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Weekend Reads for Investors: Montier, Musk, and Mauboussin

Weekend Reads for Investors: Montier, Musk, and Mauboussin

Central bankers in the US have long fixated on the equilibrium real interest rate (ERIR) as their lodestar, an obsession that GMO’s James Montier, in The Idolatry of Interest Rates, bemoans as “a massive exercise in navel gazing.” According to Montier, the broad acceptance of the theoretically dubious ERIR — the real interest rate consistent with full employment of labor and capital resources—is not an example of the wisdom of crowds, but rather “groupthink extraordinaire.” Further, investors’ collective preoccupation with interest rates as an economic “cure-all” and their “deification of central bankers” are equally misguided, says Montier. Read more

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Best of 2014: Economics, Capital Flows, and Innovation

Best of 2014: Economics, Capital Flows, and Innovation

Every year at this time, we reflect back on the events of the last 12 months and take inventory. This year (2014) will likely go down in history as a pivotal transition year. The status quo is shifting. We are leaving behind the post-crisis global economic recovery, the resource shortages caused by the rise of emerging markets, as well as the policy aftermath of the financial crisis of 2008, and embracing something new. Enough time has passed and the telltale signs of change are all around us. Read more

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Connecting the Dots: From US Shale Oil to London Real Estate

Connecting the Dots: From US Shale Oil to London Real Estate

What do the US shale oil play and London real estate have in common? A lot, it turns out. And if oil prices keep falling, the London (and for that matter Paris) property bubble(s) will burst. So, if you want to avoid the carnage or short real estate bubbles, builders, or banks in Europe, focus on the US energy sector and OPEC. Many investors are blinded by too narrow a focus, something I call micro-macro bias. Read more

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Turning Points: The Status Quo Is Changing

Turning Points: The Status Quo Is Changing

The status quo is changing markedly. Oil prices are heading south as the United States ramps up production and OPEC refuses to cut to compensate. Moreover, global demand is looking sluggish with weakening growth in Europe, Japan, and China. The weakening of Chinese demand suggests that there could be a regime change taking place whereby the global driver of commodity demand is declining at precisely the moment when the expansion of global supplies is finally arriving. Read more

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