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The Stingy News Quarterly (Q1/2009)
New @ Stingy Investor The case for optimism "The greatest reason for optimism is that stocks are now offering some of the best values in more than a decade. Many quality companies are available at sharp discounts. Second-tier firms are going for a song. Charlie Munger, the U.S. billionaire, says, 'Price is what you pay, value is what you get.' The value indicators I see say that this is the best time to buy since the early 1990s." 19 Stingy Stocks for 2009 "In good markets and bad, I look for two qualities when hunting for bargain stocks. I want them to be cheap and relatively safe. Not surprisingly, the combination can be difficult to achieve." Stingy Investor Asset Mixer 2008 "Check out our new and improved Asset Mixer. Now with return data to the end of 2008!" Tumbling the valuations "I staggered into this December's CFA conference on Equity Research and Valuation Techniques in desperate need of a tonic. The great crash was in full swing and once-mighty companies had crumbled under the mountainous weight of dodgy debts. Here's what some of the leading lights of the industry had to say about these troubled times." Stingy Investor Tip Sheet Dividend Kings A quick look at where the 2009 class of dividend aristocrats stands today. Delving into Dividends Dividends are the primary source of long-term returns for stock investors. Let's take a look. Chitchat A few notes from my talk to the Ryerson Investment Club Bear Market Snapshots Check out a slew of keen graphs based on Robert Shiller's S&P500 data. Screening Trouble It's no secret that I like stock screens. I think most modern investors do because they help uncover interesting stocks. But screens aren't without their flaws. Party like it's 1968 After another down day on the markets we're in shooting distance of 1966 prices on the S&P500. That is, if you take inflation into account. Banks by the book This week marked an unusual event. Most of the Canadian banks are now trading for less than book value. In recent years the banks have often traded for more than two times book value. As a result, the banks appear to be better values today than they have been for many years. Real Bubble Long-term returns from real estate are grim. Peak Earnings Check out a long-term graph of the S&P500's price-to-peak-earnings ratio. A Lost Decade, or Two More than 75% of the stocks in the Dow Jones Industrial Average are now trading below prices first seen more than a decade ago. Almost 17% first hit today's closing price more than two decades ago. Unwanted Partners Don't forget fees, taxes, and inflation when investing. If you do, you might not earn much over the long run. Dividend Downturn Dividend investors better hope that we're not in for a repeat of the early 1930s. Dividend Growth Big Canadian dividend growth stocks Low PE10 Stocks Canadian value stocks with low P/E10 ratios Canadian Losers James Montier's screen for shaky stocks applied to Canada Periodic Table Our new customizable periodic table of annual returns for Canadians Altman Z-Score Altman Z-Scores for the S&P/TSX Composite CMS Talk Slides from Norm's Canadian MoneySaver talk The Best Stingy Links Stingy Links: Academia Performance surrounding reverse stock splits "We examine long-run return performances of over 1,600 firms with reverse stock splits over a 40-year period. These stocks record statistically significant negative abnormal returns over the three-year period following the ex-split month. They also experience poor operating performances over the same time period, suggesting informational inefficiencies. However, due to their unique financial characteristics, these stocks were difficult to sell short, thus restricting arbitrageurs from earning abnormal profits, even if they correctly anticipated the price declines." Market volatility and momentum "We model momentum as unexpected returns due to shocks to firm fundamentals. Investors learn about the shocks from noisy information. The learning is gradual, which generates momentum. The model predicts that momentum is more pronounced when the market is more confident, because a more confident market responds to shocks at a slower speed. Using market volatility to inversely proxy for market confidence, we find supportive evidence: market volatility negatively predicts momentum profits. More specifically, momentum exists only in 60% of the months with lower volatility but not in 40% of the months with higher volatility. This effect is not subsumed by market state as an alternative predictor of momentum profitability. The model also predicts that idiosyncratic shocks, not systematic shocks, produce momentum. This prediction receives supports from empirical findings in a number of studies." Currency crashes in industrial countries "Sharp exchange rate depreciations, or currency crashes, are associated with poor economic outcomes in industrial countries only when they are caused by inflationary macroeconomic policies. Moreover, the poor outcomes are attributable to inflationary policies in general and not the currency crashes in particular. On the other hand, crashes caused by rising unemployment or external deficits have always had good economic consequences with stable or falling inflation rates." Which talking heads to trust "Which forecasters should you trust on the direction of the economy and the markets? Ask Philip Tetlock, who knows the kind of expert worth listening to - and what to listen for." Cash holdings and equity returns "This paper documents a new empirical finding: an investing strategy that is long in stocks of firms with a high cash-to-assets ratio (High Cash portfolio) and short in stocks of firms with a low cash-to-assets ratio (Low Cash portfolio) produces an average excess return of 42 basis points per month. The three Fama-French factors are not able to explain such a difference in average returns, while a cash factor (HCMLC) does. I propose a structural model of the firm's investing and savings decisions that rationalizes the empirical evidence relating corporate cash holdings to the average excess equity returns. I amend the real option model of the firm of Berk, Green, and Naik [1999] to allow for a non-trivial capital structure decision. In my setup, firms can finance investment by means of equity or retained earnings. Equity issuance involves pecuniary costs such as bankers and lawyers' fees. Corporate savings allow the firm to avoid costly external financing, but yield a return which is lower than shareholders would be able to obtain. Because of risky cash flows, the model generates an additional precautionary savings motive that is the key ingredient to explain the positive relationship between corporate cash holdings and average equity returns found in the data." More info leads to less knowledge "Normally, we expect society to progress, amassing deeper scientific understanding and basic facts every year. Knowledge only increases, right? Robert Proctor doesn't think so. A historian of science at Stanford, Proctor points out that when it comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases." Value vs. Glamour "In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to that of glamour securities in the United States over a 26-year period. Their research concluded that value stocks tended to outperform glamour stocks by wide margins. However, their study did not include the glamour-driven markets of the late 1990s and early 2000s. What effect might this period have on their conclusions? To find out, the Brandes Institute updated their Value vs. Glamour research, now through June 2008, to examine the comparative performance over a 40-year period. In addition, we also extended the scope of the initial study to include non-U.S. markets, seeking to determine if the value premium has been evident worldwide" Stingy Links: Accounting Botox earnings put crooked E in P/E "Comprehensive income is the change in a company's shareholder equity during a given period, excluding the effects of new capital injections and dividend payments. By this measure, S&P 500 companies had combined losses in the past four quarters of about $200 billion, according to data compiled by Bloomberg and my own review of the companies' financial reports. In other words, there is no P/E ratio, because there is no E." All about choice "Experience has told us that when the economy turns bad, it's time to expect more accounting shenanigans from public companies. This can happen in three ways. Sometimes, a company has been using aggressive accounting for years, and a dismal economic picture makes it difficult to hide the old chicanery any further. Other times, a firm decides to use accounting tricks to mitigate the impact of poor operating results. And then there are the opportunists, who use financial reporting to make bad times seem even worse, knowing that when the economy turns around, they can undo some of their overly negative accounting assumptions - and look all the better moving forward. This makes it an ideal time to review some of the potential accounting misfortunes that might befall investors as the economy sours." Stingy Links: Behaviour Dan Ariely interview "Here's a reality check for you. The total cost of every burglary theft, fraud, autotheft in US in 2004 was $16-Billion dollars. That same year regular businesses in the US lost $600-Billion dollars to employee theft and fraud. So who's the cheat? Behavioural economists like Dan Ariely understand how dishonesty and cheating is part of our less than rational relationship with money." [Audio MP3] Morals: the one thing markets don't make "Often, these past months, I have found myself going back to one of the most painful conversations I have had. It was with one of Britain's leading industrialists. He had led his company to consistent success for decades. When I met him he had retired and was near the end of his life. He was not a religious man but he was a deeply moral one. He spoke of the principles that had guided him in business and of the salary he had drawn. It was not negligible, but it was modest. What pained him was that his successor had awarded himself a salary ten times that amount, while systematically destroying the company he had so carefully built." 