Pragmatic Capitalism

Practical Views on Money, Finance & Life

‘Myth Busting’

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

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

Tobin’s Q Is Not a Valid Market Timing Metric


Over the course of the last seven years many market pundits have relied on Tobin’s Q to argue that the stock market is overvalued and I’ve argued that the indicator is misleading (see here for a sampling of the many predictions made with this metric).  And then today I noticed this piece on MarketWatch arguing… Read More

The MV=Py Myth

I’m pulling this one out of the AMA section because it’s a common question I see. Reader Oshe asked about the Equation of Exchange otherwise known as MV=Py, where M is the quantity of money, P is the price level, Y is total output and V is velocity, or the number of times that a dollar is used… Read More