Malkiel Underwhelms...Again

Since the very day I finished reading "A Random Walk Down Wall Street" I have had an ever decreasing interest in anything that Prof. Burton Malkiel writes. Today's column in the WSJ continues that trend. Malkiel harkens to President Harry Truman's desire for a one-handed economist and then proceeds to demonstrate why Turman felt as he did.

First Malkiel advises, via the addition of today's dividend yield and a likely earnings growth pulled from the ether, that stocks can't reasonably be expected to return more than 7.5% per annum. By the end of the article though, he advises not to bet against the US economy. Second, he cautions about the state of the world, citing such second order threats as Hezbollah, while also noting the remarkable, decades long development of faith in free markets that has transpired around the globe. Thirdly, Malkiel trots out the standard pantheon of Rubinomics bugaboos - the trade deficit, income inequality, the 'low' savings rate as cause for pessimism, but blithely washes these away as something the economy will adjust to. As a final flourish, the good professor warns of the large destabilizing effect of leveraged hedge funds, like Amaranth Advisors, which as we all know was a large, leveraged hedge fund, that didn't actually have a large destabilizing effect.

Malkiel, however, is no Ivory Tower economist, he brands himself as steeped in capital markets reality. So what is his advice as someone who represents the intersection of academic economics and capital markets? Something that the most bare bones financial advisory service would tell you (and that the self-help financial media beat into us), rebalance your portfolio annually.