Practical analysis for investment professionals
05 June 2015

Weekend Reads for Investors: Montier, Musk, and Mauboussin

Posted In: Weekend Reads

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.

Strategic Thinking

The Future of Finance

On the Margin


Behavioral Issues

Buyback Boom

Elon Musk

Asia in Focus

Wall Street Confessional

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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.

Image credit: © Mueller

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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