100 cents feels like it's worth more than $1 "We all know that $1 is equal to 100 cents. But a new study suggests that, in some situations, people may behave as if 100 cents actually has more value." Confessions of a pundit "Prominent experts, therefore, are often simply those whose voices are in harmony with today's mood and who have an easier time selling their stories. That doesn't mean that the analysis is inherently flawed - only that it is inherently market-driven." Failure of morality, not of capitalism "What we are hearing and seeing, in other words, is a failure of morality, not of capitalism. How do we get back to the old Adam Smith/Benjamin Franklin idea of free enterprise based on a moral foundation?" Why you can't trust your gut "Turns out, the people who had imagined the stressful events said they could identify more patterns in the pictures than did the control group. The pictures, by the way, were completely random. The patterns didn't exist. The academics weren't finished. They showed one group a headline that read "Rough Seas Ahead for Investors" and showed another group the headline "Smooth Sailing Ahead for Investors." The two groups then received some fragmentary information about a couple of companies. You guessed it: The group that was worried about "rough seas" spun out more unwarranted theories about what was going on with the companies than the other group did." Large stakes and big mistakes "Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the US and India in which subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance." Outperform 99% of your neighbors "If all you had to do was buy good (versus great) investments and then behave correctly that changes everything. I decided that the search for alpha didn't matter (turns out it's a fool's errand anyway, but I didn't know that at the time) if you lost 7% in the process just because of bad behavior. I decided to leave the complex task of finding the best investment to smart guys with the big computers; I was going to focus on the simple problem of helping people behave correctly. It turns out that outperforming your neighbor is not about finding better investments, it is about behaving better." Stingy Links: Bonds Worldwide Weimar "Imagine a country so ravaged by inflation that $1 will buy you 630 billion in the local currency, where a loaf of bread costs tens of billions, and where wheelbarrows are the new wallets. That was the Weimar Republic in November 1923. A similar prospect may now await the world economy, says French economist Jacques Attali in 'La Crise, et Apres?' ('The Crisis, and Then?'), a stinging new critique of the financial meltdown." BOE cuts rate to lowest since 1694 "The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain.s recession. The bank rate was reduced a half-point to 1.5 percent, bringing policy makers closer to the point at which they will run out of options to fight the financial crisis with conventional tools. The pound rose against the euro and the dollar because some investors had bet on a larger reduction." Yielding to none "In the medium term, a sharp rise in inflation is a distinct possibility. Government bonds may be offering 'return-free risk', in the neat phrase of Jim Grant" Move over, subprime "Rotten as Alt-A loans are, worse may be to come. As unemployment in America heads towards 8%, even strongly underwritten loans will go bad. Bankers are growing increasingly anxious about the $1.1 trillion of prime mortgage loans and securities, much of which they held on to themselves, assuming it to be bombproof." Cost of borrowing zooms up "Like consumers and homeowners, America's corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap." Stingy Links: Brokers Questrade rebating mutual fund trailer fees "Questrade says its Mutual Fund Maximizer makes it the only direct access brokerage to rebate this fee -- representing up to 1% or more of the value of their mutual fund investments -- back to its clients." Stingy Links: Buffett Berkshire Hathaway 2008 "Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21.5% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges. Without fail, however, we've overcome them. In the face of those obstacles - and many others - the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead." Buffett found losses in 2008 "Billionaire Warren Buffett likes to say his favorite length of time to hold a stock is 'forever.' That's a good thing because some of his more recent investments aren't making him money in the short run." Buffett's takeover tests passed "Warren Buffett's renewed focus on U.S. takeovers may lead him to Sysco Corp., VF Corp. or Danaher Corp., according to criteria the billionaire investor lists in his annual report." Buffett's unmentionable bank solution "Now comes Warren Buffett, a big investor in Wells Fargo, M&T Bank and several other banks, who, during his marathon appearance on CNBC Monday, clearly called for suspension of mark-to-market accounting for regulatory capital purposes. We add the italics for the benefit of a House hearing tomorrow on this very issue. Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It's not so fine for regulatory purposes. It doesn't just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform." Buffett is unusually silent on rating agencies "In his annual Berkshire Hathaway letter, Warren E. Buffett recently urged investors to pose tough questions at the shareholders meeting in May. Here is one on the mind of some Buffett watchers: When are you going to fix Moody's?" 10 investing basics from Buffett "The Oracle of Omaha became the world's richest person by adhering to simple but critical tenets. Here are his rules for smart living and savvy investing." Economy has "fallen off a cliff" "Wishes he had written the New York Times "Buy American" piece a few months later, but stands by the basic argument that you'll do better over a ten-year period with stocks that you will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't." Buffett has 'nowhere to hide' "The stock plunge 'doesn't make any difference,' Buffett told Fox Business Network Nov. 21. 'It's happened to me three other times,' Buffett said. 'It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 percent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times.'" Buffett's metric says it's time to buy "Is it time to buy U.S. stocks? According to both this 85-year chart and famed investor Warren Buffett, it just might be." One-on-one with Warren Buffett "We're celebrating NBR's 30th Anniversary, and so is Warren Buffett -- the legendary investor and Chairman & CEO of Berkshire-Hathaway. Recently, Buffett sat down with NBR's Susie Gharib to discuss the past, present, and future of Wall Street." Buffett as lender of last resort "Warren Buffett is having a bad year or two. The numbers for profit and book value he will disclose tomorrow in the 2008 annual report for Berkshire Hathaway Inc., his conglomerate and investment vehicle, will lack the sparkle of yesteryear. This year has been no better. Berkshire.s Class A shares touched a five-year low Monday and are down 19 percent so far for 2009. Yet Buffett, 78, still knows how to play." Business buyer "Take a young business genius, apply a liberal dose of Ben Graham's tutelage and you have the richest man on Earth." How the world ignored Warren Buffett "We read constantly that the current crisis is the worst in generations. That's true, but not for lack of trying. Read The Snowball and you can't help feeling the meltdown was not only inevitable but well deserved; that in fact Wall Street -- driven by a stunning combination of bottomless greed and chronic myopia -- has been striving to bring it about for decades, and has come close to succeeding on several previous occasions." Berkshire reduces stakes "Known as the 'Oracle of Omaha,' Buffett, 78, has become a cult figure among investors, drawing 31,000 people to that city's Qwest Center arena for his annual shareholders meeting last year. He makes most of the investment decisions at Berkshire, while Lou Simpson, 72, manages the portfolio for car insurance unit Geico Corp. Buffett has cautioned investors against assuming all moves in the equity portfolio are his." Stingy Links: Crime Why we keep falling for financial scams "Intelligent people have long been ruined by frauds. Psychologist Stephen Greenspan, who specializes in gullibility, explores why investors continue to be swindled -- and how he came to lose part of his savings to Bernard Madoff." Stanford attorney's exit 'screams fraud' "Regulators pounced days after a lawyer at the Antigua bank at the heart of the case 'disaffirmed' everything he had told authorities. 'The attorney's withdrawal is a massive red flag' that 'screams fraud,' said Peter Henning, who teaches criminal and securities law at Wayne State University in Detroit." $8 Billion fraud "The Securities and Exchange Commission accused Robert Allen Stanford, the chief of the Stanford Financial Group, on Tuesday of conducting 'a massive ongoing fraud' in the sale of about $8 billion of high-yielding certificates of deposit held in the firm's bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group." Stingy Links: Debt A short history of the national debt "It was not ever thus. Before the Great Depression, balancing the budget and paying down the debt were considered second only to the defense of the country as an obligation of the federal government. Before 1930, the government ran surpluses in two years out of three. In 1865, the vast debt run up in the Civil War amounted to about 30% of GDP; by 1916 it was less than a tenth of that. There even was a time when the U.S. made it a deliberate policy to pay off the national debt entirely -- and succeeded in doing so." House of cards "This is the paradox of deleveraging: it's good for borrowers to reduce their debt, and good for lenders to be more rigorous in their standards, but when everyone deleverages at once it does real damage. It's like a drug addict whose dealer cuts him off: it's good to stop using, but withdrawal is painful. The end of the credit-card boom isn't going to wreak as much havoc as the end of the housing boom. But it is helping to put a brake on our spending. And, at this point, every little bit hurts." Lowering credit scores "Wayne Brown has a dilemma. If he reduces his credit-card balance, American Express Co. will cut his credit limit to the amount of the new balance, he said. If he doesn.t make a big payment, his interest rate may skyrocket." The gravity-defying debt problem "The prices of real estate, stocks and many commodities continue to plummet this year. But one figure appears unlikely to decline substantially anytime soon, to the great distress of consumers, companies and taxpayers alike: the amount of debt piled on top of the U.S. economy." Stingy Links: Dividends High yield, low payout "How has the plain dividend yield strategy worked over the years? Stocks with high yields generally outperform those with low yields. The highest-dividend-yielding stocks were not overall leaders. Stocks ranking in decile eight had the best performance." Canadian dividend yield strategy "What is the optimal combination of dividend yield and payout ratio for investors? We extend our coverage to the Canadian market in this report, expanding on our prior research, which examined the influences of dividend yield and payout ratios within the U.S. market. Consistent with our previous work, we find that companies with a high dividend yield and a low payout ratio had the best performance when applying our backtest methodology to large-cap Canadian companies since 1990." Dividend and conquer "Dividends are delectable again. This is to say, the bear market is renewing investors' appreciation of the contribution that dividends make to the returns of their stock portfolios -- as opposed to capital gains." S&P 500 Dividend Aristocrats "Since 1926, dividends have contributed to approximately one-third of total return while capital appreciations have contributed two-thirds. Therefore, both sustainable dividend income and capital appreciation potential are important to total return expectations. Managers use stable and increasing dividends as a sign of confidence in their firm's prospects, while investors consider such track records as a sign of corporate maturity and strength. The S&P 500 Dividend Aristocrats Index measures the performance of the S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. The S&P 500 Dividend Aristocrats Class of 2009 includes 52 securities diversified across 10 sectors. The constituents have both growth and value characteristics. The composition of the S&P 500 Dividend Aristocrats contrasts with that of typical dividend oriented lists and benchmarks that have high exposure to Financials and Utilities sectors and have a steep value bias." Slash and burn "For many firms dividend cuts are an unpleasant task that should not be shirked. There is no point in starving a business and endangering a firm.s balance-sheet in order to meet macho dividend commitments. The counter-argument, that cuts remove an important discipline on managers, hardly holds true today, when all firms are counting the pennies. That being so, when firms announced cuts why did their share prices slump? The reason has a lot to do with signalling." 