Practical analysis for investment professionals
17 October 2014

Weekend Reads for Global Investors: Return of the Bears

Posted In: Weekend Reads

“Where are the bears?”

Early last month, I felt incredulous at the market’s enthusiasm despite the lackluster economic performance worldwide. It turns out that the bears were just about to wake up from their three-year hibernation.

They came out in full force two weeks later. Global markets, as measured by the MSCI World Index in local currency terms, peaked on 19 September. (It was also the day that Alibaba went public.) At least one star manager has called a market top. Other folks are seeing plenty of red flags. And if nine ominous signals are not enough for you, here is one more . . . with the word “subprime” in the punch line. If you’d like some frame of reference to form your own opinion, it makes sense to take a closer look at the economic environment around the world — as well as the history of stock market volatility over the last century.

Also in the news last week was the announcement that French economist Jean Tirole won this year’s Nobel prize in economicsTirole’s selection is well-deserved and has been widely applauded.

Nobel laureates are apparently an exceptional bunch. The best among them not only have a very high-level command of the subject matter but also can explain the intricacies of a complicated theory in amazing simplicity. Check out Nobel Laureate Myron Scholes’s explanation of the intuition behind the famously difficult-to-follow Black–Scholes model and see if you’d agree. For the philosophers and analysts among you, check back next week for the second installment of the interview series with Scholes in which he explains why analysts fail.

The Nobel-winning theories are also often more relevant to the real world than people realize, even those theories generally believed to belong to the ivory tower. A good example is Nobel Laureate Robert Engle, who was named in the Economist article. In fact, his work on estimating VaR and systemic risk contributed significantly to our understanding of the global financial crisis. He’s also published techniques that are very helpful in high frequency trading, among other things.

There are more examples. So much economic wisdom is poorly understood by policy makers, which is probably one reason why we are where we are today. For instance, what explains the slow worldwide recovery following the global financial crisis — despite unprecedented monetary stimulus by the major central banks? Could it be a classic liquidity trap? Keynes invented the term almost 80 years ago.

Return of the Bears

Weekend Reads: Nobel Prize Edition 

It’s a bit corny to check the Economist magazine for news on the Nobel Prize in Economics. The publication has indeed done a great job at keeping track of up-and-coming economists. I still recall that 20 some years ago they printed an article highlighting Paul Krugman, Gregory Mankiw, Jeffrey Sachs, and Larry Summers as the most promising young economists. “The Nobel Prize Goes to Jean Tirole” (Economist)

Investing 

Environmental, Social, and Governance (ESG)

And Now for Some Truly Weekend Reading . . . 

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/temmuzcan

About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, Multi-Asset Strategies: The Future of Investment Management and AI Pioneers in Investment management. He is also a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

2 thoughts on “Weekend Reads for Global Investors: Return of the Bears”

  1. James Tharin says:

    The article from “Nine Ominous Signals: … is a bunch of garbage that should not be posted anywhere near a CFA blog or website. Maybe the market will go back down but the point of that article is not to inform but to sell using fear tactics.

  2. Andreas says:

    Does the ‘genius – Nobel laureate ‘ category include the Nobel prize winners who ran Long term capital management and almost caused the collapse of the global financial system back in the 90’s?

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