Geography: Categorical Convenience And Tourist Capital

The geographical reach of listed companies is a more important driver of index returns than ever before, according to research by the EDHEC-Risk Institute…Between 2003 and 2013, the report found that the S&P 500’s exposure to regions outside the Americas grew from 19% to 27%.  For the STOXX Europe 600, exposure to non-European regions grew from 36% to 45%…The total market cap of companies exposed to foreign markets rose dramatically in the 10 years to the end of June 2013.  In the S&P 500, this figure grew from $2.9 trillion to $5.6 trillion…’It would be a shame if asset allocators compromised their asset allocation policy, which is often based on macro-economic scenarios that use regional dimensions, through poor evaluation of the geographic reality of their portfolio or benchmark.’”  Meanwhile, Mohamed El-Erian thinks “the concept of an ‘emerging markets asset class’ may no longer be a sufficiently useful and accurate catch-all classification for investors.”  Furthermore, “macro decisions to allocate or withdraw capital from EM — particularly through index and index-like vehicles — tend to be significant drivers of return, volatility and correlation behaviors, which too often leads to valuations that are decoupled from individual fundamentals…this phenomenon is amplified as the market influence of a relatively small base of dedicated investors is subject to the vagaries of less well-informed ‘crossover’ funds (that is ‘tourist’ capital)…Today, this means recognizing that EM is in a technical phase of unsettling volatility.”  Meanwhile, Ben Bernanke thinks EM vendors may want to stock up on pretzel and bratwurst: “An important source of the global saving glut I identified before the financial crisis was the excess savings of emerging market economies (especially Asia) and of oil producers.  The good news is that, for reasons ranging from China’s efforts to reduce its dependence on exports to the decline in global oil prices, the current account surpluses of this group of countries, though still large, look to be on a downward trend.  Offsetting this decline, however, has been a significant increase in the collective current account balance of the euro zone.  In particular, Germany, with population and GDP each less than a quarter that of the United States, has become the world’s largest net exporter of both goods and financial capital.”


What You Google Is All There Is

“As the Internet has become a nearly ubiquitous resource for acquiring knowledge about the world, questions have arisen about its potential effects on cognition.  Here we show that searching the Internet for explanatory knowledge creates an illusion whereby people mistake access to information for their own personal understanding of the information…Searching for information online leads to an increase in self-assessed knowledge as people mistakenly think they have more knowledge ‘in the head.’”  Meanwhile, “jumping to conclusions on the basis of limited evidence is so important to an understanding of intuitive thinking, and comes up so often in this book, that I will use a cumbersome abbreviation for it: WYSIATI, which stands for what you see is all there is…WYSIATI facilitates the achievement of coherence and of the cognitive ease that causes us to accept a statement as true.  It explains why we can think fast, and how we are able to make sense of partial information in a complex world.  Much of the time, the coherent story we put together is close enough to reality to support reasonable action.  However, [WYSIATI helps] explain a long and diverse list of biases of judgment and choice.”


USA: April Employment Report Will Be Key To Fed


EU: Spain Joins Negative Yield Club


WM: “Constraints Imposed By Tax-Efficient Asset Management Do Not Have Significant Performance Consequences”


2 thoughts on “

  1. I would like to see more of your own words between these quotes. But, if I understood it right, I found your point about the consolidated, nominal nature information on “Google” and the effect on flux of international indexes interesting.

    • Thank you for the comment!

      I have so far really enjoyed the cut+paste style of storytelling, however I can see how it is probably difficult to hear my own voice in the posts. I do prefer images, memes, archetypes etc. for their quick (and hopefully sometimes humorous) ability to summarize my opinion on what’s being discussed (e.g. using porky the pig to take down the very serious forecasting going on at the Wall Street Journal and other places). Also, most of the time my opinion on these things is simply “Look at what everyone is talking about,” which is pretty safe and lazy but there it is.

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