20 dividend plays for 2009 "This year likely will see the largest annual decline since 1942 in dividends paid by the companies in the Standard & Poor's 500 index. S&P projects dividends will fall by 13% in 2009, and the numbers could get worse. "We're taking an optimistic view," says Howard Silverblatt, the senior index analyst at S&P. "If corporations don't see better business conditions later this year, dividend cuts could become more widespread."" Dividends falling "The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century. U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data." Uncharted waters "The net result is that the market is pricing in a pretty severe outcome. American dividends more than halved between 1929 and 1931, but that was an extreme low; they have increased more than a hundredfold in nominal terms since then. According to Mr Long, the market is not expecting any dividend growth after 2010. Even in the depression, dividends more than doubled between 1931 and 1936. Figures from Britain, which date back to 1900, show that the biggest single fall in payouts was in 1919, when dividends fell 47%, but they more than doubled the following year. So the outlook for dividends, as reflected in swap prices, is historically unprecedented." Dividend ETFs offer mild defense "High-dividend stocks proved only mildly defensive during the first phase of the debt crisis, and it is instructive to consider the reasons. Beaten down considerably, this important asset class cannot be too far from the bottom and is still churning out all-important cash payments." Stingy Links: Dorfman Genuine values "I think investors will see some dramatic recoveries by banks, brokerage houses and insurance companies over the next two to three years. Three financial stocks that I like (and own) are Berkshire Hathaway Inc., Cullen/Frost Bankers Inc. and Goldman Sachs Group Inc." Glorification of smoothness "As Warren Buffett, one of the world's most successful investors, wrote in a 1996 report, 'I would much rather earn a lumpy 15 percent over time than a smooth 12 percent.' Some academics and investment practitioners place a great value on low standard deviation of returns. They reason that returns that don't vary greatly from one year to another are more likely to be replicated. The best returns, on a multiyear basis, come from investment managers who make bold decisions, and who often invest contrary to prevailing wisdom. People who follow these practices rarely have even, predictable annual results." Debt is murder "Now, more than ever, is a good time to buy stock in companies with low debt. Even in normal times, I like companies with debt less than stockholders. equity -- preferably less than 50 percent of equity. Such companies have strategic flexibility: They can fund new projects, increase dividends, buy back stock or acquire troubled rivals. Companies with high debt, by contrast, lack the financial wherewithal to do most of those things. In addition, they must spend a lot of their time renegotiating interest rates and debt covenants with banks or bondholders." Bank stocks are hated "For investors courageous enough to swim against the tide, now may be a good time to pick up bargains in the rubble of the banking industry. How can you tell which banks are on the safest footing?" Prudential, Valero headline bum-market bargains "It's an ill wind that blows nobody good. The drop in home prices helps first-time home buyers. And the slow-motion crash in the stock market is good for value investors if they are fortunate enough to have some cash on hand. As the year begins, there are more than seven dozen stocks that meet three stringent bargain-hunting criteria" Robot portfolio stumbles ""Well, even though historical profit figures will be a meaningless guide to performance during a recession, I had the robot select another 10 stocks to watch in 2009. Still in the list are Fairfax, methanol maker Methanex and contract energy driller Precision Drilling. Added are copper miner First Quantum Minerals Ltd., integrated energy company Petro-Canada, fertilizer make Agrium Inc., mutual fund manager AGF Management Ltd., steel distributor Russel Metals Inc., auto-parts maker Magna International Inc. and printer Transcontinental Inc. Sears might be a good thing "I did a study of stocks analysts love and loath, covering 1998 through 2007. It turns out that the four stocks analysts favored most as each year began did worse over the ensuing 12 months, on average, than the four stocks they most hated. Furthermore, both groups underperformed the Standard & Poor's 500 Index. Over the 10 years, the average despised stock rose 1.7 percent, compared with a loss of 2.2 percent for the adored ones. By contrast, the S&P 500 rose 7.2 percent a year on average." Stingy Links: Dreman Dickensian days "The time to buy value stocks is now. This is not to say that the market will immediately rebound. I don't know where the bottom is, and neither does anyone else. I can simply be confident that value stocks will do well over the long pull and that you're better off buying them when Wall Street is despondent than when it is ebullient. This Dickensian tale could have a happy ending." Stingy Links: Economics Out of Keynes's shadow "As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly 'inside' or 'internal' debt - owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions." Macroeconomics is astrology, not science "In the early 1980's, the Wall Street Journal asked liberal economist John Kenneth Galbraith and conservative economist Milton Friedman to predict the macroeconomic trends over the next two years. Both agreed that inflation would rise above 10%, and both accused the other of obtaining his prediction by reading chicken entrails. Both were wrong about inflation, but both were right about the chicken entrails." Stingy Links: Economy Beggar thy children "Individuals and businesses invest more wisely than governments. If Obama wants to lead from the center, he needs to reassure us that entrepreneurialism will not be discouraged and risk bearing will not be punished. The capital markets will react well if the Obama administration unleashes the power of human innovation; they have reacted badly after the election, and again with the inauguration, because the markets fears that this is not in the cards. To borrow another quote from Jefferson, 'I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.'" The economy is bad, but 1982 was worse "You often hear that we are now living through the worst recession since the early 1980s, and the comparison is not wrong. But it's ultimately unsatisfying, because it is a little too vague to be useful. Is the economy only a little worse than it was in the last couple recessions, as some have said, and still a long way from the dark days of 1982? Or are we instead on our way toward something that may even approach the severity of the Great Depression?" This isn't your grandfather's recession "Adherents of the tax-cuts-only strategy are suspicious of free-spending Democrats, old-fashioned Keynesians, and big government. They believe - no, they know - that tax cuts are more efficient than government spending, since people and businesses make better and quicker decisions about spending than government does. And the way they read the relevant data, history, and experience, permanently reducing long-term tax rates has historically provided the best possible incentives to invest and spend. They may be right. But there are also reasons to think that what worked or made complete sense in the past may not be as effective today. The current, somewhat extraordinary circumstances, and the nation's changing economic geography, should make us wonder how effective tax cuts will be in stimulating new spending and investment." Yes, bankers are overpaid "The authors argue that the wage increases are related to greater skill requirements: in both the 1930s and the 1980s, there was a higher demand in financial services for employees that could handle complex transactions involving credit risk, for example. In support of that, the authors map metrics for the average educational attainment of financial services employees over the excess wage results and show that there is a fairly good relationship between the two." The bias in reporting job losses Each day's news brings more stories about layoffs at major companies. The stories get a big play in mainstream media. The leading bloggers also cite the stories and encourage readers to keep a summation of job losses. This is quite misleading. Job losses occur in highly visible chunks, as we can readily see. New jobs are created a few at a time, both in existing businesses and in new businesses. Even sophisticated observers do not recognize the ongoing job creation from the invisible hand of the market."" Zombie debtors "Zombies. Seen one lately? If not, you may soon, because they are about to menace the U.S. economy. In financial lingo, zombies are debtors that have little hope of recovery but manage to avoid being wiped out thanks to support from their lenders or the government. Zombies suck life out of an economy by consuming tax money, capital, and labor that would be better deployed in growing companies and sectors. Meanwhile, by slashing prices to generate sales, zombie companies can drag healthier rivals into