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Friday, April 15, 2005
Smart Money Article
Here's a cool (& pretty short) article I stumbled on... it covers this guy's views on lots of stuff: the economy, interest rates, energy, the stock market, hedge funds... cool stuff.
I'm not sure if I agree with his macro-look at sectors. I mean, that's smart, and I'd do it, but I'd also be trying to figure out when the next "ipod" would emerge, you know? Otherwise, how would you make money?
I like his macroeconomic approach and his perspective on energy and pharmacy. I totally agree with his arguments about interest rates. Whoever thinks that oil should be used as a financial tool must have slept through the late 70's and early 80's when there was literally 15% inflation!
I'm not sure how he can justify the "yield curve" argument and how it pertains to the S&P. If banks' longterm and shortterm interest rates are converging, that isn't necessarily bad. And I'd have to look into whether Banks really are such a driving factor to the S&P. That seems kind of counterintuitive to me.
Good comments on why the fed rate is so low. I agree, based on what I've been reading, that it is way too low right now. He says in the article that it needs to be between 3 and 5% for it to be "neutral" and have no effect on the economy. I think that's true.
It'd be interesting to learn more about "alphas." I understand beta, but not alpha. Remember that one hedge fund article I sent you a few weeks ago. The one that was getting 80% returns? I just don't understand that.
I think the banks make money by buying money at lower rates (short term maturities) and loaning it at the higher rates (long term maturities). With the yield curve flattening, I think that essentially means their margins are getting lower: the difference between the short-term rates and long-term rates is getting smaller. That's how I interpret it - I could be wrong. Financial services make up 20% of the S&P 500, so they definitely play a big role in how that index performs.
I've never thought about pharma like that, but I tend to agree with him. it's really two differnet business: exploration and servicing.
I agree with you: looking at the macro sectors helps you narrow down where the best opportunities for growth are in the general economy, but within each sector there are leaders and laggards. I would rather find a good sector, then dive into the top performers within that sector.
I don't know squat about hedge funds or alphas. Jeez, I have a lot to learn about this stuff.
2 comments:
I'm not sure if I agree with his macro-look at sectors. I mean, that's
smart, and I'd do it, but I'd also be trying to figure out when the
next "ipod" would emerge, you know? Otherwise, how would you make
money?
I like his macroeconomic approach and his perspective on energy and
pharmacy. I totally agree with his arguments about interest rates.
Whoever thinks that oil should be used as a financial tool must have
slept through the late 70's and early 80's when there was literally
15% inflation!
I'm not sure how he can justify the "yield curve" argument and how it
pertains to the S&P. If banks' longterm and shortterm interest rates
are converging, that isn't necessarily bad. And I'd have to look into
whether Banks really are such a driving factor to the S&P. That seems
kind of counterintuitive to me.
Good comments on why the fed rate is so low. I agree, based on what
I've been reading, that it is way too low right now. He says in the
article that it needs to be between 3 and 5% for it to be "neutral"
and have no effect on the economy. I think that's true.
It'd be interesting to learn more about "alphas." I understand beta,
but not alpha. Remember that one hedge fund article I sent you a few
weeks ago. The one that was getting 80% returns? I just don't
understand that.
I think the banks make money by buying money at lower rates (short
term maturities) and loaning it at the higher rates (long term
maturities). With the yield curve flattening, I think that essentially
means their margins are getting lower: the difference between the
short-term rates and long-term rates is getting smaller. That's how I
interpret it - I could be wrong. Financial services make up 20% of the
S&P 500, so they definitely play a big role in how that index
performs.
I've never thought about pharma like that, but I tend to agree with
him. it's really two differnet business: exploration and servicing.
I agree with you: looking at the macro sectors helps you narrow down
where the best opportunities for growth are in the general economy,
but within each sector there are leaders and laggards. I would rather
find a good sector, then dive into the top performers within that
sector.
I don't know squat about hedge funds or alphas. Jeez, I have a lot to
learn about this stuff.
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