Charter Trust - Global Market Update

Can uncertainty cause a recession? Source: Econlib Economists are always looking for ways to test their theories. They can’t put economies into test tubes and sprinkle a little stimulus on them—they have to look for natural ways to examine how people react economically to new conditions. So they study businesses right near a state border to see if changing the minimum wage law has much impact, or they use the draft lottery to study the effect of […]

Could $700 billion create some moral challenges? Lady Justice. Source: Wikipedia In the midst of the financial crisis, Congress passed the TARP program—originally designed to buy troubled assets from banks, but actually used to provide additional capital to the banks. It didn’t buy CDOs-squared and mortgage-backed securities backed by NINJA-loans—mortgages to people with no income, no job, and no assets. Instead, the TARP program mostly bought preferred shares issued by banks, injecting capital directly into the banking […]

What do our clothes say about us? Illustration from “The Penny Magazine,” 1843, Source: Wikimedia For millenia, clothes have inspired new technology. Cotton has been spun, woven, and dyed since prehistoric times. Marco Polo pioneered the Silk Road and the Age of Exploration. Spinning mills in England and New England were at the center of the Industrial Revolution. Demand for “Basic Black” fashions stimulated the chemical industry in the 20th century. Everyone’s excited by the latest smart […]

What’s happening in China? Forbidden City in Beijing. Photo: Saad Aktar. Source: Wikimedia Anyone who wants to understand the global economy needs to have a sense of what’s happening in China. China has the second largest economy in the world–almost 2/3rds the size of the US. Last year they grew more than the US and Europe combined. They’re essentially tied with Canada as our largest merchandise trading partner, providing 15% of our imports and exports–$300 billion worth. […]

Who tells you the truth? King Lear and his Fool. Artist: Ary Scheffer. Source: Folger Library No one wants to hear bad news. That’s why accountants and finance professionals are often so unpopular. A leader may have grand visions for the future filled with growth and opportunity—but his finance people tell him he doesn’t have the money to pay for it. Good leaders listen to counsel; bad leaders shoot the messenger, surrounding themselves with toadies and sycophants. […]

What’s in a name? Souce: Worditout.com That’s what Juliet asks in the famous “balcony scene” in Romeo and Juliet. She had fallen in love with Romeo, but Romeo had the wrong family name. Tragically, they couldn’t escape their families’ heritage of violence and vendettas. On the other side of the coin, companies put billions of dollars annually into creating names and brands that we can trust. Retailers like Amazon and Target, health care companies like Johnson & […]

What is risk? Base jumpers. Photo: Christophe Michot. Souce: Wikipedia In 1952 Harry Markowitz changed the world. By combining different assets he proved that a diversified portfolio would have a lower variance. His mathematical formula used the variance of asset prices around an average as a proxy for risk. It made sense at the time: the more asset prices jump around, the more nervous people get. Markowitz’s work was ground-breaking. Never before had risk been so clearly […]

Are we bound to a “wheel of fire”? Photo: Gerd Altman. Source: Pixabay For millennia, people have burned things when they wanted or needed energy. Campfires and fireplaces give us heat; ovens and stoves cook our food; steam power, piston engines, and turbines help us get from place to place. Except for nuclear energy, most of our power comes from converting carbon into CO2. But theories of climate change and global warming threaten to revise this. If […]

What can investors do about low rates? Source: St. Louis Fed Low interest rate around the world are challenging investors and savers everywhere. And it isn’t just households: state and local pension funds—once fully funded—are now underfunded by almost $2 trillion. With expected returns so low, governments and employees are being called upon to increase their contributions to make up for the shortfall. The resulting strain on public budgets has led to credit-rating cuts in places as […]

What makes an investor successful? Photo: Paul Warrander. Source: Wikipedia People can argue about whether success is due to luck or skill. But often it seems to come from somewhere else. Notably, a person’s performance in many areas come from a special blend of passion and persistence—grit. Every year, Roxbury Preparatory Academy in Boston has a Pi Recitation Contest: 6th, 7th, and 8th-grade students stand at the front of the room and recite from memory as many […]

Does the Federal Reserve need to do some team-building? Federal Reserve “Dot Plot.” Source: Federal Reserve As expected, the Fed did not increase their interest rate target. Instead, they decided to wait for further progress in the economy. In her prepared remarks, Janet Yellen emphasized that their decision doesn’t reflect a lack of confidence in the economy. Rather, she noted, the pace of hiring in the labor market seems to have slowed, and inflation is still running […]

Why do firms hold so much cash overseas? Source: Capital Economics As the global economy has grown, cash held overseas by US firms has grown at a rapid pace. US companies now hold over $2.5 trillion. The recent flap over Apple’s $14.5 billion fine by the European Commission brings into high relief the fact that the US has the highest corporate tax rates in the world, and claims a share of anything a US company does—if it […]

Getting Personal in the Gig Economy What is the “gig economy” doing to us? Photo: Elisa Riva. Source: Pixabay More and more people today are independent contractors—about a third of the US economy. Apps like Uber and Airbnb make it even easier to work for yourself. Uber makes it possible for folks with a set of wheels and some extra time to make money on their schedule, when they want to. Airbnb allows people to rent out […]

Why do some economies grow faster than others? Photo: Paul Anderson. Source: Morguefile In his recent book, “The Origins of Political Order,” Francis Fukuyama argues that democracy is a stool that stands on three legs: a stable society, political accountability, and the rule of law. Without any one of these elements, democracy is not possible. A stable society means it is safe to come and go. Political accountability provides a way to discipline leaders. And the rule […]

Is more infrastructure spending the solution to our economic woes? Photo: HuBar. Source: Wikipedia Politicians on both sides of the aisle seem to love infrastructure spending. They get to brag about all the jobs they created. Sometimes they get an airport or a bridge or a highway named after them. And infrastructure spending is supposed to help economy. But does it, really? Consider Japan. In the ‘70s and ‘80s Japan’s economy was booming. We were all “turning […]