What we’re reading (8/11)
“The Death of Diversification: Why Buffett Was Right All Along” (RealClear Markets). “Warren Buffett famously said that “diversification is protection against ignorance. It makes little sense if you know what you are doing.” For decades, this statement has been brushed aside as the musings of a genius with an unusually high risk tolerance. In truth, it was a quiet indictment of the entire financial industry. Diversification was once a prudent guardrail. It is now a crutch. In a world increasingly allergic to judgment, we have replaced depth with breadth and conviction with convenience. Why learn to understand a business deeply when you can simply own all of them at once?”
“Trump Fired The Labor Statistics Chief And The Markets Shrugged. That’s Concerning.” (MSNBC). “What financial markets, and even the Supreme Court, seem to have overlooked in focusing on the important goal of an independent Federal Reserve is that independence without accurate information is of limited value. The Fed, like all of us trying to understand the macroeconomy in real time, relies on an immense flow of accurate, unbiased data produced by thousands of workers in both the digital and physical worlds.”
“The Era Of Big Raises For Low-Paid Workers Is Over” (Wall Street Journal). “Something remarkable happened in the years immediately preceding and, especially, following the pandemic: Wages for poor workers began rising much faster than they did for the rich. That era may have now come to at least a temporary halt. And with worries about the health of the job market heightened following the disappointing July jobs report, it may have ended altogether. Wage growth for low-income workers looks to have significantly deteriorated in recent months, while wage growth for their higher-income counterparts has held up much better. It is a shift that could matter not just for low-paid workers, but the overall economy. “
“The Rising Returns To R&D: Ideas Are Not Getting Harder To Find” (Ando, Bessen, and Wang). “R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because “ideas are getting harder to find”? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry and obsolescence. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas, but these ideas may also render rivals’ technologies obsolete, making innovations more transient. Because of obsolescence, rising R&D does not necessarily mean rising aggregate productivity growth.”
“July CPI Report Expected To Show Inflation Accelerated Amid Tariff Pressures” (Yahoo! Finance). “According to Bloomberg data, headline CPI is expected to have increased 2.8% year over year in July, up from a 2.7% rise in June. On a monthly basis, prices are forecast to increase 0.2%, a slight slowdown from June’s 0.3% gain, driven by lower gasoline prices and expectations of moderately softer food inflation.”
