The first principle of Political Economy

… that after eight weeks of induction into the elements of Political Economy, she had only yesterday been set right by a prattler three feet high, for returning to the question, ‘What is the first principle of this science?’ the absurd answer, ‘To do unto others as I would that they should do unto me.’

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Momentum mops the floor with fundamentals

Patience and Profits

To bring these market inefficiencies to life, consider a simple experiment to gauge the relative performance of momentum and long-term investors. Both are assumed to follow a simple strategy: the speculator buys (sells) when prices have risen (fallen) in the previous period; the fundamentalist buys (sells) when prices are low (high) relative to fundamentals. Portfolios are evaluated and re-optimised on a monthly basis, based on a $1 initial stake. How would these strategies have fared historically? Charts 7 and 8 show cumulative returns to these strategies in the US and UK. They suggest a dramatic evolutionary pattern. The speculator’s $1 stake in US equities in 1880 would by 2009 have grown to over $50,000. The fundamentalist’s same $1 stake would have fallen to be worth around 11 cents. Impatience would have trumped patience by a factor of half a million. → Read More

De belastingvermenigvuldiger

“Toon me dat van jou en ik toon je het mijne.” We horen het te weinig als het om financieel-economische modellen gaat. Of de overheid nu moet besparen of investeren, of ze de belastingen moet verhogen dan wel verlagen is géén princiepskwestie. Het is een rekenvraagstuk, met samengestelde speelgoedwerelden die cijfers vreten en een getal uitspuwen. De strijd wordt gestreden wanneer het model wordt gebouwd op de – misschien wankele – veronderstellingen van de econoom in kwestie. De uitkomst daarna aanvechten zijn vijgen na Pasen. → Read More