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 Friday 07 November 2014

The independent professional development service for investment portfolio construction practitioners

G'day

In this week's Forum Fodder, Nouriel Roubini argues that the global economy is flying on a single engine (US growth) while the "pilots" navigate menacing storm clouds. A la Woody and Mohammed in last week's Fodder, Nouriel picks up on rising inequality as a serious challenge, not on moral grounds, but rather because it is redistributing income to those with a high propensity to save (the rich and corporations), thus further constraining economic growth. Oliver Hartwich - one of the most popular speakers at our Symposium NZ 2014 earlier this year - writes that for the first time, negative interest rates have leaked through to the retail banking client in Europe (real rates have been negative for a while, of course), which supports Nouriel's contention that Europe is one of three engines that have failed. But it's not all doom and gloom. GaveKal's Charles Gave explains how to position portfolios to benefit from deflation (you make money in a deflationary environment). Tony Vidler points to a recent survey of adviser clients in which the majority didn't know whether they were on track with their financial goals, rightly arguing that it's the first thing any smart adviser should make sure of. Michael Furey explains the low beta anomaly in terms us non-quants can understand, arguing the logic of why the low beta anomaly should exist. And, last, but not least, we highlight Michael Kitces' presentation from Conference 2014, in which he did such a good job of explaining risk parity portfolios that Cliff

Asness (one of the inventors of risk parity) said it was the best explanation he's heard. As we've come to expect from Michael, he excelled at making an important but complex portfolio construction theory understandable.
All the best for some more great weekend learning - Graham

LATEST...

The single-engine global economy
The global economy is like a jetliner that needs all of its engines operational to take off. Unfortunately, only one of its four engines is functioning properly.
Nouriel Roubini, Roubini Global Economics
Opinion

Taking a gamble with negative interest rates
The taboo that savers must be compensated for handing money to a financial institution has been broken, with the ECB's negative rates finally being passed on to retail clients.
Oliver Hartwich, The New Zealand Initiative
Opinion

Is this why clients question fees?
A recent survey found "an alarming 60 percent of clients did not know or were unable to answer if they were on track to meet their defined goals". Can yours?
Tony Vidler, Strictly Business
Opinion  

Deflation: Boom or bust?
It has been my contention for a while that capitalism is returning to its 19th century deflationary roots. Indeed, the evidence has become overwhelming.
Charles Gave, GaveKal
Opinion  

Risk parity portfolios - fad or the future of portfolio construction?
Is risk parity's outperformance in the past decade sustainable or just a quirk of the unusual markets.
Michael Kitces, Pinnacle Advisory Group
Resources

Low beta anomaly - mispricing or risk?
I don't dispute that low volatility stocks outperform highly volatile stocks (and this is common across many markets). But volatility does not explain all of an asset's risk.
Michael Furey, Delta Research & Advisory
Opinion

RECENTLY...

Capitalism, inequality, and Piketty
Thomas Piketty’s "Capital in the Twenty‐First Century" is certainly the economics book of the year. We have been asked numerous times to appraise his ideas.
Dr Woody Brock, SED
Research Paper

The inequality trifecta
Most countries face a trio of inequalities – of income, wealth, and opportunity. Beyond the moral, social, and political implications lies a serious economic concern.
Mohamed El-Erian, Allianz
1 comment Opinion  

Bill Sharpe on retirement income planning
One of the originators of CAPM, Sharpe (along with Markowitz and Miller) was awarded the 1990 Nobel Prize in economics. I sat down with him to discuss retirement income planning.
Robert Huebscher, Advisor Perspectives
Interview

Phrases that should be banished from retirement planning
The words we use and how we frame concepts have a powerful impact. Perhaps the most crucial change in our retirement planning language is simply to rename "retirement".
Michael Kitces, Pinnacle Advisory Group
Opinion

Risk rapporting
Formal reports redolent with data and analysis fail to communicate risks as people actually feel them. Reports need to be replaced by rapports, by engaged conversations.
Prof Jack Gray,
UTS Resources

Four takeaways from the recent volatility spike
Last week's volatility surprised many. How should portfolios be positioned? And what does this recent bout of volatility tell us about the economy and financial markets?
Russ Koesterich, BlackRock
Opinion

PLUS...

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