The Independent Market Observer

Risk-Reduction Strategies: Advantages and Disadvantages

December 30, 2014

This post originally appeared about a year ago, in response to turbulence in emerging markets and a corresponding decline in U.S. markets.

Portfolio managers have several standby risk-reduction strategies they rely on—diversified asset allocation, regular rebalancing, and the occasional market timing tactic—to guard against large drawdowns. But do they really work? What are the potential advantages and disadvantages of these strategies?

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Worried About a Dollar Collapse? Don't Be . . . Yet

December 29, 2014

This post previously appeared in mid-2013, but given the Fed’s ongoing monetary policies over the last few years, and the recent volatility in the currency markets, it makes sense to revisit today.

In my role as chief investment officer at an independent broker/dealer–RIA, I often receive questions from advisors, their clients, and the media about the potential for a dollar collapse and, more important, what currency would replace the dollar in that (in my belief) unlikely event.

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What Determines a Currency's Value?

December 26, 2014

Here's a post that originally appeared in 2013 but is worth revisiting. 

In my recent post on the relative strength and weakness of various currencies, I didn't address one big question: what determines a currency's value? Is there, in fact, a “right answer” as to the value of each currency?

As with many economic questions, there are several right answers, depending on how you look at it.

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Hope, Sacrifice, and the Meaning of Christmas

December 24, 2014

As 2014 draws to a close, it's time for my traditional Christmas post. Best wishes to you and yours this holiday.

I have always loved Christmas. But as I grew older, I seemed to lose much of the spirit. Now that I have a six-year-old son—who is wrestling with the stress of being good under the eye of the “Elf on the Shelf,” guessing about presents under the tree, and baking cookies with his mom—I find myself recovering much of the Christmas spirit I had lost.

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Holiday Gratitudes 2014

December 23, 2014

The holidays are always a good time to reflect on the many things we have to be grateful for. As we settle in for a family celebration, here’s my list.

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Appearance on CNBC Worldwide Exchange, December 23, 2014

December 23, 2014

Learn why I told CNBC Worldwide Exchange that I think there’s going to be an accelerated economic recovery in an interview today, December 23

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Premortem: How the Global Doomsayers Got It Wrong in 2015

December 22, 2014

As I’ve written before, the doomsayers have been pretty comprehensively wrong, at least in terms of their dire predictions for the U.S. While they may yet be right elsewhere in the world, I thought we’d do a premortem on their behalf to figure out how they might get it wrong for the global economy, too.

What if everything turns out just fine?

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Some Geopolitical Thoughts About Cuba and the U.S.

December 19, 2014

As I discussed yesterday, the ongoing realignment of many countries is driven fundamentally by economics, rather than by geopolitics, but that doesn’t mean the realignment is geopolitically unimportant. Quite the contrary: What we see here is an accelerating trend that is reinforcing the predominance of the U.S. in the global system, with each piece of the puzzle supporting the others. Cuba is a perfect example.

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Russia and Cuba: Exploring a Common Theme

December 18, 2014

I’d planned to write about how Russia can respond to its current crisis, and I will. But the announcement that the U.S. and Cuba are resuming normal diplomatic relations has kind of gotten in the way.

Thinking about it, though, the events in Russia and Cuba are, in many ways, different facets of the same story.

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Thoughts on the Russian Currency Crisis

December 17, 2014

As the Russian currency crisis grows and threatens to expand to other emerging and commodity-based markets, I’ve been thinking about how this might play out on a country-by-country basis—not so much here in the U.S., but around the world. (As I’ve written before, I think the U.S. is pretty well insulated in the medium term and longer, despite any short-term shocks.)

There are three major factors I think we need to look at when we consider the economic risk level of a country as a whole.

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Market Turbulence: Nothing to Worry About Yet

December 16, 2014

On the heels of our premortem of the stock market in 2015, let's take a look at the market turbulence we experienced last week and yesterday.

The short version? There’s nothing to worry about yet.

