ebook essays pieces of the puzzle
Monday, July 12th, 2010
the yield curve accordion

When I published this in another forum last year, I called it “the music of our times.”  (The lines show the migration of various points on the yield curve of U.S. Treasuries, with the black line being the three-month T-bill and the red line being the thirty-year bond.)  My description then still applies:  “Each economic stumble is met with low short rates, a steepening yield curve, and a return to risk taking.  Given the downward trajectory over time and the fact that we are sitting on zero short yields, where will the next bout of craziness take us?”  (Source:  Bloomberg terminal.)

abnormal returns

A regular feature of research puzzle pix will be a “site of the week” of interest to investors.  It makes sense to kick things off with Abnormal Returns, the best market linkfest.  If you want a daily update of the latest hot topics in the econoblogosphere, it’s the place to go.  In addition to the “classic” site, AR Now provides updates with links throughout the day, and there is an ever-expanding array of themed newsletters, screencasts, and other items under the AR umbrella.  In addition, Tadas Viskanta has been increasing his output of thoughtful original postings.

from asset classes to risk classes

The financial crisis upset the apple cart of investment consulting.  The theories and tools didn’t seem to work as expected, so it’s time to go back to the drawing board, and we can expect that the next several years will be marked by a tug-of-war between the old ways and the new.  A recent report from Mercer is a good example of how firms are rethinking their recommendations.  It lays out an example of a template that moves from asset classes toward a focus on return drivers and risk classes.  It also pulls away from the “risk equals volatility” equation that drove the industry for years, and categorizes risks as to whether they can be quantitatively assessed or not.  (A PDF link to the paper is found above the text.  Thanks to Susan Weiner for recommending the piece.)

three cheers

Surely nothing has quite caught the attention of finance and economics bloggers of late in the way that Kartik Athreya’s “Economics is Hard” piece has.  That’s to be expected, since the author’s thesis is, well, that all of those bloggers are unqualified hacks that shouldn’t be heeded.  There are many responses that I could to link to, but I’ll just opt for one, which happens to be the first blog posting by James Montier in over two years.  He ends it with, “Three cheers for the generalists!”  As a generalist myself, I want to raise a toast as well, but it’s good to keep in mind that we need deep-thinking specialists too.  The best decisions are likely to come about when technical expertise meets the real-world perspective that comes from being open to thoughts from outside the orthodoxy.

never out of style

This webpage provides a look from 1999 at the “investment pornography” that populated the business and investing publications of the day (as well as the still-young Internet).  Has anything really changed?  Of course, those boom times were particularly suited to fantastic dreams, but even after a downer decade you still see the same kinds of hype.  Take a look at the banner and text ads on today’s leading investment websites.  Investment pornography still sells, making advertisements with questionable financial claims a revenue staple of the online world, even for sites with otherwise sober content.

those untidy beginnings

John Galsworthy began a passage of Over the River with, “The beginnings and endings of all human undertakings are untidy. . .”  And most everything in between, it sometimes seems.  Please help us with our untidiness in this new effort (for example, the site looks great in my browsers, but not when opened within my RSS reader for some undiscovered reason).  We don’t quite know when or how it will end, but surely your ideas will make it better along the way, so any suggestions are welcome.  (See the about page for more information and email links.)