Steven Bregman – Indexation: Capitalist Tool [Slides]

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Slides from the 2016 Grant’s Conference – Indexation: Capitalist Tool (Delivery agent of The Great Bubble) by Steven Bregman, Horizon Kinetics

A Valuation Sobriety Test

Major holdings in the iShares Emerging Markets High Yield Bond ETF

Question: What price for the extra risk?


A Sobriety Test: The Answers

Why Wendy’s should reincorporate and refinance in Lebanon



Would anyone seriously argue that these yields are adequate compensation for the risk assumed?

(That is, could you sell a Lebanese Republic bond in the open market at 6.2%?) If not, do the prices result from some other factor, such as artificial supply-and-demand pressures?

In EMHY, new money is allocated based on float. In other words, the more debt a nation issues, the greater the allocation to its bonds because it has a greater capitalization. That is the mathematical model, and that is entirely logical–to a point.

There is, really, no price discovery. And if there’s no price discovery, is there really a market? In which case, what is EMHY really worth?

The Yield Famine

A generation unprepared for rising rates


The Forgotten Value of Cash

Cash: Asset or Liability?


For the first time since the late 19405, stocks and bond yields have converged. Once upon a time – say for the prior 80 years – investors demanded higher yields from stocks since the risk was greater. Could both asset classes be overvalued? If nothing else, caution is in order, and investors should be very thoughtful, perhaps more than at any other time in their careers, about where capital is being put at risk and why.

In this historically low return environment, meaning in the last 5,000 years, we are most certainly in untested territory. The cash-as-a-liability mentality is very likely creating balance sheet bubbles. Many investors wish for the cash on the balance sheet to be “spent” through share repurchases, dividends, or acquisitions. But this is only a productive use of cash if the transactions are done at attractive valuations, and without taking on more leverage than appropriate.

Those who still believe that cash is a valuable asset and a protector against financial difficulty and a well of investment possibilities when the tide turns could be rewarded in the years to come.

The Long Road to the Great Mismatch

And its unintended distortions


The Exodus: $1.1 trillion+ into indexed equities, $0.8 trillion+ out of active management.

in 2005 there were 204 ETFS in the U.S.; in 2015, 1,594 – even as the number of listed stocks declined.


See the full slides below.


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