My morning reads:

• The odds of who will be Next Chairperson of the US Federal Reserve (Paddy Power) see also Jon Hilsenrath Is Not Who You Think He Is (Business Insider)
• Bond Investors Can Run, but They Can’t Hide (Moneybeat)
• The rich blow their money on hedge funds, instead of lottery tickets (The Atlantic) see also Hedge Funds Are for Suckers (Businessweek)
• In Defense of Concentrated Portfolios (Aleph Blog)
• Why John Maynard Keynes Supported the New Deal (Echoes)
• Bruising Quarter for Bond Fund Managers (WSJ) but see Stocks Embark on a Summer of Love (WSJ)
• SEC Lifts Ban on Hedge Fund Advertising. Hilarity Ensues (Businessweek)
• How to Profit from the Shiller Cape Ratio (A Dash of Insight) see also Big Names, Big Market Calls (A Dash of Insight)
• The Dropbox Opportunity (Stratechery)

What are you reading?



Price discounts the news
Source: Charts etc.

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “10 Friday AM Reads”

  1. willid3 says:

    wondering if the tendency to have banking crisis is a british thing that we picked up from them? but why didnt the Canadians pick up that too?

    • rd says:

      They figured out that Canada is way to cold to allow an inbred ruling class act stupidly to force everybody out on the street wearing nothing but a barrel.

  2. PeterR says:

    Boeing 787 Dreamliner fire at Heathrow, shares down 7% +/-. Plane was parked apparently, runways have been closed.

    If this is related the recent Band-aid battery fix, it could spell trouble IMO.

    See scrolling news here:

    [no articles found right now]

  3. S Brennan says:

    Confirming my “confirmation bias”.

    The way forward, is to recover truths lost…and I see in the story below that Senators Elizabeth Warren and John McCain are advocating just that.

    Barry, may disagree from time to to time and I may be disagreeable at times, but this is without doubt, consistently the best blog.

  4. rd says:

    The Shiller CAPE discussion seems a bit bizarre to me:

    1. You can’t use CAPE to accurately predict nominal values as it is inflation-adjusted. You would have to make a second set of assumptions related to inflation to make that leap.

    2. It has been quite accurate in predicting decadal inflation adjusted total returns which is the real heart fo what most investors need. As such it is a valuable tool to assist in selecting gross asset allocations. For example, even if 2009 wasn’t a great time to invest in stocks, the CAPE in spring of 2009 did indicate10%-15% annual real returns should be expected over the following decade. Similarly, 1999-2000 it indicated that real returns would be very low and possibly negative over the coming decade (turned out to be right).

    3. The claim that interest rates need to be high to coincide with a low CAPE (like 1981) is flat-out wrong. Low CAPEs earlier in the century coincided with normal or lower than normal interest rates.

    4. CAPE turns out to be a useful tool for comparing the bond part of an allocation to the stock part to see which is likely over-valued or undervalued at the time. For example, today CAPE indicates low real returns in the coming decade for stocks but bonds likely also have low real returns and possibly negative, so there is no compelling argument to jump into bonds just because CAPE is high. Similarly, cash has negative real returns at present. The argument for a stock-bond mix now is more of offsetting timings of peaks and declines since US treasury bonds often rise in value when stocks crash and so can smooth the ride out. In 1981, the best allocation may not have been that differnt from today because interest rates were so high then across the board. Meanwhile CAPE would have shown that stocks in 1932 were a screaming buy since interest rates were relatively low, even considering the deflation.

    5. The author is recommending using relative CAPEs between stock market sectors to guide investment in the stock market. Shiller got the original idea from CAPE from Benjamin Graham’s approach to calculating PE for individual stocks to identify undervalued stocks. The author is taking the CAPE approach about half-way back to its original roots but then trying to sell a product based on his approach.

    • MikeNY says:

      Your point 4 jibes with the FT article BR posted yesterday, with GMO’s analysis, and with PIMCO’s stance: expect very low real returns over the next decade in almost all asset classes.

  5. S Brennan says:

    While both parties in Congress & the President are campaigning to raise Social Security age…

    …the reality is, once an older worker loses a job, the will not be rehired unless they are able to meaningfully undercut the wage demands of those younger than them. The question arises, are Demos & Repus ignorant, cruel, or both?

    For those in the lower majority of this country, that struggled through 30 years of real wage decline [hat-tip Milton Friedman], their reward is to be unemployment during “peak earning years” and poverty until death. Sociopaths will say, “they’re just getting what they deserve”…fine…but who’s gonna buy those products and services that the economy depends on? Even sociopaths should be able to understand that drowning men can drag the economy down with them?

    • willid3 says:

      its equally odd (or maybe not) that the supposed increase in life span only applies to some but not all of US. its like recent article showed that ins some part of the US, life spans are hardly better than (if not the same) as in 3rd world countries. its only that some parts of the US do better, that leads us to see a increase in life spans.

      • S Brennan says:

        Yes, like income & wealth over the past thirty years, improving lifespan accrues largely to the top %.

  6. VennData says:

    Kremlin security agency to buy typewriters ‘to avoid leaks’

    That’s smart. Nobody every passed secret information around on paper.

  7. rd says:

    Barbara Bush (W’s daughter) is making improving health care a fight for millenials to win. however, she seems to be focused on other countries. I wonder if she has checked out health care for the poor in the US yet?

  8. rd says:

    It turns out that today was the start of a great player’s major league carrer. That player holds the record for most innings pitched in a single playoff game and is also the only player to be caught stealing as the final out of a World Series. Who is he?

  9. alonzo says:

    Am I reading the “price discounts the news” chart correctly – in every case the market correctly predicted the earnings surprise 25 days before the actual earnings announcement? Someone help me out here.

    • I read that as very often, sufficient information exists which typically leads market participants to identify negative news prior to a quarterly release.

      Note these charts are composites, and show an average — so its not always. Indeed, participants often make the incorrect assessment, and hence how we get actual surprises.

      But the average is quite telling — more often than not, the negative news is in the price . . .

      • rd says:

        Please correct me if I am wrong, but isn’t the whole point of sell side analysts to sift through the tea leaves and come up with predictions before the actual press release?

        I would hope that the fortune spent on these people would have at least a little bit of value to somebody. Of course, inside information would be quite helpful as well, but spending most of your waking hours collecting information and analyzing it about sectors and companies should be able to provide at least a small edge to somebody out there. If not, then the entire tent should be folded and everybody should just go home and do something productive.

        However, I very much doubt that John Smith, Retail Investor, sees the benefit of any of this except in some good value mutual funds. The good information is certainly kept in the back rooms for use by the investing institutions and their very best clients (although GS has made it clear that even that does not necessarily happen).

      • I am correcting you because you are wrong.

        The purpose of sell side research is to sell investment banking services to companies, not research to investors

  10. Joe Friday says:


    Pope Francis walked through the Vatican parking lot where their fleet of cars, Vatican employees, and some cardinals usually park their cars.

    The Pope urged those with Mercedes-Benz and other luxury brands to sell their vehicles and drive more “humble” cars, and contribute the difference to the Poor.

    Corriere della Sera