Weekend Reads for Global Investors: Abenomics, Brexit, and Credit Bubbles

The clock has started ticking. The UK government has set the date for a referendum on Brexit, the British exit from the European Union. Recent polls are actually rather close.

The Financial Times, in its usual thorough manner, has already published an analysis on the economic consequences of Brexit. You can read it through carefully; chances are, though, that the analysis won’t actually change your opinion.

Neil Govier, my closest British friend (he is my office colleague), thinks the “leave the EU” sentiment is driven more by political rather than economic considerations — in other words, irrational rather than rational considerations.

That shouldn’t surprise any market veterans, I suppose. When was the last time you came across a rational investor? And if people are not rational with their own money, why would you expect things to be any different when it comes to their other decisions? Chances are that most people have already made up their mind about Brexit, one way or the other. No analysis or fact in the world could change their opinion.

Another clock is ticking, at least according to Edward Altman (of the Altman Z-score fame). He thinks we are in a global credit bubble that could pop at any time. We sat down in Hong Kong recently to discuss his insights into how the Altman Z-score model works and what he has learned over the past five decades about how the model can best be applied.

The conversation naturally veered toward where Altman thinks we are in the credit cycle today versus in 2008. Each of these benign credit cycles in history apparently has not lasted longer than seven years. And we are now in the seventh year.

Last, I wanted to highlight a great article I came across on the current state of Abenomics. Three years have passed since Japan’s Prime Minister Shinzo Abe took office at the end of 2012. As Henny Sender aptly pointed out, “Despite Shinzō Abe’s boasts about the ‘three arrows’ of his Abenomics programme, there has been only ever one missile in the prime minister’s quiver: yen depreciation.” The clock seems to be running out on that one.

Following is a list of links from the previous paragraphs, as well as some of the other interesting reads I have come across in recent weeks. Happy reading, and enjoy the weekend.

Markets

• What are the economic consequences of Brexit? (Financial Times)
• The Altman Z-Score in Edward Altman’s Own Words (Enterprising Investor)
• The Altman Z-Score after 50 Years: Use and Misuse (Enterprising Investor)
• The Altman Z-Score in Action: Is a Bubble Building in Global Credit Markets? (Enterprising Investor)
• Japan’s vanishing golf courses sum up Abenomics (Financial Times)
• Europe’s banks fear the CoCo market is dead (Telegragh)

Investing

• One take on long-term investing. How Much of Your Nest Egg to Put Into Stocks? All of It (New York Times)
• Apparently, we are all human. Why Bear Markets Are So Painful (A Wealth of Common Sense)
• Wait, did the the New York Times print the answer to the question above on the same day they printed the article that started it all? As Stocks Gyrate, It’s Time to Measure Your Risk Tolerance (New York Times)
• How did Harry Markowitz teach his children to manage money? How a Nobel Prize winner taught his children to manage money (Business Insider)

Emerging Markets

• When the going gets tough… blame someone else. ECB’s Nowotny: Market turbulence driven by emerging markets (Reuters)
• India is catching more and more investors’ attention. Modi’s ‘Make In India’ racks up $222b in investment pledges (Gulf News)
• Joseph Stiglitz, another Nobel laureate, opined on the state of the emerging markets. Closing the capital drain from emerging markets (Guardian)
• Emerging-Market Debt: How Big a Threat Is It? (Wall Street Journal)
• Mexico’s Rate Hike: A Sign Emerging Market Selloff Is Over? (Barron’s)

The Soft Side of Business

• Good advice. 5 Powerful Laws to Achieve Anything You Want Faster (Lifehack)
• Simple and practical suggestions. 10 Easy Steps That Will Make You a Master Relationship Builder (Inc.)
• This Is Why so Many Entrepreneurs Can’t Find Investors (Fortune)

And Now, Some Reads That Truly Are for the Weekend . . .

• After reading this article, I wondered if anything I knew (outside of investments) was actually a “fact.” 25 “facts” that really aren’t: You’ve heard them all your life and they just aren’t true (Salon)
• Take a walk in the woods once in a while. It’s good for your brain. This Is What Happens To Your Brain When You Walk In The Woods (Lifehack)
• Indeed, why? The Psychology Behind Why We Tip (Comstock’s)

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