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The Stingy News Weekly (01/03/2010)
Stingy Links Fruitful decade for many in the world "It may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe." What's a bailed-out banker worth? "How people are paid at the top in a free-market system has always been a contentious issue, especially in bad times. Babe Ruth.s most famous quip was not about baseball but about salaries. When asked in 1930 if it was right that he should be making more money than President Hoover, he replied, 'I had a better year than he did.'" A map of vanishing employment "The economic crisis, which has claimed more than 5 million jobs since the recession began, did not strike the entire country at once. A map of employment gains or losses by county tells the story of how those job losses first struck in the most vulnerable regions and then spread rapidly to the rest of the country." The economic 'experts' "In much the same way, economics is a science which employs some of the world's most intelligent people and most powerful computers in order to prove the bleeding obvious. When I first started writing about the subject, one excited academic told me to look into behavioural economics, which he described as the most "exciting and radical" of all the fields of economic research. Its most edgy, controversial finding? That people occasionally behave irrationally, driven by emotion rather than reason. Well, duh." The states and the stimulus "Remember how $200 billion in federal stimulus cash was supposed to save the states from fiscal calamity? Well, hold on to your paychecks, because a big story of 2010 will be how all that free money has set the states up for an even bigger mess this year and into the future." The marshmallow and the cherry "Earlier in the year Jonah Lehrer explained in the New Yorker how cool deferred gratification is and how we need to teach it to our kids, the younger the better. Now, in the New York Times, John Tierney suggests that it's really an insidious habit for grownups, sacrificing real enjoyment for the mirage of an even better future. Can everything good be bad for you?" Carpe Diem? Maybe tomorrow "For once, social scientists have discovered a flaw in the human psyche that will not be tedious to correct. You may not even need a support group. You could try on your own by starting with this simple New Year.s resolution: Have fun ... now!" The lost decade "Mr. Shiller says our mass psychology is much more one of speculation and risk-taking than it was a generation or two ago. We've come to rely on rising markets to create our wealth and well-being, at the expense of savings. The result? An increasingly rapid succession of boom-and-bust markets." Loan effort adding to housing woes "The Obama administration.s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good." Economists are cheapskates "Academic economists gather in Atlanta this weekend for their annual meetings, always held the first weekend after New Year's Day. That's not only because it coincides with holidays at most universities. A post-holiday lull in business travel also puts hotel rates near the lowest point of the year." The neuroscience of screwing up "The reason we're so resistant to anomalous information - the real reason researchers automatically assume that every unexpected result is a stupid mistake - is rooted in the way the human brain works. Over the past few decades, psychologists have dismantled the myth of objectivity. The fact is, we carefully edit our reality, searching for evidence that confirms what we already believe. Although we pretend we're empiricists - our views dictated by nothing but the facts - we're actually blinkered, especially when it comes to information that contradicts our theories. The problem with science, then, isn't that most experiments fail - it's that most failures are ignored." Kodak, Bill Gates and efficient markets "there is little question that if you understood the implications of digital photography in 1991 you were - at least on that item - the smartest guy in almost any room. And it did not help you make (much) money." Are homes now "cheap"? "House prices are not cheap nationally. This is apparent in the price-to-income, price-to-rent, and also using real prices. Sure, most of the price correction is behind us and it is getting safer to be a bottom caller! But "cheap" means below normal, and I believe that is incorrect." Prepare for a Keynesian hangover "What's happening is that U.S. banks have been behaving exactly like developing country banks during earlier crises, such as Indonesian banks in the late 1990s - raising lending to their worst borrowers to keep them alive, lest the banks themselves collapse from their borrowers' defaults. For U.S. banks, these zombie borrowers are their affiliated financial entities set up to manage so-called off-balance-sheet activities - such as the famous SIVs (structured investment vehicles) created by Citigroup and others during the boom. Thus, the massive fiscal and monetary bailouts of the banks have served to worsen the credit misallocation that led to the general economic collapse in 2008." Texas' banks hold lessons "When the financial system collapsed last year, a short-handed Federal Deposit Insurance Corp. went looking for people schooled in the grim art of cleaning up failed banks. At least the FDIC knew just where to find the grizzled veterans: right here in the heart of Texas, where a banking cataclysm two decades ago wiped out more than 650 Texas banks and savings and loans." 'D' is for death "One day you will die. This is sad. It is also an investment opportunity. Funeral homes are one of the few businesses that are guaranteed a growing audience for their services, not only over the next decade, but over the next several decades. As Boomers age, the industry made famous in the television series Six Feet Under is emerging from the low-mortality period that a funeral home expert calls "death valley" and entering a period in which customers will become more and more common." 7 of 10 robot picks beat market "If only robots could skip, click heels or cock their elbows like celebrating hockey players. Surely our robotic stock selection tool would be that animated after posting such a great year. Ten stocks a robotic or automated filtering technique helped us choose for 2009 would have turned a million dollars into $1.685 million, if we hadn.t used play money." Just glide to the next boardroom "Directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae have not all been banished from other boardrooms. In many cases, directors just seem to skate away from company woes that occurred on their watch." Internet sales tax scofflaws "Today the major resistor against online collection of sales tax is, unsurprisingly, Amazon.com, the world's largest online retailer. Amazon, which has no retail stores anywhere, has become a target of state tax collectors because as its business has expanded, so has the value of its inventory." Golden pay for CEOs sinks stocks "Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years. Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million - but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO's pocket takes $100 out of shareholders' pockets." Doing a Buffett, on the cheap "These Buffett-esque companies, identified in a recent report by Credit Suisse quants, have a minimum return on equity of 15%. Not one has a long-term debt/equity ratio of more than 50%, and all have gross and net profit margins that have improved over the past two years." Investment forecasts: known unknowns "The uselessness of these predictions was carefully explained by the Ancient Greek philosopher Socrates, two and half thousand years ago. Not letting death, the lack of Ancient Greek stockmarkets or the fact he lived in an economy based on slavery get in the way of a good analogy, Socrates noted that he, at least, knew what he didn't know. Which in investment analysis terms is about as close to an epiphany as you're likely to get." DOW 30 Value Screens
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