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The concept of investing in stocks for the long term gained traction in the 1990s, but has become less fashionable in recent times, especially after experiencing significant losses in the equity market. Nevertheless, it is crucial to revisit the established beliefs surrounding long-term stock investments.
A provocative research paper poses the question: Are Stocks Really Less Volatile in the Long Run? In this episode of The Inside View podcast, we delve into the findings of this paper and their potential implications. We are joined by one of the co-authors, Lubos Pastor, a finance professor at the University of Chicago Booth School of Business. He collaborated on the research with Professor Robert Stambaugh from the Wharton School.
This new study raises important questions regarding popular perceptions of equities and their associated risks over the long term. In the upcoming February 2009 issue of The Beta Investment Report, we will explore how these questions affect asset allocation strategies. In the meantime, here is a preview of our discussion…
For alternative listening options, visit CapitalSpectator.podbean.com for this and other Inside View podcasts.
The holiday reprieve from rising unemployment claims has come to an end, and once again, the lines at the unemployment office are lengthening. This morning’s update on new jobless benefit filings reflects this stark reality.
Initial claims surged to 589,000 for the week ending January 17, matching the level reported for the week ending December 20. This is concerning as we find ourselves at the peak of this cycle. Unfortunately, there is little reason to believe that new jobless claims won’t escalate further. Analyzing various economic indicators suggests a grim outlook. Given that this data series is regarded as a “leading” indicator, it is likely that the unemployment rate—typically a lagging indicator—will also continue to rise.
Compounding the negative sentiment is the latest figure for continuing jobless claims, which, as of January 10, shows an increase to just over 4.6 million, rising by 97,000 from the previous week. This places continuing claims close to the peak for this cycle, which was observed in the week ending December 27.
Today marks the first full day of President Barack Obama’s administration, and his agenda is filled with challenges. As we embark on a new chapter in Washington, the pressing question remains: What is happening with the economy?
In terms of the broader economic landscape, the outlook is bleak, with the upcoming months anticipated to be particularly tough. Yet, this situation contrasts with our own measure of U.S. economic activity (CS Economic Index), which showed a significant uptick in November, the last month for which we have complete data. Early indicators for December suggest that this positive trend may continue.
However, this uptick is somewhat misleading, as it is driven by only two of the 17 factors in our economic index. These two elements have made notable improvements, pushing the entire index higher. Regrettably, these limited positive influences are unlikely to trigger a meaningful recovery in the near future. While there may be hope later this year, it’s essential to first navigate the immediate challenges ahead.
Recently, we examined the unusual scenario of yields on the 10-year Treasury and its inflation-protected counterpart reaching parity. The conventional 10-year bond offered a mere 13 basis points over the 10-year TIPS as of December 26. This was highly unusual, as typically a standard Treasury bond pays a risk premium over inflation-protected securities of the same maturity.
Such a “normal” scenario usually happens when inflation is the prevalent concern in financial markets. Historically, inflation tends to be a constant threat as fiat currencies have consistently led to inflation. However, recent months have shown that alternative monetary phenomena can emerge.
Martin Luther King Jr. had a dream, and so does Professor Robert Shiller. While civil rights are paramount, financial independence is essential for maintaining those rights. Achieving progress in financial literacy is beneficial for all, enriching both personal and communal well-being.
Sound financial advice is vital not just for individuals but for the economy as a whole. Promoting financial literacy can prevent many common investment mistakes, something highlighted by Shiller: “Many errors in personal finance can be prevented. But first, people need to understand what they ought to do.”
Unfortunately, financial literacy is often lacking, which calls for urgent action to improve decision-making in an area that significantly impacts retirement security, among other aspects of life.
The Capital Spectator can now be read on Amazon.com’s Kindle, adding yet another way to engage with our content. If you are interested in subscribing, please click here.
For those unfamiliar, the Kindle is an e-book reader offered by Amazon, allowing users to purchase and download content directly to the device. Since its introduction in late 2007, the Kindle has rapidly gained popularity for reading books, magazines, and various articles, similar to how the iPod transformed music consumption. It’s a stylish device that provides numerous advantages, including the ability to carry a personal library in your pocket.
For the first time since 1955, the consumer price index (CPI) declined year-over-year. According to the Labor Department, last month’s adjusted CPI dropped by 0.1% for the 12 months ending in December.
On a monthly basis, the decline is more pronounced, falling by 0.7% last month—marking three consecutive months of decline.
In summary, deflation is upon us. This trend has been anticipated for some time, a topic we have previously discussed, including here and here. The pressing question now is: How long will deflation persist?
The Merk Hard Currency Fund (MERKX) has distinguished itself by earning a profit over the last three years—an impressive feat given the overall decline many mutual funds have faced during this period.
In today’s Inside View podcast, fund manager Axel Merk, who is also the president of Merk Investments LLC, discusses his successful strategy. He emphasizes a focus on cash—specifically, non-U.S. currencies and related investments, including gold and short-term securities in foreign denominations. “What we’re offering is diversification for today’s environment,” he states.
To listen to more from Axel Merk, including his predictions for the U.S. economy and the dollar, tune in to the latest episode of The Inside View…
For additional options, visit CapitalSpectator.podbean.com for this and other Inside View podcasts.
Forecasting economic and inflationary cycles is the primary focus of the Economic Cycle Research Institute (ECRI), located in New York. The institute has earned commendations for accurately predicting the 2001 recession.
However, the current economic downturn has proven more complex. While ECRI signaled potential trouble in late 2007, they also held hope that a recession could be avoided. Their November 2007 report suggested that “the leading indexes are not yet in a recessionary configuration, thus a recession can still be dodged.” Regrettably, this optimism did not materialize, as the recession officially began in December 2007, according to the NBER’s data.
