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Dividends not only dwarf inflation, growth, and changing valuation levels individually, but they also dwarf the combined importance of inflation, growth, and changing valuation levels. This result is wildly at odds with conventional wisdom, which suggests that, while the return from bonds is wholly dependent on income, stocks provide growth first and income second. It is startling to realize that dividend growth has averaged less than 1 percent above inflation during the past 200-year period. And it is shocking that real per-share dividend and earnings growth on the S&P 500 Index since 1965 has been zero." GMAC, the Fed, and moral hazard 12/30/08   Permlink   Broken Link Government "These are important questions, because this is not the last time that bondholders are going to be asked to give up money they're owed in order to save a company. In fact, a much bigger bond exchange is looming: one from GM itself. And nowhere are moral hazard considerations more important than when it comes to the tactics of distressed-debt exchanges. If a bailout is coming anyway, then a smart bondholder will always stay out of any exchange. And if most bondholders are smart, then no distressed company can effect a significant debt reduction without declaring bankruptcy." Capitalism is worst system except for the rest 12/30/08   Permlink   Broken Link Government "Fixing the price of any other commodity, including labor, has proven to be a failure, an affront to the inviolable invisible hand. Yet when it comes to setting the interest rate that will keep the economy on an even keel, we put our faith in a chosen few to get it right. All sorts of unintended consequences flow forth from central bankers' fixing of a short-term rate." Will work for praise 12/30/08   Permlink   Broken Link Management "Beyond brand-hungry strivers, masses of free laborers continue to toil without ever seeing a payday, or even angling for one. Many find compensation in currencies that predate the market economy. These include winning praise from peers, earning an exalted place within a community, scoring thrills from winning, and finding satisfaction in helping others." Home prices post record 18% drop 12/30/08   Permlink   Broken Link Real Estate "Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday. The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records." Buffett wins $224 million storm bet 12/30/08   Permlink   Broken Link Buffett "Billionaire Warren Buffett.s Berkshire Hathaway Inc. won a $224 million bet that Florida would escape major damage from hurricanes this year." 21 dumbest moments in business 2008 12/29/08   Permlink   Broken Link Fun "We don't know whether to laugh or cry. Our annual list of the year's most laughable moves proves that, even in moments of crisis, stupidity lives on." Former WaMu employees tell of the push to lend 12/29/08   Permlink   Broken Link Real Estate "As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers'. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes. Yet even by WaMu's relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer." Bailout of Long-Term Capital 12/29/08   Permlink   Broken Link Government "The financial crisis is a result of many bad decisions, but one of them hasn.t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund.s creditors, our current problems might not be quite so bad." Trickledown meltdown 12/28/08   Permlink   Broken Link World "In this very poor corner of Bangladesh, where rice farmers get by on household incomes of less than $1 a day, where the most popular mode of transportation is the pedal-rickshaw and where life doesn't seem to have changed for centuries, it's hard to believe that anyone could be affected by the crisis that has humbled Wall Street and Canary Wharf. But the credit crunch is the main topic of conversation in the rice paddies and village bazaars here. It is hard to find anyone, from vegetable sellers to floor sweepers, whose life has not been affected by the collapse of institutions in New York and London." Accounting standards wilt under pressure 12/27/08   Permlink   Broken Link Accounting "World leaders have vowed to help prevent future financial meltdowns by creating international accounting standards so all companies would play by the same rules, but the effort has instead been mired in loopholes and political pressures." U.S. Treasuries head toward wekly loss 12/26/08   Permlink   Broken Link Markets "Rates on one-month and three-month Treasury bills fell below zero as investors sacrificed interest-rate payments to protect their principal. Rates on one-month bills were minus 0.05 percent, and three-month rates were minus 0.01 percent." A mortgage bailout plan's paltry results 12/26/08   Permlink   Broken Link Government "Basically, the plan was to offer as much as $300 billion in government-guaranteed home loans to people whose current mortgages exceed the value of their houses; 400,000 people would benefit, it was said. Well, the early returns are in, and the program is, at this point, a flop. There have been only 312 applications, according to the Department of Housing and Urban Development. At that rate, the three-year program would help only about 5,400 borrowers." Obama's program flunks basic math 12/26/08   Permlink   Broken Link Government "O'Neill did the math so you don't have to. Each job 'will cost $250,000, which doesn't suggest much labor intensity for the dollars spent,' he said. 'It makes me wonder if any of the planners or commentators are good at arithmetic.' They're not good at arithmetic. And one wonders about their facility with economics." December surprise 12/26/08   Permlink   Broken Link Markets "Before investors panic at the prospect of publicly-traded oil companies writing down hundreds of millions or billions of barrels of "proved reserves" for accounting disclosure purposes next year, they need to consider where the volumes in question will have gone. Were they merely shifted from the "proved" to "probable" category--thus not affecting the amount of oil that would ultimately be produced--by a temporary oil glut arising from a global recession, or did their existence depend on an oil-price bubble that is unlikely to reflate?" California will run out of money in February 12/26/08   Permlink   Broken Link Government "Property taxes, the mainstay of any state's income, have been frozen for many homeowners since a proposition was passed in the late 1970s. A separate measure, introduced in the 1980s, means that income taxes cannot be raised without the agreement of two-thirds of the state's lawmakers. Meanwhile, a raft of other ballot measures control spending, meaning that only 25 per cent of California's spending is considered "discretionary". The rest has been "earmarked" for a particular cause or project." Solar meets polar 12/26/08   Permlink   Broken Link Government "Old Man Winter, it turns out, is no friend of renewable energy. This time of year, wind turbine blades ice up, biodiesel congeals in tanks and solar panels produce less power because there is not as much sun. And perhaps most irritating to the people who own them, the panels become covered with snow, rendering them useless even in bright winter sunshine." U.S. holiday sales tumble 12/26/08   Permlink   Broken Link Economy "Consumers spent at least 20 percent less on women.s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades." The south sea bubble of 1720 12/26/08   Permlink   Broken Link Fun Bird and Fortune on the South Sea Bubble. Gable's favourites from 2008 12/26/08   Permlink   Broken Link Fun "Globe cartoonist shares his favourites from 2008" Merry Christmas! 12/25/08   Permlink   Broken Link Christmas "A collection of links to help inspire a little Christmas cheer." Get ready for a lost decade 12/24/08   Permlink   Broken Link Government "How many times have you heard that we've learned the lessons of the Great Depression and won't repeat the same mistakes? That statement is a bit of a false promise, since there was only one Great Depression, and many, many steps were taken and not taken, with no chance to rerun the experiment over and over to figure out what worked, or would have worked, and what didn't." What's in a name? 12/24/08   Permlink   Broken Link Stocks "Underlying the best brands are usually sales pitches of great stuff. Macs don't crash. The iPhone 3G is fast. FedEx gets there every time. The Lexus parks itself. Canon is the professional's camera. Even Pepsi - the company that more or less created modern branding with the slogan "The Taste of a New Generation" - decided in the end that, actually, it was easier to sell soda with the Pepsi Challenge taste test. At the very top of the Interbrand list you will find Coca-Cola, the great outlier of the brand world. Far from the model of how brands work, Coke is the great exception. The vast majority of great brandmakers knows that you cannot sell products by telling people about your brand - you can sell your brand only by telling them about the product." California crisis may crunch jobs 12/24/08   Permlink   Broken Link Government "Republican Governor Arnold Schwarzenegger and the Democratic-controlled Legislature are deadlocked on how to close a two-year budget gap that grew to $42 billion as job losses and stalled consumer spending reduced income and sales taxes. Schwarzenegger and Democratic leaders met yesterday without a resolution and are scheduled to continue talks through the holidays. " Online shopping and the Harry Potter effect 12/23/08   Permlink   Broken Link Markets "Her findings suggest that the long tail is far from the revolution Anderson claimed. The tail is indeed getting longer, but isn't, as Anderson thought, growing fat with choice. Instead it is getting both flatter and thinner, filled with ever more products that sell few or no copies. Low overheads or no overheads, that kind of long tail is not a rich man's world, least of all for producers. Suppliers are always going to be better off concentrating on the mass-market money-spinners, says Elberse." Should you invest in the long tail? 12/23/08   Permlink   Broken Link Markets "It was a compelling idea: In the digitized world, there.s more money to be made in niche offerings than in blockbusters. The data tell a different story." U.S. home prices drop by record 13.2% 12/23/08   Permlink   Broken Link Real Estate "Purchases declined 8.6 percent to an annual rate of 4.49 million, from a 4.91 million rate in October that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 13.2 percent from a year earlier, the biggest decline since records started in 1968. Separately, the Commerce Department reported today that new-home sales fell 2.9 percent last month to a 17-year low." Five things you should know about bear markets 12/22/08   Permlink   Broken Link Hallett "North American stocks have been halved. Overseas stocks have lost even more. Indeed, bear markets can be frightening but they are necessary. In order to enjoy the long-term rewards of investing in stocks, investors must shoulder the associated risks. One of those risks is the occasional emergence of a bear market (a decline of 20 per cent or more). To better understand this risk, here are five things you need to know about this unwelcome beast." Daddy, where do bailouts come from? 12/22/08   Permlink   Broken Link Government "I know it must sound strange, Junior. Many of the companies getting government money did bad things. They took risks with other people.s money. They padded their own pockets instead of watching out for their customers. And they lost a lot of money in the process." All the regulations money can buy 12/22/08   Permlink   Broken Link Government "When congress and two presidents get tired of shoveling our unborn grandchildren's money into the bad debt inferno, sure as night follows day our public servants will embark on an orgy of regulatory rule making intended to ensure that nothing like this ever happens again. How'd that work out last time?" So, Scrooge was right after all 12/21/08   Permlink   Broken Link Christmas "It's a little-known fact that the first economic rationalist was Ebenezer Scrooge. That's because economists simply can't understand why people would do something as stupid as giving presents at Christmas. Conventional economics teaches that gift giving is irrational. The satisfaction or "utility" a person derives from consumption is determined by their personal preferences. But no one understands your preferences as well as you do. So when I give up $50 worth of utility to buy a present for you, the chances are high that you'll value it at less than $50. If so, there's been a mutual loss of utility. The transaction has been inefficient and "welfare reducing", thus making it irrational. As an economist would put it, "unless a gift that costs the giver p dollars exactly matches the way in which the recipient would have spent the p dollars, the gift is suboptimal". This astonishing intellectual breakthrough was first formulated in 1993 by Joel Waldfogel, an economics professor now at the University of Pennsylvania, in his seminal paper, The Deadweight Loss of Christmas." What I like about Scrooge 12/21/08   Permlink   Broken Link Christmas "Here's what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him. Scrooge has been called ungenerous. I say that's a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?" The case for Ebeneezer 12/21/08   Permlink   Broken Link Christmas "As I became older, I decided that Mr. Dickens had given Ebeneezer Scrooge an undeserved reputation for villainy, placing him in such company as Uriah Heep, Iago, Dr. Moriarty, or Snidely Whiplash, to name but a few. It is my purpose, in making this holiday defense of my client, to present to you a different interpretation of the story, that you will see the villainy not in my client's character, but in Charles Dickens' miscasting of the true heroes of the time of which he wrote, namely, the industrialists and financiers who created that most liberating epoch in human history: the industrial revolution." US market may be past a bottom 12/21/08   Permlink   Broken Link Markets "While despair still prevails, there are finally certain hints to suggest that the US market may have bottomed, or at least, is in an advanced stage of bottoming." News you can lose 12/21/08   Permlink   Broken Link Stocks "The peculiar fact about the current crisis is that even as big papers have become less profitable they've arguably become more popular. The blogosphere, much of which piggybacks on traditional journalism's content, has magnified the reach of newspapers, and although papers now face far more scrutiny, this is a kind of backhanded compliment to their continued relevance. Usually, when an industry runs into the kind of trouble that Levitt was talking about, it's because people are abandoning its products. But people don't use the Times less than they did a decade ago. They use it more. The difference is that today they don't have to pay for it. The real problem for newspapers, in other words, isn't the Internet; it's us. We want access to everything, we want it now, and we want it for free. That's a consumer's dream, but eventually it's going to collide with reality: if newspapers. profits vanish, so will their product." Wicked investments 12/20/08   Permlink   Broken Link Stingy Investing "What constitutes a sin stock? The answer is very much in the eye of the beholder. Tobacco, gambling and defence companies are routinely condemned by the socially responsible crowd. You might want to add various Wall-Street financial firms to the list of the damned given their recent antics." Is the medicine worse than the illness? 