Pragmatic Capitalism

Practical Views on Money & Finance

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Why Are Corporate Profit Margins So High?

There’s a lot of scary chatter in the last few years about profit margins.  The basic thinking usually goes something like this: “Profit margins are mean reverting and since profit margins are high then that means stocks are risky because they’ll crash when profit margins mean revert” This reminds me a lot of the scary… Read More

What If Everyone Indexed?

I see this question more and more as indexing grows in popularity.  People generally think that more indexing will make the markets  function less efficiently .  I don’t think this is true at all.  Unfortunately, the question and its answers are usually shrouded in misunderstandings about how assets are priced and myths about what it… Read More

“Price is a Liar”

This is a very good lecture by John Burbank of Passport Capital. I particularly like his explanation of prices: “Price is all the information that exists in the market…it’s just what people think….price means nothing other than the equilibrium of liquidity…It doesn’t mean it’s good or bad, it’s just where people agree.” That’s really clean… Read More

Thinking About Net Financial Assets (Nerdy)

Steve Waldman has a very good post over on his site about the concept of “net financial assets” and the way it is used by some economists (mainly MMT economists). Several of us covered this in excruciating detail several years ago when we had our big disagreements with the MMT people, but it’s always worth… Read More

So Long, Rate Hikes!

The emerging market turmoil that developed this year was a total game changer for Fed policy.  Even though the US economy looked relatively strong (I’d argue it has been muddling through all along) the argument in favor of rate hikes shifted once the foreign economy started to falter.  Especially when we started hearing about how… Read More

How Long Can You Stick With Failing Factor Investing?

Someone asked me the other day why I reject factor investing.  My answer was simple.  I said that factor investing is usually just a good marketing pitch to charge higher fees for something that will give you most of the correlation of a market cap weighted portfolio. For the uninitiated, factor investing is one of the… Read More

Is the Junk Bond Market the Next 2008?

Recency bias is a real sonofabitch.  After someone goes through a traumatic experience they tend to be shocked into believing that the next big traumatic experience is right around the corner.  But the reality is that outlier events are outlier events for a reason – they don’t happen nearly as often as we expect.  For… Read More

Did the Fed Cause the Commodity Bubble?

I spent an inordinate amount of time back in 2010 & 2011 talking about the potential for a commodity bubble that was Fed induced (see here, here and here).  It’s now clear that the commodity collapse is rippling through many financial markets and it’s only a matter of time before the blame game starts here.… Read More