insolvency." Investors cannot rely on mainstream media "Anyone who does not follow the dynamics of the labor market is only telling part of the story. This is important. The net job loss understates the perceived impact. It also overstates the actual impact, since the job creation is ignored. Most people react to actual gross job loss and layoff announcements. The new jobs get no publicity." Stingy Links: Fun The no-stats all-star "Here we have a basketball mystery: a player is widely regarded inside the N.B.A. as, at best, a replaceable cog in a machine driven by superstars. And yet every team he has ever played on has acquired some magical ability to win." Stingy Links: Funds Fund manager reports "Mutual fund managers' quarterly letters, market commentaries, forecasts, and other reports are full of interesting tidbits and, if one looks carefully, investment ideas. Every quarter, mutual funds are required to publish reports, and many portfolio managers, research chiefs, and advisors take the time to express their opinions about the markets, individual stocks, or other items on their minds. Some fund shops publish more frequently--on a monthly or even weekly basis." The charges laid against us "How much of Buffett's $62bn would be the property of Buffett Investment Management and how much the property of the Buffett Foundation? The - completely astonishing - answer is that Buffett Investment Management would have $57bn and the Buffett Foundation $5bn. The cumulative effect of 'two and twenty' over 42 years is so large that the earnings of the investment manager completely overshadow the earnings of the investor. That sum tells you why it was the giants of the financial services industry, not the customers, who owned the yachts." The go-go investor "his was a boom-and-bust story. He got rich in the process but also became the symbol of an era, in much the same way that Michael Milken became the symbol of the junk-bond-fueled excesses of the 1980s and Henry Blodget the symbol of the Internet bubble. Afterward, the portrait that was painted of him was not flattering. And it bugged him." The man who made too much "Hedge fund manager John Paulson has profited more than anyone else from the financial crisis. His $3.7 billion payday in 2007 broke every record, and he made it all by betting against homeowners, shareholders, and the rest of us. Now he's paying the price." Higher risk, lower returns "This study makes a critical distinction between the returns of hedge funds and the returns of investors in these funds. Investor returns depend not only on the returns of the funds they hold but also on the timing and magnitude of their capital flows into and out of these funds. The capital flow effect exists for any investment but is especially relevant for hedge funds because of the large magnitude and variation in the associated capital flows. We use dollar-weighted returns (a form of IRR) to assess the properties of actual investor returns on hedge funds and compare them to buy-and-hold fund returns. Our first finding is that annualized dollar-weighted returns are on average about 4 percent lower than corresponding buy-and-hold fund returns. This performance gap rises to as much as 9 percent for "star" funds with the highest buy-and-hold returns and for funds with high volatility of capital flows, a remarkable difference in assessing long-run investment performance. In addition, dollar-weighted returns are below comparable returns for broad-based stock indexes. Our second finding is that dollar-weighted returns are more variable than their buy-and-hold counterparts. The combined impression from these results is that the return experience of hedge fund investors is much worse than previously thought." Hedge funds ruined by withdrawal limits "In any investment business, the return of capital is far more important than the return on capital. By forcing investors to keep their money tied up during a bad year, the hedge funds are damaging their own reputation, and it may well never recover." The ponzi scheme in every hedge fund "Suppose some investors decide to withdraw their money from a hedge fund. The fund must liquidate the appropriate amount of its assets to pay these investors. Say the fund holds large positions in illiquid assets. The fund cannot immediately sell these assets, except at a fatal loss, so it would sell its more liquid assets. Given that the fund is more likely to inflate its estimation of the illiquid assets, it would seem that investors who withdraw early get the better returns over that time period." Stingy Links: Government Our permanent state of routine emergency "The Cato Institute's James Bovard was struck by the plight of Vernon, Conn., a town ravaged in the winter of 1995-96 by, er, slightly more snow than they'd expected. So FEMA sent them a check for $40,023. Vernon had 30,000 people, and its town snow-removal costs that winter were $258,000. "That's just $8.60 per person," Bovard pointed out, "less than a 12-year-old charges to shovel out a driveway after a good snowfall." So why did they need "federal emergency" aid? Because the town had only budgeted $104,516, and so claimed to be "overwhelmed" by the additional costs. They could have asked the good burghers of Vernon to chip in an extra five bucks apiece. But why bother when FEMA's so eager to give you a warm bath in the federal love nectar? The town government wised up pretty quickly. The next winter, they set the snow-removal budget at just $69,383." Bankers need more skin in the game "There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you're less likely to take the kinds of risks that expose the rest of society to your failures. A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren't protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. In other words, don't nationalize; partnerize." Rates: when zero is way too high "Trouble is, the Federal Reserve can't cut interest rates below the rate of inflation if inflation falls to zero, which many economists expect to happen soon. Clearly the Fed can't take in $1,000 and pay back only, say, $950 a year later. Rational investors would simply keep their money in cash outside the banking system to preserve its value. The solution is obvious: The Fed needs to deliberately raise the rate of inflation - maybe not all the way to 6%, but significantly above zero." The looting of America's coffers "With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government's involvement is crucial to the whole enterprise." The gold reserve act "Under the law, no one in the U.S. was allowed to own gold without the permission of the government." Lessons fron the great depression "To start, I think it's important that I point out that there's a current recession, is unquestionably severe. It pales in comparison to what our parents and grandparents experienced in the 1930s." Let's put down the pitchforks "We're angry. We're frustrated. We feel cheated and abused. We're not going to take it anymore. But then again, we don't have much choice, do we? Sure, we can demand that a few more heads roll on Wall Street, or at the Treasury, or that a few hundred million are clawed back from financiers who never deserved it. But the reality is that no matter what we do now, tens of trillions of dollars in wealth have been lost. All that's left is simply an elaborate exercise in settling up the accounts." Wall St. threatens to take ball, go home "Wall Street has had enough and isn't going to take it any more. After months of being battered by politicians, pundits and the American people generally, the Empire is striking back" Trillion-dollar spree is road to ruin "We are in the midst of a crisis caused by so many financial institutions borrowing too much money. Somehow, a critical mass of policy makers now believes that the correct response is for the U.S. government to borrow too much money." The quiet coup "But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess - exports must be increased, and imports cut - and the goal is to do this without the most horrible of recessions. Naturally, the fund's economists spend time figuring out the policies - budget, money supply, and the like - that make sense in this context. Yet the economic solution is seldom very hard to work out. No, the real concern of the fund's senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis." Rated F for failure "The reason for this continued reliance on ratings is simple: bad regulation. We have seen up close how legal rules that depend on ratings pervert the process." Bailout didn't get what Buffett got "Henry Paulson may be the most powerful manager of money in the world and he still couldn't do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc." Stimulus: a history of folly "Stimulus - that is, fiscal intervention with the express purpose of speeding up the normal regenerative process that Grant describes - is unnecessary and almost certainly harmful, a policy based on hubris and anxiety, rather than on history and good sense. Under such circumstances, the proper way to analyze discrete proposals today for spending or taxing is on their own merits, not on their supposed ability to stimulate something else. There may, in fact, be a good reason for government to spend billions of dollars today on building highways, and it has nothing to do with stimulus. It is that long-term interest rates are at historic lows and that the right highways can boost the economy in the long term. There also may be a good reason, again far apart from stimulus, for revising the tax code and reforming Social Security and Medicare. It is that Americans now understand that the economic future is not so assured as they believed a couple of years ago, and it is time for decisions to be made - in a manner careful, sensible, and unstimulated." Hidden pension fiasco "Public pension funds across the U.S. are hiding the size of a crisis that.s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy." Bubblespeak "In his timeless 1946 essay "Politics and the English Language," George Orwell condemned political rhetoric as a tool used "to make lies sound truthful" and "to give an appearnce of solidity to pure wind." Were he alive today, Orwell might well be moved to pen a comanion piece on the use of financial lingo. Remember those toxic assets? The poorly performing mortgages and collateralized debt obligations festering on the books of banks that made truly exerable lending decisions? In the latest federal bank rescue plan, they've been transformed into "legacy loans" and "legay securities" - safe for professional inestors to purchase, provided, of course, they get lots of cheap government credit." Mass hysteria over AIG "Since the beginning of the crisis I've wondered why the government has found neither the will nor the way to attack the root of the problem -- the people who borrowed money to buy homes they shouldn't have bought. Now I think I understand. It would be too simple. People would understand a lot of