Charter Trust - Global Market Update

Collateral dominates structure. Page from Alchemy treatise, c. 1300. Source: Wikipedia That’s an investor’s way of saying that you can’t turn lead into gold. It’s been an investment theme of mine for as long as I’ve been managing money. I started my investment career trading bonds in the mid-‘80s. Mortgage-Backed Securities were a new thing. Investors were starting to learn about prepayment risk, as interest rates fell and borrowers refinanced their double-digit mortgages. All those full-faith-and-credit Ginnie […]

Remember “Beanie Babies”? Photo: Jonny Connormah. Source: Wikipedia My kids went gaga over Beanie Babies in the ‘90s. The cute plush toys are filled with plastic pellets rather than conventional stuffing, which game them a more flexible feel. People began collecting them, then trading them like financial assets – the way some people treat baseball cards. At one point, Beanie Babies accounted for 10% of Ebay’s sales, and more than half of all American households had at […]

How much should we trust our gut? Photo: Adrian Pingstone; Source: Wikipedia Every pilot receives some instrument training. This makes sense. There’s always a chance you can get caught by unexpected weather. Getting tossed around by turbulence when there’s no visibility outside is disorienting. You feel like you’re moving when you’re stable, you think up is down, and vice-versa. The first rule that’s drilled into everyone getting instrument training is to trust the instruments. Our senses can […]

What does a flat yield curve mean? Photo: Billy Hathorn; Source: Wikipedia 130 years ago the English schoolmaster Edwin Abbot wrote the novella “Flatland” about a two-dimensional world inhabited by geometric shapes. There’s no depth in Flatland, only height and width. It seems like investors today are entering a “flatland” of their own. Normally, long-term bonds yield significantly more than short-term bonds. We call this the “yield curve,” because it curves downwards. A year ago, 10-year US […]

The apple doesn’t fall far from the tree. Photo Source: Pixabay That’s the lesson from a new study about innovation, inventions, and incentives. The children of inventors are far more likely to become inventors themselves. Income, education, and geography also matter. But it’s the home environment that has the biggest impact. Some researchers studied 1.7 million patent office applications and 1.2 million tax returns, asking why some people innovate and others don’t. If one of your parents […]

Why should we worry about health care? Source: Vox Public health analysts often bemoan the fact that the US spends a lot on healthcare. Health spending accounts for 18% of GDP, while the rest of the developed world spends about 10%. But we get a lot of innovation for that spending. The US has more clinical trials than any other country. We have more patents. The US has the most Nobel laureates in physiology and medicine. Our […]

Who is Richard Thaler? Source: Chicago-Booth School Richard Thaler is the Chicago-Booth economist who helped popularized the notion of “nudging” us to make better choices. He’s best known for his work on behavioral economics, the area of study that looks at anomalies in our decision making. For example, if someone gives us tickets to an event worth $500, we tend to keep the tickets. We don’t sell them, but we’re unlikely to spend money on additional tickets. […]

We don’t live in unprecedented times. But they are unusual. Martin Luther posting his 95 Theses. Source: British Museum It’s popular to say that we live in unprecedented times. Things like mobile computing and global social networks are totally new. And from a technological perspective, that’s absolutely correct: we’ve never had so much power in our pockets. Apple’s new A11 Bionic chip on their iPhone X can execute more operations per second than a MacBook Pro, which […]

It can be hard to sit still. Photo: Victor Hancek. Source: Pixabay. Every few years, someone compiles some of Winnie-the-Pooh’s life lessons into a small book. In one of these, Pooh’s Little Instruction Book, Piglet remarks, “Don’t underestimate the value of Doing Nothing.” Investors should heed this advice. Of the many temptations in investing, the temptation to act too soon is among the worst. If something unexpected happens, people want to know what you are doing about […]

Poor Charlie Brown. That’s what I thought when I read that hedge funds have gotten massively short the 30-year US Treasury bond. When traders “short” a security, they expect the price to go down. When they short bonds, they think interest rates will rise. At her September press conference, Janet Yellen signaled that the Fed will continue to raise rates, despite stubbornly low inflation. Higher rates equals lower bond prices. So what’s the problem? The problem is […]

What is the butterfly effect? Photo: © 2016 Jee & Rani Nature Photography. Source: Wikipedia The Butterfly Effect is the notion from chaos theory where small changes in initial conditions can result in large differences in the outcome. The term was coined when a mathematician and weather scientist was describing a tornado, and noted that the flapping of a butterfly’s wings a week before might seem to change the path of the storm. In deterministic computer simulations, […]

Why is labor’s share of income going down? Source: Bureau of Labor Statistics For the past 50 years, labor’s share of our national income has been declining. This has had profound effects on inequality, taxes, and the structure of our economy. Labor’s share is the percentage of national income that goes to workers as compensation. It’s a pretty simple calculation: employee compensation (wages and benefits) divided by economic output. It’s been falling since the ‘50s, and quite […]

Are people just selfish? Soviet propaganda poster from the 1930s. Source: Eurasianet That’s the question I asked when looking back at the some of the big collectivization movements in the 20th century. After the Communist Revolution in Russia, the central government set food prices too low. Peasants in the countryside chose to consume their produce rather than sell it, and there were food shortages in the cities. The government’s response was to collectivize the farms – giving […]

Setting a Higher Standard How can we raise the bar? Photo: Doug Tengdin Cheaters cheat. That’s the lesson from Wells Fargo’s fraudulent accounts, the NFL’s “Deflate-gate,” VW’s emissions scandal, the fraudulent mortgages at the heart of the Financial Crisis, and a whole host of other scandals. In the early ‘90s GM had a special chip in its Cadillacs that shut off their emissions controls when the air conditioner was on. Since we don’t usually run the a/c […]

What’s the right asset allocation? Public Domain. Source: Wikipedia In simple terms, asset allocation is the process of deciding where to invest your money. Not who to have manage it – like Vanguard or an advisor – but what to have your money invested in: stocks, bonds, real estate, bank deposits, commodities. Your asset depends on a couple of basic questions: what do you need the money for, when will you need it, what other resources you […]