Economic Analysis

Where’s the Beef? “Lies, Damned Lies, and Statistics”

Outside the Box

May 4, 2016

I have long been a critic of government inflation statistics. Not so much with regard to the methodology they use, but because the measure of “average” inflation across the broad economy doesn’t really describe the inflation that the majority of Americans experience. I’ve written about that at length in several letters.

Now my good friend Rob Arnott, along with his associate Lillian Wu, presents us with a research paper that lays out what inflation actually looks like for most Americans – and...

Delta Force

Thoughts from the Frontline

May 1, 2016

Last week we looked at the world’s demographic destiny for the coming decades. I imagine most readers perused the information and said, “Yes, we already know the world’s population is getting older. Everybody keeps saying demographics are important, but I’d like to know how slowly changing demographics actually affect the economy here and now.

Welcome to the Pale Gray Dot

Thoughts from the Frontline

April 26, 2016

“The afternoon knows what the morning never suspected.” 
Robert Frost

“It's paradoxical that the idea of living a long life appeals to everyone, but the idea of getting old doesn't appeal to anyone.” 
Andy Rooney

“Deng Xiaoping made a calculation. He bet on demographics. What he knew was that China had this enormous population of young, underemployed people, people who he could move from the farms to the coast and put them to work in factories, and that would be the lifeblood of China's...

Flawed Assumptions and Grand Experiments

Outside the Box

April 20, 2016

Over the last few years, I have from time to time had the real pleasure of being in the presence of Lakshman Achuthan, Chief Operations Officer for the Economic Cycle Research Institute, a rather serious team of economists who spend their time researching economic cycles, especially those around recessions. They are known for having forward-looking models rather than always looking in the rearview mirror.

Every time I get around Lakshman I walk away impressed. And I always make a mental note...

What Condition My Condition Is In

Thoughts from the Frontline

April 16, 2016

I woke up this morning with the sundown shining in
I found my mind in a brown paper bag but then
I tripped on a cloud and fell-a eight miles high
I tore my mind on a jagged sky 
I just dropped in to see what condition my condition was in

Yeah, yeah, oh-yeah, what condition my condition was in

– Made famous by Kenny Rogers and the First Edition, 1968

Hoisington Quarterly Review and Outlook – 1Q2016

Outside the Box

April 13, 2016

You often hear me harping on the dangers of too much debt, and I keep my eyes peeled for significant work that backs up my concerns. In today’s Outside the Box good friend Dr. Lacy Hunt of Hoisington Investment Management gives us more ammunition to take on those who just don’t seem to get that the endless piling up of debt is not a sustainable way to run an economy.

The most striking feature of the US economy’s performance in 2015, according to Lacy, was a massive advance in nonfinancial debt...

Open Letter to the President, Part Five

Thoughts from the Frontline

April 10, 2016

When the next president of the United States walks into the Oval Office on Saturday, January 22, after the heady experience of Inauguration Day followed by numerous balls, he or she will be confronted with significant economic challenges. This is the fifth and I hope final installment in a series of letters I’ve written to the next president on those challenges. The first three letters in the series dealt mostly with the realities of the economic landscape beyond the the United States. The...

Thrivers and Strugglers: A Growing Economic Divide

Outside the Box

April 6, 2016

I am on yet another plane and reading an analysis of the growing wealth and income divide. The data in this week’s Outside the Box is fascinating – but sobering. I can kind of go along with some of the author’s ideas, but the Progressive cheerleader thing is a little disconcerting. That being said, the data squares with other work I have seen. The wealth and income divide is not 1%-99% but more like 25-75. There is a link to a book at the end for those who want a really deep dive.

This essay...

Open Letter to the Next President, Part 4

Thoughts from the Frontline

April 2, 2016

For the past three weeks I’ve been discussing the economic realities the new president will face when he or she takes office next January, using the device of an “open letter to the next president.” Mostly, we’ve been dealing with the economic realities that other countries face and with how difficult the global economic climate is going to be during the next president’s first four years. I briefly outlined last week the stark reality of what will happen to the deficit and national debt in the...

Can “Smart Beta” Get You in Trouble?

Outside the Box

March 30, 2016

I have been doing a fairly deep study of portfolio construction for the past two years, trying to figure out how to solve some of the most perplexing problems of the day: dealing with risk, volatility, performance chasing, and the ever-elusive challenge of actually figuring out where to find performance. One of the hottest topics in the literature and at conferences I attend is the concept of “smart beta.”

Smart beta is a rather elusive term in modern finance. It lacks a strict definition and...