12/20/08   Permlink   Broken Link Grant "The world ran out of trust in 2008 -- but there is no shortage of money because the Fed is printing like mad. It's the wrong approach, with potentially dire consequences, says James Grant." Nanny State 2008 12/19/08   Permlink   Broken Link Government "Do you really want to live in a world where giant inflatable apes are banned? Reason.tv takes a short, depressing look at nanny state bans that were passed or proposed in 2008." Is it all over for stocks? 12/19/08   Permlink   Broken Link Markets "Stocks look like a pretty good investment - certainly better than they were a year ago. You absolutely shouldn't get out simply because the recent return numbers are scary. The latest bad news about the economy shouldn't drive you away either. Much of that is reflected in prices now. Even for many not-especially-brave investors, it's time to consider buying, not selling." In defense of scrooge 12/19/08   Permlink   Broken Link Christmas "It's Christmas again, time to celebrate the transformation of Ebenezer Scrooge. You know the ritual: boo the curmudgeon initially encountered in Charles Dickens's A Christmas Carol, then cheer the sweetie pie he becomes in the end. It's too bad no one notices that the curmudgeon had a point - quite a few points, in fact." Options expiration week 12/19/08   Permlink   Broken Link Markets "As the graph shows, for the last 21 years, the week leading up to options expiration (red) has been consistently bullish and the weeks before and after bearish in terms of both returns and percentage positive." How sticky are wages? 12/19/08   Permlink   Broken Link Management "There's been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now. It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts." GM and Chrysler will get $13.4 Billion 12/19/08   Permlink   Broken Link Government "General Motors Corp. and Chrysler LLC will get $13.4 billion in emergency government loans in exchange for substantially restructuring their businesses, President George W. Bush announced. Another $4 billion will be available to GM in February providing Congress releases the second half of the $700 billion Troubled Asset Relief Program fund originally set up to bail out financial institutions. The automakers have until March 31 to meet the conditions of the loans, including demonstrating they have a plan to become profitable, or be forced to repay." The age of obligation 12/19/08   Permlink   Broken Link Debt "Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year." Employee free choice act is unconstitutional 12/19/08   Permlink   Broken Link Law "The government-chosen panel could well impose terms that might cripple the firm competitively. Consider that the takings clause surely prevents the government from forcing any person to buy real estate for twice its market value from a seller. That same principle applies to this labor law: No government should be able to force a firm to hire labor at $50 per hour when the company is not willing to pay half that much." Federal Reserve is damned either way 12/19/08   Permlink   Broken Link Markets "The burden of debt increases as prices fall, creating self-feeding spiral. This is what Fisher called the "swelling dollar" effect. Real debt costs rose by 40pc from 1929 to early 1933 by his count. Debtors suffocated to death. Brian Reading from Lombard Street Research has revived this neglected thesis and come up with some disturbing figures. US household debt is now $13.9 trillion, down just 1pc from its peak last year. Meanwhile household wealth has fallen 14pc as property crashes, a loss of $6.67 trillion. The debt-to-wealth ratio is rocketing." Deleveraging can save jobs 12/18/08   Permlink   Broken Link Government "One part of the solution to the current crisis is for Congress and the Treasury to restore, temporarily, the option for companies to deleverage by retiring debt at a discount without incurring tax liability. Tax-code and regulatory changes in the 1980s limited this option by treating the difference between the original issue price of debt and the lower amount for which it's repurchased as taxable income. The resulting tax liability on this "phantom income" decreases liquidity and blocks necessary restructuring of distressed corporate balance sheets. It also creates a perverse preference for bankruptcy that destroys asset values, jobs and customer relations. Finally, it puts American companies at a disadvantage relative to their competitors in nations with more accommodating tax structures, such as Germany and France. We believe American enterprises should be encouraged to deleverage, whether by exchanging newly issued or existing stock for debt, or using cash from asset sales. This is the worst possible time to impose a tax liability on companies trying to avoid layoffs by reducing their interest payments on debt. Freed from a tax on phantom income, thousands of companies will become stronger through deleveraging." Seth Klarman one on one 12/18/08   Permlink   Broken Link Klarman "First, value investing is intellectually elegant. You.re basically buying bargains. It also appeals because all the studies demonstrate that it works. People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline. Third, it.s easy to talk in the abstract, but in real life you see situations that are just plain mispriced, where an ignored, neglected, or abhorred company may be just as attractive as others in the same industry. In time, the discount will be corrected, and you will have the wind at your back as a holder of the stock." Counterfeiting vs. monetary policy 12/18/08   Permlink   Broken Link Government "The justifications for Federal Reserve Act of 1913 was to prevent bank failure and maintain price stability. Simple before and after analysis demonstrates that the Federal Reserve Bank has been a failure. In the century before the Federal Reserve Act, wholesale prices fell by 6 percent; in the century after they rose by 1,300 percent. Maximum bank failures in one year before 1913 were 496 and afterward, 4,400. During the 1930s, inept money supply management by the Federal Reserve Bank was partially responsible for both the depth and duration of the Great Depression." Pan Am dies, America lives 12/18/08   Permlink   Broken Link Government "The whole financial crisis is about the death of responsibility: the buck stopped nowhere. Everyone profited from toxic paper. Bernard Madoff, he of the alleged multibillion-dollar Ponzi scheme, is only the latest example. Irresponsibility has also characterized Detroit. I don.t see how you restore responsibility with a bailout." The great unraveling 12/17/08   Permlink   Broken Link World "The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I've never been asked before: 'So, just how corrupt is America?'" Fed reduces borrowing costs to zero range 12/16/08   Permlink   Broken Link Markets "Treasuries rose, pushing yields to record lows, after the Federal Reserve cut the main U.S. interest rate to a range of zero to 0.25 percent and said central bankers will do whatever is necessary to ease the longest recession in a quarter-century." The unwisdom of crowds 12/16/08   Permlink   Broken Link Markets "At the very opening of the book, Bagehot illustrates with exquisite simplicity how, at least in a boom economy, traders on margin can "harass and press upon, if they do not eradicate, the old capitalist." The old capitalist in question is the poor sap who believes all this stuff about neither-a-borrower-nor-a-lender-be and is foolish enough to be using his own cash" Fat discrimination tax 12/16/08   Permlink   Broken Link Government "It made the financial news, because everyone knows it's not really about health. But even the numbers don't add up. New York Governor, David Paterson, has proposed a 15% tax on sugar-sweetened sodas, calling it an obesity tax. That makes it sound like it has a noble intention of public health concerns over obesity, when, as the Financial Times noted, it's really just a way to raise money to help address the state's $13.3 billion deficit. But even that's pretty sorry math." Unemployment: worse than it looks 12/15/08   Permlink   Broken Link Economy "As U.S. jobs disappear at a rapid clip, the official unemployment figure seems understated. While November's 6.7% rate is a full 2% higher than the same time last year, the rate remains well below the 10.8% postwar peak, reached in November 1982. One issue is that the official unemployment number captures only a slice of the total joblessness in the U.S. To be counted as unemployed in this statistic, a worker must not have a job, be currently available for work, and have actively sought employment within the last four weeks. In other words, a lot of the jobless are left out of the government's tally." The Perfect Ponzi 12/15/08   Permlink   Broken Link Crime "As the investigations into Bernie Madoff's gigantic Ponzi scheme continue, one thing is becoming clear: The reason it lasted so long and got so huge is that it was superbly executed." Finding the gaps 12/15/08   Permlink   Broken Link Markets "In short, to arbitrage, you need both access to credit and confidence that market conditions will return to normal. Both are in short supply. If we want the financial system to recover, we need the arbitrageurs to come back." How high-risk mortgages crept north 12/13/08   Permlink   Broken Link Real Estate "The untold story of how elements of the first Conservative budget in 2006 encouraged big U.S. players such as AIG to make a push into Canada, creating our version of subprime mortgages" Suddenly vulnerable 12/13/08   Permlink   Broken Link World "In two respects, however, India has a big advantage over China in coping with an economic slowdown. It has all-too extensive experience in it; and it has a political system that can cope with disgruntlement without suffering existential doubts. India pays an economic price for its democracy. Decision-making is cumbersome. And as in China, unrest and even insurgency are widespread. But the political system has a resilience and flexibility that China's own leaders, it seems, believe they lack. They are worrying about how to cope with protests. India's have their eyes on a looming election." How can you spot a wall street crook? 12/13/08   Permlink   Broken Link Crime "The key concept here, developed by MIT professor and noted hedge-fund theorist Andrew Lo, is "serial correlation." Simply put, serial correlation is the degree to which each month's returns in a fund mirror the results of the month before. A fund that returns the exact same amount every month is perfectly serially correlated. Madoff's returns were strikingly consistent month after month, year in and year out. That kind of performance - a nice, smooth line going up no matter what the market does - is a really good sign that you should look more closely." 'Already bankrupt' GM won't be rescued by loan 12/13/08   Permlink   Broken Link Stocks "For General Motors Corp., the question is no longer whether it will get a government loan or if Chief Executive Officer Rick Wagoner will be replaced. It's whether anything can prevent the largest U.S. automaker from sliding into bankruptcy. " The American Dream? 12/13/08   Permlink   Broken Link Real Estate "Using a unique data set that links up well-being and housing consumption, this paper sets out to measure systematic differences between homeowners and renters, in term of moment-to-moment emotions, life satisfaction, joy and pain derived from domains of life including home and neighbourhood, family life and time use. A remarkable similarity between homeowners and renters is found. Controlling for demographics and income, homeowners do not report higher levels of well-being by any measure in this data set. In fact, they report to be less healthy, derive less joy from love and relationships, spend less time with friends and on active leisure, and also experience less positive affect during time spent with friends. Their time use patterns reveal little evidence of them being "better citizens". Due to self-selection in the housing tenure choice, these results are likely to represent upper bounds of the causal benefits of homeownership. Homeowners who live in ZIP code areas with higher rates of homeownership report more positive attitudes only if other owners are similar to them in socio-economic terms, lending some support to the idea of beneficial social interaction among owners." Muni-bond funds face record losses 12/13/08   Permlink   Broken Link Bonds "With the stock market down more than 40% and Treasury bond yields at 50-year lows, municipal bonds can seem an attractive option. And while some managers see once-in-a-lifetime bargains in the muni market, several funds have cratered." The case for bonds 12/13/08   Permlink   Broken Link Bonds "Boring is beautiful - or so it feels in this time of wild and crazy stock market swings. In this case we're talking about investment-grade corporate bonds, which are dirt-cheap right now for the same reason that stocks are: The market turmoil has pounded down their prices. The result is historic opportunities in bonds issued by blue-chip companies." Self-employed? Make sure business is for real 12/13/08   Permlink   Broken Link Taxes "Take a business-like approach to pursuing revenues in your business. Have a marketing plan, and be prepared to explain how you plan to increase revenues over time. Next, make sure you understand, and can explain, what it will take to be profitable (how many widgets you need to sell, how many performances you need to make, etc.). Finally, try to avoid reporting losses for more than a couple of years. This could raise a flag on your tax return." Dividend ETFs: One way to ride out the storm 12/13/08   Permlink   Broken Link Dividends "A jump back into the stock market right now will pay dividends right away. This is not a market-timing call, but rather a statement of fact. If you buy into an exchange-traded fund that tracks the broad stock market, you'll put yourself in a position to start receiving a surprisingly good flow of dividends." 