Weekend Reading: Psuedoerasmus: State Capacity and the Sino-Japanese Divergence

Must-Read: The fact that the rest of the economy pays the financial sector 2% of net asset value a year for "managing" our money indicates an enormous market failure. So does the current 7%-point/year gap between the S&P 500 earnings yield and short-term safe bond rates. Moving your portfolio from active to passive management almost surely--unless you are invested with Renaissance, Bridgwater, or one of the few other hedge funds that has an edge--helps you avoid the costs of these market failures. But does it raise or lower them for the economy as a whole?

I ought to have an informed view about this. I am distressed to find that I do not:

Robin Wigglesworth: Buy The Dip: The Death of Active Asset Management?: "The WSJ has run an annoyingly good series on the whole active versus passive asset management theme...

...Credit where credit is due etc.... On the idea that active will come back as the market becomes increasingly ruled by passive flows... active asset management performance has actually deteriorated as flows into passive have grown.... On interest rates somehow suppressing performance.... This is something you should be able to deal with. This isn't a Rumsfeldian unknown unknown....

[On] the WSJ's more optimistic take on active bond fund management.... Bond markets are seeing the same, accelerating trend towards passive investing.... The piece on the Nevada Public Employees’ Retirement System.... Sitting on our hands is often the best choice. That dopamine hit we feel when we take a gamble and it pays off can be too intoxicating for some to ignore...

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