Graziadio Business Report Blog

In the ongoing social debate on what kind of an economic system we should build on top of the rubble of the present financial mess, we as investors should focus less on the philosophical nuances and more on how to adjust our investment framework, expectations, and tactics.

As the work of free-market proponents Milton Friedman and Margaret Thatcher falls to pieces under the weight of human greed and hubris, it is important to acknowledge that greed and hubris were also the culprits in past socio-economic collapses: communism, failed monarchies, etc. It seems safe to say that whatever policy will be implemented next will carry within its DNA the same self-destructing gene.

History may not repeat itself but it certainly rhymes, as Mark Twain once said.

Continue reading ‘Of Alphas, Betas, and Predetermined Rates of Returns’

The results of the second GBR poll on debt vs. savings are in!

• All participants said they have changed their personal financial approach due to the current economic instability
• 60% say they are working harder to pay down all their debt.

The GBR Blog asked Davide Accomazzo, Adjunct Professor of Finance at the Graziadio School of Business and Management, to comment on the results and offer some practical advice on riding out the economic turbulence. He wrote: Continue reading ‘The Basics of a Balanced Personal Financial Strategy’

The GBR Blog wants to know:

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Do you have a different opinion about where the economy is headed? Tell us in the comments.

UPDATE: This poll was closed on June 22, 2009. Read our analysis of the poll and get “Tips on Surviving and Thriving in the New U.S. Economy,” by Peggy Crawford, PhD, Professor of Finance, and Terry W. Young, PhD, Professor of Economics.

(Left to Right: Roberta Romero (Drucker), Jenny Sheng, Tanya Stevens, Candace Olfati (all CGU/Keck Graduate Institute), Joyce Zhang, Sirish Upadhyay (both Graziadio), Henry Du (Drucker), Jaya Soedradjat (Graziadio), Me)

On May 2nd, the world gathered in Omaha, Nebraska to listen to Warren Buffet at the 2009 Berkshire Hathaway Shareholder Meeting. We tried to parse the future from his words, and wondered if this was the most optimistic that Charlie (Vice Chairman of Berkshire Hathaway Corporation) has ever been. Some hailed the new format as much more focused, giving the audience a better chance to understand the genius of Warren Buffet.

Two days later, the market reacted with the Dow posting a 200+ point advance. And since Warren doesn’t really care about the market, let’s just say that the reviews have been uniformly—cautiously—optimistic.

This year, I attended the meeting with 7 students and recent graduates from the Peter F. Drucker and Masatoshi Ito Graduate School of Management, the Keck Graduate Institute, and Pepperdine’s Graziadio School of Management. I teach as an adjunct professor at Drucker and the Graziadio School and it was a delight to be joined by a group of delightful, energetic, and bright leaders of our future.

I’ll try to avoid the usual reporting (you can read several media reports on what was said during the meeting), but here are some of the my takeaways: Continue reading ‘Impressions from the 2009 Berkshire Hathaway Shareholder Meeting’

The financial turmoil of the last eighteen months has brought to everyone’s attention the problems and dichotomy of our present monetary and financial systems. While we are now dealing with the consequences of too much credit, it is also important to note that a system without credit (and—much to the delight of the populists—without bankers) would be a much poorer and less innovative social system.

So far, the attempted solutions suggested have varied from more leveraged credit to the substitution of the fiat currency system and the central bank with a gold-linked scheme.

The problem with most of these suggestions is a massive confusion about how the U.S. system really works, how it should work, and how we would like it to work (and here it gets really problematic as every individual interest invariably jockeys for a better position).

The issue with a fiat currency system is that it is backed by the credibility of the government and the central bank, which should be acting independently as a guardian of the currency. Governments have inherent conflicts of interest and may feel pressured to regularly weaken the currency as a means of veiled taxation; other sectors of the population will also look favorably on consistent inflation to reduce the burden of borrowing. The central bank is supposed to act independently to counterbalance these inherent social and political dynamics. Unfortunately, in the case of the U.S. and many other countries, the central bank, is hardly independent or focused on one true objective of financial stability. In reality, a central bank’s independence is very limited; true independence would require practically no accountability and a large degree of secrecy, which comes, of course, with its own problems.

The fine balance between a government’s and a society’s pull toward credit excesses and the countervailing force of the central bank is the key to successful economies. Continue reading ‘The Future of US Capitalism’