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Our popular course Introduction to QuantLib Development will be taking place June 18-20th, 2018.


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The Aleph Blog wrote a new blog post titled Notes on the Fed Announcements
Photo Credit: City of Boston Archives==========================Listening to the Fed Chair’s press conference, there was one thing where I disagreed with what Powell was saying.  He said a few times that they only made one decision at the FOMC meeting, that of raising the Fed Funds rate and the reverse repo rate by 0.25%.  They made another decision as well. The decided to raise the rate of quantitative tightening [QT] by increasing the rate of Treasury, MBS and agency bonds rolloff by $10B/month starting in April. They did that by increasing the rate of reduction of MBS and agency bonds...
3 days ago
The Aleph Blog wrote a new blog post titled Just Don’t Invert the Yield Curve
Photo Credit: Brookings Institution================================Jerome Powell is not an economist, and as such, has the potential to try to remake the way the Fed does monetary policy.  Rather than hold onto outmoded ideas ideas like the Phillips Curve, which may have made sense when the US was a more insular economy, there are better ways to think of monetary policy from a structural standpoint of how financial firms work.(Note: the Phillips Curve relies on a very simple assumption that goods and services price inflation stems from wage inflation, and that wage inflation occurs when...
4 days ago
The Aleph Blog wrote a new blog post titled Why I Like Foreign Small Cap ETFs
Photo Credit: amanda tipton || It may not be foreign, and not an ETF, but it IS a small cap======================This should be a short post.  When I like a foreign market because it seems cheap (blood running in the streets), I sometimes buy a small cap ETF or closed-end fund rather than the cheaper large cap version.  Why?They diversify a US-centric portfolio better.  There are several reasons for that:a) the large companies of many countries are often concentrated in the industries that the nation specializes in, and are not diversified of themselvesb) the large companies are typically...
9 days ago
The Aleph Blog wrote a new blog post titled Estimating Future Stock Returns, December 2017 Update
The future return keeps getting lower, as the market goes higher=================Jeff Bezos has a saying, “Your margin is my opportunity.”  He has found ways to eat the businesses of others by providing the same goods and services at a lower cost.  Now, that makes Amazon more productive and others less productive.  The same is true of other internet-related businesses like Google, Netflix, etc.And, there is a slight net benefit to the economy from the creative destruction.  Old capital gets recycled.  Malls that are no longer so useful serve lower-margin businesses for locals,...
11 days ago
The Aleph Blog wrote a new blog post titled Getting a Job in Insurance
Photo Credit: Boston Public LibraryWell, I never thought I would get this question, but here it is:Thank you for your dedication to your blog.I was wondering if you have any skill development advice for recent graduates to gain a job in insurance – is technical or programming skills the most important or perhaps making business cases, or showing that you can make sound and reasonable conclusions?Thank you for your time.Kind regards,There are many things to do in insurance.  Some are technical, like being an actuary, accountant, investment analyst/manager/trader, underwriter, lawyer or...
18 days ago
The Aleph Blog wrote a new blog post titled Surprise! Return to RT Boom/Bust
After almost three years, I returned to RT Boom/Bust on Tuesday.  There are many changes at RT.  Many new people, and a growing effort to put together an alternative channel that covers the world rather than just the US or just the developed world.  They are bursting at the seams, and their funding has doubled, so I was told.I get surprised by who watches RT and sees me.  My  congregation is pretty conservative in every way, but I have some friends working in intelligence come up to me and say, “Hey, saw you on RT Boom/Bust.”  And then there is my friend from Central Africa who...
24 days ago
The Aleph Blog wrote a new blog post titled Monitor Financial Accounts Regularly
Photo Credit: CafeCredit.com=================Fewer laws protect you now. In some ways, the laws are more virtual than real, and only apply to real situations, and not virtual ones.Let me explain.Though checks make up an increasingly smaller fraction of transaction volume in the US, they are still a lot higher here than in Europe.  As such, federal and many state legislators have not caught up with the effects of a hybrid system, where they attempt to regulate electronic banking transactions under the same rules as paper checks.Many people like making mobile deposits, rather than going into...
30 days ago
The Aleph Blog wrote a new blog post titled The Rules, Part LXIV
Photo Credit: Steve Rotman || Markets are not magic; government economic stimulus is useless with debt so highWeird begets weirdI said in an earlier piece on this topic:I use [the phrase] during periods in the markets where normal relationships seem to hold no longer. It is usually a sign that something greater is happening that is ill-understood.  In the financial crisis, what was not understood was that multiple areas of the financial economy were simultaneously overleveraged.So what’s weird now?Most major government running deficits, and racking up huge debts, adding to overall...
47 days ago
The Aleph Blog wrote a new blog post titled NASDAQ Composite Hits an Inflation-Adjusted High
Hey, it only took 18 years to eclipse the prior high in purchasing power terms! Better than the Great Depression! This is an update of a post I did less than three years ago.  In that relatively short time, the NASDAQ Composite hit an all-time record in purchasing power adjusted terms.  Quite an ascent in the last two years.  I never would have predicted it.  If you took the other side of my advice you did better.That said, the S&P 500 is forecast to return 3.4%/year prior to inflation for the next ten years.  Aside from one quarter during the go-go years (1968), the only period with...
63 days ago
The Aleph Blog wrote a new blog post titled On the Migration of Stock
Photo Credit: ashokboghaniThis should be a brief article.  I remember back in 1999 to early 2000 how P&C insurance stocks, and other boring slower-growth industries were falling in price despite growing net worth, and reasonable earnings.  I was working for The St. Paul at the time (a Property & Casualty Insurer), and for an investment actuary like me, who grew up in the life insurance business it was interesting to see the different philosophy of the industry.  Shorter-duration products make competition more obvious, making downturns uglier.The market in 1999-2000 got narrow.  Few...
