I admit—freely—often my biggest hang-up with Ms. Rand was that she’s too pure, too idealistic, advocating a worldview not possible in this world. Charles Johnson’s recent IBD piece puts such anxiety to rest.
“My personal life is a postscript to my novels,” she wrote in the afterword to “Atlas Shrugged.” “It consists of the sentence: ‘And I mean it.’ I have always lived by the philosophy I present in my books — and it has worked for me, as it works for my characters.”
Markets adapt, and long-term profits approach zero for high-speed trading. The winners are market participants, who benefit from higher liquidity and smaller bid/ask spreads. The part most folks miss about the flash crash is the market self-corrected as fast as it sank.
Regulator, Go Slow on Reining in High-Speed Trading: Algorithm-driven trading appears to be self-correcting. That’s good—the hyper-fast world needs it.
Much has been made recently on the movement of swaps to futures markets as a result of Dodd-Frank.
The Dodd-Frank regulatory overhaul sought to reduce risk in the swaps market in part by having as many as possible trade on an exchange where prices and volumes are posted, as well as having trades settled by central clearinghouses that guarantee payments. The CFTC began writing new rules after Dodd-Frank passed in 2010. The rule that took effect in October requires that any entity trading more than $8 billion of swaps a year—whether a financial company like a bank or a hedge fund, or a “commercial user” like an airline or a shipping company—be considered a swaps dealer and be subject to government audits and higher capital levels.
That prospect didn’t sit well with many market participants, including those who were buying and selling swaps on an electronic trading platform run by the IntercontinentalExchange (ICE). Prompted by its customers, ICE took all the energy swaps that had been trading on its electronic marketplace—more than 900 contracts—and used them to create futures contracts that could trade on its futures exchange. So now, instead of creating a customized swap with another trader, an airline that wanted to lock in the price of 1 million gallons of jet fuel at a certain date would buy jet fuel futures contracts created and managed by ICE.
From Bloomberg BusinessWeek’s: This Is What Unregulated Swaps Look Like
Unintended consequence alert! Knowing exactly how swaps would adapt around this kind of thing would be next to impossible; but knowing that they would in fact adapt was possible.
In an increasingly technocratic, “if I pull this lever the economy will do X” type of world, it pays more than ever to read the free market wisdom of Thomas Sowell. Now considered an economic classic, his Knowledge and Decisions is a must read. Known for his clarity of thought and cogency of words (Sowell is an accomplished writer), Knowledge is uncharacteristic of Sowell’s later works—often turgid, plodding, redundant, and overly long. This is more academic exuberance than pithy communication. But the gold is there, and a must read for those pondering how decisions will be made as the world of Dodd-Frank arrives.
“If politicians stopped meddling with things they don’t understand, there would be a more drastic reduction in the size of government than anyone in either party advocates.” – Thomas Sowell
I don’t always agree with Jim Cramer, but here is some good sense that’s been espoused on this page for some time now:
You know what didn’t work in 2012? Risk on, risk off. As hard as I tried to stamp out this ridiculous bit of hedge-fund-ese, I was not able to. There are too many commentators out there, and too many traders who want to succumb to this kind of non-rigorous, intellectually lazy thinking, and it’s impossible to shut them all down. But let 2012 be a lesson to you: It was revealed that you would have underperformed these people if you’d followed them. Notice I say “underperformed,” because one thing is for certain — none of these blowhards will let you see their returns after what I bet was a fiasco year for what I can only call an “alleged” strategy.
Let this be the death of risk on, risk off – Jim Cramer
Ken Fisher and Lara Hoffmans have published their layperson’s guide to building a basic wealth plan — I couldn’t recommend it more.
Much like his other books, Ken Fisher takes a route of empowering the average investor, being less didactic or preachy and offering usable perspectives in terms everyone can understand.
In my view, it’s one of the ultimate things a skilled expert can do for us: to give his knowledge back in a way all can participate in. Ken has seen it all, done it all, and been very good at it for very long time; it’s a pleasure to read about the fundamentals of wealth-building with all the signature wit and uncommon perspective he and Lara always bring.
