The Independent Market Observer

The Benefits of Taking the Long View

July 31, 2014

I'll be out of the office for a few days, so I'm revisiting some of my past posts. (Today's originally appeared last July.) 

Last night, I took my wife out to No. 9 Park—a very nice restaurant in Boston—to celebrate our 10th anniversary. Among other things, we talked about where we were 10 years ago, and how much has changed.

As we spoke, it occurred to me that we rarely have this type of conversation—one that covers longer periods of time rather than just what's happening right now. When you look back over a decade, events that once seemed so important may become less so, while things that seemed insignificant may turn out to be major.

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A Look at Some Worst-Case Scenarios (and How to Prepare for Them)

July 30, 2014

I'll be out of the office for a few days, so I'm revisiting some of my past posts. (Today's originally appeared in May 2013.) 

Recently, an advisor called into the Commonwealth office seeking help with a client who has a nine-figure net worth and fully expects the world to end. As I thought about how to address his concerns, I realized we needed to define the problem: what would the end of the world actually look like from an economic/financial perspective?

Here’s my take on how a doomsday scenario might evolve —and what to do if you're worried about it.

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Where to Put Your Money: What’s Wrong with Cash?

July 29, 2014

In Thursday’s post, I recommended slowly prepaying your mortgage as one way to put your money to work effectively. I also mentioned that people tend to underestimate the value of cash. Today, I want to delve into that a bit more, by comparing how sitting on cash stacks up with investing in bonds or stocks in the current environment.

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Fall Preview: Politics and Policy Return to the Fore

July 28, 2014

Summer is usually a quiet time on the economic front. This year, we’ve had more news than expected—Russia and Ukraine, Iraq and ISIS, Israel and Gaza—but the general mood has been one of torpor, at least here in the U.S. Economic news has been mixed but generally positive, politics has stayed off the front pages, and the headlines have focused more on the summer than the fall.

As we enter August, though, it’s time to start thinking about issues that will come back into focus when everyone returns from the beach. 

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When Views Differ: Wall Street Vs. Main Street

July 25, 2014

I was lucky enough to have lunch yesterday with the chief market strategist for a major Wall Street bank. In addition to being an experienced and intelligent observer of the financial markets and economy, he is also a great guy.

Our conversation was a great opportunity to compare two views of the world: Wall Street vs. Main Street.

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Where to Put the Money? How About Prepaying Your Mortgage

July 24, 2014

The dilemma many investors face, when looking at today’s markets, is simple: Where can I put my money? Markets are overvalued, and bonds sure look like a bubble, but I have to do something with the cash. I can’t just let it sit there, right?

I get it, but I don’t necessarily agree that you need to do something. Many great investors see sitting on their hands when market conditions are unfavorable as a key to their success. In poker, you make your money by not betting on bad hands. The value of the optionality associated with cash is, in my opinion, underrated.

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Why Investors Should Ask "Am I Proud of This Decision?"

July 23, 2014

To follow up on my recent posts, there’s another question I’d like to ask the person (or committee) that decided to outsource Tufts University’s early education program: Are you proud of this decision? Did you go home and announce to your own family what you had done? If the answer is no, what does that say about the quality of the decision?

This is also an important question to ask yourself in an investment context.

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In Life and Investing, Using the Wrong Map Will Get You Lost

July 22, 2014

I’ve been thinking about Tufts University's decision to outsource its early education program, and why I feel so strongly about it. It’s not that I’m directly affected—Jackson will be finishing up there this summer before the transition. And it’s not that I’d necessarily disagree with the decision if I knew all the facts.

Besides the impact on people I like and respect, the thing that bothers me is that the decision makers seem to have focused on the wrong issues. Whenever you focus on the wrong things, any decision you make—however justified in terms of those wrong things—will turn out wrong.

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Higher Education Surrenders to the Enemy

July 21, 2014

My wife and I have been incredibly fortunate over the past three years to have our son, Jackson, enrolled in a Tufts University-sponsored day care/kindergarten program. The faculty, the curriculum, and the entire experience have been outstanding, and Jackson has benefited noticeably. Tufts students also benefit from the opportunity to volunteer and mentor the children.

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How Long Can Markets Ignore the Real World?

July 18, 2014

Yesterday, we saw a passenger airliner shot down over what is arguably Europe. We saw an invasion launched as missiles rained down on civilian towns. And, in far less devastating news, we saw equity markets decline.

The Ukraine conflict has been simmering for months; the Middle East has been in conflict for decades. Still, yesterday's news came as a surprise, knocking markets down.

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What Do Tax Inversions and the BRICS Bank Have in Common?

