Weekend reading

Good reads from around the Web.

The further removed we are from the financial implosion of 2007 and 2008, the more you hear people downplaying the whole crisis.

Everyone, it now seems, knew something would go wrong. We all understood – newspaper columnists imply – how it would pan out. And as for investors, well it was obviously a buying opportunity!

Rubbish. Rubbish. Rubbish.

From our earliest days as toddlers reading about Hungry Caterpillars, we learn to parcel events into neat narratives where everything happens for a reason, and proceeds the only way it possibly could do.

But reality is not like that, and we’d do well to remember it.

A nice reminder was served up this week by the release of the 2007 minutes of the US Federal Reserve.

They reveal that the U.S. Central Bank was complacent about the tsunami heading towards its shores, even as the first sandcastles were crumbling:

According to the transcripts, the word “recession” wasn’t spoken until the summer.

A staff presentation described a highly unlikely, worst-case scenario that included a 10 percent drop in the stock market.

That still would not be enough to force the economy to contract, the staff assured senior Fed officials.

Er, not so much.

Lots of critics of Central Banks will use these minutes as ammunition against their influence on the economy. But that’s not my purpose here.

It’s more just interesting to remember that some of the best economic minds in the largest, most capitalist economy in the world – who even had confidential data that the rest of us don’t have access to – just didn’t see it coming.

These were human beings, being overconfident as all human beings are.

And funny, too:

Richard Fisher, the president of the Dallas Fed, expressed confidence during the October 30/31, 2007 meeting that investors were waking up to problems in the subprime market.

“Investors are coming home from lala land. To be sure, we’re not out of the woods quite yet, as President Plosser and President Rosengren mentioned. The situation remains real, but we’ve gone beyond suspended reality.

If you will forgive me, you might say we have gone from the ridiculous to the subprime.”

Boom boom!

(Actually, someone should have added a “boom boom!” It would have sounded pretty prescient a year later when Lehman Brothers blew up).

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Yorkshire Building Society is the latest to offer a fixed-rate mortgage under 2%. The Telegraph finds some pundits think two-year fixes could go to 1.5%.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site

Passive investing

  • Orlando the cat wins stock picking challenge – Guardian
  • How Vanguard amassed $2 trillion in assets – MarketWatch
  • Why iShares needs more competition in ETFs – Index Universe

Active investing

  • In hindsight, what P/E could you have paid? – Motley Fool
  • How low could Apple go? – Business Insider [or not]
  • Why growth plays don’t pay [Search result]FT
  • Where the stock market will be in 2017 – MarketWatch
  • Nikkei’s longest weekly winning streak since 1987 – Reuters

Other stuff worth reading

  • Investing isn’t the only risk in your life – New York Times
  • More thoughts on Bob the rogue self-outsourcer – Guardian
  • Why are your 20s so memorable? – Slate
  • Has technology really increased US income inequality? – New York Times

Book of the week: Re-reading You Can be a Stock Market Geniusand loving it like always. Funny as well as a great framework if you want to turn to the dark side of stock picking. (Remember: You shouldn’t!)

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