Monthly Archives: July 2009

The Equity Premium is No Longer a Puzzle

For a number of years, I have mused over the equity premium puzzle, and have generally written that the premium return that equities earn over stocks is less than most asset allocators assume. In January 2006, wrote an article on this topic at RealMoney: Kiss the Equity Premium Goodbye.  A few quotes: This article won’t […]

Goldman’s Gain, America’s Risk?

Today I was featured at the New York Times “Room for Debate” blog, along with five others more notable than me. William K. Black, economist, the University of Missouri Yves Smith, financial analyst Mark Thoma, economist, University of Oregon David Merkel, financial analyst Charles Geisst, author Jeffrey A. Miron, economist, Harvard University The question was […]

Some Practical Thoughts on Asset Allocation

When I think about asset allocation, I typically begin with my model that chooses between BBB corporate bonds and common stocks.  The model still favors corporate bonds.  After that, I look at the bond market, and ask myself where I think risks have more than adequate compensation.  I look at the following factors: Duration (Average […]

To Control Bubbles, the Fed Must First Control Itself

I’ve written before about the Fed’s de facto triple mandate: Low goods-price inflation. Low labor unemployment. Protect the financial system in a crisis. Number 3 is the implicit obligation of the Fed, for several reasons: The Fed carries out monetary policy (in ordinary times) through the banks. Banks in the Federal Reserve System have close […]

Toward a New Concept of Asset Allocation

To my readers: thanks for your responses to yesterday’s article.  I will do a follow up piece soon.  If you have more comments please make them — they will help me with the piece.  Main new concepts coming — need for a deliverable, speculators can’t trade with speculators, only hedgers. =-=–==-=–==-=-=-=-=-=-=-=-=-=-=–==-=-=-=- Longtime readers know that […]

Sorry, Doctor Shiller, not Everything can be Hedged

Many people don’t think through questions systematically.  That includes very bright people like Dr. Robert Shiller, who said in this article in Fortune, “We should be able to hedge everything from the rising costs of health care and education to national income risk and oil crises.” Ugh.  And this from an esteemed professor at a […]

Seven Notes, Primarily on the Financial Sector

1)  I have been arguing for a while that commercial mortgages are an unresolved issue with most banks, who still hold their loans at par.  Contrast that with the pricing on Commercial Mortgage Backed Securities [CMBS] or REIT stock prices, which show commercial real estate pricing in the dumps.  Look at these articles: (one, two, […]