Weekend Reads for Investors: Montier, Musk, and Mauboussin
Central bankers in the United States have long fixated on the equilibrium real interest rate (ERIR) as their lodestar, an obsession that GMO’s James Montier bemoans as “a massive exercise in navel gazing,” in The Idolatry of Interest Rates.
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.” Montier thinks Karl Marx had it right in Das Kapital, when he wrote, “there is no such thing as a natural rate of interest.”
Investors’ collective preoccupation with interest rates as an economic “cure-all” and their “deification of central bankers” are equally misguided, says Montier. As evidence that the ERIR has no practical foundation, he points to a Duke University survey of CFOs in which 81% of respondents indicated that interest rates had no impact on their capital spending plans. Montier concludes that the notion that monetary policy truly matters is “the world’s greatest con,” and closes by suggesting that the focus of policymakers should instead be on fiscal policy as a more effective way to stimulate the economy.
Below are some other stories that caught my eye in recent weeks.
- Aswath Damodaran on investing in bad businesses. (Musings on Markets)
- “How CIOs Are Balancing Upside Participation and Downside Protection.” (State Street Global Advisors, PDF)
- Nouriel Roubini warns of “The Liquidity Time Bomb” (Project Syndicate)
- Private Equity: Viable Alternative Investment or Empty Promise?” (The Brandes Institute, PDF)
The Future of Finance
- “The Role of Financial Services in Society” (World Economic Forum, PDF)
- Paul Kedrosky on why finance is about to be disrupted. (O’Reilly Radar)
On the Margin
- “Profit Margins in a ‘Winner Take All’ Economy” (Philosophical Economics)
- Why you shouldn’t write off write-offs. (The Economist)
- According to Tobin’s Q, US stocks are pricier than any time other than the dotcom bubble and the 1929 peak. (Bloomberg)
- A look at market valuation. (The Brooklyn Investor)
- Economist “Richard Thaler on Misbehavior, Tipping, and Economists as Failed Mathematicians” (Quartz)
- Michael Mauboussin on “Differentiating Smarts from Decision-Making Skills.” (Credit Suisse, PDF)
- Is spending on buybacks coming at the expense of innovation? (Wall Street Journal)
- BlackRock’s Rick Rieder calls today’s buyback boom an “economic distortion” created by the Fed. (BlackRock)
- “Stock Buybacks: Mostly an Accounting Sleight of Hand” (Charles Sizemore’s Tumblr)
- “Elon Musk’s Space Dream Almost Killed Tesla” (Bloomberg)
- “Elon Musk’s Growing Empire Is Fueled by $4.9 Billion in Government Subsidies” (Los Angeles Times)
Asia in Focus
- “Education, entrepreneurialism, and democratic institutions bode well” for the future of India. (City Journal)
- “A Goring Concern: The Economic Dangers of China’s Manic Bull Market” (The Economist)
- South Korea will be a beneficiary of the deflation of the global credit bubble. (Richard Bernstein Advisors, PDF)
Wall Street Confessional
- “Top Research Analysts Share the Worst Calls They Ever Made, Pt. 2” (Institutional Investor)
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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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