Weekend Reads for Investors: Fed Fixation
In December 1996, former Federal Reserve Chairman Alan Greenspan, with an eye on the stock market, famously coined the term “irrational exuberance” to describe the collective investor psychology that brings about asset bubbles. After a brief hiccup, stocks went on to double over the next three years before succumbing to the dot-com crash of 2000.
He may have been early, but don’t say Greenspan didn’t warn you. Greenspan’s prescience with regards to the financial collapse of 2008, however, is less apparent in his new book, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting. In this excerpt, Greenspan asks, “Why was virtually every economist and policy maker of note so blind to the coming calamity?” His self-proclaimed ignorance to the building crisis and the warnings of many is indeed astonishing. Sadly, “I wasn’t aware” has become a familiar refrain in Washington these days.
The easy money policies of central bankers around the globe have helped to buoy equity prices, leaving investors in high spirits. And recent investor sentiment readings from the American Association of Individual Investors confirm that equity investors have become, if not quite exuberant, well on their way. Contrarians will take note that bearishness in recent weeks has approached cyclical lows. With so few investors left on the sidelines, the argument goes, stocks may be hard-pressed to move much higher. For now, however, most investors seem content to take their cues from the central bankers.
Here are some worthwhile reads (and videos) you may have missed in recent weeks.
Financial Crisis Response
- Too big not to fail? In “Dodd-Frank: Money Never Sleeps,” Chris Whalen says, “Three years after its passage, the bill increasingly resembles a new Washington Monument — to folly and hubris.” (The National Interest)
- “What We’ve Learned from the Financial Crisis” (Harvard Business Review)
- Economist Richard Thaler on stock markets, NFL drafts, and the importance of trust. (The Federal Reserve Bank of Minneapolis)
- Value investing legend Martin Whitman shares his common sense investing principles. (WealthTrack)
- On the merits of building a deserted island portfolio. (Research Affiliates, PDF)
- Is Amazon more than just a 21st century Sears? (The Atlantic)
- In defense of Amazon and the “profitless business model” fallacy. (Remains of the Day)
- Tesla versus Fiat is a terrific lesson in investing and the economics of green energy. (GreenWood Investors via YouTube)
- What it means to be a “Teslanaire.” (San Jose Mercury News)
- A look inside the largest tech buyout ever. (Forbes)
- Bridgewater’s Ray Dalio with a brilliantly simple video on how the economic machine works. (Bridgewater Associates via YouTube)
- Aswath Damodaran on valuing an NFL running back. (Musings on Markets)
- Relatively speaking, value stocks look attractive. (Context)
- Artificial intelligence and the quest to replicate the human mind. (The Atlantic)
- Unlocking economic value by making data more “liquid.” (McKinsey & Company, PDF)
- Competing views on the root of the pension crisis put the blame on Wall Street (Rolling Stone) and politicians (The American).
- Gretchen Morgenson on how to pay millions and lag behind the market. (The New York Times)
- Carl Icahn shares a letter to Apple’s Tim Cook on his new website, Shareholders’ Square Table, and exchanges pleasantries with PIMCO’s Bill Gross:
— Carl Icahn (@Carl_C_Icahn) October 28, 2013
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.
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