Economic Analysis

CAPM is CRAP, or, The Dead Parrot lives!

Outside the Box

January 29, 2007

Within human nature there is a tendency to search for reasoning or logic to validate our own actions. This holds true in the academic sector as models are derived to provide an answer to a scenario, but sometimes such models do not translate well from the world of academia into that of the real world. This week's Outside the Box is presented by James Montier as he discusses his opinion on how the capital asset pricing model (CAPM) has affected the ways in which investors view and measure...

A New Definition of Rich

Thoughts from the Frontline

January 26, 2007

I am in South Africa as this week's letter is being sent out; so it is with some irony that the letter is focused on a topic that generally concerns only US-based investors, although what the SEC does has an effect on regulatory bodies abroad. This is a letter you may want to forward to your friends and associates.

The Securities and Exchange Commission (SEC) has posted a new proposed rule that would raise the minimum net-worth requirement needed to invest in private funds from...

It’s The Real Interest Rate That Counts

Outside the Box

January 22, 2007

Today's "Outside the Box" will feature an essay by good friend David Kotok of Cumberland Advisors. In his article, David discusses what the development of a global economy means for currencies and the financial markets. He distills the foreign exchange markets into 4 major countries and explains both the policies and risks faced by the central banks of these nations, and how they affect you.

David R. Kotok co-founded Cumberland Advisors ( in 1973 and has been its Chief Investment...

Capital Keeps Falling on My Head

Thoughts from the Frontline

January 19, 2007

Are we overbought and overvalued? Maybe. Is inflation coming under control? Maybe not. Did housing construction rebound last month? No. The only rebound was in the statistics. (I know readers will be shocked to learn that some statistics just may not actually be what the headline says.) We look at all this and more as we ponder a world awash in liquidity.

One of the more interesting reads I get each week is a column from Dow Jones columnist Spencer Jakab. He has a knack for finding the...

Rhetoric and Reality: The View from Iran

Outside the Box

January 18, 2007

Today's Special Edition of "Outside the Box" by my friends at Stratfor gives us a very insightful analysis of the difference between the rhetoric of Iran and the reality of the world they face. George Friedman, President of Stratfor, dispassionately gives us a look at the world from Iran's point of view. Given the reality of today's political climate, it is important to understand what is going on inside a nation that is giving much of the world so many concerns.

Stratfor is the...

A Look in the Mirror

Outside the Box

January 15, 2007

Ancient Chinese philosopher Lao-tzu once said, "He who knows others is wise; he who knows himself is enlightened." Learning to overcome one's own emotions and bias can be one of the single hardest hurdles than an investor faces. It is equally challenging to discern between advice and noise by "experts" in any given field. Today's Outside the Box is written by my good friends Mark and Jonathan Finn where they address some of the psychological difficulties confronted by investors.

For those of...

Should Oil Be $40 or $70?

Thoughts from the Frontline

January 12, 2007

I got a lot of mail as usual from readers about my annual forecast. It was about evenly divided between those who think I am too much of an optimist and those who think the economy will avoid a recession. There are a number of readers who think we have already seen the bottom, and that 2007 will be a banner growth year.

Let me be clear about one thing. My call for a mild recession/slowdown stems almost entirely from my thought that housing is going to be a real problem in the coming...

Quarterly Review and Outlook - Fourth Quarter 2006

Outside the Box

January 8, 2007

On Friday, I wrote my annual forecast, "The Goldilocks Recession," on what investment themes I expect in the coming year. This week's Outside the Box will follow up on the subject with an excellent piece written by Van Hoisington and Dr. Lacy Hunt. In their fourth quarter review of 2006, they address how the current status of the bond market measures up against historical interest rates and inflation. From there, each of the six major sectors of the economy, Personal Consumption Expenditures...

Forecast 2007: The Goldilocks Recession

Thoughts from the Frontline

January 5, 2007

How has another year come and gone so quickly? It seems like someone hit the fast forward button. And once again, all too soon, it is time for me to demonstrate my masochistic nature and write a forecast issue. Rather than going into details on every topic, I will try and stick to the big picture and leave the fine points for later letters.

Each year as I do this forecast, I look for a theme. What will be the driving factor which will set the stage for the economy? In 2001 it was the...

Israel’s Options Against Iran

Outside the Box

January 4, 2007

As a set-up to this week's special edition of Outside the Box from Stratfor, let's take a look at a blog from the Middle East Media Research Institute which discusses some recent allegations from the Iranian leadership that the Holocaust did not occur. Quoting:

In a December 28, 2006 interview with the Iranian website Baztab, which is affiliated with Iranian Expediency Council Secretary Mohsen Rezai, Iranian Presidential Advisor Mohammad Ali Ramin said that Hitler was Jewish, and that Hitler's...