Friday , November 15 2019
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Michael Lebowitz and Jack Scott



Articles by Michael Lebowitz and Jack Scott

Impact Investing- Is It Right For You?

2 days ago

Over the last 30 years, the popularity of impact investing and a
desire to ‘do good’ with investment portfolios has blossomed. In April 2019, The Global Impact Investing Network
estimated the global impact investing market was $502 billion. While impressive,
it represents less than 1% of the investing universe.

Impact investors, looking to have a positive social and environmental influence,
tend to analyze factors not typically on the radar of traditional investors. In
particular, ESG, an acronym for environmental, social, and corporate governance,
is a framework for investors to assess investments within three broad
factors.  

We all
want to make the world a better place, but are investment portfolios the right
tool to do that?

To answer the question it is important to step

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Powell’s Revelation And A TIP For Defense

9 days ago

“I think we would need to see a really significant move up in inflation that’s persistent before we even consider raising rates to address inflation concerns.” – Jerome Powell 10/30/2019

The recent quote above from Federal Reserve Chairman Jerome Powell is
powerful, to say the least. We cannot remember a time in the last 30 years when
a Fed Chairman has so clearly articulated such a strong desire for more
inflation.

In particular, let’s dissect the bolded words in the quote for further
clarification. 

“Really Significant”– Powell is not only saying that the Fed will allow a substantial boost to inflation but does one better by adding the word “really.” “Persistent”– Unlike the prior few Fed Chairman who claimed to be vigilant towards inflation, Powell is clearly telling us that

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Warning! No Lifeguards On Duty

16 days ago

In a poll administered by the CFA Institute of America {Link},
readers, many of whom are professional investors, were asked which behavioral
biases most affect investment decisions. The results are shown in the chart
below.

We are not surprised by the results, but we believe a rational investor
would put these in reverse order.

Compounding wealth, which should be the primary objective of every investor, depends first and foremost on avoiding large losses. Based on the poll, loss aversion was the lowest ranked bias. Warren Buffett has commented frequently on the importance of limiting losses. His two most important rules are: “Rule #1 of investing is don’t lose money. Rule #2 is never forget rule #1.”

At Real Investment Advice, we have covered a lot of ground on investor

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The Bandwagon Effect: A World Series Lesson For Investors

23 days ago

Opening day is a glorious time for
baseball fans. Warmer temperatures and blooming shrubbery are on their way, and
more importantly, their favorite teams will begin a stretch of 162 games that
culminates with a best-of-seven battle between the American and National League
champions.

With leaves falling and colder
temperatures upon us, most baseball fans are left out in the cold. However, here
in Washington D.C., and no doubt in Houston, everyone is a diehard fan cheering
their team on to a World Series crown.

Curly W’s, the logo of the Washington
Nationals (Nats) baseball team, litter the streets, schools, and even office
buildings of D.C. Everyone is on board the Nationals train, yet in August you
could have spent a paltry $20 for a decent seat and shown up to a half-empty

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In The Fed We TRUST – Part 2: What is Money?

October 16, 2019

Part one of this article can be found HERE.

President
Trump recently nominated Judy Shelton to fill an open seat on the Federal
Reserve Board. She was recently quoted by the Washington Post as follows: “(I) would lower rates as fast, as efficiently,
and as expeditiously as possible.” From a political perspective there is no
doubting that Shelton is conservative.

Janet
Yellen, a Ph.D. economist from Brooklyn, New York, appointed by President
Barack Obama, was the most liberal Fed Chairman in the last thirty years.

Despite what
appears to be polar opposite political views, Mrs. Shelton and Mrs. Yellen have
nearly identical approaches regarding their philosophy in prescribing monetary
policy. Simply put, they are uber-liberal when it comes to monetary policy,
making them

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The Voice of the Market- The Millennial Perspective

October 9, 2019

“Those who cannot remember the past are condemned to repeat it.” – George Santayana

Current
investors must be at least 60 years old to have been of working age during a
sustained bond bear market. The vast majority of investment professionals have
only worked in an environment where yields generally decline and bond prices increase.
For those with this perspective, the bond market has been very rewarding and seemingly
risk-free and easy to trade.

Investors in
Europe are buying bonds with negative yields, guaranteeing some loss of
principal unless bond yields become even more negative. The U.S. Treasury 30-year
bond carries a current yield to maturity of 2.00%, which implies negative real
returns when adjusted for expected inflation unless yields continue to fall. From
the

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QE By Any Other Name

October 3, 2019

“What’s in a name? That which we call a rose, By any other name would smell as sweet.” – Juliet Capulet in Romeo and Juliet by William Shakespeare

Burgeoning
Problem

The
short-term repo funding turmoil that cropped up in mid-September continues to
be discussed at length. The Federal Reserve quickly addressed soaring overnight
funding costs through a special repo financing facility not used since the Great
Financial Crisis (GFC). The re-introduction of repo facilities has, thus far,
resolved the matter. It remains interesting that so many articles are being written
about the problem, including our own. The
on-going concern stems from the fact that the world’s most powerful central
bank briefly lost control over the one rate they must control.

