John At The Center

ing

Does it make sense to dollar cost average? It depends. Standard financial analysis says dollar cost averaging is suboptimal. If you focus on only your investment outcome, investing a lump sum immediately lets you construct the best portfolio you can today; slowing the process with dollar cost averaging just keeps you in something other than your best portfolio until you are done. Behavioral finance provides a different perspective. Because of the difference between the way people react to errors of omission and errors of commission, dollar cost averaging may give investors a better expected investment experience.

via Dollar Cost Averaging – Fama/French Forum.

Thus, even before costs, the overall portfolio of mutual funds shows no evidence that active managers can enhance returns. After costs, fund investors in aggregate simply lose the fees and expenses imposed on them.

Adding insult to injury, the aggregate mutual fund portfolio looks a lot like the cap-weighted stock market portfolio. When we use the three-factor model to explain the monthly percent returns of the aggregate fund portfolio for 1984-2006, we get,

via Luck versus Skill in Mutual Fund Performance – Fama/French Forum.

They’ve been testing this for a while.  I don’t find it as appalling as Yves does.  I think there are some assumptions in here but I believe that these guys have enough access to high quality data to make sure they’re well tested.

Lousy endgames leave buyers not highly motivated to work hard to make payments when adversity arises. They realize, correctly, that they are better off not throwing good money after bad.

But this program nevertheless suggest that the authorities sincerely believe that current price levels for housing are the result of panic, and not a return to historic relationships of housing prices to incomes and rental prices.

via naked capitalism: Freddie, Fannie to Provide 125% LTV Mortgages, Worse Than Extremes of Subprime Frenzy.

Updated: Case-Shiller 100-Year Chart | The Big Picture.

Given the year-over-year economy-induced decline was saw last year in U.S. carbon emissions, maybe we should gun for a longer and deeper recession/depression. It would certainly outpace anything we’re likely to get from cap-and-trade and another such expensive and complex stuff.

via U.S. Carbon Emission Declines: Recessions Beat Cap-and-Trade.

Yves… the biggest difference is that a securitization is a static pool whereas an SIV is actively managed. That brings advantages and disadvantages. The advantages include the savings on cost (i.e., only one structure has to be set up and then can be used to cycle the arb continuously) and the ability to, like you point out, make a play on the yield curve (i.e., the SIV funds its long term assets with short term liabilities). The main disadvantage is the duration mismatch and in times of stress the inability to roll the liabilities at some rate less than that paid by the assets. In many ways, an SIV works very much like a bank… but as you say it is off balance sheet. Where your understanding I think misses the point is in your concept of leverage. The aggressive structure in Europe were levered closer to 25:1 or 30:1… hence the reasons banks like Citi moved into the market. This concept of ultra high leverage was supported structurally in that SIVs were typically only allowed to invest in AAA-rated, <2 yr WAL, floating rate securitized assets. Unfortunately, once the bid for these assets dropped below par on true credit concerns the game was up.

via naked capitalism: Some Open Questions on Structured Investment Vehicles.

SkyGrid, the nifty, free financial news aggregator, is now publishing a stream of news on Twitter, letting users follow breaking business news headlines via the microblogging network.

via SkyGrid Links Its Financial Firehose To Twitter.

The hawks, she notes, worry that the Fed has pumped too much money into the economy and won’t be able to withdraw it in time to forestall inflation. She says the Fed has the tools it needs to withdraw the money when needed – it can sell the mortgage and Treasury bonds it has accumulated if needed and some of its emergency programs are already tapering off.

Another risk she tries to shoot down is a replay of the 1970s. Back then, the Fed thought that high unemployment meant the economy was burdened with lots of slack that would keep inflation under control. It responded with low interest rates. It turned out there wasn’t as much slack as thought (the nation’s productivity was falling rapidly) and the low rates indeed fed inflation. This time, Ms. Yellen says, the slack is for real. “We are far from the kinds of unemployment rates that would make inflation a danger,” she said.

via Yellen Takes a Big Swing at Inflation Hawks – Real Time Economics – WSJ.

“Is FICO an accurate predictor of risk?” said Evan Hendricks, publisher of “Privacy Times,” a Washington-based newsletter and author of “Credit Scores & Credit Reports.” “It’s the worst system around, except for all the rest,” said Hendricks, taking a line from former U.K. Prime Minister Winston Churchill.

via FICO Scores Show Flaws as U.S. Banks Cut Credit Lines (Update1) – Bloomberg.com.