July 17, 2014

Today, I want to discuss two timely topics that are more interrelated than they seem. One is the growing trend of tax inversions, whereby U.S. companies change their legal structure to avoid or reduce their tax exposure. The other is the launch of a new development bank capitalized by the BRICS countries (Brazil, Russia, India, China, and South Africa)—a rival to the traditional international financial institutions, such as the World Bank and the IMF. 

What’s the common denominator here? Both developments suggest we need to rethink some long-held assumptions about how the world works.

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Is Inflation on the Way?

July 16, 2014

I host a call for advisors’ clients every quarter, and one of the most interesting parts is the questions I get from participants beforehand. They’re invariably cogent, thoughtful, and helpful in defining what I should be talking about—and what I may be missing in my own view of the world.

A question that’s come up in preparation for my call tomorrow concerns inflation—is it coming? If so, when, and how bad will it be?

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Is the Employment News Really as Good as It Looks?

July 15, 2014

Although the headline employment numbers look strong, some say that the underlying reality is actually a lot worse, with few full-time jobs and many discouraged workers. According to the skeptics, it’s a Potemkin recovery, dependent on the fact that many people have simply dropped out of the labor force.

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Where Are Oil Prices Headed?

July 14, 2014

I’ve written quite a bit recently about oil production and its benefits for the U.S. economy. A related topic I’ve been asked about, but haven’t addressed here, is where oil prices might be going.

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Appearance on Countdown to the Closing Bell

July 14, 2014

In case you missed it, last Friday, July 11, I appeared on Fox Business Network's Countdown to the Closing Bell. Learn why my outlook for the markets has a bearish bent.

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What Q2 Earnings Mean for the Stock Market

July 11, 2014

This week is the start of earnings season, when companies report their financial results for the previous quarter. After a difficult first quarter, many are looking to Q2 earnings to answer an important question: will things be as good as expected in the second half of the year? 

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The Fed Plans Its Exit from Stimulus

July 10, 2014

The release of the Federal Reserve’s June meeting minutes was a case of no news is good news.

Even after the weak first quarter, the Fed believes the economy is continuing to recover, and that the risks are now pretty much equally balanced between faster and slower growth. The discussion seems to have shifted from whether the recovery is valid to how quickly it’s movingand the burden of proof is slowly shifting from those who want the Fed to back off to those who want it to keep stimulating.

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The U.S. Oil Renaissance: Another Reason to Celebrate America

July 9, 2014

Over the past several weeks, I’ve written a couple of times about the U.S. oil industry—specifically, how it’s becoming increasingly supportive of continued economic growth.

Following up on yesterday’s post, I want to take a more detailed look at the U.S. oil renaissance, and what it might mean for the country going forward.

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The Greatest Country in the World? Reasons to Celebrate America

July 8, 2014

I hope everyone had as much fun over the recent holiday weekend as my family did. Between picnics on the beach, a hike up a (small) mountain, lots of playing in the pool, and going to see How to Train Your Dragon 2, a great time was had by all.

Part of the whole Fourth of July ambience, of course, is reminding your kids that they live in the greatest country in the world. That’s very true in some ways; in others, not so much. But the holiday inspired me to revisit just how well positioned the U.S. is compared with other countries, and why we’re lucky to be living here.

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Two Cheers for the Employment Report

July 7, 2014

The string of 200,000-plus employment reports just got a little longer.

The number at the end of last week—288,000 new jobs—far surpassed the expected level of 215,000. It’s also well above the figures for the preceding months, which were themselves strong. The consistency of the gains provides further support for their durability.

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Economic Risk Factor Update: July 2014

July 3, 2014

In this monthly series, I look at risk factors that have proven to be good indicators of economic trouble ahead.

Although one potential problem area has emerged since last month’s update, most indicators continue to show improvement, and the overall economic forecast remains good. Headed into the July Fourth weekend, it looks like we’re cleared for more sunny weather!

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Reasons to Look Beyond Cap-Weighted Indices

July 2, 2014

We hold these truths to be self-evident, that all stock indices are not created equal.

Although capitalization-weighted indices are the most common, they’re not the only type of index out there. As I mentioned in yesterday’s post, products based on nontraditional indices can offer investors broad exposure and low costs, along with the potential to outperform the usual indices.

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Market Thoughts for July 2014

July 2, 2014

In my latest Market Thoughts video, I talk about the revision to the first-quarter economic growth numbers and the current state of the U.S. and international markets. You'll also hear my thoughts on potential risks, including the situation in Iraq.

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Does Active Management Deliver Alpha?

July 1, 2014

Alpha—the excess return a money manager can generate, above and beyond the return due to general market effects—is an elusive beast.

It’s defined in opposition to beta, which reflects an investment’s tendency to respond to swings in the market. If your stock has a beta of 1, for example, it tends to move much as the market does. If the market rises 10 percent, and the stock goes up 10 percent (just as expected), how much credit should a manager get?

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