small payments to the guy down the street who doesn't deserve them, and become outraged. Far better to throw trillions at opaque corporations, the inner workings of which no one still really understands." Feds need to break up big banks "Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money." The end of the financial world "This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don.t know what they are doing with money, who does?" Cautionary tales for America from Japan "The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan's banking crisis have three words for the Americans: more money, faster." Look who's getting the goodies "To understand what Washington is actually up to, you have to watch what it does, not what it says. That's especially true when it comes to Washington's role in the ongoing bailout of Wall Street, part of its "let's hope this works" plan to revive the U.S. economy. While Washington is setting the populist mob on the individual American International Group employees who got a total of $165 million in bonuses this year, far larger amounts of money are being quietly handed to Wall Street through programs that generate barely a peep of protest." Have We Seen the Last of the Bear Raids? "The whole exercise was stupid, akin to buying insurance from the captain of the Titanic, who put the premiums in the ship's safe and collected a tidy bonus for his efforts." Obama's Nobel Headache "Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right." Punitive damage "The financial crisis has been widely interpreted as proof of the need for extensive government regulation of banks, insurance companies, and other capitalist institutions. The antics of politicians now that they have a greater role, however, are a vivid reminder of why they can't be trusted with such power." Is he listening? "The president is now trapped between these two realms -- the governing elites who decide things and the people who are governed. Which side is he on? If he does not choose wisely, the anger could devour his presidency." Stingy Links: Graham The Graham & Dodders "Here are four well-known investors schooled in Graham and Dodd stock analysis. They're all carrying on the value tradition made famous by Buffett, the Oracle of Omaha and the richest man in the world." Three timeless principles "Warren Buffett is widely considered to be one of the greatest investors of all time, but if you were to ask him who he thinks is the greatest investor, he would probably mention one man: his teacher Benjamin Graham. Graham was an investor and investing mentor who is generally considered to be the father of security analysis and value investing." Stingy Links: Hallett ETF rule: Keep it simple "Indexing is a simple low-cost way to obtain a diversified investment portfolio which tracks the markets. At least that's the theory. Problem is, many investors get led astray. Before they know it their portfolios become jam-packed with the new breed of expensive and risky exchange-traded funds. What was once a solid investment portfolio becomes a speculative one." Stingy Links: Indexing Long term performance of leveraged ETFs "In this paper, we study leveraged ETFs, in particular, Ultra ETFs and UltraShort ETFs from the ProShares family. These Ultra (UltraShort) ETFs are designed to provide twice (twice the opposite) of the performance of the benchmark on a daily basis. We focus on the relation between long term performance of leveraged ETFs and benchmarks. Our results show that over holding periods no greater than one month, an investor can safely assume that the Ultra (UltraShort) ETF would provide twice the return (twice the negative return) of the underlying benchmark. Over the holding period of one quarter, the UltraShort ETFs can deviate from twice the negative returns of the benchmark. For Ultra ETFs, this deviation occurs when the holding period is one year. Overall our results show that leveraged ETFs are not long term substitutes for long or short positions of the benchmark indices." Stingy Links: Law How modern law makes us powerless "Americans don't feel free to reach inside themselves and make a difference. The growth of litigation and regulation has injected a paralyzing uncertainty into everyday choices. All around us are warnings and legal risks. The modern credo is not "Yes We Can" but "No You Can't." Our sense of powerlessness is pervasive. Those who deal with the public are the most discouraged. Most doctors say they wouldn't advise their children to go into medicine. Government service is seen as a bureaucratic morass, not a noble calling. Make a difference? You can't even show basic human kindness for fear of legal action. Teachers across America are instructed never to put an arm around a crying child." Stingy Links: Management Labor pains are not easily shared "One way to accomplish such a "share economy," Weitzman argued, would be to change the structure of compensation so that a higher percentage of it was in the form of a bonus based on company revenues and profits, with a lower base pay. That would allow firms to reduce payroll costs during a recession without having to resort to big layoffs. It would also help ensure that workers shared in the boom times as well." Yes, you can raise prices "The signs in the window of Jay Kos, an upscale men's wear boutique on Park Avenue in Manhattan, seemed at best cheeky, at worst clueless. Surrounded by glaring economic-crisis headlines cut out of newspapers, they said, "Cashmere sweater: $2,500. Recession price: $2,500." "Lamb's fleece jacket: $11,000. Recession price: $11,000." It was an in-your-face declaration that the business, whose clients include bankers and celebrities, wasn't going to cave in to any mere economic collapse. "Some people hated it," says the shop's eponymous owner. "But most people loved it. And some people even bought because of it." That story is worth pondering because one of the most important decisions businesses must make in this recession is what to do about prices." Stumbling on entitlement "For the American public, Daschle became the latest symbol of everything that is wrong with Washington -- the influence-peddling and corner-cutting and sacrifice of the public good to private interest. Now that this system has let them down, and left them poorer and anxious about the future, people are angry about it and no longer willing to accept the corruption of the public process and the whole notion of public service." The start of 10 Fortune 500 firms "The following examples are businesses which have grown so large to be included in the Fortune 500, or the world's largest 500 companies - but which have started from the humblest beginnings. They are 'Rags to Riches' stories of unique brands, started by unique individuals that only have accumulated wealth and vast market share, but have created their own niche and never looked back." Stingy Links: Marketing Snuggie rode silly ads to stardom "With similar products bound to appear soon and a lesser-known sleeved blanket - the Freedom Blanket - predating Mr. Clegg's, this throwdown of the throws suggests that it is not always the first one to market who wins but the one with the most aggressive marketing plan." Stingy Links: Markets Train to get in financial shape "Welcome to the Olympics of investing. Unfortunately, you are not a spectator. The S&P 500 index of large-cap stocks has lost more than 40% since November 2007, and about $2 trillion in value has disappeared from investors' 401(k)s and IRAs, according to the Center for Retirement Research. So you probably don't feel that you have much chance of taking a victory lap. But if history teaches us anything, it's that the sweetest victories are won in markets just like this one, even if it doesn't seem that way at the time." Double trouble "House prices, in our bloodshot view, have another 20% or so to fall before hitting bottom and, at the earliest, we're talking sometime next year. And, possibly more important, a meaningful brightening of the current, profoundly bleak jobs picture, isn't in the cards for certainly as long, if not longer." Why banks failed the stress test "By any historical standard, the financial crisis of the past 18 months has been extraordinary. Some have suggested it is the worst since the early 1970s; others, the worst since the Great Depression; others still, the worst in human history. Time will tell. Risk managers are of course known for their pessimistic streak. Back in August 2007, the Chief Financial Officer of Goldman Sachs, David Viniar, commented to the Financial Times: 'We are seeing things that were 25-standard deviation moves, several days in a row' To provide some context, assuming a normal distribution, a 7.26-sigma daily loss would be expected to occur once every 13.7 billion or so years. That is roughly the estimated age of the universe. A 25-sigma event would be expected to occur once every 6 x 10**124 lives of the universe. That is quite a lot of human histories. When I tried to calculate the probability of a 25-sigma event occurring on several successive days, the lights visibly dimmed over London and, in a scene reminiscent of that Little Britain sketch, the computer said 'No'. Suffice to say, time is very unlikely to tell whether Mr Viniar's empirical observation proves correct. Fortunately, there is a simpler explanation - the model was wrong." A 10-year stretch that's worse than it looks "Over the 10 years through January, an investor holding the stocks in the S.