Larry Summers via Tyler Cowen: SUMMERS: Second, the VIX — people tend to underappreciate this. The volatility of the market moves very much with the level of the market. The reason is that if a company has $100 of debt and $100 of equity, and then the stock market goes up, it’s 50/50 levered. If the stock market goes up by $100, then it has $100 of debt and $200 of equity and it’s only one-third levered. So when the stock market goes up, its volatility naturally goes down. And the stock market has gone way up over the last 10 months. That’s a factor operating to make its volatility go significantly down. It’s also the case if you look at surprises.
The following is a guest post from Robin Bose. There’s a truism that small businesses are the backbone of the American economy. I happen to think it’s true that small businesses make local economics more resilient to shocks and changes in the overall mix of market forces. If we accept that, then we should all be a little worried. A mildly alarming study The Brookings Institution published shows a 30 year decline in what the US census calls “new firm formation” (i.e., baby businesses getting formed) accompanied by no real change in “firm exits” (small business owners closing up shop). Some surprising highlights: Troubling 30 year secular decline across multiple business cycles and political administrations Trend is prevalent across all 50
I found this post from the ‘Philosophical Economics’ blog to be very thoughtful. It offers some interesting ways of thinking about equity price levels, and what drives them. The author makes a convincing argument that despite the fact that many believe price changes are largely a function of valuation multiples (e.g., P/E ratios), they are actually caused by relative changes in the aggregate investor allocation to equities. Essentially, the post makes the case that aggregate demand for equities as a proportion of all financial securities — or average asset allocation to equity across all investor portfolios — does a much better job of explaining subsequent returns than traditional mean-reversion metrics. When demand for equities in aggregate increases (decreases), expected future returns
The following is a guest post from Robin Bose. Robin went to MIT with me and likes beer almost as much as I do. He’s also a great singer. The United States Senate has a busy 2013 summer schedule: a new farm bill, interest rates on student loans, and comprehensive immigration reform. Immigration reform in particular has thrown off a lot of heat and light, with new entrants into lobbying — led by Facebook and the tech sector — facing an already crowded field of corporate interests, immigrant groups, unions, Tea Partiers, border militia, and lots of local, state, and national officials. For example, we know who the sheriff of Maricopa County AZ is (Joe Arpaio). He makes national immigration news.
Via Wongblog, this is the best description of the negotiations I’ve seen yet:
I often find myself explaining to friends how they can save some money by using a couple Fidelity Investments products. The other day it occurred to me that I might as well turn my typical rant into a post. Full disclosure — I worked at Fidelity for four years, but am no longer compensated by the firm in any way. It’s a great company, and they have many products that are extremely useful. The two products I’m going to explain work well together. The first is the Fidelity Cash Management Account. While Fidelity’s brokerage company isn’t technically a bank, the firm has a bank-like cash management product that’s quite similar to a traditional checking account, with some added features. The account
There’s been a lot of debate about whether or not the stimulus plan worked. At the time it was passed, many argued that it wouldn’t be fast enough, that the projects would take so long to get underway that it wouldn’t be able to accomplish its purpose. And now, according to many economists, it definitely helped create jobs. But here we are, three years later. Our financial system didn’t self destruct, but economy is still growing at a pretty pathetic pace (although there have been some encouraging signs over the past two months). So, knowing we can’t change the past anyways, maybe its not so bad that some of the effects of the stimulus plan have yet to hit the economy. I’ve lived
This article threw me for a number of reasons. I’ll comment on it paragraph by paragraph: “An acute butter shortage in Norway, one of the world’s richest countries, has left people worrying how to bake their Christmas goodies with store shelves emptied and prices through the roof.” Why not ship some from Sweden? Or Denmark? Or the UK? Sounds like a good short term operation for someone with a truck. Or a boat. “The shortfall, expected to last into January, amounts to between 500 and 1,000 tonnes, said Tine, Norway’s main dairy company, while online sellers have offered 500-gramme packs for up to 350 euros ($465).” Whoa! Seriously? This is nearly $1,000/kilo, or $907,000 per ton. A truck can hold
Via Marginal Revolution, this is very well-done:
Via The Big Picture, BofA Merrill has a very interesting graphic showing the out-performance/under-performance of various quantitative market factors for stocks in the S&P 500. Quantitative market factors are investment signals studied in academia and/or used by investors: