Beguiled by Narrative

The more we repeat and reiterate our explanatory narratives, the harder it is to recognize evidence that ought to cause us to re-evaluate our prior conclusions.


Who Determines Interest Rates?

I get this question a ton – who determines interest rates in the economy, the markets or the Fed?  The answer is actually neither.  The state of the economy determines how interest rates will be set. It shouldn’t be controversial that the Federal Reserve could, in theory, control the nominal…

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Why the Active vs Passive Debate is the Most Important Debate in Finance

With assets pouring into index funds and ETF’s and away from traditional actively managed mutual funds it has never been more important to understand the process of portfolio construction.  Although the industry appears to be moving in the right direction in many ways (primarily away from high fee closet indexing…

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Why it Still Doesn’t Feel Like a Recovery For Most People

I’d like to thank the Federal Reserve for ruining my day.   I had expected the 2013 Survey of Consumer Finances to tell a happier story when it was released this year, but the new report is downright depressing.  Although the stock market has boomed and the economy appears to be…

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What Causes Recessions?

I am still working my way through the Q&A from the other week and I really wanted to highlight this question because it’s a good one: “Noah Smith is always saying that no one knows what causes the business cycle, and in particular recessions. How would you respond to this?”…

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High Debt and Low Incomes = Low Housing Demand

Here’s an interesting piece of research from the NY Fed that explains why the demand for housing remains relatively low – potential buyers just have too much debt and not enough income: The recovery continues, but it remains lumpy due to the high levels of debt and the lack of…

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Silencing Your Critics…

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Assessing the Performance of “Passive” Indexers

I’ve raised a bit of a stink in recent weeks with my commentary on “passive indexing” so I figure I might as well keep stirring the pot here while it’s boiling hot.  Here is my main argument, in a nut shell: At the aggregate level there is only ONE portfolio…

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A Role Reversal For Stocks and Bonds

“Volatility can prey on investors’ emotions, reducing the probability they’ll do the right thing.” – Howard Marks


The Long View on German Bond Yields

Here’s some perspective for you on the state of the European economy.  German bond yields are at unprecedented nominal levels (via John Mauldin): While it should surprise no one, German long-term bond yields are at historic lows. I recall reading that Spanish bond yields are lower now than they have…

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The “Allocation Matters Most Hypothesis”

My latest post on “passive” indexing made some people upset.  I have argued, in essence, that there is no such thing as “passive” investing and that most people who use the term don’t really understand that what they’re doing is actually quite active and forecast based.  These are not “strawman”…

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Three Things I Think I Think

Just some quick thoughts on a busy day:


The Fallacy of the “EMH Twist”

I really liked this piece at Pieria by Unlearning Economics.  They emphasize a point that I think is very important with regards to the Efficient Market Hypothesis and how we go about framing an understanding of the financial world and how we perceive future potential outcomes: “Hereafter referred to as…

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Euro sign

Draghi Sharpens “Three Arrows” for Europe

When the European Central Bank’s Governing Council convenes tomorrow in Frankfurt, there will be plenty of talk about Mario Draghi’s recent speech at Jackson Hole. Not only did this open the door to a large-scale quantitative easing (QE) programme, it may in time be seen as a pivotal moment in the evolution of the euro area’s policy framework as it attempts to fend off the forces of deflation.


I Really Want to Crush the Efficient Market Hypothesis….

This is my OCD speaking again and I’m not gonna beat around the bush here.  I have a big problem that I need to solve in the coming decade.  You see, Eugene Fama has sparked a bit of an investing revolution by convincing the world that the Efficient Market Hypothesis…

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