Legacy, fiscal policy, geopolitics, & Monte-Carlo analysis
This week, Fodder features Professor Jack Gray's top-10 rated Conference presentation about the wealth management industry's current legacy (which leaves a lot to be desired, he argues). Nouriel Roubini and Stephen Roach take different paths to the conclusion that monetary policy is tapped out and fiscal stimulus is needed now to raise global growth. Princeton professor, Stephen Kotkin, explains that the geopolitical risk that investors should worry about most is a China/US clash and what might spark that (supporting Marko Papic's argument in last week's Fodder). And Wade Pfau and David Blanchett explain the limits of Monte-Carlo simulation to estimate the range of likely outcomes for portfolios.
All the best for a great weekend's continuing education - Graham
P.S. You can catch all the presentations from Conference 2016 "The long and short of it" and earn up to 17 CE hours via the online Conference 2016 Resources Kit.

LATEST...

Philosophy
We must change our legacy for the better
The financial system that we (banks, portfolio managers, researchers, advisers...) bequeath is unstable, un-trusted and built on inappropriate theory with mis-aligned incentives.
Prof Jack Gray, UTS | 0.50 CE | Resources
* Rated in the top 10 presentations by Conference 2016 delegates

Markets
The return of fiscal policy
Central banks have been driven to adopt increasingly unconventional monetary policies - yet most economies are far from where they need to be. We should begin activating fiscal policy.
Nouriel Roubini, Roubini Global Economics | Opinion

Markets
Desperate central bankers
The lack of response at the zero bound of policy interest rates is hardly surprising. In fact, it is strikingly reminiscent of the so-called liquidity trap of the 1930s. What is particularly disconcerting is that central bankers remain largely in denial.
Stephen Roach, Yale University | Opinion

Markets/Strategies
Geopolitics and the consequences of choice
The gravest geopolitical challenge is not terrorism, the Middle East, or Brexit, but an eruption between China and the US, the world's two largest economies and militaries. It is always when the most powerful countries clash that the world is altered fundamentally.
Stephen Kotkin, Princeton University | Opinion

Strategies
The power and limitations of Monte-Carlo simulations
Predicting the future raises a significant number of issues when creating an investment plan. Monte Carlo simulations will illuminate the nature of that uncertainty, but only if those using them understand how it should be applied – and its limitations.
David Blanchett & Wade Pfau | Opinion

No rebalancing and risk tolerance
Is this just saying that an unrebalanced portfolio will often outperform a rebalanced portfolio because the exposure to the higher returning assets (probably equities) will increase over time?
Tim Farrelly, farrelly's | Comment

The failure to understand rebalancing
It certainly wouldn't be surprising for a client's risk tolerance to increase as the value of the client's portfolio increases...
Michael Edesess, EDHEC-Risk Institute | Comment

Currency is the ultimate alternative
It's a good point that it is difficult (but not impossible) to predict a given currency level on a given day. The dynamic hedging decision, though, isn't just about the NZD...
Dori Levanoni, First Quadrant | Comment

RECENTLY...

Markets/Strategies
Geopolitical risk? Ignore terrorism, focus on East Asia
Geopolitical tensions between China, the US, and countries of South East Asia are growing. Most investors dismiss the region as a risk. But we are at a precipice of a left-tail risk event.
Marko Papic, BCA Research | 0.25 CE | Resources
* Rated in the top 5 presentations by Conference 2016 delegates

Markets/Strategies
Unfavourable candidates can be favourable for the US economy
There has never been a more divisive US election season than the one we are witnessing right now. While the rhetoric and opinion polls are captivating on a weekly basis, the long game is what matters.
Libby Cantrill, PIMCO | 0.50 CE | Resources
* Rated in the top 5 presentations by Conference 2016 delegates

Markets/Strategies
Headlines battle facts, but fundamentals will prevail
As an investor, allowing yourself to be distracted by quick interpretation of market dynamics will lead to poor allocation decisions. Ultimately, fundamentals will win out for long-term investors.
James Swanson, MFS Investment Management | 0.50 CE | Resources
* Rated in the top 5 presentations by Conference 2016 delegates

Investing
Tracking error causes short termism
Tracking error constraints on active management focus on short-term outcomes and don’t align with most investor goals, which are longer term. So how else can portfolios be designed?
Olivia Engel, State Street Global Advisors | 0.50 CE | Resources
* Rated in the top 5 presentations by Conference 2016 delegates

Investing
Infrastructure provides reliable earnings irrespective of crises
Provided investors define infrastructure in a disciplined manner, investment in infrastructure will continue to deliver investors reliable earnings over time.
Gerald Stack, Magellan Asset Management | 0.50 CE | Resources
* Rated in the top 5 presentations by Conference 2016 delegates

Philosophy/Markets/Strategy/Investing/Finology
Backgrounder: The long and short of it
Managing the fundamental friction between short-term and long-term investing imperatives is a key challenge when building portfolios.
PortfolioConstruction Forum | White Paper

Currency is the ultimate alternative
Central banks (and other event risks...elections, wars, etc.) all do create volatility... and not just in the currency markets!
Dori Levanoni, First Quadrant | Comment

Long-term forecasting vs Short-term forecasting
While making the broad statement that long-term investing is a fools paradise the discussion seems centred on stock selection rather than the full gamut of long-term investing. Moving away from stock picking, other pieces of the investment puzzle really do lend themselves to a long-term point of view...
Tim Farrelly, farrelly's | Comment

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