The Big Picture

Fed: “Monetary Policy and the Output Gap”
Which Scientific Ideas Should be Abandoned?
Seattle CFA Annual Dinner 2015
Wall St Ends 2014 More Cautious Than it Began
Fun with Forecasting, 2014 Review
10 Monday AM Reads
Astrological Predictions for 2015
Modeling Inflation Volatility

Fed: “Monetary Policy and the Output Gap”

Posted: 06 Jan 2015 02:00 AM PST

Which Scientific Ideas Should be Abandoned?

Posted: 05 Jan 2015 06:00 PM PST

Every year, Edge.org asks prominent scientists a single question. Lasy tear, the query was simply: "Which scientific ideas should be abandoned?"

Check out the resultant three-minute video to see where scientific thinking is ripe for change.

Seattle CFA Annual Dinner 2015

Posted: 05 Jan 2015 11:00 AM PST

Later this month, on January 22, I will be interviewing OakTree Capital’s Howard Marks — a mini Live and in person MiB — at the Seattle CFA Society’s annual dinner:

click for more details

Here are the details:

CFA Society Seattle is pleased to announce that Howard Marks, CFA, CIC & Chairman, Oaktree Capital Management will serve as keynote speaker to the 2015 Economic Forecast Dinner on January 22, 2015 at the Sheraton Seattle Hotel.

Since the formation of Oaktree Capital Management in 1995, Howard Marks has been responsible for ensuring the firm’s adherence to its core investment philosophy, communicating closely with clients concerning products and strategies, and managing the firm.

Well-known for his insightful assessments of market opportunity and risk, in 2011 Marks captured in his series of investment memos to clients in a book called The Most Important Thing.

In 2013, he updated these insights in The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor. Both books have been praised by thought leaders including Berkshire Hathaway’s Warren Buffett: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his books.”

Hope to see you there!

Wall St Ends 2014 More Cautious Than it Began

Posted: 05 Jan 2015 09:00 AM PST

From Bank of America Merrill Lynch:

The Sell Side Indicator — our measure of Wall Street's bullishness on stocks — moved sideways in December, unchanged from November's reading of 52.1. At the start of the year, it was 53.3. The indicator remains in "Buy" territory, as Wall Street's bearishness is still more extreme than at the market lows of March 2009. Given the contrarian nature of this indicator, we remain encouraged by Wall Street's ongoing lack of optimism and the fact that strategists are still recommending that investors significantly underweight equities, at 52.1% vs. a traditional long-term average benchmark weighting of 60-65%.

Source: BofA Merrill Lynch

Fun with Forecasting, 2014 Review

Posted: 05 Jan 2015 05:30 AM PST

It’s that time of year again. All of the usual suspects trot out their forecasts for 2015 on markets, interest rates, gold, oil, economic growth and unemployment. You can set your calendars based on these prognostications, just as long as you remember to ignore their often-hilarious track records.

Regular readers know this is a pet peeve of mine going way back. As we have detailed here too many times to recount, these predictions are a silly waste of time. (I am the sole exception, as you can see by my flawless forecasts for 2014).

But that doesn't mean they are not potentially damaging, affecting the psyches of traders and investors alike. As economist John Kenneth Galbraith once said, "The only function of economic forecasting is to make astrology look respectable."

To bring a bit of accountability to the punditsphere, let's have a look at some of my favorite forecasts for 2014. Keep these in mind when you read the 2015 predictions…

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10 Monday AM Reads

Posted: 05 Jan 2015 03:41 AM PST

Welcome to the new year! Let’s get you started with our hand curated morning train reads:

• Sometimes talk of a tech bubble is mostly babble (SF Gate) see e.g., Tech Stocks: Sizing Up the New Bubble (Barron’s)
• Interview with Mario Draghi, President of the ECB (Europa/ECB)
• How to Keep Your Portfolio on Track: 31 Rules to Guide Your Investments This Year (WSJ)
• Good Times Teach Only Bad Lessons (Reformed Broker)
• Hedge Fund ETFs Outperform Hedge Funds: Exchange-traded funds are criticized for not mimicking Hedgies well enough. In 2014, that proved to be an advantage (Barron’s)

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Astrological Predictions for 2015

Posted: 05 Jan 2015 03:00 AM PST

Your stars for the year ahead