Sharpen Your Pencils: Why Low Rates Challenge Traditional Security Analysis Methods
Now that we are dealing with near-zero, and in certain instances, negative short-term interest rates, is it worth retaining the highly cherished Sharpe Ratio as a tool of investment performance? Measuring and ranking the intersection of risk and reward is a foundational principle of investment management, first introduced by Noble Laureate William F. Sharpe back in 1966.
The Price is Right - The S&P 500 Index Deconstructed
Is the widely followed S&P 500 equity index wildly overvalued at its current price of 2,000? Well, that depends upon your assumptions about earnings and dividend growth and your risk adjusted required rate of return.
Timing the Bond Market
Economic journalism has never inspired what historians refer to as strict historical impartiality. Financial Analysts are as likely as any editorial page writer to misinterpret or misrepresent, intentionally or not, the past to suit their current view.
Anything Built By the FED, Can Also Be Destroyed
Bond Investors have had a great run so far in 2014. It's time to take some profit. Inflation expectations are rising, should we be worried? Why has the Japanese Yen been strengthening against the USD?
Ten years ago I started working in Japan as a fixed income sales-trader for an international investment bank. I was frequently called upon to travel to other parts of Asia such as Beijing, Hong Kong, Seoul, Singapore and Sydney. My mandate was to invite clients to explore the many money making opportunities available to them by trading the (G4) U.S., German, U.K. or Japanese yield curve. The touchstone recommendation always seemed to be some combination of going long or short U.S Treasuries and establishing an offsetting position in like maturity German Bunds.
The Tide is High
It took a while but I think I finally get it. The Federal Reserve has embarked on a Parallel Campaign - operating on two separate planes that seemingly never intersect, yet both having readily recognized similarities. My eureka moment finally came this past week when Ms. Yellen, in a rebuff to the Bank for International Settlements, said "because resilient financial system can (now) withstand unexpected developments, identification of bubbles is less critical."