& P.'s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart. Until now, the worst 10-year period, by that measure, was the period that ended September 1974, with a compound annual decline of 4.3 percent." Portfolio and its bubble solution "Being skeptical about this project is not because I particularly embrace the efficient market; it's because I don't, and I'm not convinced that physicists or anyone else has a decent grasp of complex systems, particularly those populated not by atoms but by wayward humans out to make a buck. Indeed, there's nothing wrong with using the markets as a test bed for physicists to probe the phenomenon of complex systems. But prediction? This is the great utopian dream of the technocrats: If we only had more data, we could model anything, predict everything." Is it back to the Fifties? "US stocks have fallen more than 60 per cent in real terms since the market peaked in 2000. Anyone who started saving 40 years ago, when the postwar 'baby boom' generation was just joining the workforce, has found that stocks have performed no better than 20-year government bonds since then, a forthcoming article by Robert Arnott for the Journal of Indexes shows. These people want to retire soon and the 'cult of the equity' has let them down." Banker bashing gives cover to bigger culprits "The problem is this game of pin-the-blame-on-the-banker gives cover to those who deserve a far greater share of the blame for this crisis -- the people whose job it was and is to set the rules of the game and keep things from getting out of hand." The next mortgage mess "Ross' American Home Mortgage Servicing claims Carrington Capital asked it to block the sale of homes to siphon money away from other investors and enrich itself." Fear is back on Wall Street "Fears about the health of big financial firms and the overall economy have roared back into play, sending the stock market tumbling toward its lowest levels since last November. The Dow Jones Industrial Average dropped about 300 points one point Wednesday morning following the latest round of dark economic news. Retail sales fell 2.7% from a year ago in December, a decline twice as large as economists had expected." Dispelling myths about the 1930s "After examining several aspects of the stock market's behavior during the 1930s, it would appear as though a replay of that decade might very well be less scary than assumed by many of those who superficially draw the analogy." The death of equity "Global equities have returned -29% this decade, compared to 80% from government bonds. We've seen two 50% equity bear markets in just five years. This combination of miserable returns and extreme volatility has led some to pronounce that, after 50 years, the cult of the equity is dead." Reinvesting when terrified "Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before." Inside the meltdown "On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days." Naked short sales "The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts." Reverse splits "According to a 2006 paper by professors at New York University, Emory University and the University of Florida, companies that entered into reverse splits between 1962 and 2001 (that.s about 1600 occurrences) underperformed the market by about 1.3% on a monthly basis for the next three years." Fed to buy $300 billion of longer-term treasuries "The Federal Reserve opened a new front in its battle to bring down borrowing costs across the economy, pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds. The announcement following the Federal Open Market Committee meeting today in Washington spurred the biggest rally in longer-dated Treasuries in decades. Officials unanimously voted to expand the Fed.s balance sheet up to $1.15 trillion, and said they may broaden a program aimed at boosting consumer loans to include other assets, today.s statement showed." [Bernanke last seen flying his 'bankruptcy or bust' helicopter to Wall Street.] Woefully misleading piece on VaR "The New York Times Sunday Magazine has a long piece by Joe Nocera on value at risk models, which tries to assess how much they can be held accountable for risk management failures on Wall Street. The piece so badly misses the basics about VaR that it is hard to take it seriously, although many no doubt will." What are the odds of a depression? "In the end, we learned two things. Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression. The bright side of a 20% depression probability is the 80% chance of avoiding a depression." The S&P gets its earnings wrong "Standard & Poor's recently shocked investors with an announcement that reported earnings for its S&P 500 Index for the fourth quarter of 2008 are forecast to be negative for the first time since such data were calculated in 1936. S&P further reports that for all of 2008, earnings are expected to be less than $40 per share, indicating that the market now has a price/earnings ratio over 20, well above its historical average of 15. What this dismal news actually reflects is the bizarre way in which S&P (and most other index providers) calculate "aggregate" earnings and P/E ratios for their indexes. Unlike their calculation of returns, S&P adds together, dollar for dollar, the large losses of a few firms to the profits of healthy firms without any regard to the market weight of the firm in the S&P 500. If they instead weight each firm's earnings by its relative market weight, identical to how they calculate returns on the S&P 500, the earnings picture becomes far brighter." Stocks now distinctly cheap "One of the only silver linings of the current mess is that stocks are increasingly priced to deliver a compelling long-term return. Given that stocks had been overvalued for more than 15 years through last summer, this is a refreshing change. If the S&P does go to 600, which we think is possible, stocks will finally be a screaming buy." Why market forecasts keep missing the mark "Fish gotta swim, birds gotta fly and analysts and market strategists gotta try predicting what stocks will do every year. But you don't gotta act on those predictions -- at least not before you ask how likely they are to hit the bullseye." The formula that killed Wall Street "For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels. His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched - and was making people so much money - that warnings about its limitations were largely ignored. Then the model fell apart." Brother, can you spare a stock? "In the worst of times, which are the best of stocks? So many readers have emailed me to warn that we are going into another Great Depression that I decided to find out which companies and sectors did best after the Crash of 1929. With the Standard & Poor's 500-stock index down 39% last year and another 8.5% this year, it can't hurt to learn what separated the winners from the losers back then." Financial journalists fail upward "This needs to be repeated every time someone pleads, "Who could have known?" Plenty of people did see the disaster coming. Most of them were marginalized, however, laboring at out-of-the-way econ departments, blogs and B-list think tanks. They were excluded and even ridiculed because their larger understanding of the economy was not one that fit well with the sort of Wall Street worship preached by the likes of CNBC." [See Tetlock's book called "Expert Political Judgment" for more details on why famous pundits tend to be the least accurate prognosticators.] S&P heads to first quarter ever of negative earnings "This is the worst; after the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst, at Standard & Poor's. A sixth quarter of negative growth ties the prior record set when Harry Truman was president, running from the first quarter of 1951 to the second quarter of 1952. "Next quarter, we're expecting a new record of seven quarters of negative growth," Silverblatt added. As of the close of business Thursday, Silverblatt calculates S&P earnings per share, on a reported basis, at a loss of $10.44 for the quarter. If financials were taken out of the equation, that deficit would drop to $2.35 a share." C.S. global yearbook 2009 "An alternative approach is to delve deeper to infer what investors in each country were expecting, on average, in the past. We do this by decomposing the historical premium into three major components, namely, (i) the (geometric) mean dividend yield net of the real risk free rate, (ii) the annualized growth rate of real dividends, and (iii) the annualized change in the price/dividend ratio over time. Of these three, the dividend yield has been the dominant factor historically. This may seem surprising, since day-to-day, investors seem focused on capital gains and stock price movements. Indeed, over a single year, equities are so volatile that most of an investor.s return comes from capital gains or losses, with dividends adding a relatively modest amount. However, reinvested dividends dominate long-run returns." Presidential Starts: 1900 - 2009 "From the time President Obama was elected to his inauguration, the DJIA put in its worst performance over all election to inauguration periods since 1900, with a decline of 17.4%. And on the day President Obama was sworn in, the DJIA put in its worst ever inauguration day performance with a decline of 4%. Since then, things haven't gotten much better. Not including the inauguration day decline, the DJIA has dropped an additional 14.92% since President Obama was sworn in. Over the last two weeks, these declines have intensified with losses in ten out of the last twelve trading days." Have we already seen peak oil? "World oil production is reckoned to have peaked in 2008 at 81.73m barrels/day - 'oil' here being defined as crude oil, lease condensate, oil sands and natural gas plant liquids. If natural gas plant liquids are excluded, then the production peak remains in 2008 but at 73.79 mbd. However, if oil sands are also excluded then crude oil and lease condensate production peaked in 2005 at 72.75 mbd." Can talk of a depression lead to one? "The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation - because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our 'animal spirits,' reducing consumers' willingness to spend and businesses' willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy." 'Nationalize' the banks "How does Mr. Roubini think the media has covered the financial crisis? "The problem," he says -- after first stating to me that he intends "no offense!" -- "is that in the bubble years, everyone becomes a cheerleader, including the media. This is the time when journalists should be asking tough questions, and I think there was a failure there. The Masters of the Universe were always on the cover, or the front page -- the hedge-fund guys, the imperial CEO, private equity. I wish there had been more financial and business journalists, in the good years, who'd said, 'Wait a moment, if this man, or this firm, is making a 100% return a year, how do they do it? Is it because they're smarter than everybody else . . . or because they're taking so much risk they'll be bankrupt two years down the line?' "And I think, in the bubble years, no one asked the hard questions. A good journalist has to be one who, in good times, challenges the conventional wisdom. If you don't do that, you fail in one of your duties."" [and in the depression years?] Stingy Links: Montier Stocks that may cause 'permanent' loss "Societe Generale SA strategist James Montier identified 42 stocks around the world, including News Corp. and BAE Systems Plc, that may cause a 'permanent loss of capital' for investors as valuations fall, earnings trail estimates and the companies struggle to repay debt." Stingy Links: Munger How we can restore confidence "Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law." Stingy Links: Neff Neff goes bargain hunting "In a battered market, the former Windsor fund manager is finding stocks that meet his strict value standards." Stingy Links: Real Estate Rents are falling fast "Fritz Frigan, executive director of sales and leasing at Halstead Property estimates that when these incentives are considered, rents are actually down some 10 percent to 15 percent since the market peak in mid-2007." 