- Transacting between two arbitrary currencies (dollars, yen, euro, bitcoin) seamlessly. Stellar accepts currency from gateways and transmutes it into whatever currency might be desired.
- Kicking untrusted gateways off the network. Gateways are essentially lending each other money, so there's a built in "creditworthiness" mechanism that can handle a financial system where trustworthiness is impermanent.
- Governance. Stellar seems to have put the foundation that governs its deployment and use together ahead of mass adoption. This could be seen as a bad thing (or just a way to cash in), but I think it leads to a better formed product. Bitcoin got popularity first, and is now building respectability. I feel like taking the opposite approach and designing specific rebuttals in the protocol to commonly leveled criticisms of bitcoin is a great way to get adoption from the conservative, image-conscious financial community.
Read the whole thing. It's short.
Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.
For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.
Read the whole thing here.
Personal finance can at times seem less scintillating than the world of high finance that is sometimes covered on these pages, but in many ways it’s much more important.
There is simply no way to make money through investing without already having money, and I’ve got bad news: There’s no better way to accumulate money than earning it, saving it, and not spending it.
Why is that so important? Well, investment media occasionally does a poor job reminding its readers that, as far as their wealth is concerned, the most recent high-profile earnings announcement is a passing distraction compared to their savings pattern.
This post’s title offers a simple way to think about it. Imagine that your personal life is a business. Are you profitable? If you’re neglecting your loan balances and buying expensive things on credit, consider how you would react if one of the companies in your portfolio was doing the same thing. What about a company that managed to go a whole lifetime without ever generating a meaningful amount of cash?
I spoke with friend and Inside Investing contributor Lars Kroijer about a core premise he's developed: most investors should index. It's a good read, and it's worth remembering as you look through this that he still believes it's possible to beat the market...just that it's not likely for the bulk of investors.
As with all the stuff I do for work, I'll add this humble plea: if you like this sort of thing, you should subscribe to Inside Investing.
Conventional wisdom says that if you want to make money in the stock market, you need to exercise fanatical discipline and develop unique competence as an investment analyst.
Lars Kroijer thinks that’s all kind of a waste of time for most people. Can his mom really do that? Since she can’t, does it mean that she can’t ever make money investing?
The big question to him is reasonably straightforward. Do you really think that you are good enough to beat the market? If not, you can invest simply in low-cost alternatives. It’s easier, cheaper, and for many investors, likely to produce better results.
A lightly edited transcript of our interview follows. It’s long, but worth reading. We start by talking about his career (he used to run a hedge fund) and move to talk about how he came to the idea that most investors don’t have an edge.
We were privileged to have Tom Brakke, CFA, stop by our offices in New York City a few weeks ago. After a multi-hour meeting where many of us talked about all sorts of things, I managed to wrangle Tom into a quick interview.
Before posting the interview, I’ll say that if you don’t already follow Tom on Twitter or on his excellent blog, The Research Puzzle, then you are probably missing out. He is a regular font of provocative thoughts, and that can be one of the most useful things in the world. He has also written a number of excellent posts for Inside Investing, including a thoughtful look at how you should consider cash and a post about the most important question to ask about a projected rate of return.
In the spirit of last week’s feature, which asked a few of our contributors to speak about things that they believe to be true but know they could never prove, we present this week’s podcast interview with Paul Brodsky. Though we spoke with the benefit of data and research, the ultimate subject of our conversation was difficult to draw solid conclusions about: the probability of a shift in the way that humans store and exchange value.
For many years, Brodsky has been a partner at QB Asset Management, a firm that recently folded into Kopernik Global Investors, which was founded by Dave Iben, CFA. We began our conversation with Brodsky by talking about Plato’s Allegory of the Cave, which he uses to introduce his thinking about monetary policy. What follows in part 1 is a wide-ranging discussion that treats the mechanics of the global system of interchange and our financial infrastructure.
We begin part two with a question from Jason Voss that is likely at the top of many investor’s minds: what is the catalyst that spurs the radical shift we are discussing?
