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.

http://www.smartmoney.com/theproshop/index.cfm?story=20050414

2 comments:

  1. 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.

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  2. 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.

    ReplyDelete