McKinsey Assesses Future Stock and Bond Returns – AJO

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Are stocks’ glory days behind us? What about bonds? As the late Merle Haggard asked in song, “Are the good times really over for good?” A widely circulated McKinsey Global Institute (MGI) report, Diminishing Returns: Why Investors May Need to Lower Their Expectations, suggests that they are. The report makes the case that both stock and bond returns over 1985-2014 …

McKinsey Assesses Future Stock and Bond Returns

Laurence Articles

Are stocks’ glory days behind us? What about bonds? As the late Merle Haggard asked in song, “Are the good times really over for good?” A widely circulated McKinsey Global Institute (MGI) report, Diminishing Returns: Why Investors May Need to Lower Their Expectations, suggests that they are. The report makes the case that both stock and bond returns over 1985-2014 …

Five Mysteries Surrounding Low and Negative Interest Rates

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Zero and negative nominal interest rates are something new under the sun. In 3800 years of history, we’ve only observed near-zero rates a few times, and almost never negative ones. Of course, real rates have been negative for extended periods, but this is different. There is much that we do know about the relationship between interest rates, inflation, savings, real …

Debunking Nine Myths of Investing

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On April 29, 2010, I spoke on “nine myths of investing” at the Terrapinn Brasil Investment Summit in São Paulo, Brazil. Popular myths do not die quickly but they gradually change — as do markets, which have doubled in the meantime — so here is an update.

A Conversation with Mohamed A. El-Erian

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Mohamed A. El-Erian is one of the best known and most highly respected investment managers in the world. He is senior economic adviser to Allianz, and was formerly CEO and co-CIO (with Bill Gross) of PIMCO. From 2006 to 2007 he was president of Harvard Management Company. Dr. El-Erian was educated at Cambridge University and received his doctorate from Oxford …

The Bromance that Turned Economics Upside Down

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Who would guess that the modern sciences of behavioral economics and the psychology of decision-making owe their origin to a love affair (no, not sexual) between two men born early in the last century and so different that one could barely imagine them speaking to each other? Yet that is the story chronicled by the extraordinary nonfiction writer Michael Lewis …

What Would Minsky Do Now?

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    In the two decades since his death, Hyman Minsky’s stature has grown enormously. He foresaw the great financial crisis of 2007-2009, and economists routinely refer to “Minsky moments” as the tipping point when seemingly stable financial markets collapse with catastrophic consequences. It’s instructive to speculate on how Minsky would view our post-crisis economic recovery, and a new book …

Robert Gordon, the Special Century, and the Prospects for Economic Growth

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    Is the slowdown in economic progress in this new century an aberration or should we have expected it all along? Is it the result of unwise policies or unfavorable demographics, or is it the comedown that naturally occurs after a century-long global economic miracle? How one views the prospects for economic growth will have profound implications for the …

The Pension Crisis: Six Lessons Learned and a Way Forward

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    What have we learned from the seemingly endless recent run of pension crises, which have lasted some seven years and have encompassed both DB and DC plans? Having lost assets and then regained them, both kinds of pension plans should be on a path to being healthy, yet they are not. For many plans, liabilities still exceed assets, …

The Hidden Cost of Zero Interest Rate Policies

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Should the Fed raise interest rates? Some believe that ultra-low interest rates are good for investors because they drive up the prices of stocks and real estate, fattening household balance sheets. Others counter that zero rates are an insidious tax, transferring wealth from borrowers to lenders, distorting incentives and misallocating capital for individuals and government and making the American investor …

Phooey on Financial Repression

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Should the Fed raise interest rates? Are ultra-low interest rates good for investors because they drive up the prices of stocks and real estate, fattening household balance sheets? Or are zero rates an insidious tax, rearranging the terms of trade between borrowers and lenders, as well as between individuals and government, and making investors poorer over time? “Phooey on Financial …

How Emerging is Your Emerging Markets Manager? Arguing for a Bigger Allocation to Small Caps

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Most of today’s sophisticated investors genuinely believe in the merits of a permanent allocation to emerging markets. It’s easy to see why: Projected rates of high economic growth, along with secular demographic and consumption trends, combine to offer the potential for high returns to the patient, long-term investor. Moreover, challenging conditions associated with many developed markets have investors scouring the …

The Inventor of Behavioral Finance Looks Back

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“Economics is…a branch of…animal behavior.” – Walter L. Battaglia Behavioral finance is one of the great discoveries of our time, and the University of Chicago professor and investment manager Richard Thaler is one of its principal discoverers. Misbehaving is Thaler’s personal account of his discoveries, which influence the way assets are managed, policy is conducted and economic theory is understood …

Can We Recover from the Public Debt Crisis? Of Course We Can

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“If something cannot go on forever, it will stop.” – attributed to Herbert Stein Is the world facing a public-debt crisis, or is too much debt just another headache we will muddle through? How can investors distinguish between countries that are likely to default or otherwise injure debtholders, such as through high inflation, and those that will resolve their debt …

The Only Spending Rule Article You Will Ever Need

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After examining an array of approaches to determining a spending rule for retirees, the authors propose the annually recalculated virtual annuity. Each year, one should spend (at most) the amount that a freshly purchased annuity—with a purchase price equal to the then-current portfolio value and priced at current interest rates and number of years of required cash flows remaining—would pay …