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Pragmatic Capitalism

Practical Views on Money, Finance & Life

‘Myth Busting’

Why Equity Outperforms Credit

In my new paper on asset allocation I go into quite a bit of detail about why certain asset classes generate the returns they do. Understanding this is useful when thinking in a macro sense and trying to gauge why financial assets perform in certain ways in both the short-term and the long-term. It’s important to… Read More

Is Indexing Just Another Wall Street Fad?

Here’s an interesting comment from value investor Seth Klarman on the rise of indexing (this is from 1991!): Klarman is obviously biased because he’s in the business of selling a high fee asset management platform. If indexing is right then his form of highly active alpha chasing asset management is wrong. This is basically what… Read More

Let’s Talk About the US Government’s Interest Burden

Greg Ip had a piece in the Wall Street Journal yesterday discussing the debt burden in the USA and how low interest rates have “moved back” the “hands on the doomsday debt clock”.  The article touches on the important topic of entitlement spending and whether it’s sustainable, but does so in a manner that misleads readers… Read More

The Importance of Global Asset Allocation – Japan Edition

I’m a big fan of owning a global financial asset portfolio consistent with something resembling the Global Financial Asset Portfolio (though, I would also add that this portfolio isn’t necessarily ideal).¹  If you’re a US investor this has looked like a pretty silly idea in the last few years as foreign stocks have been poor performers… Read More

Dear Hedge Funds: Index Funds Didn’t Eat Your Returns

Indexing strategies have been the fastest growing segment of the asset management world in the last 15 years due to low fees, tax efficiency, diviersification and the failure of higher fee active managers to justify their higher fees.  As this trend plays out we’re hearing more and more stories about how this trend is bad for… Read More

5 Big Macro Myths

James Montier of GMO wrote a wonderful piece earlier this week that I am just getting around to posting.  Pragcap readers will really enjoy it as it covers a lot of ground that I’ve been harping on for years now.  James discusses 5 big macro myths that just won’t die including: Myth 1: Governments are… Read More

The Money Multiplier and the Myth that Just Won’t Die…

Almost every single mainstream economic textbook teaches some version of the money multiplier theory of banking.  In short, this is the view that $1 of central bank reserves allows a bank to make $10 of loans or something like that.  The basic premise works from the causation that Central Banks control the money supply.  Of course,… Read More