Harvard's Endowment Has 8.6% Return

Harvard announced today that its endowment earned an 8.6% return during the fiscal year ending June 30 to reach $36.9 billion.

-EJP Newsdesk

On Cheap Wine: The Best Post Steven Levitt Has Ever Made

At his Freakonomics blog, Steven Levitt explains a small test at Harvard he conducted regarding the difference in cheap wines versus expensive wines. Interesting results. In addition to the insight on wines, and I don't want to give away the ending, but I think it also punches a bit of a hole into the usefulness of polling and questionnaires in empirical studies.

Levitt's story and results are here.

Harvard University Cashing In On Inflation

Fed Chairman Ben Bernanke recently spoke at Harvard University. He told Harvard College’s graduating class that "I see the differences between the [inflationary] economy of 1975 and the economy of 2008 as more telling than the similarities."

Meanwhile, elsewhere at Harvard, Harvard's money management team was witnessing huge profits from their bets on inflation.

The Harvard Crimson reports, "Harvard's endowment posted returns of approximately 9 percent through the first 10 months of this fiscal year, according to data from the University. The increase puts the endowment's value at around $38 billion as of this April, up from $34.9 billion as of last June."

During the same period the S&P 500 Index lost 8 percent. So how did Harvard do it?

Heavy bets on inflation.

The John Harvard Letter that was released last August shows that Harvard's investment in commodities was at 17 percent of the endowment for fiscal year 2008, making it their single largest investment by asset class. That number reflects a near tripling of the share of the endowment invested in commodities since 2000. Further, the endowment held another 7 percent of its portfolio in inflation-indexed bonds. Thus, a full 24 percent of Harvard's endowment was a bet on inflation.

With commodity prices soaring, it was the place to be, and Harvard was there.

Harvard Business School Buys Students BMW's and Porches

Sort of.

It's sophisticated financial engineering at work. NyPo has the details, here.

Bernanke Tells Harvard: Things Are Different This Time

Federal Reserve Chairman Ben Bernanke ’75 spoke to Harvard College’s graduating class today in Tercentanary Theatre at Harvard.

Bernanke spoke to the class about the year 1975, the year he graduated from Harvard. He told the class:

Then as now, we were experiencing a serious oil price shock, sharply rising prices for food and other commodities, and subpar economic growth. But I see the differences between the economy of 1975 and the economy of 2008 as more telling than the similarities.

Oh yeah, they are different alright.

Bernanke again:

Economists generally agree that monetary policy performed poorly during this period. In part, this was because policymakers, in choosing what they believed to be the appropriate setting for monetary policy…

Sure, it is real different this time, for the worse. In 1975 money supply (M2) grew at 8.0%, today it is growing at 10.2%.

Bernanke again:

For a central banker, a particularly critical difference between then and now is what has happened to inflation and inflation expectations. The overall inflation rate has averaged about 3-1/2 percent over the past four quarters, significantly higher than we would like but much less than the double-digit rates that inflation reached in the mid-1970s and then again in 1980.

The inflation rate in 1975 was 9.0%. According to John Williams at Shadow Government Statistics, if you calculated the inflation rate now, the same way it was calculated in 1975, the CPI is near 12% this year.

Bernanke then had the chutzpah to add:

The Federal Reserve and other central banks have learned the lessons of the 1970s… as a central banker, I would be remiss if I failed to mention the contribution of monetary policy to the improved productivity performance.