Photo Credit: Davide Mauro || It is good to have relationships that transcend generational divides Here is a comment from an old friend of mine who I knew when he was young. I’m curious how your model works to claim that SPY is priced to grow 0.54% per year for the next 10 years. You may be going off the historical ~7% average annualized returns, but everyone knows past performance is no indicator of future performance. A few things… 1) yes, valuations in SPY are high. But you have to remember that SPY is market cap weighted, so somewhere around a quarter of the total balance is concentrated in high growth tech stocks (FAANG, etc). 2) getting into high growth tech stocks, yes valuations are through the … [Read More...]

Photo Credit: Crypto360 aka Cryprocurrency360.com [sic] || When will this stupid concept die? Recently as I was reading Barron’s online, I ran across the following article: Small-Cap Stocks Could Keep on Rising. There’s a ‘Wall of Cash.’ I’ve subscribed to Barron’s for at least 20 years of my life. Really, I expect better of them. The meme that money flows in and out of the market is hard to kill. Stocks rise; money must have flowed in. Stocks fall; money must have flowed out. Some of this comes from the impulse that journalists must find a reason for the market action of each day, when really — there’s a lot of noise. I have a few simple ways to explain this. … [Read More...]

Picture Credit: Rachel Maddow / Kevin Perez || Deepwater Horizon was a preventable accident created by neglect on the part of BP and Transocean. This is an example of neglecting risk control. If it were in the public domain, I would have put a picture of Bill Hwang at the top of this post. My blog is mostly about risk control, and secondarily about making money — even though my view is that if you don’t control risk, you will make less money in the long run. If I know that a company neglects safety for its workers, I don’t invest in it. Companies that cut corners, and companies that are shady will eventually cheat their shareholders as well. Ethics, not the ES of ESG, are … [Read More...]

Picture Credit: Quinn Dombrowski || Today we’re going to play the “tiny game.” How about a T-bill? Oh, you won, you showed me the interest on your checking account… This article arises out of two articles that I’ve read in Barron’s over the past 3 months. One was in early January, and it was the front page article on income investing. The other was the front page article for this past week, and it was on dividend paying common stocks as a means to finance your retirement. With the first article on income investing, the main point I was going to make is that risky bonds and other investments that carry high yields usually embed some sort of equity risk. In a scenario … [Read More...]

Photo Credit : Loren Javier || Maybe Convexity crises are like Heffalumps. They only come if you whistle, and only if the time of year is right… Everyone remember 1994, when mortgage convexity forced the Fed to raise the Fed Funds rate? Or 2004, when the same thing happened in a more minor way? Well, at present, long Treasury rates are rising. I think it is because the economy is booming, and we don’t need more “stimulus.” Note that labor employment is a trialing indicator and is the worst variable to base monetary policy off of, because it will constantly make monetary policy overshoot. If you want a stable fiat money monetary policy, go back to the ideas of Knut Wicksell, and use the slope of the … [Read More...]