If you’ve never read Leonard E. Read’s I, Pencil, it’s always a good time. A wonderful summation of free market principles, it’s also a document Milton Friedman referred to often. Here’s a parting lesson, straight from the pencil himself:
“The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.”
Fisher Investments faithful Bill Shepherd recently opined on a number of topics. When experience like his speaks, I think we ought to listen. Here are a few thoughts:
Mutual funds were originally created to help achieve diversification—and are still helpful for those who don’t have a lot to invest, but would like a diverse portfolio. They can help investors get started in the markets, but can be expensive, due to trading and possible tax implications, and can lack the flexibility of a portfolio of stocks and fixed income. “While mutual funds make sense for some investors, it’s important to make sure you own them for a reason and/or haven’t out grown them,” says Bill Shepherd. “Meaning, you can achieve sometimes cheaper diversification buying multiple stocks than buying mutual funds—but it depends on your financial goals and what you can truly afford”, he continues. Here it’s helpful to have a money manager whose interests are aligned with yours to help guide you to optimal investing decisions in your portfolio.
Bill Shepherd recognizes there are many different avenues in the financial industry when it comes to choosing a money manager. “In general, I think one of the most important questions to ask yourself is, are my interests aligned with my financial professional’s? Said another way, will they do well if you do well?” asks Shepherd. “This may not be true in all facets of money management. Brokers, for example, may work on a commission system based on activity rather than a management fee based on the size of your portfolio like Fisher Investments. This structure allows us to align our interests with our clients. We utilize separate custodians to house client assets, so we don’t earn commissions on trades that are placed in your account, nor do we sell you products. So our answer to that question is this—absolutely—if you do well, then we do well.”
A big challenge in investing is the culture of emotional created largely, it seems, by the media—especially now that news is available 24/7 on the internet, TV, smartphones and tablets and constantly updates. “It’s very easy to let emotional reactions lead your investing decisions, and your understanding of economics,” says Bill Shepherd. “A good example of media spreading negative sentiment about markets right now is the fiscal cliff. However, Fisher Investments believes talk about the fiscal cliff’s impending disaster is likely a lot of hot air—which unfortunately sells more for the media,” continues Shepherd. More about Fisher Investments views on the fiscal cliff can be found on MarketMinder.com.
We forget how much of today’s free market views—the language and examples we commonly use—come from Milton Friedman. He belongs in the company of Smith, Bastiat, Hayek, and Von Mises, among a few elite others, in not just espousing the virtues of free markets, but explaining them in ways the non-economist public understood intuitively.
You can see the entire run of his PBS specials here:
One of my largest recurring gripes is the way economic and financial theory hems folks in to narrow modes of thinking. Every single day for the last two years there have been oodles and oodles of economic analyses on the Europe situation in attempt to figure out how capital markets will react. Stop thinking like an economist—this is a political issue now.
It’s a common debate, as old as economics itself, to ask: Which trumps the other—economics or politics? This is a world where many unfathomable things take place regularly. Virtually no one could envision the LTRO, the EFSF, or any of the other creative “solutions” of the last couple years. And even if you could predict what the next jury-rigged mechanism will be, there’s no telling who or how or when it’ll happen. That’s because, yes, economics are forcing the hands of Europe ’s politicians, but in the end decisions are being made in the political forum.
There is no model or theory that guides here.
“Anna Schwartz was one of the greatest economists of the twentieth century… Anna had done path-breaking research since the 1930s in assembling the monetary statistics that were at the heart of her three monumental books written with Milton Friedman — “A Monetary History of the United States” ( 1963), “Monetary Statistics of the United States” ( 1970) and “Monetary Trends of the United States and United Kingdom“( 1982). I had the good fortune of collaborating with her on papers ever since; we just finished writing ( with Owen Humpage of the Cleveland Fed) “ U.S. Exchange Market Operations in the Twentieth Century.”
- Anna Schwartz, Pioneering Monetarist – Michael Bordo
Indeed. Her work will have a lasting impact for a long time to come.