CAPM

How does one diversify one's human capital? That is an intriguing idea.

I went all the way back and read your comments about can the Fed steer. The problem I have with your analysis is that you continue to look at the economy -financial markets as a closed system. But if you look at it as an open economy you get different results. Prior to 1990 the correlation between fed funds and bond yields exceeded 0.9. so when you talked about rates it really did not martter if you were looking at short or long rates. They moved in lock step and if one rose the other did too. But since 1990 the correlation between the long bond and fed funds has fallen sharply while the correlation between domestic bond yields and foreign bond yields has risen sharply. As the economy has become more dependent on foreign capital the ability of the fed to manage the economy has fallen significantly and the impact of foreign capital has risen sharply -- you get the same thing if you put both fed funds and foreign yields in a regression model -- the weight of fed funds falls and the weight of foreign rates rises.

So now when you are looking at a "market portfolio" you need to expand that portfolio to include foreign assets and the standard portfolio almost everyone uses that only includes domestic assets is no longer valid.