'Financial psychopaths' wreak havoc 12/13/08   Permlink   Broken Link Crime "Two of the most remarkable frauds in the history of finance were exposed this week. They are just beginning to unravel and as such we don't fully understand the magnitude of the crimes. But already I can tell you they are of epic, even cinematic, proportions. This is really from the "can't make this stuff up" school of news. These two miscreants aren't just every day corner-cutters, they are world-class whack." 'Dilbert' on how to save your career 12/13/08   Permlink   Broken Link Fun "I'm drawing a series right now where he gets laid off and he has to go through a really tough bunch of interviews to try and get another job. At one point he is asked whether he would take a bullet for a prospective employer and they make him go to a firing range to prove it." 'Illegal' glacier investment juiced returns 12/12/08   Permlink   Broken Link Crime "His funds were the envy of the imploding hedge fund sector, managing to deliver a 159-per-cent return so far in a year marred by the worst bear market in decades. Now Otto Spork, a former dentist, is facing allegations that the fund's returns were juiced by unsubstantiated valuations in several underlying investments in Icelandic glaciers." The IBM fortune and the funeral home director 12/12/08   Permlink   Broken Link Thrift "A couple of months ago, Robert McDevitt died at 90 in Binghamton, N.Y., my hometown. He ran a nice-enough but unremarkable funeral home near the center of town, about two blocks from where my parents now live. Over the past week, his will has become public, revealing that while McDevitt spent his time embalming local bodies and soothing mourners -- he was worth $250 million." Top broker accused of $50 billion fraud 12/12/08   Permlink   Broken Link Crime "Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called "a giant Ponzi scheme." The Securities and Exchange Commission, in a civil complaint, said it was an ongoing $50 billion swindle, and asked a judge to seize the firm and its assets. "Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew M. Calamari, associate director of enforcement in the SEC's New York office." $73 an hour: adding it up 12/11/08   Permlink   Broken Link Stocks "That figure - repeated on television and in newspapers as the average pay of a Big Three autoworker - has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that's wrong with bloated car companies and their entitled workers. To the Big Three's defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit's decline." Market bottom by year-end 12/11/08   Permlink   Broken Link Markets "It is one of the ironies of stock-market timing that it is easier to forecast where the market will be in several years than where it will be in several days. And, according to a valuation model from a research firm with an excellent long-term record, the stock market is likely to be significantly higher in several years' time -- regardless of whether the final low of the last year's bear market has been seen." Housing goals we can't afford 12/11/08   Permlink   Broken Link Government "The Community Reinvestment Act was passed in 1977 when bank competition was sharply limited by law and lenders had little incentive to seek out business in lower-income neighborhoods. But in 1995 the Clinton administration added tough new regulations. The federal government required banks that wanted .outstanding. ratings under the act to demonstrate, numerically, that they were lending both in poor neighborhoods and to lower-income households." Tobin's Q indicates 'horrific' market bottom 12/09/08   Permlink   Broken Link Markets "The 2008 slump in global equities has further to go if Tobin's Q ratio is any guide, according to CLSA Ltd. strategist Russell Napier. The ratio, a method of valuing U.S. companies developed by Nobel Prize laureate economist James Tobin, indicates that the Standard & Poor's 500 Index, set for its worst year since 1931, may sink by another 55 percent to 400 when the market bottoms around 2014, London-based Napier said. The ratio divides total market capitalization by the cost of replacing assets." Want to lend money to Uncle Sam? 12/09/08   Permlink   Broken Link Bonds "What would your reaction be if you had a friend who had reached the limit on 20 different credit cards and then came to you to borrow $100? Then imagine that you actually said yes, and when you went to give your friend the $100, he or she actually asked for $101 just for the privilege of loaning the money. Well, that is exactly what is happening (to a lesser degree) in the US T-bill market. As just another example of the crazy times we are living in, the yield on 3-Month Treasuries went negative today." Contango pays most in decade 12/08/08   Permlink   Broken Link Markets "In the worst year ever for oil, investors can lock in the biggest profits in a decade by storing crude." Most likely to succeed 12/08/08   Permlink   Broken Link Academia "This is the quarterback problem. There are certain jobs where almost nothing you can learn about candidates before they start predicts how they'll do once they're hired. So how do we know whom to choose in cases like that? In recent years, a number of fields have begun to wrestle with this problem, but none with such profound social consequences as the profession of teaching." Market woes hit newer ETFs 12/08/08   Permlink   Broken Link Indexing "The market mayhem hasn't stopped fund companies from rolling out scores of new exchange-traded funds this year. But it has made it tough for many of these young funds to gain traction, and that could mean trouble for investors." After crappy decade, stocks always do great? 12/08/08   Permlink   Broken Link Markets "There's a new refrain that a lot of folks keep repeating these days: When stocks do as badly as they have over the past decade, they usually do great over the following decade. Sadly, like a lot of stock market refrains, it's not really true." Private matters 12/08/08   Permlink   Broken Link Academia "Why do private firms stay private? Empirical evidence on this issue is sparse, as most private firms in the US do not report their financial results. We investigate why private status matters by taking advantage of a unique dataset of large, leveraged private firms with SEC filings. Unlike a number of other studies, we find that neither the existence of growth opportunities, nor the desire of firm founders to diversify, is a principal determinant of the decision whether or not to retain private status. Rather, the existence of private benefits of control appears to serve as the most significant incentive to stay private. Family-controlled firms have significantly lower probabilities of filing for an IPO, while a board structure that grants management relatively more autonomy lowers the probability of an IPO filing as well. Crosssectional analysis of profitability and ex post performance suggests that while private benefits of control may encourage firms to stay private, they do not have detrimental effects on firm efficiency. In contrast, firms controlled by private equity specialists appear to place a low value on control benefits and are likely to go public as a means of cashing out." Macroeconomics is complete bunkum 12/08/08   Permlink   Broken Link Economics "I confess that the only Hayek book I made it through without my eyes glazing over was 'The Fatal Conceit.' It's a slim volume written later in life, apparently after Hayek discovered humbleness, an unusual discovery for an economist. His thesis is simple - 'I don't care how smart you are, you can't keep track of all this s**t.' Economists who believe they can centrally plan a national economy and optimize - what, some flaky set of poorly defined aggregates? - are deluded. Politicians who promote these delusions to arrogate power to themselves are knaves. And voters who buy this fantasy are dupes. Yet Hayek be damned, here we go again." When the golden eggs run out 12/07/08   Permlink   Broken Link Markets "Risky assets look more attractive now than they have in ages. Corporate-bond spreads are sufficient to compensate for the kind of default levels seen in the Depression. Stockmarkets in America and Europe now offer a dividend yield that is higher than the yield on government bonds, something that has happened only rarely in the past 50 years." Help Mississippi, not Michigan 12/07/08   Permlink   Broken Link Government "Yet if GM represents all that is bad about the American economy, particularly manufacturing, it does not represent the breadth of our industrial landscape. Indeed, even as the dull-witted leviathan sinks, many nimble companies have shown remarkably resiliency." Discounters face battle on minimum pricing 12/07/08   Permlink   Broken Link Law "Manufacturers have been racing to enforce minimum-pricing policies since last year, when the Supreme Court ruled them to be legal, and not a violation of antitrust law. EBay and a group of other retailers and antitrust advocates are meeting Thursday in Washington to craft a strategy to overturn that ruling." The limits of Apollo's power 12/07/08   Permlink   Broken Link Markets "Part of the allure of private-equity honchos like Mr. Black is that they made an art out of making money during the boom years. Their fist-pounding negotiations were legendary. Their corporate turnarounds became Harvard Business School case studies. Their multiple homes, black-tie parties, sports cars and yachts were alternately envied and vilified. Today, with Wall Street in tatters and the easy money long gone, the question now for Mr. Black and his peers is whether they have enough moves left to turn the bleak outlook for private equity into something rosier for themselves, their companies, their investors and the legions of workers they employ." Imbalances threaten survival of liberal trade 12/07/08   Permlink   Broken Link World "In short, if the world economy is to get through this crisis in reasonable shape, creditworthy surplus countries must expand domestic demand relative to potential output. How they achieve this outcome is up to them. But only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy." Where have all your savings gone? 12/07/08   Permlink   Broken Link Thrift "For American and European savers it has been a lost decade. After two booms and two busts, stockmarkets have earned them nothing, or less, in the past ten years. Low interest rates have made bonds and bank deposits unrewarding too. Were it not for the tax relief they receive, contributors to personal pension plans would have been better off keeping their money under their mattresses. It will be little consolation to Westerners that savers in Japan have known this empty feeling for far longer." Leucadia's unmined potential 12/06/08   Permlink   Broken Link Value Investing "Leucadia National may be the closest thing to what Berkshire Hathaway was 20 years ago, before Berkshire became so large that Warren Buffett needed investments of several billion dollars to move the needle." Foreclosures soar 76% 12/05/08   Permlink   Broken Link Real Estate "This means that one in 10 borrowers in America are either delinquent or in foreclosure. Many of those troubled borrowers are in California and Florida, which have among the highest delinquency rates in the nation." The 2008 male recession? 12/05/08   Permlink   Broken Link Economy "According to today's BLS report, the U.S. economy has lost 2.352 million jobs in the last year (Nov. 2007 to Nov. 2008). Further analysis shows that 82% of the job losses (1.932 million) were jobs held by males, and only 18% of jobs losses (430,000) were jobs held by females (see top chart above). Further, the November unemployment rate for men is 7.2% vs. only 6% for women, and the gap in jobless rates between men and women has been increasing for the last six months (see bottom chart above). What's going on?" Grant sees 'disastrous inflation' 12/05/08   Permlink   Broken Link Grant A Bloomberg audio podcast of a conversation with James Grant A conversation with Nassim Taleb 12/05/08   Permlink   Broken Link Taleb "A conversation about economics with Nassim Taleb author of "The Black Swan"" High yield credit spreads out of control 12/04/08   Permlink   Broken Link Bonds "With the 10-Year Treasury currently yielding about 2.65%, high-yield borrowers currently have to pay nearly 23% per year to borrow money for a ten-year period. It's going to take pretty high margins to maintain profitability in this kind of environment." Capitalism: the remix 12/04/08   Permlink   Broken Link Government "The nastier this recession gets, the more people will talk about the discrediting of markets and the failure of deregulation. So the next time the Dow dives off a cliff, splash your face with ice water and remember two things: This end-of-capitalism talk is bunk, and it distracts us from the debate we should be having. The real question is how to manage the necessary shift in the balance of our mixed economy. Outlandish though it may sound now, red-blooded capitalism must be part of the answer." US stock market returns 12/04/08   Permlink   Broken Link Markets "This analysis clearly shows the strong long-term relationship between real returns and the level of valuation at which the investment was made." The economic fight of the year 12/03/08   Permlink   Broken Link Economy "In one corner stands Amity Shlaes, senior fellow at the Council on Foreign Relations, Bloomberg columnist, and author of The Forgotten Man, a history of the Great Depression. She points out that federal spending during the New Deal did not restore economic health. Unemployment stayed high and the Dow Jones Industrial average stayed low. In the other corner stands Nobel laureate Paul Krugman, a professor at Princeton University and a columnist of The New York Times. He believes that the New Deal didn't spend enough." Economists have abandoned principle 12/03/08   Permlink   Broken Link Government "Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness." Are we watching the death of OPEC? 12/03/08   Permlink   Broken Link World "The plunge from $148 a barrel to $50 a barrel in less than five months has opened huge fissures in the Organization of Petroleum Exporting Countries. Some members, such as Iran and Venezuela, are desperate to raise oil prices so they can balance their national accounts. More-conservative members, such as Saudi Arabia, can balance their budgets even at current prices and have room to fear they will be the scapegoats if the global recession deepens." The other half of "artists ship" 12/01/08   Permlink   Broken Link Management "As companies grow they invariably get more such checks, either in response to disasters they've suffered, or (probably more often) by hiring people from bigger companies who bring with them customs for protecting against new types of disasters. It's natural for organizations to learn from mistakes. The problem is, people who propose new checks almost never consider that the check itself has a cost." Wheat from chaff 12/01/08   Permlink   Broken Link Markets "The bottom line is simple. Stocks are a claim on a long-term stream of future cash flows. Even if one allows for a terrible and surprisingly deep continuation of the current recession, stocks appear reasonably priced or undervalued based on a careful analysis of long-term cash flow prospects." The model made me do it 12/01/08   Permlink   Broken Link Derivatives "At the bottom of every financial model there is in fact a stubborn lie - the pretense that financial markets operate in the manner of a physical process, subject to the iron laws of statistics, like atoms bouncing around in a thermodynamic equilibrium. This beguiling analogy makes it too easy for geeks like me to lose sight of a timeless truth: If atoms could talk to one another, then the laws of thermodynamics would get broken every day by clouds of stampeding gases." 