Why you’re mis-estimating the Equity Risk Premium #1

You base your estimates of the ERP on US history alone Your ERP estimate is too high because your calculation suffers from survivorship bias and errs by including the largest economy for which the most data is currently available rather than a random sample. The US has been a spectacularly successful economy over the last …

Is this the dark side of ultra-low interest rates?

Insightful, counterintuitive cure, or good-money-after-bad, asset-bubble creating folly? That seems to be the decision when it comes to the low interest rate, money supply expanding, liquidity promoting actions of many central banks. Paul Krugman, amongst others, is seriously considered about the US (and the developed world together) entering into a Japan-style (or worse) liquidity trap …

Junk bonds in place of an IPO

The 30 second intro to Junk Bonds Junk Bonds, also known as High Yield Bonds, are debt instruments issued by companies with poor credit ratings, or are the debt instruments of companies that were issued as high quality bonds from strong companies that have since fallen on hard times (“Fallen Angels”). Typically these are any …

Risk, liquidity and the triumph of economics over alchemy

Sharemax appears to be spiralling to its doom. Multiple stories today report that they are late on dividend payments to investors and may not be able to pay dividends in the forseeable future. Cash has run out. The overvalued, over-geared properties cannot support the income stream that was demanded from them. No surprises here then. …

A Twisted Tale of Two Countries

Tale I – Norway The Norwegian Oil Fund now owns 1.7% of all European shares – this for a country of 4.7 million people. ┬áIt’s also known as the Petroleum Fund (Oljefondet in Norwegian) or The Government Pension Fund – Global. The Fund is effectively a country pension fund – save up now during the …

Art ain’t all alternative and alpha

Fin24 has a story outlining how the South African art market has been struggling. Seems that art, like many other alternative investments, has rather more Beta or systematic risk buried inside the arty exterior and isn’t as good a diversifier as claimed. update 7 April 2009 The FT is also running a story showing art …