Market Cap to GDP – a Somewhat Overlooked Indicator

One way to check if the market cap of American publicly traded companies has not disconnected altogether from their real incremental value is comparing their market cap to the total GDP. This ratio can be used to understand whether the market is overvalued – in the U.S, the lion share of the companies are publicly traded, at least the big ones, thus we can expect to find a correlation between both the movement and the size of the stock market

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2017 in Numbers

This year has not yet ended, but we all know that nothing too important happens during the holiday. The financial world is mostly on vacation, volumes in the market are very low, and trading stocks takes a backseat for most people. The decision-makers are also on vacation—the interest rate decision for this month has already been made, and tax reform talks will probably stagnate during the break. So, we can now summarize the year that’s about to end. So, how’s

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Accuracy of Economic Projections

The current year is about to end, and economic papers are full of predictions for 2018. In general, most are pretty good. The world economy is in the midst of a mini-boom, and most economies are growing fast but not too fast. Unemployment is relatively low, and the inflammatory pressures are being held in check. The growth in GDP has accelerated lately, and the latest forecast of the International Monetary Fund for global growth is 3.6% for 2017 and 3.7%

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The Goldilocks Economy

Goldilocks and the Three Bears is not only a fairy tale but also a term used to describe the state of the global economy today. A Goldilocks economy is an economy that is somewhere between the tides—not too high and not too low—and that is what makes it sustainable. How can the economy remain in this Goldilocks position? Growth—first, the economy needs to grow but at a moderate pace so as not to become overheated, which can affect the second point—relatively low inflation.

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Will the new Chairman of the Federal Reserve change anything?

No. But that’s only the short answer. Donald Trump has picked the new chair of the Federal Reserve, one of the most prestigious and significant positions in the economic world. The happy winner is Jerome Powell, who has been a member of the Federal Reserve Board of Governors since 2012. Powell is considered to be a “monetary dove.” Such people are generally more in favor of the expansionary monetary policy, including low-interest rates, while hawks are inclined to favor a tight monetary

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Why is it So Easy to Beat Wall Street Expectations?

Last Friday was one of the best days for capital markets in recent years and especially so for those holding some tech stocks, which gained the most. The Nasdaq 100 rose by almost 3%, led by technology juggernauts, such as Amazon, Google, Microsoft, and Intel. All of them beat the “Street Expectation,” which is a term used to describe the average estimate for a company’s quarterly revenues, earnings, and other important financial data that a public company has to report

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A Bubble with no one to blame

This is how a bubble with no address looks like. A new article by The Economist focuses on a less spoken aspect of the recent potential bubble in the stock market – Unlike previous bubbles, all assets are expensive today. People cannot place their money in reasonably prices financial vehicles, because none of them is. We keep hearing about the run of the stock market, but real estate and fixed income markets have had great runs as well, and solid

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What’s the difference between stocks and poker?

When I first entered the stock market, I used to think I could beat it. I thought I could pick the best stocks and see the value of my account increasing every day, and this same feeling affects most people in the market. This is also what happens to most people at a poker table. Sometimes you just need to lose some money to get rid of your arrogance. The problem is that by listening to news from the stock

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The Power of Passive Investing

At the start of 2008, Warren Buffet made a million-dollar bet with the CEO of money management firm Protégé Partners. He bet on an index fund that invests in the S&P 500, while Protégé bet it could pick five “funds of funds” that would perform better. His side Warren Buffet’s thesis that the best thing a young man could do was to put his money in an ETF tracking the S&P 500 and just forget about the money. The compounding

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Financial Bubble

What is a financial bubble? How does it evolve? How can we protect ourselves from a bubble? I will try to answer these questions in this post, as this subject is always relevant but somewhat more relevant today when some assets are being traded near all-time high levels. A financial bubble (or economic bubble) happens when the price (e.g., market value) of an asset greatly exceeds its fundamental value, which is the value according to standard economic methods of valuation,

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