Weekend Reads for Investors: “The Most Crowded Trade”
The state of the global economy has been a hot topic of late. Bank of England chief economist Andrew Haldane, in a recent speech, titled “Growing, Fast and Slow,” examined historical drivers of economic growth and concluded that while the technological tailwinds to growth — principally in the form of a digital revolution — are considerable, the sociological headwinds, including excessive debt, rising inequality, and unfavorable demographics, are equally prominent. The result, he warned, could be “secular stagnation” rather than “secular innovation.”
Across the pond, Richard Fisher, soon-to-be-retired president of the Federal Reserve Bank of Dallas, was decidedly more optimistic about prospects for the US economy, noting that corporate balance sheets are the healthiest they’ve been in decades. Including Canada and Mexico, Fisher likened the North American economy’s potential to the racehorse “Secretariat at the Belmont Stakes in 1973.” (Recall that Secretariat won in spectacular fashion — by 31 lengths.) At the same time, he warned that the Fed, reluctant to raise rates prematurely, is at risk of “monetary Alzheimer’s.”
The economic backdrop figures prominently in the chatter among investment strategists of late as they debate the sustainability of the “decoupling” of the US economy from sluggishness in the rest of the world. Bank of America Merrill Lynch strategists have called the decoupling trade — long US stocks and the dollar — “the most crowded trade in the world.” The decoupling meme also seems to be belied by the forward guidance issued by US firms along with their fourth quarter earnings. FactSet notes that we are seeing the largest percentage decrease in earnings estimates for the S&P 500 Index since 2009. As US stocks hover near all-time highs, those with a contrarian bent may be receptive to the latest missive from Joe Calhoun at Alhambra Investment Partners. In “Is It Time to Zig?” Calhoun suggests that investors might want to look outside of the United States for more rewarding opportunities.
Below are some other stories that caught my eye in recent weeks.
Strategic Thinking
- “Is Skill Dead?” GMO thinks not. (GMO)
- Michael Mauboussin and company on managing a portfolio’s “man overboard moment.” (Credit Suisse)
- “Bill Ackman — The Creative Side of Investing” (Graham & Doddsville)
- “Woe Betide the Value Investor” (Research Affiliates)
- According to Cliff Asness, “financial leverage is your friend.” (Institutional Investor)
- Moving toward “Corporate Governance 2.0.” (Harvard Business Review)
Valuation
- Is it “an academic exercise, a sales pitch or investor tool?” Aswath Damodaran on the discounted cash flow valuations (DCF). (Musings on Markets)
Retirement
- A pension fund manager with returns to rival Warren Buffett. (Chief Investment Officer)
- Charley Ellis, CFA, on “fixing the retirement crisis.” (Consuelo Mack WEALTHTRACK)
Moving Markets
High Profiles
- Apple’s greatest product may be Jony Ive. (The New Yorker)
- The rise and fall of McDonald’s former CEO Don Thompson. (Chicago Magazine)
Big Business
- Amazon: Money pit or cash flow machine? (The Motley Fool)
- “Is Amazon Set to Hit Its Prime?” (Knowledge@Wharton)
Twitter Troubles
- What good is Twitter? (The Atlantic)
- On the damage done by one stupid tweet (The New York Times Magazine)
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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