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Grab Bag (5 Nov 2016)


1) Some savers and politicians blame central banks for low rates. They're at least partially right. Investors earn returns as compensation for bearing some risk. Monetary policy has been far from perfect in recent times, but it's vastly improved since the 1970s. As such, investors no longer bear as much risk of volatility in economic growth and inflation. In that respect, they should be grateful to central banks for lower rates.

2) Continuing the theme of low returns, some commentators think investors are setting themselves up for big losses. The argument goes something like this: high prices automatically imply low returns, so investors are in for a world of hurt. My take is that low expected future returns do not imply a crash is coming - as long as those returns are truly expected. Crashes happen when investors expect high returns and those don't materialize. (Meb Faber has remarked, though, that some investors seem to have unrealistically high expectations for returns in hedge funds and private equity. He might be right there.)

3) From low returns to low margins. Relentless competition seems to be driving margins down in businesses that were hitherto impervious to these forces (I've been thinking of hedge funds, and even food retailing, which has gone from a tough business to downright bloody). This is hard on business, but great for consumers. Short of inheriting wealth, getting rich seems to be a function of three things: earning a lot, saving a lot, and investing well. In a world where the median person sees low investment returns and pressure on wages from automation, is it more important than ever to be a great saver, enjoying the benefits of business's low margins?


4) It never fails to surprise me that conservatism, which presumably favours retaining traditional social institutions, isn't aligned with environmentalism. But then I suppose the ongoing US election has shown that "Conservatives" in the US really aren't particularly bothered about conservative ideals.

5) I've been reading the memoirs of former Brazilian president Fernando Henrique Cardoso. Describing the rise of the eccentric Janio Quadros, FHC speculates that Brazilians were "simply looking for a different kind of politician." "No one knew what he really stood for - his campaign slogan was simply "Janio is coming" - but the self-described "anti-politician" won the election." "The man himself had not a moral bone in his body. He threw himself at women with an unbecoming, even violent, zeal." At home, Janio's policies provoke the conservative elite. In his foreign policy, Janio proceeds to tear up existing alliances and align himself with Cuba, China and the Soviet Union. Needless to say, it doesn't go well for Janio, and his tenure paves the way for Brazil's military dictatorship. Fingers crossed that Janio's disaster isn't repeated elsewhere.

Age & Success

6) The NYT has a fascinating article on age and success. The work being reported shows that physicists were more likely to produce high impact work earlier in their careers. But this isn't due to age. Rather, "it was entirely because of productivity: Young scientists tried more experiments, increasing the likelihood they would stumble on something good." The little bets phenomenon is everywhere. I recommend the rest of the article for some thoughts on skill, luck and success.

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