Happy birthday,
United States of America!
U.S. stock
markets gave Americans plenty of reason to celebrate over the Fourth of July
weekend. The Dow Jones Industrials Average earned ‘oohs’ and ‘ahhs’ from investors
and pundits as it shot above 17,000 last week (a significant gain from March
2009 when it traded in the mid-6,000 range). Barron’s pointed out the Standard & Poor’s 500 Index was no
slouch either having closed “above its 200-day trading average for more than
400 consecutive trading days, the second longest streak in the last 50 years.”
The Telegraph observed,
however, market highs sometimes cause investors to engage in emotional
behaviors like anchoring – assigning random meaning to numbers or milestones.
The online publication suggested some investors may decide the Dow surpassing
17,000 means the market is overvalued and they should sell even though they
have no specific evidence to support the idea of overvaluation. Not everyone
agrees that’s the way investors will roll. Experts told MarketWatch.com they
expect the new high to spark buying rather than selling particularly if herd
instincts are set off. Herding describes a situation in which investors
gravitate toward specific investments because everyone else is doing it.
These emotion-driven
investment behaviors can lead to investment mistakes. The Telegraph also suggested
it’s better to choose a tangible valuation measure when trying to determine
whether a company’s shares are fairly valued. A valuation measure they
recommended is dividend yield: the dollar amount of the dividends a company
pays investors each year divided by the company’s share price. In late June,
Yahoo! Finance reported, “There is now an extraordinary crowding of big U.S. stocks
around the 3% dividend yield level, a threshold that seems to exert a
gravitational pull as investors bereft of easy sources of income bid up
equities until they yield just a bit more than the 10-year Treasury note.”
Emotions
also were running high during the second quarter for reasons having nothing to
do with markets. A publicly-traded social media site let it be known it had
conducted a psychological experiment on about three-quarters of a million users
without their express knowledge. The study’s over-the-top name, Experimental Evidence of Massive-scale Emotional
Contagion through Social Networks, brings Austin Powers movies to mind.
Bond markets, as
they have throughout much of 2014, continued to confound investors and
analysts. According to Barron’s, last
week’s strong jobs report, which is credited with pushing stock markets to new
highs, may have given investors a déjà vu moment when 10-year Treasury yields
rose and then settled back down. The bond market had responded to the Labor
Department’s May report in almost the same way. Strong domestic economic news
pushed rates
higher and then they retreated. Foreign demand for U.S.
Treasuries was thought to be the reason rates pulled back.
Also, during the second quarter, the Federal Reserve confirmed and reconfirmed the ongoing need for accommodative monetary policy. Recently, Chairwoman Janet Yellen said, “…monetary policy has powerful effects on risk taking. Indeed, the accommodative policy stance of recent years has supported the recovery, in part, by providing increased incentives for households and businesses to take on the risk of potentially productive investments. But such risk-taking can go too far, thereby contributing to fragility in the financial system.” She also said she saw no immediate need to tighten monetary policy by raising interest rates.
The
World Bank expects the global economy to gain momentum during 2014. Its June
report found economic growth in developing countries is likely to be disappointing
this year coming in below 5 percent largely because of first quarter’s weakness.
Developed market economies have fared better year-to-date. The Euro Area is
expected to grow modestly during 2014. Expectations for the United States were
revised lower after first quarter’s contraction, but our economy is expected to
grow during the remainder of 2014.
harvard does it. MIT does it. university
of chicago and stanford do it. It doesn’t cost a fortune either. In
fact, it’s often free. The world’s best colleges and universities (along with
organizations like The World Bank, Museum of Modern Art (MoMA), and National
Geographic) are offering massive open online courses (MOOCs) as well as
interactive online classes. The offerings are available to anyone with Internet
access anywhere in the world.
As
The Economist tells it, rising costs,
changing labor markets, and disruptive technology are conspiring to overthrow higher
education as we know it, and the revolution could send colleges and
universities down a path previously taken by print newspapers. The success of
online education is uncertain, however. It’s held back, in part, by lack of a formal
system of accreditation, although some universities have begun to accept MOOC credits
toward their degrees.
“Traditional universities have a few
trump cards. As well as teaching, examining, and certification, college
education creates social capital. Students learn how to debate, present
themselves, make contacts… The answer may be to combine the two... Students
could spend an introductory year learning via a MOOC, followed by two years
attending university and a final year starting part-time work while finishing
their studies online. This sort of blended learning might prove more attractive
than a four-year online degree.”
Needless to say, the revolution in
education could have significant implications for parents and students who are
contemplating the costs of higher education as well as workers who need to develop
new skills to find places in the labor force.
Weekly Focus – Think About It
“Education is not
the filling of a pail, but the lighting of a fire.”
--William Butler Yeats, Irish poet
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