10-year treasury yield lowest since 1955 12/01/08   Permlink   Broken Link Markets "At 2.81%, the yield on the 10-Year Treasury Note has fallen to its lowest level since 1955. Below we highlight two charts of 10-Year Yields from 1900-1962 (monthly) and 1962-present (daily). While 2.81% is low compared to the last 50 years, the yield was actually lower than that from about 1935 to 1955." Findependence day 12/01/08   Permlink   Broken Link Books "The protagonists grapple with two key concepts - financial independence and guerrilla frugality. Financial independence (the book's title is a contraction of the term) refers to the goal for most of us: the day on which our assets are large enough to cover our living expenses and we don't have to work for a living anymore. ... Guerrilla frugality is the key means to achieve the end, financial independence." Funny money 12/01/08   Permlink   Broken Link Fun "I enjoy looking at political cartoons and in recent weeks they have certainly taken on a financial focus" Fueling up the next bubble 12/01/08   Permlink   Broken Link Government "The market normally dispatches the grim reaper to punish foolish entrepreneurs and credulous investors on a slay-as-you-go basis, returning talent and salvageable assets to the fertilizer heap. When played right, only the participants in the game lose their shirts. The cautious crowd gets to watch and say 'Tsk-tsk, they should have known better.' Sometimes, just sometimes, a crazy idea works. When it does, the lucky, smart and bold earn rich rewards. This rare dispensation of disproportionate wealth, along with the knowledge that failure is rarely fatal, is what motivates the thoughtful risk taking that propels genuine progress. Welcome to capitalism in its purest form. When the grim reaper's hand is staid by the twin forces of mass delusion and public policy, the game of capitalism mutates." Stock market finally at fair value 12/01/08   Permlink   Broken Link Markets "The good news, however, is that, after 15 years of being overvalued, the S&P 500 is finally priced to deliver an average long-term return: about 9%-10% in nominal terms and 6% after adjusting for inflation. That's nothing to scream and yell about, but it's likely to be a lot better than cash." Holes in our socks 12/01/08   Permlink   Broken Link Economy "Right about now, most businesses are trying to work out how their customers are likely to respond to the recession. Looking back to the last really nasty recession - the early 1980s - isn't much help for low-cost airlines, cell-phone companies, Internet retailers, producers of organic and fair-trade food, and many other businesses barely imagined at the dawn of the Reagan era. The economy has simply changed too much since then for experience to be a reliable guide." It's official: recession since Dec. '07 12/01/08   Permlink   Broken Link Economy "The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy." Wall Street winner: buy now 11/28/08   Permlink   Broken Link Watsa "With the S&P drop year-to-date of 50% -- not seen since 1931 -- and how worried the investment community is, it just seemed to us a lot of fear may already be discounted in the stock markets. You can't say this is the bottom, markets are a discounting mechanism and certainly still can go down some; however, we thought it was an appropriate time to close our equity index hedges." The reluctant CEO of the year 11/28/08   Permlink   Broken Link Watsa "Only a handful of financial companies worldwide are in better shape now than before this crisis started. Fairfax Financial is one of them. CEO Prem Watsa managed to make $2 billion and thumb his nose at his opponents at the same time" Corporate jets and congress 11/27/08   Permlink   Broken Link Government "This is the age-old story of those in sin throwing the first stones. And they do so without shame because they assume we are so ignorant we will not see them as the hypocrites they are. So what is going on here? Once again we of the public are being played for fools. Our politicians who are in total disarray on the economy are taking cheap shots at those who are helpless and hopeless." Third Avenue Q4 2008 11/27/08   Permlink   Broken Link Whitman "In other words, deep value and high quality alone are not sufficient conditions for investing in common stocks. Deep value pricing and high quality assets must be accompanied by creditworthiness, and it's super hard to be credit worthy today if a corporation has to access credit markets for loan instruments other than demand deposits." Montier has 'never been more bullish" 11/27/08   Permlink   Broken Link Montier "Societe Generale SA strategist James Montier said he's never been so bullish after the financial crisis dragged down prices for stocks, corporate bonds and inflation-protected government debt." BCE fails key test 11/27/08   Permlink   Broken Link Stocks "Shortly after markets closed on Tuesday, a team of auditors in KPMG's Toronto offices ushered a trio of BCE Inc. executives into a meeting room to advise them that the world's largest leveraged takeover had effectively been killed. The culprit? A five-line clause that virtually no one had noticed in the company's much-scrutinized $35-billion sale agreement. Over the course of more than two hours, the solemn auditors explained to BCE's stunned chief executive officer George Cope and two of his senior executives that the communications company had not passed a so-called solvency test, one of the last hurdles standing in the way of a Dec. 11 deadline to close the sale of the company to a group lead by the Ontario Teachers' Pension Fund. Now, baring a financial miracle, there is little hope that the deal will survive." Landmark BCE takeover in doubt 11/26/08   Permlink   Broken Link Stocks "The massive planned privatization of telecommunications giant BCE Inc. is in jeopardy after the company failed a preliminary solvency test conducted for the would-be purchasers, led by the Ontario Teachers' Pension Plan Board. BCE said Wednesday it received a 'preliminary view' from auditing firm KPMG that 'based on current market conditions, its analysis to date and the amount of indebtedness involved,' it does not expect to be able to deliver an opinion on the closing date of Dec. 11 that BCE 'would meet the solvency tests as defined in the definitive agreement.'" The myths of market underperformance 11/26/08   Permlink   Broken Link Markets "Most members of the media strive for accuracy in their reporting and work very hard to get the facts right. The problem - many of the assertions that get the highest profile are based on flawed analysis of past stock market performance by pundits who distort history to get media coverage for their alarmist claims or by well meaning commentators who quite simply get the facts wrong. Among the common cautionary claims about investing in the stock market: 1. Investors made no money in the market from the mid 60s to early 80s. 2. It took 25 years for the market to recover to the level reached in 1929. 3. When inflation is taken into account, investors have lost money for long periods of time." The wealth effect in reverse 11/25/08   Permlink   Broken Link Markets "The hyper-anxiety is not irrational pessimism, though it may prove unfounded. Every major episode of this crisis -- from Bear Stearns's failure to General Motors' possible bankruptcy -- has come as a surprise. Similarly, the crisis's three main causes have repeatedly been underestimated: the burst housing "bubble"; fragile financial institutions; and a reversal of the "wealth effect." Of these, the last is least recognized." Fed commits $800 billion more to unfreeze lending 11/25/08   Permlink   Broken Link Government "The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion. The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington." Home prices in record decline 11/25/08   Permlink   Broken Link Real Estate "The S&P Case-Shiller Home Price national index recorded a 16.6% decline in the third quarter compared with the same period a year ago. That eclipsed the previous record of 15.1% set during the second quarter. Prices in Case-Shiller's separate index of 10 major cities fell a record 18.6%, while its 20-city index dropped a record 17.4%" James Grant pops Greenspan's bubbles 11/24/08   Permlink   Broken Link Grant "Such proofs of Grant's foresight -- the power of mind over mania -- fill his new anthology, 'Mr. Market Miscalculates,' a bracing tonic as U.S. equities suffer what may prove their worst year since 1931. We've all met Mr. Market. He's the manic-depressive business partner invented by value investor Benjamin Graham. When the sun is shining, he urges you to sell him your share of the business. When night falls, he begs you to buy him out. Price is no object. Grant's omnibus offers a blow-by-blow account of one man's battle with this crank, from dot-com binge to mortgage meltdown." Housing market gets even weaker 11/24/08   Permlink   Broken Link Real Estate "The national median existing-home price in October was $183,300, down 11.3% from a year ago when the median was $206,700." Treasury traders paid to borrow 11/24/08   Permlink   Broken Link Markets "Owners of Treasuries may soon get paid to borrow as the U.S. tries to break a logjam in the $7 trillion-a-day repurchase market. Treasuries are in such high demand that investors are lending cash for next to nothing to obtain the securities as collateral through so-called repos, which dealers use to finance their holdings. The problem is many parties involved in repos aren't delivering the bonds because there is no penalty for not doing so, causing 'fails' to exceed $5 trillion, according to the Federal Reserve Bank of New York." Buffett will give more info on derivatives 11/24/08   Permlink   Broken Link Buffett "Billionaire investor Warren Buffett will provide more information to investors on how he calculates losses on his Berkshire Hathaway Inc.'s derivative bets in the firm's annual report early next year. The report will disclose 'all aspects of valuation' and cover 'deficiencies in the formula' for pricing the derivatives, 'which we nevertheless use,' Buffett said in an e- mail" Does extreme stress signal a snapback? 11/24/08   Permlink   Broken Link Markets "Another encouraging sign is the shrinking value of U.S. stocks relative to nominal U.S. gross domestic product. At the market peak in 2000, stocks were valued at twice the size of the economy, but the relationship has adjusted this year to an estimated 59%, well below the long-term average of 79%. To get back to 79%, the S&P 500 would have to rise 36%, to 1,090. The relationship got as low as 40% in the late 1940s, when investors feared another depression, and in the inflationary 1970s." And you thought 1931 was bad 11/24/08   Permlink   Broken Link Markets "Even after Friday's large stock market rally, only 10 of the stocks in the Standard & Poor's 500, the premier American stock index, are higher than they were at the end of 2007, and the index itself is down almost as far as it was in the worst year it ever experienced, at the height of the Great Depression." The most volatile market ever 11/24/08   Permlink   Broken Link Markets "Over the last 50 trading days, the average absolute daily percentage change of the S&P 500 has been...wait for it...3.82%! That means the S&P 500 is averaging a daily move of up or down nearly 4%." Citigroup gets guarantees 11/24/08   Permlink   Broken Link Government "Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week. Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend." The new deal didn't always work 11/22/08   Permlink   Broken Link Government "Many people are looking back to the Great Depression and the New Deal for answers to our problems. But while we can learn important lessons from this period, they're not always the ones taught in school." Some ETFs fall short on pricing 11/21/08   Permlink   Broken Link Indexing "For the thinly traded ETFs, many of the most problematic trades seem to take place moments after the market opens. For example: On Nov. 14, an investor sold 500 shares of First Trust S&P REIT Index ETF for $8.18 -- about 12% below the value of the fund's underlying holdings -- at two seconds past 9:30 a.m. EST. Three minutes later, 1,000 shares sold at a price about 3% below. By 10 a.m. the discount had settled to about 1%." Simply spectacular 11/21/08   Permlink   Broken Link Stingy Investing "It's been a rough year for investors. But you wouldn't have known it if you had followed Benjamin Graham's advice. Instead of bemoaning losses, you would be counting profits." S&P 500 index: now more poor, less standard 11/21/08   Permlink   Broken Link Indexing "Every once in a while the committee faces a rare situation where a large portion of the S&P 500 Index does not meet one or more requirement they have outlined. Usually the simply ignore it and hope that it just goes away on its own." Diminishing ratios, booming yields 11/21/08   Permlink   Broken Link Markets "With all the carnage in the markets, perhaps it's no surprised P/E ratios are on the decline. What's impressive is by how much." Individual investor stock allocations 11/21/08   Permlink   Broken Link Markets "Here's a terrific sentiment read: the amount of money individuals have exposed to equities relative to their historical average. The chart below shows equity allocations by individual investors above and below their normal 21 year mean allocation to stocks (the 21-year mean allocation to stocks is typically 60%). The present reading puts us 15% under the 21-year historical mean." The Treasury once again can borrow for free 11/21/08   Permlink   Broken Link Bonds "Ok, the Treasury can not borrow for free. Three month Treasury bills, according to Bloomberg, yield something like 2 basis points." The case for buying oil stocks 11/21/08   Permlink   Broken Link Markets "Last week, the Paris-based International Energy Agency released its World Energy Outlook 2008 - a 578-page book full of future supply, demand, and price estimates which this year also included an eagerly-awaited study of 800 of the world's largest oil fields. Here's the executive summary: Buy oil stocks." The next crisis -- Africa 11/20/08   Permlink   Broken Link World "The recent drop in oil and other commodity prices makes it almost a certainty that some unstable commodity-exporting nations will reach a crisis stage in the next few months. The only question is, which countries are likely to erupt first?" Did hated speculators lower oil prices? 