67 days ago
The Aleph Blog wrote a new blog post titled On a Letter from an Old Friend
Photo Credit: jessica wilson {jek in the box}David:It’s been a while since we last corresponded.  I hope you and your family are well.Quick investment question. Given the sharp run-up in equities and stretched valuations, how are you positioning your portfolio?This in a market that seemingly doesn’t go down, where the risk of being cautious is missing out on big gains.In my portfolio, I’m carrying extra cash and moving fairly aggressively into gold. Also, on the fixed income side, I’ve been selling HY [DM: High Yield, aka “Junk”] bonds, shortening duration,...
67 days ago
The Aleph Blog wrote a new blog post titled Since 1950, the S&P 500 in 2017 Ranks First, Fourth, Tenth or Twenty-third?
Credit: Roadsidepictures from The Little Engine That Could By Watty Piper Illustrated By George & Doris Hauman c. 1954=========================================I wish I could have found a picture of Woodstock with a sign that said “We’re #1!”  Snoopy trails behind carrying a football, grinning and thinking “In this corner of the backyard.”That’s how I feel regarding all of the attention that has been paid to the S&P being up every month in 2017, and every month for the last 14 months.  These have never happened before.There’s a first time for...
80 days ago
The Aleph Blog wrote a new blog post titled On Finding a Job in Finance
Photo Credit: Chris-Håvard BergeI was approached by a younger friend for advice.  This is my response to his questions below:Thank you for agreeing to do this for me. I would love to have an actual conversation with you but unfortunately, I think that between all of the classes, exams, and group project meetings I have this week it would prove to be too much of a hassle for both of us to try to set up a time.1. What professional and soft skills do you need to be successful in this career and why? 2. What advice would you give to someone considering working in this field? 3. What are some...
96 days ago
The Aleph Blog wrote a new blog post titled Favorite Aleph Blog Post of 2017?
As you might recall, I was invited to participate in The Best Investment Writing, Volume 1. Well, volume 2 is being discussed. This time, I thought I would let my readers offer their opinion on the matter. So, let me know, you can take this poll — oh, and can vote for as many as you like.Thanks,David Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.
105 days ago
The Aleph Blog wrote a new blog post titled Classic: Wrecking Ball Looms for Big Housing Spec
Photo Credit: Rhys A.====================I thought this old post from RealMoney.com was lost, never to be found again.  This was the important post made on November 22, 2006 that forecast some of the troubles in the subprime residential mortgage backed securities market.  I favored the idea that there there would be a crash in residential housing prices, and the best way to play it would be to pick up the pieces after the crash, because of the difficulties of being able to be right on the timing of shorting could be problematic.  In that trade, too early would mean wrong if you had to lose...
106 days ago
The Aleph Blog wrote a new blog post titled Estimating Future Stock Returns, September 2017 Update
Another quarter goes by, the market rises further, and the the 10-year forward return falls again.  Here are the last eight values: 6.10%, 6.74%, 6.30%, 6.01%, 5.02%, 4.79%, and 4.30%, 3.99%.  At the end of September 2017, the figure would have been 4.49%, but the rally since the end of the quarter shaves future returns down to 3.99%.At the end of June the figure was 4.58%.  Subtract 29 basis points for the total return, and add back 12 basis points for mean reversion, and that would leave us at 4.41%.  The result for September month-end was 4.49%, so the re-estimation of the model added 8...
106 days ago
The Aleph Blog wrote a new blog post titled Notes from an Unwelcome Future, Part 1
Photo Credit: Tim Harding==============================================================Dear Readers, this is another one of my occasional experiments, so please be measured in your comments.  The following was written as a ten-year retrospective article in 2042.==============================================================It was indeed an ugly surprise to many when the payments from Social Security in February 2032 did not come.  Indeed, the phones in Congress rang off the hook, and the scroll rate on incoming emails broke all records.  But as with most things in DC in the 21st century, there...
116 days ago
The Aleph Blog wrote a new blog post titled The Crisis Lending Fund
Photo Credit: Barron’s===================Last week, there was an article in Barron’s describing how many mutual fund families take advantage of a provision in the law allowing them to have funds lend to one another.  Quoting from the article:Under normal circumstances the Securities and Exchange Commission bars funds from making “affiliated transactions,” but there’s a loophole in the Investment Company Act of 1940 for funds to apply for an exemption to make such “interfund loans.” Until recently, few fund families applied for this exemption. None had before 1990. From 2006 to...
127 days ago
The Aleph Blog wrote a new blog post titled Short-Term Rational, but Intermediate-Term Irrational
Don’t look at the left side of the chart on an empty stomach==================This will be a short post.  At present the expected 10-year rate of total return on the S&P 500 is around 4.05%/year.  We’re at the 94th percentile now.  The ovals on the graph above are 68% and 95% confidence intervals on what the actual return might be.  Truly, they should be two vertical lines, but this makes it easier to see.  One standard deviation is roughly equal to two percent.But, at the left hand side of the graph, things get decidedly non-normal.  After the model gets to 2.5% projected...
152 days ago
The Aleph Blog wrote a new blog post titled The Little Market that Could
Picture Credit: Roadsidepictures from The Little Engine That Could By Watty Piper, Illustrated By George & Doris Hauman | That said, for every one that COULD, at least two COULDN’T======================================So what do you think of the market?  Why are both actual and implied volatility so low?  Why are the moves so small, but predominantly up?  Is this the closest impression of the Chinese Water Torture that a stock market can pull off?Why doesn’t the market care about external and internal risks?  Doesn’t it know that we have divisive, seemingly incompetent...
156 days ago