Week of August 20, 2018

A few things of note from around the Internet this week… Models Rusty Guinn on challenging the priors that we’ve built up during times of peace and stability: Often, the strong evidence that shuts down our questions looks like a long series of seemingly predictive data. Long-term equity returns are always positive. Stocks and bonds are negatively correlated. Investors should ignore the noise and keep to simple balanced portfolios. Value, low volatility, momentum and illiquidity all have a premium. U.S. residential real estate prices can’t fall. What we often miss is that the boring consistency between posterior and prior was being driven by an unexamined inference about the state of the world. In other words, the inferences we start from usually reflect a complex system of other inferences that we’ve accepted as givens. Wars don’t happen any more. Globalism and free trade are here to stay. Racism is dead and gone. Central banks have figured out government indebtedness problems. Markets are mature and liquid.

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