American in Paris

Seeking High-Alpha, Low-Beta Countries (Part I)

So to diversify my portfolio, I should add the low beta countries such as Egypt, Malaysia, Philippines, Japan, Morocco? The lower the beta, the more the diversification.

My portfolio is leveraged. So diversification is at the center of my concerns.

Is that correct?

Seeking High-Alpha, Low-Beta Countries (Part I)

Why such a short data period? Are the betas stable over longer periods?

Did you check the error terms to see if they were white noise?

Hint: I was a very good time series analyst in a previous life.

Economics and Its Discontents

Cautious Investor,

Austrian economics is a caricature of how the economy works.

Take the housing bubble, according to the Austrians, it was caused by loose money.

Yet the housing bubble occurred in many countries where monetary policy was quite tight. For example the EU has one monetary policy. Yet Spain and Ireland experienced massive bubbles while France and Germany experienced mild bubbles and other countries in the monetary union experienced virtually none. All of these countries were and are on the Euro. Yet their stories are remarkably different.

So monetary policy is not the whole story or even the most important aspect.

By the way, economists have been struggling for the last 20 years to determine what is the appropriate measure of the money. They've studied dozen of monetary aggregates and most them do not correlate very well with current or future economic activity.


On Sep 14 05:26 AM CautiousInvestor wrote:

> Aware that capitalist systems are inherently unstable and prone to
> cycles and believing these cycles would play a role in its demise,
> the spirit of Karl Marx must be glowing in satisfaction knowing that
> Krugman and others have pretty much dismissed the Austrian school
> of economics as something quaint and slightly anachronistic; the
> works of Frederick Hayek and Ludwig Von Mises were not mentioned
> in the opus on contemporary economic thought.
>
> In light of what has taken place and the failures of the received
> wisdom offered by the larger schools of economic thought, makes it
> the more surprising; the Austrian school correctly saw the approaching
> economic train wreck and presciently anticipates the policies to
> revive the moribund economy. Whether the S&L crisis, the emerging
> market crisis, the South American debt crisis, the market crash of
> 1987, the dot.com crisis or the most recent implosion, the policy
> response is the same: more liquidity. Had Marx lived at a different
> time, he would have surely realized the greatest threat to capitalism
> would be in irresponsible and corrupt fiscal policies and convulsive
> monetary policy.
>
> “When money creation is sustained, a financial bubble begins to feed
> on itself, higher prices allowing the owners of inflated titles to
> spend and borrow more, leading to more credit creation and to even
> higher prices. As prices get distorted, malinvestments, or investments
> that should not have been made under normal market conditions, accumulate.
> Despite this, financial institutions have an incentive to join this
> frenzy of irresponsible lending, or else they will lose market shares
> to competitors.
>
> With “liquidities” in overabundance, more and more risky decisions
> are made to increase yields and leveraging reaches dangerous levels.
> During that manic phase, everybody seems to believe that the boom
> will go on. Only the Austrians warn that it cannot last forever,
> as Friedrich Hayek and Ludwig von Mises did before the 1929 crash,
> and as their followers have done for the past several years.”
>
> In my mind these two paragraphs offer more insight into the underlying
> causes of the great recession than do any of the oblique comments
> offered by either Greenspan or Bernanke. This notwithstanding, Bernanke
> is has been awarded a second term and is widely regarded as the man
> who helped avoid total financial collapse. And rather than deal with
> toxic loans, other malinvestments, structural imbalances, true regulatory
> reform, improving transparency and scaling down the size banking
> behemoths, we’ll simply balloon a new bubble.