11/20/08   Permlink   Broken Link Markets "Whither the speculators? They were this summer's front-page news, the subject of congressional hearings, editorials and nightly newscasts. The claimed culprits of oil's price rise, everyone fell over themselves to be tougher on them." Hank, let me help you help this great country 11/20/08   Permlink   Broken Link Fun "By giving money to bankers who have made many stupid loans you have made life harder for bankers who have never made stupid loans. By aiding the dumb banks you prevent the smart ones from replacing them. It may be that just now smart bankers are the last thing we need -- but one day they may come in handy, and so we should do what we can to keep them from getting discouraged. Here's where I come in: I'm not a banker of any kind, but a mere writer. My little literary enterprise can absorb many billions of taxpayer dollars without consequence to the banking industry, or even to U.S. gross domestic literary output. If anything, other writers would have an opportunity to write more, as I, busy managing my new pile of cash, will naturally have no time to write." Patient Capital Q3 11/20/08   Permlink   Broken Link Value Investing "The next several quarters are likely to be quite difficult but out of these difficulties will emerge the opportunity to create portfolios of great businesses that will offer the potential for a substantial return over the next five years. For the first time in a long time we are starting to feel excited about the returns available to the prudent and patient investor!" It's time to buy 11/20/08   Permlink   Broken Link Dreman "First, do not flee the market by selling your quality stocks. Yes, it's the worst bear market since 2000--02, and stocks are trading at valuations not seen in decades, but equities will come back. Second, because credit is subject to unpredictable crunches and it's impossible to guess when this bear will end, don't buy on margin. Third, don't hold shares of companies that will need cash to expand or refinance. There is a good chance they won't be able to borrow." Treasury yields drop to record lows 11/20/08   Permlink   Broken Link Bonds "Treasury yields declined to record lows, with two-year notes dropping below 1 percent for the first time, as global stocks slumped and a deepening recession drove investors to the safest assets. Yields on two- and five-year notes and 30-year bonds dropped to the least since the Treasury began regular issuance of the securities. Ten-year note yields touched the lowest since 2003 after yesterday's release of the minutes of last month's Federal Reserve meeting showed policy makers expect the economy to contract through the middle of 2009 and more interest-rate cuts may be needed to counter deflation." A sea of unwanted imports 11/20/08   Permlink   Broken Link World "Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times. For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property." The new order 11/20/08   Permlink   Broken Link Bonds "That marginal buyer is gone, and isn't likely to come back any time in the foreseeable future. Admittedly, it isn't as though leverage is being pushed to zero in the fixed income markets, but haircuts (i.e., the amount of margin that must be posted) are now such that levered buyers cannot force efficiency. Take something simple like Fannie Mae 5-year bullet bonds. Should have a very small spread versus Treasuries given the government backing of the GSEs, but instead the spread is currently around 1.45%. It seems like an arbitrage. But in order for an actual arbitrager to realize a decent IRR on the trade, it probably needs to be leveraged 20x or so. Now maybe one can actually get that amount of leverage versus Agency collateral, but what happens if the trade initially goes against you? The potential margin calls would kill you. Its a difficult arbitrage to actually realize." Complex and pricey 11/19/08   Permlink   Broken Link Indexing "The fund holds a motley collection of 21 ETFs and fully three make up less than 1% of the portfolio. Compare the complexity of this fund with the simplicity of the ING Streetwise Balanced Fund, which has 40% in bonds and 60% split equally among Canadian, U.S. and other developed markets." We're not dead yet 11/19/08   Permlink   Broken Link Value Investing "In our opinion someone who says quant equity investing has no future is basically saying that value and momentum will no longer work to pick investments. As we noted above we can see where people get this idea. Many investors using these strategies have had poor recent performance, and it.s clear that these strategies are no longer a secret. Although we can't 'prove' that quant investing has a future, we can demonstrate that quant strategies have had a successful long-term past - and that their recent performance is not inconsistent with this track record." Just say no to Detroit 11/17/08   Permlink   Broken Link Government "Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998." The perils of efficiency 11/17/08   Permlink   Broken Link Markets "The logic behind these reforms was simple: the market would allocate resources more efficiently than government, leading to greater productivity. Farmers, instead of growing subsidized maize and wheat at high cost, could concentrate on cash crops, like cashews and chocolate, and use the money they made to buy staple foods. If a country couldn't compete in the global economy, production would migrate to countries that could. It was also assumed that, once governments stepped out of the way, private investment would flood into agriculture, boosting performance. And international aid seemed a more efficient way of relieving food crises than relying on countries to maintain surpluses and food-security programs, which are wasteful and costly." Joe investor, the markets are all yours 11/16/08   Permlink   Broken Link Markets "This is a huge change for the little guys. Rob Arnott, who oversees $35 billion at Research Affiliates LLC in Newport Beach, Calif., puts it this way: "The question that hardly anyone ever thinks about is: Who's on the other side of my trade, and why are they willing to be losers if I'm going to be a winner?" Ever since the 1970s, the person on the other side of your trade has almost always been someone who manages billions of dollars and has millions of dollars to spend on gathering more information than most individuals ever could. Now, however, as Mr. Arnott says, "You can -- and probably do -- have a counterparty on the other side of your trade who absolutely has to sell, perhaps at any price." You would be very wise to give these distressed sellers a little bit of your cash, which they overvalue, in exchange for some of the stocks and bonds that they are undervaluing." Bill Miller Q3 2008 commentary 11/14/08   Permlink   Broken Link Miller "There is little dispute among knowledgeable investors that U.S. (and global) equities are extraordinarily attractive on a wide variety of measures based on historical standards. The worry is they may go a lot lower before they eventually recover, as the current crisis unfolds and as the economy undoubtedly gets worse. This worry is legitimate. After all, to most of us, stocks seemed quite cheap at the end of September, and now they are a whole lot cheaper. So what to do? The data indicate there is now a mountain of cash on the sidelines, enough in money market funds to buy about half the market capitalization of the S&P 500." How AIG got Uncle Sam over a barrel 11/14/08   Permlink   Broken Link Stocks "The Treasury has secured crowd-pleasing concessions; for example limits on executives. bonus payments. But the real question is whether the preference shares are safe. AIG has a trillion-dollar balance-sheet. There is now a thin buffer of core equity between the taxpayer.s preference shares and any further losses. The hope is still that as markets recover, AIG can sell the crown jewels of its insurance business at a premium to book value. That may well take years. Plenty of time to reflect on how an offer of a temporary loan, to a company that barely made the list of systemically vital firms, spiralled into one of the biggest corporate bail-outs ever." Wall street lays another egg 11/14/08   Permlink   Broken Link Markets "Not so long ago, the dollar stood for a sum of gold, and bankers knew the people they lent to. The author charts the emergence of an abstract, even absurd world - call it Planet Finance - where mathematical models ignored both history and human nature, and value had no meaning." The end 11/13/08   Permlink   Broken Link Markets "Eisman wasn't, in short, an analyst with a sunny disposition who expected the best of his fellow financial man and the companies he created. 'You have to understand,' Eisman says in his defense, 'I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold.'" A conversation with Bill Ackman 11/12/08   Permlink   Broken Link Markets "Charlie Rose: A conversation with Bill Ackman, major investor and hedge fund manager of Pershing Square Capital Management LP." As trouble brews, banks turn the screws 11/12/08   Permlink   Broken Link Markets "In Canada, Judge Morawetz, an experienced former insolvency lawyer, balked. According to affidavits and reports submitted to his court, Circuit City had landed the life-saving DIP loan by effectively allowing a cross-border raid on its profitable InterTan division. Before handing over a penny to Circuit City, a syndicate of banks led by Bank of America insisted that the Canadian subsidiary pledge as security all the assets and property owned by its chain of 772 stores, known as The Source by Circuit City. On top of that, Circuit City was given the right to demand cash advances from InterTan, while banks were given extraordinary powers to .sweep the cash. of the Canadian branch at their whim after only five days advance notice." Et in Arcadia Ego 11/12/08   Permlink   Broken Link Education "In short, private education in America spends money like a drunken sailor with Warren Buffett's credit card." [Some harsh language.] Buy CBS shares 11/12/08   Permlink   Broken Link McElvaine "CBS has $40-billion in assets and is trading at a price/earnings multiple of five times. Mr. McElvaine began nibbling away at the stock last Friday and bought more on Monday, when the Canadian stock market was closed for the Thanksgiving holiday. As he sees it, CBS is in a number of different businesses that, combined, are worth at least twice what the stock is trading at." A scientific revolution for economics 11/12/08   Permlink   Broken Link Economics "If empirical observation is incompatible with a model, the model must be trashed or amended, even if it is conceptually beautiful or mathematically convenient. So many accepted ideas have been proven wrong in the history of physics that physicists have grown to be critical and queasy about their own models. Unfortunately, such healthy scientific revolutions have not yet taken hold in economics, where ideas have solidified into dogmas" Everything you knew about bonds and equities 11/12/08   Permlink   Broken Link Markets "The broader picture is that this is the reversal of a 50 year relationship, one in which bond yields have been above equity yields. That trend is now about to be undone, by Edward.s estimation." The corn isn't green 11/12/08   Permlink   Broken Link Markets "H.L. Mencken once remarked that there is a "well-known solution to every human problem - neat, plausible, and wrong." That quote comes to mind when considering the vocal group of neoconservatives, agribusiness lobbyists, and politicians that claims that the best way to cut American oil imports, and thereby impoverish the petrostates (and, in theory, reduce terrorism), is to require automakers to manufacture "flex-fuel" cars that can burn motor fuel containing 85 percent ethanol or methanol." Beware of fees 11/12/08   Permlink   Broken Link Brokers "Insult is about to be added to the injury done to your investment portfolios in the past year. With the value of your account falling, you may find yourself paying higher commissions to trade stocks, as well as miscellaneous fees from which you were previously exempt. Not convinced on the merits of putting money into the markets right now, with share prices knocked way off their peaks of last summer? Now you have the additional motivation of being able to avoid parasitic fees by reinflating your depleted account." Upside of the down dow 11/12/08   Permlink   Broken Link Graham "The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment." The crisis and what to do about it 11/10/08   Permlink   Broken Link Markets "The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact - that the defect was inherent in the system - contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it. To understand what has happened, and what should be done to avoid such a catastrophic crisis in the future, will require a new way of thinking about how markets work." Shipping floored 11/10/08   Permlink   Broken Link Markets "An industry once plagued by insufficient capacity now sees ships stuck idle at port. Shipping is in crisis. The Baltic Dry Index which measures shipping costs in commodities sunk to its seventh weekly decline this week to 829 points, and is down more than 93 percent since hitting a record peak in May." Fuld solicited Buffett offer 11/10/08   Permlink   Broken Link Management "Fuld's failure to save Lehman, after rescuing it three times before, is a story about how the most indomitable man on Wall Street became addicted to leverage and intoxicated with the power it brought. It is a tale about the inability to repair a financial model wrecked by a lack of limits and transparency, a story pieced together from interviews with former Lehman executives and outsiders familiar with the firm. Isolated, surrounded by acolytes and