Can you say whipsaw?
All the major asset classes rose last week, according to a set of exchange-traded products representing the key components of the global markets. The bounce follows the previous week’s slide that delivered red ink far and wide. Volatility may be low when measured over longer stretches of time for most markets, but the last two weeks have been a roller coaster ride.
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● Investment Traps Exposed: Navigating Investor Mistakes and Behavioral Biases
By H. Kent Baker and Vesa Puttonen
Summary via Amazon
Investment Traps Exposed helps investors and investment practitioners increase their awareness about the external and internal traps that they or their clients can encounter. Baker and Puttonen not only examine common investing mistakes, behavioral biases, and investment traps that can ensnare investors, affect sound judgment, and reduce wealth but also delve into how to recognize and avoid these errors. The authors present objective advice, case studies, and empirical evidence in a user-friendly manner and also nudge investors to stay on the right course to mitigate misbehaving.
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Contrarian Factor Timing is Deceptively Difficult
Clifford S. Asness (AQR Capital Management), et al.
March 7, 2017
The increasing popularity of factor investing has led to valuation concerns among some contrarian-minded investors, and fears of imminent mean-reversion and underperformance. In this paper, the authors find that despite their recent popularity the most common factors or styles, namely the value, momentum and defensive styles, are not, in general, markedly over-valued as measured by their value spreads. Continue reading
The Federal Reserve raised interest rates yesterday as the Treasury market reacted by lowering yields. The softer market yields could be a vote of confidence in the Fed’s monetary policy in the sense that inflation worries are contained. An alternative view is that the bond market is becoming anxious at the sight of tighter monetary policy amid falling estimates for first-quarter GDP growth in the US.
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Bob Shiller is concerned about the rise of “everything is different” chatter. Seeing parallels in the dot-com bust in 2000-2002 with current conditions, the Yale Professor tells Bloomberg that the equity market looks frothy, based on his calculation of the cyclically-adjusted price-earnings ratio (CAPE).
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The year-over-year growth in commercial and industrial lending peaked several years ago and is now decelerating at a steady pace. That could be a warning sign for the economy, but it could just as easily turn out to be noise.
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Red ink spilled across nearly every corner of the global markets last week, based on a set of exchange-traded products representing the major asset classes. The lone exception: foreign stocks in developed markets in US dollar terms. Otherwise, losses took a toll far and wide.
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● Rational Investing: The Subtleties of Asset Management
By Hugues Langlois and Jacques Lussier
Summary via publisher (Columbia University Press)
Many investors believe that success in investing is either luck or clairvoyance. In Rational Investing, finance professor Hugues Langlois and asset manager Jacques Lussier present the current state of asset management and clarify the conundrum of luck versus skill. The core of Rational Investing is a framework for smart investing built around three performance drivers: balancing exposure to risk factors, efficiently diversifying bad luck, and taking advantage of relative mispricings in financial markets. With clear examples from model multi-asset-class portfolios, Langlois and Lussier show how to implement performance drivers like institutional investors with access to extensive resources, as well as nonprofessional investors who are constrained to small-scale transactions.
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Companies added more workers to payrolls in February, the Labor Dept. reports. Private-sector payrolls increased 227,000 last month, modestly higher than January’s revised 221,000 advance. A second month of robust expansion of the labor market gives the Federal Reserve another reason to hike rates at next week’s monetary policy meeting. But while the monthly change has rebounded this year after weak growth in 2016’s third quarter, the year-over-year trend was unchanged last month, holding at a relatively subdued increase.
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The 10-year Treasury yield ticked up to 2.60% on Thursday… again. The benchmark rate reached that level in December (the highest since 2014) following the reflationary wave that followed Donald Trump’s election victory. But yields pulled back in 2017… until yesterday.
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