Gold, Hedges and Correlations

Today I'm going to touch on a sort of theme I have here and that's regarding on how to assess correlated data. How much can we actually read into it? How do we determine that there's a fundamental relationship that, not only holds well in the past but will continue to do so in the future?

To do that I'll be taking a quick look at gold and why I consider the "inflation hedge myth". In short, gold is not an inflation hedge. At least not on any reasonable time scale.

Relationship between VIX and Credit Spreads

This is motivated by a post from David Merkel of the Aleph Blog, called Buy Stocks When Credit Spreads are High, Sell When They are Low.

Merkel suggests that "credit spreads and implied volatility are cousins. When there is complacency, both are low. When there is panic, both are high."

Exploring Operational Definitions: Part II - Distance

So in Part I, I began discussing operational definitions. In particular, I've been focusing on the concept of distance.

I proposed that we might consider our intuitions regarding answering the question - what is distance? - by means of early experience of operational definitions of distance. The idea being that what we consider distance is going to be closely related to ways we were taught to measure distance.

Misnomers in Finance

You know what really grinds my gears¹. . .

                                                                 . . . misnomers in finance.

Essentially there is some technical jargon that I think was inappropriately named. Here are a couple of examples.

Ode to Lady Luck

In Roman mythology, Fortuna was the goddess of luck and fortune.

Uncertainty of the Constant Growth Assumption

In Uncertainty and Margin of Safety, I discussed the role uncertainty plays in valuation. Today I want to take a look at one of the assumptions built into many discounted cash flow (DCF) models. That assumption is the constant growth rate assumption.

Minimum Wage and Inequality

One topic that is an interest of mine is the topic of growing income inequality. Over the last 30 years or so, a small fraction of the population in the US has increased its share of income (and even more wealth) while the middle class has been gradually gutted and those on the bottom have been stepped on. Ultimately I don't think it's a sustainable situation and something needs to be done to address those issues.

Today I want to look at a hot topic in politics: the minimum wage. President Barrack Obama has been pushing an increase of the Federal minimum wage to $10.10. And there's plenty of resistance to that but I don't want to focus on that too much. We can really consider two issues:

(1) Is raising the Federal minimum wage a good way to alleviate income inequality?
(2) Assuming (1), where should the Federal minimum wage be?

It's the latter question I'd like to take a look at today.

Return on Invested Time: Developing Understanding

Time is our most valuable possession; and, yet, we trade it for other things.

One thing I noticed relatively early on is my ability to process information better than others. I don't know to what extent this is genetic or learned but I do think part of it comes down to how I engage information.

Many tasks in my early education experience I considered to be pointless or a waste of time. While I jokingly referred to myself as a slacker, to some extent it was deliberate in that I saw some activities as being unproductive and would rather spend my time doing activities either more enjoyable or more productive.

In hindsight, I think I may have misjudged in some cases but in many cases my approach has been successful. Here's a look at my overall approach.