There have been two big stories in the markets recently: rising interest rates and stock market volatility. I think these two themes are actually connected by a deeper factor—the reemergence of price discovery in the financial markets—and it is that we should be focusing on, as the underlying story will drive future developments.

Price discovery is the prime function of markets. The idea is that, in a free market with willing buyers and sellers, the price that emerges will reflect the actual, most economically efficient allocation of resources. When markets are not free, the price that emerges won’t necessarily result in economic efficiency.

One of the sectors that investors are looking at closely now is financial services. The idea is that, as the economy recovers, banks and other such companies will be well positioned to profit. In fact, the argument goes, they will be well positioned to return to the profit levels of the mid-2000s.

It was a year ago that we launched this blog, and I thought it would be interesting to consider how the world has changed since then. Day to day, changes may be small, but, over a year or more, they can add up to something much bigger. (I’m going to try something different with this post and say it mostly with charts. Let me know what you think in the poll at the end of the post.)

Employment and wages

I really like Amsterdam. I’m not sure exactly what it is, but I’ve never taken to a city like I have this one. Part of it is just that the city seems to work. The trams run on time and have an easily understood layout. The streets and canals are reasonably clean. The people are all clean and healthy, at least as far as I saw. They are also, by and large, courteous and helpful to the traveler.

Another plus was the weather. We really lucked out—it was sunny, warm, and pleasant the whole time. There were lots of very nice playgrounds, which got the five-year-old-boy vote. And there were small boats for rent on the canals, another bonus for Jackson.

— Guest post from Sean Fullerton, investment research analyst

Every so often, articles surface about the rising level of student loan debt and the risk it poses to the economy. The implication is often that the crisis brought on by excessive mortgage lending could be echoed by a similar crash in education-related debt. To examine these claims, let’s first look at some scary figures surrounding student loan debt.

As of the end of 2012, the average maturity of U.S. debt was around five years—65 months to be exact—up considerably from the October 2008 trough, and the longest average maturity in a decade, according to the Wall Street Journal. The Treasury intends to continue extending the maturity, with a goal of around 80 months in 2022.

Not long ago, I reviewed William Poundstone’s Fortune’s Formula, a very good and relevant book about the common mathematical roots of gambling and investing, which I originally picked up as part of my poker-playing research.

Poker is based on probability and, to a much greater degree, on psychology. I did all right in my poker playing, ending up well in the black, but ultimately became much more interested in the markets, which is why I’m doing what I do now.

[youtube=http://youtu.be/jhvAJeuFfds?rel=0hd=1]

One of the questions I’ve been getting lately has been about rising geopolitical tensions and what that means for investing. Recently, the focus has been on North Korea, but, with the Israeli strikes in Syria, that should be coming up as a topic soon.

My usual response, which isn’t meant to be flip, is that I’d be more worried if things were quiet. If they’re making noise, we at least kind of know what they’re thinking.

The good news just keeps coming. This week, we’ve had a seven-year record for home price increases, up over 10 percent from the year before, as well as a rise in the consumer confidence index to a five-year high.

Both show that the improvement in the U.S. economy is wide and sustainable. Representing two-thirds of the economy, consumer spending is the most important part, and higher consumer confidence and wealth suggests that spending will continue—and may well accelerate.