1 in 5 mortgages underwater "It's bad enough when the value of your house is sinking like a lead balloon. But for a growing number of Americans, their woes are compounded by owing more on the mortgage than what that house is now worth." The growing foreclosure crisis One oft-repeated assertion no longer holds true. Those in trouble are not, primarily, lower-income borrowers. The foreclosure crisis has become a wave, afflicting neighborhoods of every stripe -- but particularly communities created by the boom itself."" Attack of the condo craters "Many project failures are indeed just rumours at this point, but the numbers indicate an imminent oversupply of boxes in the sky. 'It's night and day from just a few months ago,' says Adam Vaughan, a Toronto city councillor. On any given day for two years he'd receive at least one application for a new condo project in his Trinity-Spadina ward, but hasn't seen one in six months. 'There were more 50-storey buildings under construction in my ward than Calgary has ever built,' he says. Will Dunning, a Toronto real estate economist, says that although the fall-off in new projects has certainly been dramatic, it may not have been fast enough. Today, he says, there are roughly 35,000 units on the go in Toronto. But in December, just 198 new condos were sold, a stunning 81 per cent drop from the year before. 'This very large pending inventory is setting the stage for a substantial correction within the condo market,' he warned in a report late last year." Mortgage delinquencies rise to record "Mortgage delinquencies increased to a seasonally adjusted 7.88 percent of all loans, the highest in records going back to 1972, the Mortgage Bankers Association said today. Loans in foreclosure rose to 3.30 percent, also an all-time high." 19 million U.S. homes vacant in 2008 "A record 19 million U.S. homes stood empty at the end of 2008 and homeownership fell to an eight-year low as banks seized homes faster than they could sell them. The number of vacant homes climbed 6.7 percent in the fourth quarter from the same period a year ago, the U.S. Census Bureau said in a report today. The share of empty homes that are for sale rose to 2.9 percent, the most in data that goes back to 1956. The homeownership rate fell to 67.5 percent, matching the rate in the first quarter of 2001." New home sales fell 41% "After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes. No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved." Curse you, Zillow! "Yes, the market has plummeted at roughly the speed of a large melon dropped from a tall building. But an Internet appraisal can only compare a house's worth to that of other houses. It doesn't see inner beauty. It knows nothing of kitchen renovations or landscape improvements. It is an inherently limited measurement, as shallow and as damaging to homeowners' egos as teen fashion magazines are to body-conscious adolescent girls. Still, when I learned this week that the median Southern California home price in February was just $250,000, I did something that turned out to be a very bad idea from an emotional health perspective. I looked up my house on Zillow." Stingy Links: Shiller An interview with Robert Shiller "How do we explain the fluctuations of the business cycle, or the existence of involuntary unemployment? In answering these questions, Shiller and Akerlof turn to John Maynard Keynes's notion of the animal spirits: "the restless and inconsistent element in the economy" that is not easily explained by reference to rational actors with simple economic motivations." Stingy Links: Stocks Content, once king, becomes a pauper "The value of content has never been ethereal. It has always been directly tied to what owners could "get" for it, either through advertisers or subscribers. For content to have a value, it could never be free. Its position as royalty depended on that. Content is rapidly being devalued." Will Exxon Get Googled? "And while nothing in our current energy infrastructure operates at the theoretical limits, pretty much everything is within spitting distance of Mother Nature's hard stop in terms of energy density and efficiency. Of course, there's room for progress. A 20 to 30 percent gain in efficiency in our national energy bill translates into serious money. Airlines, as well as most businesses, do back handsprings for such efficiency gains. But compared to the efficiency-created disruptions in the digital-info world, 30 percent is chump change. The reality is that we are stuck with limitations imposed by things like, well, Earth's rotation and distance from the sun, which determine the maximum energy possible from solar power. Or the biochemistry of photosynthesis, which ultimately determines biofuel economics, or the physical chemistry that dictates potential energy per pound of oil, ethanol, or lithium. " I see dead bankers! "In The Sixth Sense, Haley Joel Osment's character is terrified because he sees dead people walking the streets, working, going to school, playing, seeing patients, oblivious to the fact that they are no longer alive. I get the same feeling today watching CNBC, reading the newspapers, walking through midtown Manhattan and counting the Town Cars idling outside the headquarters of investment banks. Like John Thain, there are lots of people who continue to act as if they are living, breathing, Wall Street players, oblivious to the fact they've been reduced to nicely dressed corpses." The next AIG scandal? "Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG's supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being "healthy," as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it "a house of cards." Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG's own 300-page annual reports, Gober argues that AIG's 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree." Too big to succeed "Indeed, when it comes to conglomerates, we tend to see a two-part cycle. During the first part, acquisitions, mergers, big combinations are all the rage. Its a giant ego stroke for the CEOs, and it generates lots of fees for the iBankers. The second half of the equation comes when the awful handiwork of the M&A binge needs to be unassembled. That generates criticism of the CEOs, and lots of fees for the iBankers." Life at Wal-Mart "The picture above is of me, finishing my shift at the world.s largest retailer. How did I move from being a senior writer at Wired magazine to an entry-level position in a company that is reviled by almost all living journalists? It started when I read Nickel and Dimed, in which Atlantic contributor Barbara Ehrenreich denounces the exploitation of minimum-wage workers in America. Somehow her book didn.t ring true to me, and I wondered to what extent a preconceived agenda might have biased her reporting. Hence my application for a job at the nearest Wal-Mart." Stingy Links: Taleb Risk mismanagement "The story that I have to tell is marked all the way through by a persistent tension between those who assert that the best decisions are based on quantification and numbers, determined by the patterns of the past, and those who base their decisions on more subjective degrees of belief about the uncertain future. This is a controversy that has never been resolved." Stingy Links: Taxes Make interest tax deductible "Take a look at your balance sheet. Do you have any debt? If so, are you entitled to deduct the interest? Chances are, you've got some debt that is costing you interest that is simply not deductible for tax purposes." Court ruling offers a lesson on avoiding tax "The court did confirm that GAAR should not generally apply when taxpayers rearrange their borrowings to minimize their taxes. In the Lipson case, the court was fine with the interest deduction itself, but took offence to Mr. Lipson claiming the deduction by relying on the attribution rules to give him the deduction (he was the higher-income spouse, and therefore benefited more from the interest deduction). And so, we should spend some time looking at ways to arrange debt to make the interest deductible." Stingy Links: Thrift A lament for savers "Borrowers get bailed out. Run your bank into the ground and the taxpayer will lend it money. Buy a house you cannot afford and the central bank will cut interest rates to ease your burden. Meanwhile those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed to 2% in the euro zone, 1% in Britain and virtually nothing in America. No one offers to help them out, even though saving is needed to allow business investment which, in turn, generates growth. Asians, told off in the 1990s for their current-account deficits, now get lectured for saving too much. This is quite a different paradox of thrift from the usual one. In theory, everybody regards thrift as a virtue. In practice, they treat it as a vice." Analyzing market-linked GICs "I'm not actually a big fan of principal protection. I think the cost of this protection is too high. But for investors who want this protection, it's important to evaluate whether your market-linked GIC is a good deal or not." Free toothpaste for life! "There's a system behind coupons, rebates and store incentives. Figure it out, and the store aisles are rich with freebies for you and those you want to help." Feeding a family in the depression "It was a time of making do and doing without. The Great Depression forced thousands out of their jobs, but most of the burden was shouldered by the homemaker, who had to keep the family fed." 10 tips for a better deal "Some people were born to haggle, negotiate, cajole, whatever you call it. The rest of us need some guidance. Here are 10 great negotiating tactics to use next time you want to get more for less." Stingy Links: Tilson Preventing the greatest heist in history "The new Obama administration needs to understand that greatest heist in history is underway - at least $1 trillion is being transferred from taxpayers to debt holders of failed financial institutions - and take steps to stop it before taxpayers suffer further unnecessary losses." Stingy Links: Value Investing Money for nothing "Anyone attuned to the pop music scene during the roaring 1980s, will perhaps remember the above title was an era-defining big hit for the British group Dire Straits back in 1985. However, the intent of this essay is not to write about showbiz, nor about the sometimes surreal behaviour of its protagonists. Rather, focus will be directed towards the surreal behaviour of stock market players during the latest crash and how cash was demonstrably given away for nothing in return; Money for Nothing if you will." Fundamental value investors "We examine novel data on the detailed investment decisions of professional value investors. We find evidence that value investors are not easily defined: they exploit traditional tangible asset valuation discrepancies such as buying high book-to-market stocks, but spend more time analyzing intrinsic value, growth measures, and special situation investments. We also test whether fundamental value investors outperform the market in our sample (January 2000 to June 2008). Analyzing buy-and-hold abnormal returns and calendar-time portfolio regressions, we conclude that