unaware of the rivalries tearing his firm apart, Fuld was too prideful to accept the fast-eroding value of the empire he had built, too slow to cut a deal." Bonus jackpot can be yours in 5 easy steps 11/10/08   Permlink   Broken Link Fun "If even the steelworkers union can parse the Wall Street doublespeak, the doublespeak has lost its power to persuade. Too many people know too many things. The problem of how to get paid on Wall Street must be radically reframed." You pay a high price for a cheery consensus 11/10/08   Permlink   Broken Link Buffett "There may well be some period in the near future when financial markets are demoralized and much better buys are available in equities; that possibility exists at all times. But you can be sure that at such a time the future will seem neither predictable nor pleasant. Those now awaiting a "better time" for equity investing are highly likely to maintain that posture until well into the next bull market." I.O.U.S.A. 30-minute movie 11/09/08   Permlink   Broken Link Debt "Wake up, America! We're on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions." Time to ditch the style box 11/08/08   Permlink   Broken Link Funds "Looking over the last 15 years, the style box is very correlated with itself. The lowest correlation is 75%, between largecap value and smallcap growth. That is not a reason to categorize managers; the difference between the average largecap value and growth manger is teensy. It is even true between largecap value and smallcap growth. And in more recent years, the correlations have been tightening to nearly 90% at worst." Investors lick wounds from dividend cuts 11/08/08   Permlink   Broken Link Dividends "Thirty-six companies listed on Standard & Poor's 500-stock index have cut or suspended dividends 46 times in 2008, sucking some $33.3 billion from investors' pockets, according to Standard & Poor's. From that sum, $30.8 billion came from financial companies, representing 37 individual actions." Disappointing diversification 11/08/08   Permlink   Broken Link Markets "We argue that it is no accident that the age of restrictive capital accounts also saw remarkably low equity market correlations. Cross-border diversification opportunities identified by early papers (Grubel 1968) were indeed 'too good to be true.' Once investors can take advantage of low correlations elsewhere, they will rise. Initial investors may benefit since liberalisations tend to be followed by capital gains (Henry 2000). Yet risks will not fall anywhere near as much as initially hoped, as the covariance with other stock markets inevitably increases. In this sense, the gains from international diversification are akin - at least in part - to a Fata Morgana. Investors may chase it, only to discover that it perennially disappears in the distance." Long-term opportunities amidst the fear 11/05/08   Permlink   Broken Link Markets "This short essay covers three topics. First is a little perspective on recent events. Second are some thoughts on where we might go from here. And finally, a comment on the behavioral finance issues around what we are going through, with an emphasis on why it.s so hard to act in this type of an environment." Everyone's watching 11/03/08   Permlink   Broken Link Behaviour "Markets work best when investors are thinking for themselves, and tend to go awry when the obsession with what everyone else is doing becomes a dominant concern. Maybe what investors really need is to periodically take a market-information vacation." How AIG failed 11/03/08   Permlink   Broken Link Stocks "The lesson, of course, is simple, but hard to learn: it's not the risks you measure which bring you down, it's the risks you don't measure. But protecting against those risks is very, very hard." Challenging the crowd in whispers 11/02/08   Permlink   Broken Link Shiller "I clearly remember a taxi driver in Miami explaining to me years ago that the housing bubble there was getting crazy. With all the construction under way, which he pointed out as we drove along, he said that there would surely be a glut in the market and, eventually, a disaster. But why weren.t the experts at the Fed saying such things? And why didn.t a consensus of economists at universities and other institutions warn that a crisis was on the way?" Stocks below net current asset value 11/02/08   Permlink   Broken Link Graham "One of Graham's investment fund strategies, as explained in his best-selling book The Intelligent Investor, was to buy stocks that are valued at a discount to their net current asset value. Graham called such stocks "bargain issues." In other words, Graham would look for stocks whose current assets less total liabilities was worth more than what the stock was trading at. This meant that any plant, property and equipment, goodwill and long-term investments were free." Ben Graham then and now 11/02/08   Permlink   Broken Link Graham "In mid-1932, almost precisely at the bottom of the Great Crash, Benjamin Graham turned up as a freelance writer in the pages of FORBES. He was later to be known as the father of value investing and as a mentor to Warren Buffett. But at the time he was the manager of a fairly obscure hedge fund. That fund, which combined long and short positions but was mostly long, was hurting. It had tumbled 70% from its 1929 high. (The Dow was down 87%.) Stocks had got too cheap, Graham pleaded. The fact that profits were vanishing almost didn't matter. You could buy companies for less than their net liquidating value. You got the goodwill and the factories for nothing." Cheap Japanese markets 11/02/08   Permlink   Broken Link Graham "The Japanese market has been hit so hard this fall that some of its corporate titans are trading at prices that value guru Benjamin Graham would find to be bargains." The other reason for Warren Buffett's success 11/02/08   Permlink   Broken Link Buffett "Since the end of 1988, Berkshire's stock portfolio has grown from $3.56 billion to $69.51 billion. That is a spectacular average annual increase of 16.5%, far surpassing the 10.5% annualized return of the Standard & Poor's 500-stock index. Of course, this calculation is only a crude approximation, since it ignores the cash that Mr. Buffett added in -- and moved out -- along the way. Over the same period, the growth in Berkshire's book value per share, which reflects all of Mr. Buffett's activities, not just his stock-picking, was 19.9%. In other words, Mr. Buffett's skill at picking publicly traded stocks pales alongside the value he has added to the company through other means." 'Tax event' may be next for bruised PPNs 11/02/08   Permlink   Broken Link Derivatives "For a supposedly safe investment, there sure are a lot of risks associated with principal-protected notes. Tax changes being considered by the Canada Revenue Agency could, in the words of one issuer of principal-protected notes (PPNs), "have a material adverse effect" on these investments. And then there's the experience of the U.S. investors who hold PPNs issued by the once illustrious but now bankrupt Lehman Brothers. They're waiting in line to get paid along with other creditors." Dig a grave for those wretched PPNs 11/02/08   Permlink   Broken Link Derivatives "I've called them the worst of both worlds - bad for equity investors and inappropriate for those seeking a predictable flow of income. And professional money managers would never buy one; the odds are stacked against them. I'm talking about principal-protected notes, or PPNs." Good riddance 11/02/08   Permlink   Broken Link Bogle "In Berkshire Hathaway's 2005 annual report Warren Buffett offered the parable of the fictional Gotrocks family. Sole owners of corporate America, this huge clan sits back and collects the generous rewards of investing. Until fast-talking helpers arrive and persuade some family members to pay the helpers to try to earn more at the expense of other family members. But in total the family ends up with less. Why? Because the Gotrocks are now paying the helpers, thus diminishing the total return earned by all the businesses in their portfolio. Worse, the Gotrocks are now forced to pay taxes on the capital gains incurred as the helpers swap stocks back and forth. After several go-rounds with different helpers, the Gotrocks finally listen to an old, wise uncle who advises them to fire all the helpers and simply reap 100% of their investment gains themselves." All bets are off 11/02/08   Permlink   Broken Link Markets "diversification has surely not offered the benefits most pension funds expected. Indeed, it may have had perverse results. In the old days, with equities trading at below-average valuations, funds would now be on a buying spree. They could afford to ignore the short-term risks because of the long-term nature of their liabilities. Pension funds thus acted as an automatic stabiliser for the market. This time round, that does not seem to be happening. One reason may be accounting changes which make pension-fund managers more focused on the short term. Another, however, may be the strategic drive to diversification. The Wall Street Journal has reported that CalPERS, America's largest public-pension fund, has been selling shares to meet commitments to put more money into private-equity firms." Bad vibrations 11/02/08   Permlink   Broken Link Markets "The great deleveraging, as it has become known, has also had a big impact on the currency markets. Many investors have been following a version of the 'carry trade', borrowing money in a low-yielding currency. All they had to do was earn a higher return from assets than the cost of their financing. Since the two big currencies with the lowest yields over the past year have been the dollar and the yen, those were the natural ones to borrow. When asset prices fall, however, this strategy is disastrous. Investors dash to sell assets and repay their debts. Since those debts were incurred in dollars and yen, that means they have to buy back those two currencies - hence their sharp recent rises." World is 'drowning in oil' (again) 10/30/08   Permlink   Broken Link Markets "Three months ago, the world was running out of oil. Seriously. I kid you not. Everywhere you turned, you heard whispers that the day of petroleum reckoning was at hand. Now there's too much oil, prodding OPEC to cut production targets for the first time in two years. Last week, the Organization of Petroleum Exporting Countries, confronted with the halving of oil prices since July, announced a 1.5 million barrel-a-day cut in output." New ETFs can serve as caution signs 10/30/08   Permlink   Broken Link Indexing "There are many notable exceptions, but all too often an ETF's debut coincides with the moment when investors should be starting to think about taking profits in the area of the fund's focus. As is evident in the table below, this isn't a new phenomenon. In 1996, the incipient ETF industry was bolstered by the addition of a quartet of Asian funds. Just 16 months later, Asian currencies nosedived and stock prices throughout the region collapsed, kneecapping investors with double-barreled blasts." Channeling Graham and Dodd 10/30/08   Permlink   Broken Link Klarman "Klarman assembled a who's who of prominent value investors - including Glenn Greenberg, David Abrams, Howard Marks and Thomas Russo - to write introductory commentary to each of the book's sections, drawing out the timeless wisdom in the original text and combining it with additional insight and examples relevant to today's market." Is buy-and-hold dead and gone? 10/30/08   Permlink   Broken Link Markets "The evidence shows that most investors get it wrong over and over again. According to a study called the Quantitative Analysis of Investor Behavior by financial research firm Dalbar, over 20 years through the end of 2007, the average equity-fund investor earned an annualized return of just 4.5%, vs. the S&P 500's 11.8% return. Why? In large part because investors, chasing performance, shift money out of lagging funds and into hot ones at the wrong times. We buy high and sell low repeatedly." The man who beat the shorts 10/30/08   Permlink   Broken Link Watsa "Born in India, Watsa graduated from the prestigious Indian Institute of Technology and moved to western Ontario in 1972 at age 22. Penniless, he lived with relatives while getting his M.B.A. from the University of Western Ontario and moonlighting at night selling air conditioners and furnaces. After taking over, and renaming, an underwriter of trucking policies called Markel, he added a dozen property and casualty insurers, among them the well-known New Jersey firm Crum & Forster and TIG Holdings, once part of San Francisco's Transamerica. Taking over management of the investments, Watsa produced (according to Fairfax) a compound annual return from 1993 to 2007 on its stock portfolio of 19.5% (versus 10.4% for the S&P 500) and on its bond portfolio of 10.1% (versus 6.6% for a Merrill Lynch bond index). One of his earliest backers--and later a friend--was famed investor Sir John Templeton, who died this year at age 95." A return to thrift 10/30/08   Permlink   Broken Link Thrift "Sometimes it takes a near-death experience to change bad behavior. Think of your friend who quit Lucky Strikes after a coronary incident. Or look at how banks are reducing their dependency on debt after watching rivals go belly-up. On Wall Street this process of reducing debt relative to equity is called deleveraging. Main Street should be deleveraging too." Who's buying? 10/28/08   Permlink   Broken Link Markets "Remember, when dealing with Mr. Market, fear is the cost of getting a good price. It looks very grim out there and it might get worse. But stock prices will reach their lowest when uncertainty reigns and expectations are at their lowest. Investors are currently very fearful and we think that it's time to get greedy." Home prices in 20 U.S. cities fall 16.6% 10/28/08   Permlink   Broken Link Real Estate "House prices in 20 U.S. cities declined in the year ended in August at the fastest pace on record as more properties went into foreclosure before the credit crisis deepened this month. The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, after a 16.3 percent decline in July. The gauge has fallen every month since January 2007, and year-over-year records began in 2001." Greasing the slide 10/27/08   Permlink   Broken Link Markets "The great paradox of the sell-off, then, is that the factors that were supposed to increase the flow of information to investors, foster long-term thinking, and encourage contrarian positions did exactly the opposite. If there's a silver lining in all this, it's that investors who can endure past the present moment now have the chance to buy what at least look like very cheap stocks. Still, it's not surprising that investors have been unwilling to step up. It's hard enough to catch a falling knife. But it's nearly impossible when hedge funds are hurling it." Evil Wall Street exports boomed 10/27/08   Permlink   Broken Link Derivatives "While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion." Treasury may purchase stakes in insurers 10/26/08   Permlink   Broken Link Government "The Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, pressed Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government." Why do markets create bubbles? 