethanol is another perfect example of horrible resource allocation that has failed miserably but probably succeeded at increasing world hunger.
While many put their faith in the ability of the private sector to allocate resources in a superior fashion, hoarding unnecessary cash is not allocating resources at all - which is not really an improvement over the government mis-allocating resources. By recycling idle cash back through the economic system individuals will be able to allocate that capital how they see fit. Perhaps that would be buying corporate bonds. It could be some much needed repairs on their car. Maybe it is some new clothes for their kids.
I cannot recall the precise quote, but somewhere I have seen something along the lines of, "the decision to take no action is still an action". This is shown as a quote at the beginning or end of some movie. And I am literally beating my head against my desk to recall what movie it is so I can find the exact quote.
Nonetheless the quote is fitting in this situation. Corporations are hoarding cash because they do not see easy growth on the table. Yet, while they believe they are making a decent decision, they are abdicating their sole responsibility. If they do not see the opportunities to maximize shareholder value it is incumbent upon them to return retained profits to their shareholders to be recycled back into the economy as the shareholders see fit.
That is a possible private sector solution. That is capitalism. Now, we just need the government to encourage it. And it would certainly help if shareholders become a bit less complacent with companies holding so much idle cash.
Should the Bush Tax Cuts Be Extended? [View article]
I hope I was clear that I don't find the trickle down theory of tax cuts particularly compelling...but I do find the notion of a massive corporate dividend, to recycle the uneccessary idle cash back into the real economy, very compelling. Sure dropping dividend taxe rate to zero doesn't by default trigger a massive increase in dividend payments, but it sure seems like it would increase the incentives for such a transaction. Market forces of extremely unpleasant shareholders would definitely start to take hold of corporations hoarding unneccessary cash. Couple that with some Obama led roadshows/marketing campaigns and maybe this could gain some momentum resulting in a massive private sector stimulus.
Japanese Economic Problems Are Positive for the Yen [View article]
One, your assessment of stagflation is incorrect in terms of definition and policy implications. Staglfation is defined by a weak economy (i.e. high unemployment) coupled with high inflation. There are policy prescriptions for dealing with this scenario. Recall, Paul Volker who is generally speaking given the credit with ending the staglfation period of the 1970's by raising interest rates in a dramatic fashion? Deflation occurs when the price level of an economy falls. There appears to be very little policy options for dealing with deflation which is precisely why Japan has struggled for 20 years and the Federal Reserve is forced to experimenting with new options in the hopes that something works.
Two, your assessment of what quantitative easing seems to be misplaced as well. While a seemingly new term, quantitative easing has been defined by monetary authorities intervening in capital markets to force interest rates of various assets in the capital markets to a level that they hope will stimulate some level of demand in various markets.
Three, your claim that the Japanese government is driving policy to raise the value of the JPY in an effort to spur domestic demand seems to be false as well. I say that only because key government officials have been utterly outspoken about the appreciating Yen represent serious negative risks for their economy. In fact there has been significant jaw boning about a tentative BoJ intervention in the forex markets just to send the JPY the other direction.
Four, if your intentions are to grow your economy, I can't possibly imagine it is a wise idea to destroy your export sector in an effort to spur a domestic spending spree. Given that Japan is a high tech exporting nation whose main competitor is Germany, they have far more to lose from a strong Yen than they have to gain from a weak Yen.
Five, in terms of risks inherent with holding U.S. Government debt vs. Japanese debt, explain what in the world is safer about Japense debt? They have tremendous demographic challenges and their national debt level is insanely higher than in the United States. In fact, by numbers alone, I believe Japan is technically in a worse financial position than Greece.
Six, I am pretty convinced you were intending to write about China. If you take out Japan and put in China almost everywhere throughout your post, it seems like accuracy would have increased.
I just can't find myself agreeing with most of your arguments in your post. But I anxiously await a rebuttal so that I can become more educated on the Japan situation.
To Mr. Mad Hedge Fund Trader: how does an international investor (i.e. an investor outside of Japan) benefit from holding Japanese debt with a nominal return of 1.1% given that the deflationary pressures occur on the local Japanese level-the benefits of which do not seemingly flow to the international bond holder unless he/she plans on travelling to Japan? What am I missing?
Fixed-Income Bubble: Should Investors Just Buy Stocks? [View article]
To Mr. Fish, I don't find myself compelled to buy into the fixed income bubble argument. It could turn out that 2010 represents a secular low for interest rates, but this does not directly lead to a major bout of losses for investors...just lost opportunity to invest in higher yielding securities. The case for a government bond bubble seems much more compelling...but the unfortunate fact is that if the U.S. Government actually goes through some serious distress in the debt markets, it will have severe ramifications in ALL OTHER CAPITAL MARKETS. For instance take a look at the 10 Year Treasuries in comparison to the JPY/USD exchange rate. If memory serves the correlation between the two is in the vicinity of 70-80%, and that was based on 20-30 years of data. The simple fact is that the USD and U.S. interest rates (short term and long term) are the fundamental building blocks that a subtantial portion of all risky/financial assets are built on. If the U.S. goes through any meaninful distress, the fabric of all capital markets will be shaken and there is no where to hide in that environment. Needless to say I am hopeful that the government will actually find the intestinal fortitude to restructure the debt/obligations before it is too late. But, who ever said it first was spot on..."hope is not a strategy".
With respect to the core level of demand, I would argue that the core level of demand is WAY below existing demand currently. Think about all the discretionary purchases that lots of people make per pay check. The issue at hand is that as savings rates tick up (a good thing in the long run) discretionary spending decreases. I don't really have a feel for the exact numbers...but if discretionary spending was reduced 30-50% total GDP would fall pretty dramatically.
A the present time, I find myself most compelled by the argument that the U.S. is the new Japan. Essentially, the decision makers have elected to work off the 30 years of excessive living standards in the least efficient way possible (i.e. slowest). Even these latest policies of buying mortgages, reinvesting proceeds into treasuries, and possibly outright purchases of equities (if that actually occurs) do very little to the real economy. Perhaps it adds some degree of stability to the capital markets, but nonetheless the real problems of 30 years of debt accumulation are still present slowly being resolved one paycheck at a time. In the context of substantial macro financial risk, I am not convinced quantitative easing is more than a flea on the elephant in terms of reducing volatility.
It's a risky world out there.
Is Standard & Poor's Any Better With Stocks Than Asset Backed Debt? [View article]
Financing Retirement: Asset Allocation [View article]
It is definitely not as well written, but it might be of interest.
seekingalpha.com/artic...
Financing Retirement: Asset Allocation [View article]
In my view you are spot on...locking yourself into either generalization can prove catastrophic. MPT in effect can be guilty of both because it by definition chases risk adjusted returns, but inherently incorporates mean reversion into the process via rebalancing (which the asset manager controls the frequency of).