The Independent Market Observer

Europe and the Currency Wars

March 31, 2015

As I mentioned yesterday, I don’t believe that we’re in the middle of currency wars, but I do see countries taking action to boost their economic and job growth. The side effects include what may, from a certain perspective, look like a currency war.

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Currency Wars or Economic Readjustment?

March 30, 2015

After writing Friday’s piece on currency wars, it occurred to me that some of the assumptions baked into my argument warranted a closer look. Essentially, instead of a war, I believe we’re seeing an economic readjustment, which is a significantly different way of looking at the situation.

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Is the U.S. Losing the Currency Wars?

March 27, 2015

Plenty of people are concerned about the “currency wars” now playing out around the world. As you might guess from the quotes, I don’t entirely agree with the notion that we’re at war—and I’m even less convinced that the consequences would be as extreme as that kind of language implies.

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Market Drops, but It’s Not Time to Panic

March 26, 2015

Yesterday was a bad one for the markets, with the S&P 500 falling almost 1.5 percent. With this morning’s additional drop, we’ve broken the 100-day moving average.

Time to worry?

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Looking for Things to Worry About

March 25, 2015

Rereading yesterday’s post, I’m reminded of our tendency to look for things to worry about. To me, fretting about the systemic problems of low energy prices and high savings rates is a stretch, a sign that we’ve run out of real concerns.

Eeyore to the rescue! Although I’ve been saying for the past couple of years that the recovery is real and strengthening, I’ve also made a point to keep an eye out for risks.

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Is the Economy Under the Weather?

March 24, 2015

This will be a short-ish post, as I find myself battling a cold that’s getting worse. The weather, fortunately, seems to be getting better, so hopefully I will too at some point.

Like my health, the economy took a hit this winter. There’s a reasonable chance we’ll see some sort of “snowdown” in the data; indeed, we already have for many data points. The question is whether this represents a meaningful slowdown or, like last year, is simply the result of terrible winter weather.

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Warning Signs for the Stock Market

March 23, 2015

In my monthly post on the economy, I look at five different indicators that, in the past, have warned of a recession coming in the next 12 to 18 months. The idea is that, even if one indicator is wrong, looking at several will give us a much better idea of what to expect.

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How to Capitalize on a Reversal of Trends

March 20, 2015

I’m reading a very good book by investor Howard Marks titled The Most Important Thing. I’ll write a full review later, but today I want to focus on one of the book’s key points: the importance of second-order thinking.

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A Return to a More Mysterious Fed

March 19, 2015

As expected, today’s economic headlines revolve around the Fed’s meeting and news conference—specifically, the conspicuous absence of the word “patient” from the minutes. Chairwoman Janet Yellen was at pains to point out that removing “patient” didn’t mean the Fed would be impatient. Stirring stuff.

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Book Review: The Checklist Manifesto

March 18, 2015

One of my particular interests in investing is how to make better decisions. I’ve written before about biases and problems we face, and much of the current research is in fields such as behavioral finance, with a focus on how to avoid mistakes that seem to be hardwired into our brains.

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Fast Failure in Investing

March 17, 2015

We talked the other day about slow failure in investing, when a portfolio simply can’t generate the expected returns over time. Although investors may do well on average, the mismatch between expected returns and actual results can spell failure for some who are in the market at a poor time.

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The Return of the Debt Limit

March 16, 2015

Once again, we’ve hit the federal government’s borrowing limit. Having maxed out its credit card with the bond markets, the U.S. government is now pursuing the “usual emergency measures” while waiting for Congress to approve an increase in the debt limit.

We’ll probably be hearing about this, at high volume, for quite a while—and, based on past experience, right up until the last minute—so it’s worth understanding what is likely to happen.

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Slow Failure in Investing (It Happens)

March 13, 2015

Yesterday, we talked about the two kinds of investing failure: slow failure, where returns over time are too low to meet goals, and fast failure, which involves a sudden drawdown or loss. We’ll focus today on slow failure, as it’s the more insidious risk (and one that most people don’t think about in sufficient depth).

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Understanding the Risk of Investment Failure

March 12, 2015

As I mentioned yesterday, investment risk is often measured against the investments themselves, and for good reason. Too often, though, these measures don’t really capture the risk that individual investors face.

Today, we’ll talk about what risk really is, in an individual context, and start to think about what that means for measuring risk and constructing portfolios to avoid it.

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The Way We Measure Risk Is Wrong

March 11, 2015

Discussing returns over the next 10 years the other day, I closed with the thought that averages aren’t the best way to express how portfolios may perform. We will certainly talk about that today, but it’s emblematic of a much bigger problem: how we measure risk.

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Economic Risk Factor Update: March 2015

March 10, 2015

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 continue into the year, though, the economic forecast remains promising.

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Returns Over the Next Decade

March 9, 2015

As a follow-up to my post from last week, on the likely returns from bonds over the next five to ten years, I thought I’d extend that discussion to portfolios as a whole.

When we look at investment returns, we have a time-horizon problem. People in general aren’t very good at evaluating more than a year or so in each direction.

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Employment Rises Strongly Again: So, What’s the Problem?

March 6, 2015

This week, I gave a talk at the Commonwealth Leaders Conference where I laid out what I thought was a pretty compelling argument for a continued and strengthening recovery. The problem with arguments like this, especially if you’re taking a position, is that the facts can blow up in your face.

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Is Use-Based Pricing a Bad Thing?

March 5, 2015

To finish up the discussion of the economic context of net neutrality that I started in Monday’s post, let’s take a look at the second half of the issue. Monopoly power, which I discussed in yesterday’s post, is a problem—but maybe a short-lived one. If you take away the monopoly part of it, is charging more for some users really all that bad? Not really.

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Does Net Neutrality Matter?

March 4, 2015

As I mentioned at the end of this Monday’s post, one conflict with net neutrality is between use-based pricing—ordering and paying for one service at a time—and the all-you-can-eat buffet. This is a pretty clear distinction, with different value propositions for each. But what makes it interesting and complex, in an economic sense, is the effect of monopoly power.

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Market Thoughts for March 2015 [Video]

March 3, 2015

In my latest Market Thoughts video, I discuss the U.S. economy, the global markets, and the recent economic rebound from earlier this year.

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The Role of Bonds in Portfolios Today

March 3, 2015

I am at the Commonwealth Leaders Conference this week, at one of the most beautiful properties I have ever seen. So, of course, I am sitting in a conference room listening to economic presentations. But I’m okay with that.

One of the great things about conferences like this one is that they offer the opportunity to listen to a group of sponsors present some of their most compelling investing ideas. I heard a very interesting point this morning that I’ve noted previously but not paid sufficient attention to: The return from bonds (in aggregate) is almost always very close to the initial yield.

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Ways to Think About Net Neutrality

March 2, 2015

The issue of “net neutrality” falls into the “boring but important” category that most of us normally ignore. Along with solar energy subsidies, social security wage bases, and other recondite things, it’s not visible every day but, nevertheless, does and will affect our lives.

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