Monday, January 26, 2015

A Cost Of War

From Banksy:

Central Banks "control inflation"

...and other tales to help you sleep at night in a complicated world.

welcome to a world of dis-inflation...

The enemy of my enemy will be my enemy one day

Economic policy works with lags that are long and variable. Foreign policy works with lags that are long and unpredictable. Reagan championing 'freedom fighters' opposed to Soviet tyranny in Afghanistan suffered under the truly unforgiving tyranny of Alzheimer's by the time the September 11, 2001 terrorist attacks occurred. Would his belligerently naive and Manichean world view have changed in hindsight of the terrorists his foreign policy spawned?
For the full text of Robert Fisk's article on Osama Bin Laden go here.

Saturday, January 17, 2015

US Equity Returns: Are You Risk Neutral or Risk Averse?

The reality is that we are human; we like the idea of profits and markets gaining to the upside and hate losses and markets losing ground. Our reaction is asymmetrical and once capital is lost do most of us have the stomach to be invested again in the hope that markets will rebound? Recent US equity market history (post 1999) is useful in this regard with losses occurring in 2000, 2001, 2002, and 2008. Any investor would have had a sense of regret after witnessing the depletion of capital. It isn't enough to hear those who state the efficacy of "time in the market", the reality is that many drivers are responsible for such returns --many beyond the realm of fundamental investing-- so a key question becomes: can you sleep at night without worrying about your investments. As the chart below shows, and as we should know, equity returns and returns of financial assets in general, are not normally distributed.
Chart Source: Marketwatch