10/26/08   Permlink   Broken Link Markets "Bubbles are like pornography: Everyone has his or her own opinion as to what qualifies, but it is impossible to pen a precise definition. If you wish to push the metaphor further, both are also fun for a while, if you like that sort of thing, but apt to end up making you feel deflated and embarrassed. Bubbles are also embarrassing for the economics profession. It's not that we have no idea what causes bubbles to form, it's that we have too many ideas for comfort. Some explanations are psychological. Some point out that many bubbles have been stoked not by markets but by governments. There is even a school of thought that some famous bubbles weren't bubbles at all." Qtrade retains crown 10/25/08   Permlink   Broken Link Brokers "Now to the question of which brokers are best. Qtrade Investor, a small firm out of Vancouver, has taken top spot for the third straight year, while BMO InvestorLine, E*Trade Canada and TD Waterhouse also scored well. Qtrade is an example of a broker that does almost everything well. Whether it's keeping costs low, providing tools that help investors make smart decisions or offering a sturdy trading platform, Qtrade has it covered." Student loan fugitives 10/25/08   Permlink   Broken Link Debt "When faced with unaffordable monthly payments and relentless creditors, some see leaving the country as their only way out." Realm of fantasy in credit insurance 10/24/08   Permlink   Broken Link Derivatives "If you had a 100,000 car, what kind of world would it be where you'd consider paying 50 grand over five years to insure it? You'd either have to be such an appalling driver that you ought not to be on the road, or the world would be such a lawless and dangerous place that your 100,000 car should be among the least of your worries. We do not need the details of mathematical probabilities to see there is little sense in the idea of paying out insurance costs that are a huge chunk of the value of the thing to be insured. But that is exactly what participants in credit markets are being asked to do." The revival of railroads 10/23/08   Permlink   Broken Link Buffett "Last April, Warren E. Buffett flew to Kansas City, Mo., to join Matthew K. Rose for a ride in a vintage 1930s railcar. Buffett, the billionaire investor from Omaha, and Rose, the chief executive of Burlington Northern Santa Fe (BN), munched on hamburgers and jelly beans as they chugged 430 miles up to Chicago. Along the way, they talked about Burlington Northern's unlikely turnaround and how the once-stalled railroad could build on its recent momentum." An axis in need of oiling 10/23/08   Permlink   Broken Link World "In sum, Iran, Russia and Venezuela are all likely to be left short of cash - and facing a diminution in their international clout. 'Never confuse brilliance with a bull market,' goes a Wall Street saying. The leaders of the oily trio may have thought high oil prices were an adequate substitute for good governance. In many quarters, the difference is now painfully clear." The economy works 10/23/08   Permlink   Broken Link Buffett "Buffett, speaking to California first lady Maria Shriver's Women's Conference in Long Beach, said he has no idea what will happen in the coming two years but was confident that over a 10-year span the stock market would outperform cash-based investments, such as certificates of deposits and savings accounts, which can lose value when inflation is subtracted from gains." Credit crunch humour 10/23/08   Permlink   Broken Link Fun "I went to buy a toaster and it came with a bank . . . " Myths about the financial crisis of 2008 10/23/08   Permlink   Broken Link Markets "The financial press and policymakers have made four claims about the nature of the crisis. 1. Bank lending to nonfinancial corporations and individuals has declined sharply. 2. Interbank lending is essentially nonexistent. 3. Commercial paper issuance by nonfinancial corporations has declined sharply and rates have risen to unprecedented levels. 4. Banks play a large role in channelling funds from savers to borrowers. Here we examine these claims using data from the Federal Reserve Board. At least based on data up until October 8, 2008, we argue that all four claims are false." Companies win, investors lose 10/22/08   Permlink   Broken Link Accounting "The Canadian accounting standards board announced last week that they would let companies reclassify certain assets to delay reporting losses to investors. What happened was exactly what was warned about in these pages two weeks ago. Companies are being given more leeway to manipulate net income. In short, Canadian banks and insurers will report higher income than they otherwise could have in their forthcoming year-end reports." Montier: 'Analysts are rubbish' 10/22/08   Permlink   Broken Link Montier "Seemingly everyone, on both sides of the Atlantic, is now taking about recession. Even Mervyn King. So why, asks SocGen's James Montier in his latest issue of Mind Matters, is the investment research industry still predicting earnings growth of between 12 and 15 per cent? He's got a chart to illustrate that analysts are exceptionally good at one thing and one thing alone - telling you what has just happened." Junk-bond yields bode ill for stocks 10/22/08   Permlink   Broken Link Bonds "Unsurprisingly, yields in the corporate bond market have recently risen to nine-year highs and high yield, or junk bonds, are trading at record levels as well. Usually junk bonds yield 4.5 to 5 percentage points more than the 10-year Treasury, but now that spread is about 14 points." Russia and the crisis 10/22/08   Permlink   Broken Link World "Dmitry Medvedev dreams of turning Moscow into a global financial centre, but he has an awful long way to go. For Russia.s markets have slumped. Even after recent one-day rallies, the dollar-denominated RTS index and the rouble-denominated MICEX index have shed around two-thirds of their value since mid-May (see chart). These falls are bigger than in any other emerging markets, dealing a blow to Kremlin claims that Russia is a safe haven from global financial turmoil." Rippling economic turbulence 10/22/08   Permlink   Broken Link Taleb "As the financial sector shifts, so does the reach of the jolt to economic structures around the world. Economist Nassim Nicholas Taleb and his mentor, mathematician Benoit Mandelbrot, speak with Paul Solman about chain reactions and predicting the financial crisis." Next likely bank failures 10/20/08   Permlink   Broken Link Stocks "U.S. banks large and small are buckling under the pressure of the credit crisis. The Federal Deposit Insurance Corp. has seized 13 institutions this year, most recently Washington Mutual. The regulator, which maintains a list of "problem" banks, doesn't disclose which others raise red flags. But one measure, the so-called Texas Ratio, may offer a clue." Perspective on the bear market 10/20/08   Permlink   Broken Link Hallett "The decline in stock prices triggered by the U.S. financial crisis has been frightening at times. Most shocking has been the sheer velocity of the decline, which rivals that of the crash of 1929. And despite a recent rally, there is enough bad news to push stock prices back down. But unless you believe the global economy will grind to a halt; I see five reasons why investors should be optimistic today." There are old-school investors ... 10/19/08   Permlink   Broken Link Kahn "Market's panic 'not so new to me,' says 102-year-old disciple of Benjamin Graham. He and his son Thomas like such banged-up stocks as Pfizer and Bristol-Myers Squibb." The confidence game 10/19/08   Permlink   Broken Link Grant "In the past two weeks, governments in Asia, Europe and the U.S. have effectively nationalized vast swaths of banking. Central banks have ramped up their money printing. In the past week alone, the Fed's balance sheet swelled by $179 billion, to a grand total of $1.77 trillion. In announcing such radical measures, intervening governments never fail to invoke confidence. They say they must restore it. Destroying confidence, however, is what governments do best. And the confidence they can restore is usually the kind that got us where we are today. Inflation and moral hazard led directly to the immense overvaluation of equities and residential real estate -- and of the bloating of the leverage that sustained those prices. Yet, to cure what ails us, credit creation and the public guarantee of banking liabilities are the policies today most favored." Home prices seem far from bottom 10/19/08   Permlink   Broken Link Real Estate "Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession. In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them. Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates - all of which will reduce the already diminished pool of would-be buyers." Take a deep breath, calm yourself 10/18/08   Permlink   Broken Link Zweig "You can catch other people's emotions as easily as you can catch a cold. In an experiment by neuroscientist Elizabeth Phelps at New York University, people either watched someone else get a mildly painful electric shock or suffered the shock themselves. Their brain responses and their dread before the shock were highly similar in both cases, suggesting that seeing another person's fear is all it takes to make us afraid. Even encountering the circumstances under which the other person was shocked is enough to trigger your own fear. Viewed this way, today's financial markets -- in which tens of millions of investors watch each other's fears unfolding in real time on television and online -- constitute one giant panic-transmission machine." Keep your money in the market 10/18/08   Permlink   Broken Link Markets "We will have a serious recession now, but a 1930s-style depression is highly unlikely. We will not let the money supply decline by 25 per cent, as we did in the '30s, and automatic stabilizers (like unemployment insurance) are now a significant element of fiscal policy. Don't forget that the US economy is still the most flexible in the world and our "innovation machine" is alive and well. No one has consistently made money by selling America short, and I am confident the same lesson is true today." Q3 2008 Oakmark commentary 10/18/08   Permlink   Broken Link Value Investing "In fact, we believe the decline in the market has created a very attractive environment for investing new capital. For most people, the right question to ask after a big decline is: 'Should I be investing more?'" Whitman sampler of value stocks 10/18/08   Permlink   Broken Link Whitman "Few investors in the market today are as bear-market-seasoned and savvy as Marty Whitman, 84-year-old founder of M.J. Whitman LLC, chairman and founder of Third Avenue Management and portfolio manager of Third Avenue Value Fund. Like Sam Zell, Leon Black and Eddie Lampert, Whitman's roots are in distressed-company investing." Concentrated value investing 10/18/08   Permlink   Broken Link Value Investing "Mohnish Pabrai, the Managing Partner of the Pabrai Investment Funds, has outperformed market indices over the last nine years by consistently believing in concentrated value investing. Pabrai likes to hold fewer stocks positioned in industries that he understands well, paying attention to two key variables: the intrinsic value of a business and its current price." AIG: Europe's lethal loophole 10/17/08   Permlink   Broken Link Markets "Before the financial crisis hit, AIG did a booming business in credit default swaps, complex instruments originally designed to protect lenders if borrowers fail to make debt payments. The biggest buyers were European banks, whose deals last year with AIG totaled a staggering $426 billion. But the banks didn't always buy the swaps as insurance against defaults - they often used them to skirt capital requirements." Buy American. I Am. 10/17/08   Permlink   Broken Link Buffett "I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities." Former Vanguard guru is buying stocks 10/16/08   Permlink   Broken Link Neff "In a small office in West Conshohocken, a legendary stock market bottom feeder has been having a feast. John B. Neff, who racked up record gains as manager of Vanguard's Windsor Fund over three decades, is buying stocks again." Repeal the Glass-Steagall act 10/15/08   Permlink   Broken Link Government "I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010" [from 1999 ...] SEC agrees to accounting shift 10/15/08   Permlink   Broken Link Accounting "The Center for Audit Quality, which represents accountants, said in a letter seven days later that perpetual preferred securities should be treated as equity because the holdings do not have a maturity date and 'the investor cannot recover its investment simply by holding the investment.'" Dimon, Munger, Rohatyn: No more vegas 10/14/08   Permlink   Broken Link Munger "Munger wants Wall Street balance sheets reduced by 70% and insists that the firms "be a market maker, a broker, an underwriter and a custodian of securities but not the hedge funds they have become." He wants to restrict leverage to 50% on every securities transaction except for the Treasury trading desk where "you're dealing with the safest securities around." That 50% margin level, incidentally, is the maximum that ordinary investors can obtain from their broker when they purchase common stock. Before their respective demises, Bear Stearns and Lehman Brothers were leveraged to the tune of $30 of debt for every $1 of capital." Paulson urges banks to deploy capital 10/14/08   Permlink   Broken Link Government "Treasury Secretary Henry Paulson urged banks receiving $250 billion in capital injections from the government to use the funds to spur economic growth. 'We must restore confidence in our financial system,' Paulson said in a statement in Washington. 