value investors have stock picking skills." Using the price-to-book ratio "Price-to-book ratios have been studied extensively, with some studies suggesting a low price-to-book can lead to a strong stock price rise in the future." Value investing comes back into vogue "The celebrated value investor Warren Buffett stepped back on to the investment trail this week as his parent company Berkshire Hathaway injected SFr3bn ($2.6bn) in fresh capital into the struggling insurer Swiss Re. The deal, which will pay Buffett hefty annual interest and give him the right to raise his stake at an attractive price, is a sign that the billionaire investor has not lost his appetite for financial stocks." Patient Capital Q4 2008 "We believe that despite the current environment the profitability of most major businesses will be higher in five years than it is today. A look over the past century shows how resilient free market economies truly are; despite two world wars, a depression, an oil shock and a multitude of other crisis, businesses and stock markets have continued to grow. It is truly remarkable how the human spirit seems to triumph over all sorts of adversity." Piotroski profits "Piotroski sought companies trading with very low price-to-book value ratios. These are often financially distressed, which is why investors tend to steer clear of them. They are cheap because they deserve to be. But occasionally, they're solid companies that are being unfairly neglected and present real buying opportunities, if you can separate the trash from treasure." The relative cash holdings premium "A hedge strategy that is long (short) stocks of firms with high (low) cash - to - assets ratios generates an average monthly return of 0.42%, before trading frictions. In other words, relative cash holdings may carry a positive premium for investors." Markets in 19th century Britain "This article examines the size and value anomalies using an original dataset consisting of monthly information on stock prices and annual information on dividends for 1,051 stocks traded in the London Stock Exchange between 1825 and 1870. In this historical British stock market, smaller stocks are found to deliver significantly higher returns than the larger ones. Value stocks indicated by high dividend yield also have higher average returns than growth stocks. The empirical evidence from this article provides important and fresh new empirical evidence on the asset pricing anomalies, suggesting that the size and value anomalies are unlikely to be random events that just appeared by chance." Patience pays off "Maida, the son of Italian immigrants, grew up poor in Toronto's west end; he was that kid who owned just two pairs of pants. His father was a construction worker, and when his mother was sick, the family relied on help from social welfare agencies. 'Not being well off instilled in me the value of a dollar,' he says. 'That's really the crux of the whole adherence to value investing: don't lose money, because money is really hard to come by.'" Longleaf Q4 2008 "Academicians Eugene Fama and Kenneth French recently published a study that found that value stocks have declined two years in a row only five times: during the Great Depression in 1929-32; at the beginning of WWII in 1939-41; during the Arab oil embargo of 1973-74; when the Internet bubble popped in 2001-02; and now as the housing bubble deflates. Following the four prior periods, stocks snapped back by an average of 60% in the next 12 months." Will value investors win the day? "In today's market, people may lose a lot of money before they make more. Yet even times like these could prove profitable in the long run for value investors." Value investors can't beat this bear "Usually, the silver lining for such a brutal market is that it creates plenty of opportunities for bargain-hunting investors. This downturn, however, has been especially cruel to "value" investors, those who search for companies they believe are priced lower than they should be." Stingy Links: Watsa The $2-Billion Man "Prem Watsa is the richest, savviest guy you've never heard of. He predicted the crash of '87, the Japanese collapse of 1990 and last year's meltdown, which he parlayed into a huge payoff. Now he's gobbling up shares at rock-bottom prices." Buffett of Canada buying stocks again "A famed Canadian investor dubbed the "Buffett of the North" for calling several crashes and booms over the decades is dipping his toe into the stock market again." Biggest meltdown winner "The danger signs are if any of the three disastrous policies from the 1930s rear their ugly heads again: tariff barriers; higher taxes to balance budgets or higher interest rates to support currencies." Fairfax contrarian cashes in mightily "Prem Watsa and his investment team have earned bragging rights for the next 100 years. They sidestepped most of a 50 per cent stock market crash. They bagged big profits by betting years in advance that stock prices would fall and companies would go broke. Meanwhile, their Toronto-based company clawed its way back from junk bond status to investment grade, and its share prices rose last year while most others fell." Stingy Links: Whitman Third Avenue Q1 2009 "A Net-Net is defined as a common stock issue where the market value of high quality assets, usually readily saleable, exceeds by a comfortable margin the market value of the company's equity capitalization after deducting all liabilities. The concept of Net-Nets was invented by Graham and Dodd, the godfathers of value investing. Third Avenue has refined the Graham and Dodd definition of Net-Nets." Stingy Links: World How California became France "This week's deal likely won't keep the state in balance beyond 18 months, perhaps even fewer. "This budget will take us through 2010," says Karen Bass, the Assembly speaker, a Democrat from Los Angeles. "I don't know if it will hold." Some Democrats and Republicans privately say the best option may be failure. The rough scenario is fiscal insolvency, followed perhaps by federal receivership. No precedent or legal avenue exists for a state to reorganize its affairs under a form of Chapter 11 protection, but that striking suggestion sounds better by the day." How Zimbabwe slew hyperinflation "Zimbabwe's wily street hawkers have finally found a use for the worthless 100-trillion-dollar banknotes that were issued here in January. They sell the bizarre banknotes as souvenirs to foreign tourists for $2 each. The currency with the never-ending string of zeroes is quickly fading into history, just two months after the latest notes were printed by the inexhaustible central bank. Also disappearing is Zimbabwe's phenomenal level of hyperinflation, which last year reached a stunning 89.7 sextillion per cent (a number expressed with 21 zeroes), making it the most extreme hyperinflation crisis of any country in modern times." Marbella's billionaire spent bribes "As an urban planning adviser in the sun- drenched Spanish resort town of Marbella, Juan Antonio Roca had after- tax income of less than 150,000 euros a year. When he was arrested for corruption in March 2006, police seized assets worth 2.4 billion euros ($3.4 billion), including a century-old palace in Madrid, a country estate equipped with a helipad overlooking the Rock of Gibraltar and a stud farm guarded by a tiger." Argentina downgraded "MSCI Barra, whose stock indexes are tracked by investors with $3 trillion in funds, downgraded the country to a 'frontier' economy from an 'emerging market' in February, citing its restrictions on foreign capital. That puts South America's second-biggest economy, after Brazil, in a category with Sri Lanka and Kazakhstan." Hugo crawls back "Expropriation hasn't worked so well. Chavez's state oil company, PDVSA, had virtually nothing left in its coffers after squandering $700 billion in oil earnings on political schemes like light bulb and milk factories. It needs $20 billion to develop its Orinoco Basin projects, which could produce 1.2 million barrels a day, but it can only do it with partners who have both capital and technology." IBM to move laid off workers to India "The climate is warm, there's no shortage of exotic food, and the cost of living is rock bottom. That's IBM's pitch to the laid-off American workers it's offering to place in India. The catch: Wages in the country are pennies-on-the-dollar compared to U.S. salaries. Under a program called Project Match, IBM will help workers laid off from domestic sites obtain travel and visa assistance for countries in which Big Blue has openings. Mostly that's developing markets like India, China, and Brazil." California's meltdown "California may still seem to be the dreamy land of movie stars and swimming pools, beautiful beaches and endless summer. But the reality - and perhaps the future - of the nation's largest state looks more like this gritty city on San Pablo Bay north of San Francisco, where past extravagance has collided with economic recession and the collapse of home values to push it into bankruptcy." Do you have a crush on Canada? "For most Americans, save for hockey fans and comedians, Canada is scarcely on the radar. But the country's stock is quietly rising, as financiers and the media extol the solvency of its banking system - a tidy little fact that stands in sharp contrast to, well, just about everywhere else." Worthwhile Canadian initiative "The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th." Wall Street on the tundra "Iceland's de facto bankruptcy - its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance - resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavik, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown." For Japan, a long, slow slide "As the United States frets noisily about a recession, Japan is quietly enduring a far more fundamental economic slide, one that seems irreversible. This country, which got rich quick in a postwar miracle of manufacturing and alarmed Americans by buying up baubles such as Rockefeller Center, is steadily slipping backward as a major economic force." Fish shares and sharing fish "With their lasting stake in the fishery, and through their close bonds of community, the Seri have approximated the sole owner: they have managed their resource for sustainable yield rather than short-term gain, and today, Infiernillo Channel harbors the richest shellfish beds in the region. The narrow channel is easy for the Seri to patrol. By contrast, the tribe's other fisheries, on the opposite side of Isla Tiburon, are open to the sea and therefore difficult to monitor. Consequently, those waters have remained accessible to all. And, as you might have predicted, the shellfish populations there have collapsed to levels comparable with other locations in the Gulf. The two sides of Isla Tiburn are thus like a case-control study in the benefits of secure ownership of a fishery." Frugally Yours, Norman Rothery ISSN 1499-2787 | ||||
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