What seems
clear is the Fed measures

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Who Could Have Known: What The Repo Fiasco Entails

September 25, 2019

Imagine
approaching a friend that you think is very wealthy and asking her to borrow ten thousand dollars for just one
night. To entice her, you offer as collateral the title to your 2019 Lexus parked in her driveway along with an interest rate that is
5% above that which she is earning in the bank. Shockingly, your friend says she
can’t. Given the risk-free nature of the transaction and excellent one-day
profit, we can assume that our friend may not be as wealthy as we thought.

On Monday, September 16th, 2019, a similar situation occurred in the overnight repurchase agreement (repo) funding market. On that day, banks were unwilling or unable to lend on a collateralized basis, even with the promise of large risk-free profits. This behavior reveals something very important about the

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Caution: Mean Reversion Ahead

September 18, 2019

If you watch
CNBC long enough, you are bound to hear an investment professional urging viewers
to buy stocks simply because of low yields in the bond markets. While the
advice may seem logical given historically low yields in the U.S. and negative
yields abroad, most of these professionals fail to provide viewers with a
mathematically grounded analysis of their expected returns for the equity
markets.

Mean
reversion is an extremely important financial concept and it is the “reversion”
part that is so powerful.  The simple logic
behind mean reversion is that market returns over long periods will fluctuate
around their historical average. If you accept that a security or market tends
to revolve around its mean or a trend line over time, then periods of above
normal returns must be met

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What is Bill Dudley Thinking?

September 4, 2019

On August
27, 2019, Bill Dudley, former Chief Economist for Goldman Sachs and President
of the Federal Reserve Bank of New York from 2009-2018, published a stunning editorial
in Bloomberg (LINK).
After reading the article numerous times, there are a few noteworthy observations
worth discussing.

Dudley’s Myopic View

Before we
dissect Bill Dudley’s opinions and try to understand his motivations, consider the
article’s subtitle- “The central bank
should refuse to play along with an economic disaster in the making.”

There is
little doubt that Trump’s hard stance on trade and the seemingly impetuous use
of tariffs and harsh Twitter commentary presents new challenges for economic
growth. Global trade has slowed and manufacturers are retrenching to limit
their risks.

Whether the

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The Mechanics of Absurdity

August 28, 2019

Over the
past few decades, the central banks, including the Federal Reserve (Fed), have
relied increasingly on interest rates to help modify economic growth. Interest rate management is their tool of
choice because it can be effective and because central banks regulate the
supply of money, which directly effects the cost to borrow it. Lower interest
rates incentivize borrowers to take on debt and consume while dis-incentivizing
savings.

Regrettably,
a growing consequence of favoring lower than normal interest rates for
prolonged periods is that consumers, companies, and nations grow increasingly
indebted as a percentage of their respective income. In many cases, consumption
is pulled from the future to the present day. Accordingly, less consumption is
needed in the future and a larger

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The Dog Whistle Heard Around The World

August 21, 2019

On August
15, 2019 the Washington Post led with a story entitled Markets sink on recession signal. The recession signal the Post
refers to is the U.S. Treasury yield curve which had just inverted for the
first time in over ten years.

We have been
highlighting the flattening yield curve for the past six months. As we have
discussed, every time the ten-year Treasury yield has fallen below the two-year
Treasury yield, thus inverting the yield curve, a recession has eventually developed.

Blaming the
yield curve for market losses because it inverted by a couple of basis points
is a nonsensical narrative for talking heads on business television. This
article is about a different concern, a second-order effect caused by headlines
like the one shown below. The story in the Post and similar

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Negative Is The New Subprime

August 14, 2019

What is
nothing? What comes to mind when you imagine nothing? The moment we try to
imagine what nothing is, we fail, because nothing cannot be envisioned. There
is nothing to envision or ponder or even think about. Nothing is no thing.

Yes, the point
above is tedious, but the value of nothing in the financial theater is the
latest magic trick of the central bankers and the most vital factor governing
all investments.

If I invest my hard-earned capital in an asset the guarantees a return of nothing, what should I expect as a return? Nothing is a good answer, and somewhat absurdly, there is the possibility that nothing is the best-case scenario. Let’s take it one step further to beyond nothing. In the current age of financial alchemy, there is nearly $15.5 trillion in sovereign and

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The Prospects of a Weaker Dollar Policy

August 7, 2019

“Let me be clear, what I said was, it’s not the beginning of a long series of rate cuts.”- Fed Chairman Jerome Powell -7/31/2019

“What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world….” – President Donald Trump – Twitter 7/31/2019

With the July
31, 2019, Fed meeting in the books, President Trump is up in arms that the Fed is
not on a “lengthy and aggressive
rate-cutting” path. Given his disappointment, we need to ask what else the
President can do to stimulate economic growth and keep stock investors happy. History
conveys that is the winning combination to win a reelection bid.

Traditionally,
a

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The Fed’s Massive Debt for Equity Swap

July 31, 2019

“All assets are priced where they are today because of central banks. That’s modern finance — it’s not about psychology or flows anymore, it’s about what the central banks are going to do next.” – Mark Spitznagel

Cause and Effect
Rene Descartes, a 17th-century mathematician, asked the fundamental question of how causal power functions. He was interested in how things relate to each other in terms of causality and how the thought of an action gets translated into a physical action. The theory he came up with, called “Interactionism,” affirms the relationship between thought and action. Importantly for our discussion, Descartes knew that any effect must have an antecedent cause.
When we are unclear about something, Descartes teaches us to search diligently for first principles, those

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