Oddly Relevant Jun-26-2013

Credit Suisse Global Investment Returns Yearbook: Over the 33 years since 1980, world bonds beat world equities, but going forward, CS expects a low-return environment for the next decade and more: The high equity returns of the second half of the 20th century were not normal; nor were the high bond returns of the last 30 years; and nor was the high real interest rate since 1980. While these periods may have conditioned our expectations, they were exceptional. If Equities cannot deliver 10%+ real return for years to come, then pension fund’s 7-8% targeted return will prove to be wildly optimistic. Historically, moving from deflation to mild inflation leads to a re-rating of equities, while moving from moderate inflation to high inflation leads to a de-rating of equities; additionally, the best proxy of underlying inflationary pressure is prevailing wage growth, as roughly 2/3 of corporate costs are from the labor market. . Fortunately for stock investors, if inflation moves higher from the current 0% to ~2%, a 2x P/E expansion is likely to compensate for the rising cost. [Note: good research. Worth reading]…Source: http://www.investmenteurope.net/digital_assets/6305/2013_yearbook_final_web.pdf

Malone: “high-speed connectivity will, in the long run, weaken the strength of satellite TV and break up TV channel bundles. Owning a high-speed broadband network will become key in the video distribution industry” [Note: with limited knowledge, I completely agree. How much can the spectrum hold? I’d much rather own a tollroad business that charges content provider for hauling all their traffic]…Source: http://www.bizjournals.com/denver/news/2013/06/04/john-malone-kamikaze-ergen-needed.html?page=all

What about the Probabilistic Sharpe ratio? Because hedge fund strategies are usually characterized by negative skewness and fat tails, Sharpe ratios tend to be “inflated ((i.e. short tail risk, picking up penny in front of steam roller, however you want to call it. As long as black swans don’t hit, you make steady $ with very low vol with very high sharpe ratio). Additionally, it is not unusual to find strategies with irregular trading frequencies, such as weekly strategies that may not trade for a month. This poses a problem when computing an annualized Sharpe ratio, and there is no consensus as how skill should be measured in the context of irregular bets. The PSR works similarly to the Sharpe ratio, but a tweaked formula allows for increases in the ratio due to a longer track record, increases due to a positively skewed distribution, and decreases with fatter tails. [Note: but the Sharpe Ratio is sooooo easy to calculate, no? We tend towards simple and elegant things even when they might be slightly flawed]…Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1821643

Life after Google Reader: GigaOM’s guide to the best options: [Note: you are welcome]…Source: http://gigaom.com/2013/06/24/life-after-google-reader-gigaoms-guide-to-the-best-options/