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Don’t Fight the Last War: Lessons from the Battlefields of Risk Management

Niels Jensen — Tue, 08 May 2012 17:41:25 +0000

Our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. The return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect

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Goldman CEO Lloyd Blankfein on Bloomberg Television

Edward Harrison — Wed, 25 Apr 2012 18:30:23 +0000

Bloomberg TV spoke to Goldman Sachs CEO Lloyd Blankfein today in a much discussed interview. Below is the video and partial transcript of that interview. I provide it without comment

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Chart of the day: Life insurers won’t meet nominal return targets

Sober Look — Tue, 24 Apr 2012 16:00:10 +0000

JPMorgan recently performed a study on the composition of portfolios managed by life insurance companies. The study looked at the top 20 life insurance firms using their regulatory filings. These are the portfolios set up to support projected policy claims. The reason it is important to measure the composition and the changes in such portfolios is that life insurance firms manage $1.9 trillion in assets. Here is the current breakdown

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Graphite: Time to Invest, or Flavor of the Day?

Casey Research — Tue, 24 Apr 2012 13:00:25 +0000

Graphite has been getting a lot of buzz recently, raising bullish expectations among some investors and even talk of a future bubble. Why? The price has risen steadily over the past couple of years and attracted a lot of attention. Let's have a look at why some market participants are excited about this mineral and see if it's worth our investment dollars

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Grantham: Missing a bull market is a dismissible offense

Edward Harrison — Thu, 19 Apr 2012 20:00:10 +0000

Jeremy Grantham: "The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is ﬁrst and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. "

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Kashkari: PIMCO doesn’t expect margin pressure

Edward Harrison — Fri, 13 Apr 2012 11:57:32 +0000

I thought I should present the somewhat bullish view of the margin issue we have been discussing here. PIMCO's Neel Kashkaari is out with a note that underscores what the bulls are thinking about the issue

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Testing the Swiss National Bank’s Resolve

Marc Chandler — Tue, 10 Apr 2012 20:30:14 +0000

Thus far the SNB has successfully blocked the Swiss franc's appreciation relatively cheaply. Compare the bang it got from about CHF18 bln intervention last year with the record operations by Japanese officials. The SNB has various ways it can lean against the market and we expect it to do so. We would rather go with the SNB that fight it

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Chart of the Day: Earnings Growth

Edward Harrison — Tue, 10 Apr 2012 00:46:21 +0000

This chart from the Wall Street Journal explains visually what worries me about the supercharged run up in the S&P500. While the index is increasing, earnings growth is not

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Why Valuation Doesn’t Insure Against A Significant Market Decline

Comstock Partners — Fri, 06 Apr 2012 17:43:42 +0000

Given a clearly overbought market, the re-emergence of Europe's sovereign debt problem and the Fed reducing the imminence of QE3, even the bulls concede that a correction is likely. Overall, however, investors remain optimistic, and are looking forward to any correction as a buying opportunity, maintaining that the economy is too strong and the market too cheap to decline very much. As we have written about in recent comments, we do not think the economy is anywhere as strong as many believe. Moreover, we do not accept the conventional wisdom that the market, at current levels is undervalued, a point we want to make in this comment

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[Premium] Daily Commentary: Sell in May and Go Away

Edward Harrison — Fri, 06 Apr 2012 03:00:54 +0000

I continue to believe that US share prices are based on a benign if not an optimistic view of the macro environment. If we see anything less, I believe US shares will be the ones to pull back most as opposed to European ones

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