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Premortem: The Stock Market in 2015

December 15, 2014

Following up on last week’s post about the value of premortems, I thought I’d do one on the stock market for the coming year. We’ll imagine that a decline has happened and try to figure out how and why, with the goal of strengthening our positioning today.

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Want to Avert Failure? Try Doing a Premortem

December 12, 2014

One of my favorite takeaways from Daniel Kahneman’s Thinking, Fast and Slow is the idea of the premortem—that is, looking at a new or proposed project, assuming it has failed, and projecting why that happened. (It's a more proactive version of the postmortem, where you look at actual failures and try to figure out what went wrong.)

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Who Suffers from Cheap Oil?

December 11, 2014

As I wrote the other day, the U.S. stands to benefit considerably from cheap oil. The question now is who will suffer—and what might that mean for the U.S.?

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The New International Economy

December 10, 2014

I’m working on two things right now: my economic and market outlook for 2015, and an update on the international economic scene that I’ll present at Commonwealth’s top-producer conferences.

The problem I’m facing with both, I realize, is that the world has really changed in the past couple of years, and the recent past is no longer a good guide to the future.

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Is the Price Drop in Oil All Good?

December 9, 2014

The short answer to that question is no. There is some downside to falling oil prices. But I’d take a 90-percent upside with a 10-percent downside any day of the week.

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Economic Risks Recede, Political Risks Return

December 8, 2014

Newspaper reporters (and bloggers!) are breathing a sigh of relief as the new Congress gets closer. Just as the economic worries are subsiding—at least here in the U.S.—political risks can move back to the front page. As someone who writes a blog post every day, all I can say is thank goodness.

As a citizen, though, I am somewhat (but not yet very) concerned.

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Where Are the Opportunities in the Global Markets in 2015?

December 8, 2014

On December 4, I joined John Ryding, chief economist at RDQ Economics, for an interview on Fox Business. The discussion centered on which global markets may be best for investing in 2015, and why I think the greatest risks to the stock markets will come in the first quarter. 

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Christmas Comes Early for Employment Statistics

December 5, 2014

There's been some trepidation recently about the November jobs report. Amid signs of weakness, pullbacks on various stats, and problems in the rest of the world, most forecasters were backing off on their earlier estimates, just in case.

They should have doubled down.

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An Updated Look at the Stock Market

December 4, 2014

I recently took a look at housing for the first time in six months or so, and I thought it was time to examine the stock market in similar fashion to see where we are.

In my market commentaries and videos, I have continued to discuss the positive trends and healthy fundamentals—which are very real—but we also need to consider the broader context. The following three indicators paint a somewhat cautionary picture.  

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Book Review: "Thinking, Fast and Slow," by Daniel Kahneman

December 3, 2014

One of the fundamental principles of economics is “rationality”—the notion that all actors in a market have similar information, preferences, and abilities to project the future.

Like all economists, I know this isn’t really true, yet it still influences how I view the world. So the extent to which Daniel Kahneman proves this idea false—not just at the aggregate level, but at the individual level—comes as something of a shock.

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What Does Black Friday Mean for the Economy?

December 2, 2014

The news is in: Black Friday was a bust. Sales over the Thanksgiving weekend were down 11 percent, with 6 million fewer shoppers this year than last.Sounds like a pretty bleak Christmas, no?

In fact, Black Friday—so named because it’s when retailers get as much as 40 percent of their annual sales, moving from the red into the black—may not be the best bellwether of the holiday shopping season. While lackluster sales aren’t necessarily a good sign, they also don’t spell doom for holiday spending.

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Market Thoughts for December 2014

December 1, 2014

In my latest Market Thoughts video, I provide an update on U.S. economic growth and explain how a sluggish Japan and Europe factor into the recovery. You'll also hear my thoughts on holiday consumer spending.

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Economic Risk Factor Update: December 2014

December 1, 2014

Once again, it’s time for our monthly update on risk factors that have proven to be good indicators of economic trouble ahead. As expected, the data hasn’t changed much from last month—it remains positive in almost all areas and has continued to improve in many cases—but it’s still important to keep an eye on things.

As we enter the month of December, the economic forecast remains encouraging.

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