Actively Managed Funds Have Time on Their Side: Lubos Pastor

It has been another disappointing year for investors in actively managed funds.

In 2011, about 79 percent of large-cap mutual fund managers trailed the Standard & Poor’s 500 Index (SPX), according to Morningstar Inc. The average equity mutual fund lost almost 3 percent last year, compared with a 2 percent gain for the S&P 500, says Lipper U.S. Fund Flows. Hedge funds fared even worse, with an average loss of 5 percent, according to Hedge Fund Research Inc.

There is an emerging consensus that housing is weighing down the U.S. economy. The Federal Reserve’s housing white paper in January declared that “ongoing problems in the U.S. market continue to impede the economic recovery.” The 2012 Economic Report of the President argued that “declines in housing wealth can have a far greater effect on the economy than equivalent losses in other financial assets.”

Are these arguments sensible? Why should declines in house prices affect the broader economy? And why should the drop in housing wealth matter more than, say, a drop in stock-market wealth?

The currency of social media is influence. Credit-card companies offer rewards to customers with a high influence score, airlines give such people free flights, and some employers make job offers dependent on those ratings.

So how do they find opinion leaders? How do they determine a person’s influence? Where do these scores come from?

At the onset of the financial crisis in 2008, the volatility of stock returns increased dramatically as the equity markets plunged. At the same time, U.S. Treasury bond prices shot up. The correlation of bonds and stock prices has been mainly negative ever since.

This makes sense: In times of trouble, we dump stocks and buy safe Treasury bonds, and their prices should move inversely. This also would mean that in better times, we buy stocks and sell bonds, implying that the correlation between Treasuries and stocks should always be negative.

In many ways, things in Europe look better than they did just a month or two ago. The European Central Bank is providing banks with almost unlimited cash to buy their governments’ bonds. Yields on Italian debt have declined.

This breather is a perfect opportunity to examine some pernicious -- and widely circulated -- myths that have emerged from the crisis and could still do much harm.

What problems can the U.S. solve with renewable energy?

Four years ago, both presidential candidates acknowledged the threat of climate change and endorsed vigorous policies to move away from fossil fuels. The U.S. seemed on the verge of committing to greenhouse-gas reductions and developing alternative-energy technologies. Since then, most Republican leaders have become skeptical about global warming and now oppose any major policy response.

Most policy ideas for reducing demand for energy rely on one of two claims about why consumers need to be steered toward using less of it. Call these claims Flawed People and Flawed Markets.

Flawed People consume too much energy if they do a poor job of considering energy prices in their decisions, and thus make bad choices about which cars and other energy-intensive products will suit their tastes in the most cost-effective way. Flawed Markets lead to too much energy use if people do a great job of considering energy prices in their decisions, but those market prices are too low to reflect the real costs to society. In this case, people who make cost-effective choices for themselves create negative spillovers for everyone else.

Mergers are famously disruptive for companies and employees. They also don’t always make business sense: About half of all combinations are considered financially unsuccessful, according to a 2003 study by the Federal Trade Commission.

So what makes for a successful merger? Experience shows that the primary reason for failure is the difficulty of organizational integration. A 2010 PricewaterhouseCoopers survey of post-merger companies finds that careful planning of integration ensures that a combination is more likely to achieve cost synergies or other goals. The report says that “speed is critical,” adding that the most important challenges “are motivation of employees, alignment of cultures, organization and processes as well as IT systems.”

Not long ago, Washington policy makers, especially the Treasury and the Federal Reserve, were declaring the U.S. banking system safe from the throes of the subprime-mortgage crash.

One good sign: Most large banks were paying back their bailout loans from the government. The passing grades assigned to most of the same banks as part of the Federal Reserve’s stress test were another positive signal. Even those lenders receiving less than top assessments could access additional private capital to stabilize their balance sheets.

Although the phrase is now somewhat out of fashion, the issue of corporate responsibility is at the heart of many of the debates on economic policies around the world. Should corporations simply maximize profits and let the invisible hand do its wonders, or do they have some obligation to be good corporate citizens as well?

As with many politicized debates, this one has been captured by two extreme positions, neither of which are, to my mind, particularly sensible.