Weekend Links - 2/16/18

Source: CNBC
Too close to home.  Kids from Parkland go to my kid's school.  Children of my kid's teachers go to Parkland. Parkland is a few miles from here.  Enough seems like enough, doesn't it?


QUOTE OF THE DAY

I’d like to think generosity and manners are a signal and cause of success.  L2   

RETIREMENT FINANCE AND PLANNING

Headed for the Poorhouse: How to Ensure Seniors Don't Run Out of Cash Before They Run Out of Time, MacDonald, Ryerson/NIA [Canada]

I propose a government-led solution: Canada’s Living Income For the Elderly (LIFE). As an integrated component of the Canadian retirement income system, LIFE would effectively enable retiring Canadians to pool their financial savings to better protect those who live to age 85 and beyond. LIFE would give Canadian seniors the affordable, secure retirement income they want, when they need it, without shifting the cost and risk burden to the rest of Canadians. [If I were Canadian, and I do have Canadian roots btw, I'd be wary here…] 

Report proposes new retirement income program[Canada, see last link], investmentexecutive.com

The C.D. Howe report proposes a government-led Living Income For the Elderly (LIFE) to overcome these obstacles. The program would involve creating “a national, restrictive, non-cashable, advanced-life deferred annuity with non-guaranteed (but conservatively targeted) payment amounts, with potential end-of-year income ‘bonuses’,” the report says. [as above, I am withholding judgment but I'd be wary].  

Financial Economics Principles Applied to Public Pension Plans [2016], ssrn.com

Working from basic principles of economics, financial economics, and public finance, we develop implications for the financial management of public pension plans. We address the measurement of plan liabilities and cost, funding, investment of plan assets, financial reporting, benefit design and risk sharing. Our analysis seeks to maximize efficiency and preserve intergenerational equity. We conclude that full funding based on default-free discount rates is efficient and fair across generations. Investing so as to hedge accrued liabilities facilitates the maintenance of full funding across time, minimizes risk-adjusted costs, and avoids potentially costly and/or futile risk taking. 

MARKETS AND INVESTING

More than just equity volatility, look at bonds - The Big Volatility Revaluation, Mark Rzepczynski  

Despite Market Turmoil, Momentum Factor Still Dominates, CapitalSpectator.com

The recent spike in stock market volatility has dented the momentum factor’s powerful bull run, but the strategy continues to reign supreme over its main competitors in the US equity factor space, based on a set of proxy ETFs. 

Stock Gyrations, J Cochrane

Well, two days ago this was going to be a short post responding to the WSJ's view that the Fed is behind it all, and Tyler's nice intuition. It got a bit out of hand  

The Chart Showing Why This Vix Move Is Unique. RCM

Yes. It’s another post about the VIXpocalypse… 

4 Horsemen Of Your Portfolio, Swedroe

a well-thought-out investment plan is only a necessary condition for success, not a sufficient one. Even the “perfect” investment plan can fail for reasons that have nothing to do with its investment results. 

Asset Prices and No-Dividend Stocks, Atmaz & Basak

In particular, we demonstrate that no-dividend stocks command lower mean returns, but also have higher return volatilities and higher market betas than comparable stocks that pay dividends. We also show that the presence of no-dividend stocks in the stock market leads to a lower correlation between the stock market return and aggregate consumption growth rate, a non-monotonic and even a negative relation between the stock market risk premium and its volatility, and a downward sloping term structure of equity risk premia.  

ALTERNATIVE RISK

Not Risk Parity Funds, AQR

The reason you hear about “potential selling from risk parity” and have to read a rebuttal from us every time market volatility rises is because a few years ago some bank analysts made a series of estimation errors that overstated risk parity market size, overstated the weight of equities in risk parity, and overestimated the responsiveness of risk parity positioning (how much they have to trade) to changes in market volatility. The combination of these three errors, all in the same direction, led to an exaggerated prediction of likely trading volume in a big downturn. 

SOCIETY AND CAPITAL

The Key To Living Longer: Fear Being Alone Far More Than Going Broke, FinancialSamurai

I truly believe the key to living longer is having someone to love, something to do, and something to look forward to. Having close personal relationships and a strong community to interact with are the top findings why certain communities have longer lifespans than others. 

Should Economics Attempt to Replicate the Natural Sciences? AIER

The study found that of the 97 publications that claimed to have statistically significant results, only 35 were replicable (36 percent). That is an alarming figure. Since then, the crisis has moved beyond psychology as scientists across disciplines have taken a critical look at their own methodologies. Though the rates at which studies have failed to replicate are most startling in the fields of psychology (specifically social psychology), biology, and medicine, no field remains untouched….replication studies in experimental economics have returned a failure-to-replicate rate of 40 percent. 

On the Economics of Digital Currencies, Philly Fed

Can a monetary system in which privately issued cryptocurrencies circulate as media of exchange work? Is such a system stable? How should governments react to digital currencies? Can these currencies and government-issued money coexist? Are cryptocurrencies consistent with an e¢ cient allocation? These are some of the important questions that the sudden rise of cryptocurrencies has brought to contemporary policy discussions. To answer these questions, we construct a model of competition among privately issued Öat currencies. We Önd that a purely private arrangement fails to implement an e¢ cient allocation, even though it can deliver price stability under certain technological conditions. Currency competition creates problems for monetary policy implementation under conventional methods. However, it is possible to design a policy rule that uniquely implements an e¢ cient allocation by driving private currencies out of the market. We also show that unique implementation of an e¢ cient allocation can be achieved without government intervention if productive capital is introduced.  

Mathematical Models Are Poor Predictors in Finance, InstitutionalInvestor.com

in finance, math can provide relationships that are only tendencies, not certainties. For example, geometric Brownian motion, a model used to simulate price movements in assets, doesn’t hold perfectly because stocks exhibit discontinuities, or price gaps. 

Why So Many Men Die at 62, WSJ

The takeaway is retirement may be bad for the health of men, particularly for men who retire at the relatively early age of 62. 

ESG links: a faster pace, abnormalreturns.com

This the second edition of an occasional linkfest focused on ESG or socially responsible investing at Abnormal Returns. You can check out last week’s links including a look at a why ESG matters. 

The Side Effects of the Decline of Men, Bloomberg

New research shows that the percentage of college-educated men working in cognitive, high-wage occupations has been falling. For women that percentage has been rising. So, I suggest, if men feel as if they are in decline, combined with the already-known phenomenon of male wage stagnation, that may unsettle society and politics as we have known them.  

How to get rich and then stay rich, CNBC

The rich believe they are the architects of their lives. They don't make excuses, they don't rationalize failures and they don't blame anyone but themselves for their circumstances in life.