I was lucky to get to speak to Mike Mayo for work. Here's the interview (in two parts). If you like this sort of stuff, you should subscribe to Inside Investing.
“I realized that when I couldn’t understand something that a company was saying, it wasn’t my fault.”
Mike Mayo, CFA, is an outspoken analyst and a notable expert on the banking system, but the above statement is perhaps one of the most important things to come out of our hour-long conversation. In a nutshell, Mayo is saying that companies are responsible for providing good disclosure that is intelligible.
This is an important lesson: often, poorly written or difficult to understand disclosure leads investors to believe that the underlying dynamics of the business or investment are impossible to understand. In conversation with Robert Stammers, CFA and me, Mike speaks about how investors should go about analyzing financial institutions, gives his views on the present state of the industry, and talks about the surprising tack that he adopted to gain access to company management. We also treat some of the topics he raises in his excellent book, such as the accountability of the banks, their governance structures, and the role that they have played in economic history.
This is part two of an hour long conversation with Mike Mayo, CFA, a banking analyst at CLSA and author of Exile on Wall Street, which details his long and very interesting career.
We start this portion of the conversation by talking about the peculiar nature of growth in financial companies. Mike explains that one of the most important things to remember when analyzing a bank is that their product is money. To grow at an above-average clip they can simply sell more money or—as it is typically described—make more loans.
When asked to categorize the various banks that he analyzes, he makes a distinction between two types of banking companies: banks that are well-run and banks that aren’t. To hear how he analyzes that, please listen to the podcast below! Part one can be found here.
I spoke with Gordon Chang of Forbes and my colleague Jason Voss about the heightened risks in China. Read and listen to the whole thing here. If you like this kind of stuff, you should subscribe to Inside Investing.
Here's an excerpt of the post:
In the past month, many security analysts have begun asking whether the miraculous growth of the Chinese economy is headed for a standstill. While we were at a conference in Canada last week, we noticed that overnight rates in China had begun to spike, so we arranged to speak with Gordon Chang as soon as we got back to New York City.
Gordon is one of the world’s experts on China and has authored a number of articles and books on the country, in addition to speaking to the media frequently. He spoke with me and my colleague Jason Voss about what’s happening in China, what we can expect to happen in the future, and how the market has evolved.
In addition to speaking about the loans that Chinese banks have made and the curious ghost cities that have been popping up in china, we discussed the philosophy of the Chinese government and the relationship that their notable portfolio of treasuries has with the United States’ future. Check out the podcast below, and read on for a few clips from Gordon’s excellent Forbes column.
“The overnight repo rate in China has just hit 25%, an indication the credit market is now frozen.
This month, liquidity tightened considerably. Two government bill auctions failed, and several banks defaulted on their interbank obligations. Overnight rates in the last few weeks surged to about 15% but had fallen back, settling in at just north of 7%. The 25% rate indicates credit is becoming unavailable.
Nothing is going right for China at the moment. In the last few hours, the HSBC Flash PMI for June came in at 48.3, down considerably from the 49.2 final reading for May. The country’s problems are now starting to feed on themselves.”
“And there is a broader issue. For more than four decades, Washington has sought to “engage” Beijing and bring it into the international community. Inside the existing geopolitical order China prospered, and in the past quarter century the people who have benefited the most from the American-led system are not the Americans but the Chinese. In a peaceful world the Chinese manufactured and traded their way up through the ranks of nations and, as a consequence, transformed their country for the better.
Yet their leaders no longer accept the world as it is. Once deft, subtle, and patient, Chinese diplomacy has, especially since the end of 2009, become shrill and hostile. And Beijing has increasingly set itself against America—as well as its generals and admirals. We are now hearing war talk in the Chinese capital from civilians, such as new leader Xi Jinping, and flag officers alike.
Unfortunately for Chinese policymakers, the resulting controversies are occurring in conjunction with others, both internal and external. As Fitch suggested last week, more geopolitical risk is the one factor, during this period of economic fragility, that could push the Chinese economy over the edge.”