'The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.'" Fear factor 10/13/08   Permlink   Broken Link Markets "There have been, and are, plenty of reasons for investors to freak out: the failure of banks; the demise of institutions like Lehman Bros.; the necessity for repeated, spastic government interventions. Nearly every economic indicator in the past few weeks, from auto sales to employment, has been negative. The stock of General Motors sunk to its lowest level since 1950. Banks are refusing to lend to one another. The traditional safe havens of investment, such as municipal bonds and money-market funds, have buckled. The trumpets of leadership are so uncertain, they sound like kazoos." America for sale: price reduced 10/13/08   Permlink   Broken Link Value Investing "At the depths of the 1973-74 bear market -- the worst of the post-war period -- when the Dow Jones industrial average was approaching its low of 577, Warren Buffett told Forbes magazine that he felt like "an oversexed guy in a whorehouse. This is the time to start investing." Buffett's words may have been indelicate -- Forbes ended up changing the world "whorehouse" to "harem" when the interview ran -- but the CEO of Berkshire Hathaway was on the mark because that era produced some of the best bargains of the past 50 years." Traders' worst fears realised at Lehmans auction 10/13/08   Permlink   Broken Link Derivatives "Analysts say the amount of money that has to change hands could be more than $200bn. Some estimates put the value of outstanding credit default swaps on Lehman Brothers debt at $400bn, although some of these trades have already been netted out because some investors both sold and bought CDS contracts. Exact figures are not available because a CDS is a private contract and is not traded on an exchange, but the payout will certainly be the biggest in the 10-year history of the market." It's time to invest 10/13/08   Permlink   Broken Link Markets "Martin J. Whitman, a professional investor for more than 50 years, said that as long as economies worldwide could avoid an outright depression, stocks were amazingly cheap." Think long 10/12/08   Permlink   Broken Link Value Investing "It is also possible to see bargains at the individual stock level. Both BP and Shell have a dividend yield equal to, or higher than, their p/e: an old rule of thumb for value investors. True, the oil price is falling sharply, but shares in oil companies lagged well behind the crude prices when it was soaring to $147 a barrel." The market's silver linings 10/12/08   Permlink   Broken Link Value Investing "Bolton's reasons for optimism aren't macroeconomic; the UK is almost certainly in recession for the first time in almost two decades. But he believes the high level of dividend yields compared to gilt yields, and the large cash positions in mutual funds and hedge funds, are good indicators that the market's fortunes may be about to change. "In some sectors, I'm seeing the lowest valuations I've seen in more than 30 years," Bolton says. He says he likes the look of the consumer cyclical sectors, such as the general retailers and media stocks. "Media has underperformed the market for the last seven consecutive years, and both [retail and media] are unloved by institutional investors [at the moment]," he says." How this bear market compares 10/11/08   Permlink   Broken Link Markets "The current bear market is already among the worst in history. Here is how it lines up - in losses and length - with those of the lasy 80 years." U.S. will buy bank equity 10/10/08   Permlink   Broken Link Government "U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity 'as soon as we can' in banks and other financial institutions to restore market stability and revive economic growth." The new age of frugality 10/10/08   Permlink   Broken Link Thrift "On a shady lane in New Hope, Pa., a quiet revolution in American culture may be taking shape. Here, a family of four lives in a white, colonial-style house in a manner that once would have been considered All-American but more recently has been seen as just plain weird: They're frugal." They warned us about the mortgage crisis 10/10/08   Permlink   Broken Link Government "Some states, including North Carolina and Georgia, passed laws aimed at deterring rash loans only to have federal authorities undercut them. In Iowa and other states, mortgage mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision. In Ohio the story took a different twist: State lawmakers acting at the behest of lenders squelched an attempt by the Cleveland City Council to slow the subprime frenzy. A number of factors contributed to the mortgage disaster and credit crunch. Interest rate cuts and unprecedented foreign capital infusions fueled thoughtless lending on Main Street and arrogant gambling on Wall Street. The trading of esoteric derivatives amplified risks it was supposed to mute. One cause, though, has been largely overlooked: the stifling of prescient state enforcers and legislators who tried to contain the greed and foolishness. They were thwarted in many cases by Washington officials hostile to regulation and a financial industry adept at exploiting this ideology." Lehman credit-swap auction sets payout 10/10/08   Permlink   Broken Link Derivatives "Sellers of credit-default protection on bankrupt Lehman Brothers Holdings Inc. will have to pay 91.375 cents on the dollar to settle the contracts, setting up the biggest-ever payout in the $55 trillion market." Defaults and a near-death experience 10/10/08   Permlink   Broken Link Markets "It is a remarkable fact that the United States, despite having the largest, strongest and richest economy in the world, has--and has always had--a banking and bank regulatory system that is an irrational mess." We have the tools to manage the crisis 10/10/08   Permlink   Broken Link Government "First of all, there is now clear recognition that the problem is international, and international coordination and cooperation is both necessary and underway. The days of finger pointing and schadenfreude are over. The concerted reduction in central bank interest rates is one concrete manifestation of that fact. More important in existing circumstances is the clear determination of our Treasury, of European finance ministries, and of central banks to support and defend the stability of major international banks. That approach extends to providing fresh capital to supplement private funds if necessary." Eveillard proteges prowl for bargains 10/09/08   Permlink   Broken Link Value Investing "The two, who hunt the globe for companies whose worth they believe analysts have misjudged, viewed International Speedway more as a media company. It's a classic page out of the playbook of value investors, something that comes naturally to de Vaulx and de Lardemelle, who worked for years under one of the best: Jean-Marie Eveillard." Buying the bargains in health care, energy 10/09/08   Permlink   Broken Link Dorfman "Dorfman noted that drug-company stocks are selling at similar multiples to tobacco stocks, "and the last time I looked, tobacco stocks didn't save people's lives." After five years of being sold hard, Dorfman likes the look of pharmaceutical stocks, and he also is interested in metals and energy stocks because they soared early in the year and have now been hammered to bargain levels. Dorfman also suggested that investors avoid the "glamour premium" of gold stocks." Profit from panic 10/09/08   Permlink   Broken Link Stocks "The "other Berkshire" is Fairfax Financial a P&C insurer headed by brilliant capital allocator Prem Watsa. Fairfax is about as close as you can get to investing in a company that does great in good markets and exceptionally well in disastrous ones." Fear and value 10/09/08   Permlink   Broken Link Dividends "The trend of late is clear: yields are rising, dramatically so in recent months. European yields lead the pack at 4.93% at last month's close, based on S&P Global Equity Indices. The U.S., Asia Pacific and the developed world-ex-US are also posting substantially higher dividend yields compared to recent years. For reasons that need no explanation, however, investors are reluctant to avail themselves of these higher yields. For comparison, the yield on the benchmark 10-year Treasury Note closed out September 2008 at 3.85%." Why the ECB can't fix Europe 10/09/08   Permlink   Broken Link World "The European Central Bank joined the United States Federal Reserve and other major central banks in cutting key interest rates by half a point on Wednesday in a concerted move to stabilize financial markets and avert recession, but the ECB's power to stem the financial crisis in Europe is limited, economists say." US open: happy anniversary 10/09/08   Permlink   Broken Link Markets "There is still plenty of opportunity for financials to fall. Paulson and the US Treasury are coming under increasing pressure to follow the UK.s lead and recapitalise US banks. Paulson himself has said he thinks more banks will fail. Credit markets are still showing extreme stress. Commercial paper lending still has not normalised and interbank rates continue to widen. The TED and the Libor-OIS spreads are at all-time highs today." Iceland takes over Kaupthing 10/09/08   Permlink   Broken Link World "'It's difficult to find any parallels to what's happening in Iceland in the industrialized world,' Jensen said. 'You'd have to look to emerging markets, and after the Asian crisis, for example, those economies contracted about 10 percent.' The debts of the Icelandic banking system are too big for the government to repay. 'There is no way that the Icelandic population can assume responsibility for the private debt' that the banks have built up, Haarde said yesterday." Central banks cut rates in coordinated move 10/08/08   Permlink   Broken Link Government "The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point. Today's decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937" Fed to purchase U.S. commercial paper 10/07/08   Permlink   Broken Link Government "The Federal Reserve will create a special fund to purchase U.S. commercial paper after the credit crunch threatened to cut off a key source of funding for corporations." 3% days becoming the norm 10/07/08   Permlink   Broken Link Markets "Oh what we all wouldn't give for just a week of sub-1% moves! Over the last month (23 trading days), the S&P 500 has seen 10 days where the index rose or fell (mostly fell) by more than 3%. You have to go all the way back to 1938 to find another one-month period where there were this many 3% days. As shown in the chart below, there were many multi-year periods between 1950 and 2007 where the S&P 500 didn't have even one 3% day. If you're not a regular market participant and someone that is tells you we are experiencing something that hasn't happened since the Great Depression, they're not joking!" Warren E. Buffett braves a crisis 10/06/08   Permlink   Broken Link Buffett "In the midst of a financial crisis, a towering figure of American business steps forward with his reputation and financial resources for public good and personal gain. Their times and personalities are vastly different, of course. But J. Pierpont Morgan's role in the Panic of 1907 has its echo in Warren E. Buffett's actions during the current financial troubles." Is junk a bargain? 10/06/08   Permlink   Broken Link Bonds "The recent selloff has shocked junk investors, who had grown used to monthly returns in a range of negative 1% to positive 2%. Based on some statistical measures, September's 8% drop should have occurred only once in 27,777 years, according to Leverage World, a weekly publication of Garman Research." Pursuit of an edge 10/06/08   Permlink   Broken Link Markets "This particular type of market failure occurs when two conditions are met. First, people confront a gamble that offers a highly probable small gain with only a very small chance of a significant loss. Second, the rewards received by market participants depend strongly on relative performance. These conditions have caused the invisible hand to break down in multiple domains. In unregulated housing markets, for example, there are invariably too many dwellings built on flood plains and in earthquake zones. Similarly, in unregulated labor markets, workers typically face greater health and safety risks. It is no different in unregulated financial markets, where easy credit terms almost always produce an asset bubble." Help wanted: compliance officer 10/04/08   Permlink   Broken Link Crime "In these trying times, it will come as a great relief to many to learn that there will be at least one new hire on Bay Street between now and Christmas (2009). The subject of this post is a little unusual for PrefBlog, but I.m just trying to help out and spread the news of a vacancy. And besides, this is hilarious." Buffett: My fix for the economy 10/03/08   Permlink   Broken Link Buffett "Warren Buffett suggested Thursday that the U.S. Treasury team with private investors to buy the distressed mortgage assets at the center of the controversial $700 billion Wall Street bailout, and said the price tag of the rescue plan may have to rise." Alarm led to action 10/02/08   Permlink   Broken Link Markets "Behind the scenes, the credit markets had almost completely frozen up. Banks were refusing to lend to other banks, and spreads on credit default swaps on financial stocks - the price of insuring against bankruptcy - veered into uncharted waters. Moreover, the drain on money funds continued. By the end of business on Wednesday, institutional investors had withdrawn more than $290 billion from money market funds. In what experts call a 'flight to safety,' investors were taking money out of stocks and bonds and even money market funds and buying the safest investments in the world: Treasury bills. As a result, yields on short-term Treasury bills dropped close to zero. That was almost unheard of." Lehman bankruptcy gets ugly 10/02/08   Permlink   Broken Link Stocks "It's looking like Lehman, contrary to the conventional wisdom, may have been too big to fail after all. And the fallout from the bankruptcy may further undermine investors. confidence in the financial system." This economy does not compute 10/01/08   Permlink   Broken Link Markets "Certainly, markets have internal dynamics. They're self-propelling systems driven in large part by what investors believe other investors believe; participants trade on rumors and gossip, on fears and expectations, and traders speak for good reason of the market's optimism or pessimism. It's these internal dynamics that make it possible for billions to evaporate from portfolios in a few short months just because people suddenly begin remembering that housing values do not always go up. Really understanding what's going on means going beyond equilibrium thinking and getting some insight into the underlying ecology of beliefs and expectations, perceptions and misperceptions, that drive market swings." Buffett buys GE preferred 10/01/08   Permlink   Broken Link Buffett "General Electric Co. plans to offer $12 billion in common shares and billionaire investor Warren Buffett's Berkshire Hathaway Inc. will buy $3 billion stake of preferred shares." Cities are cutting back projects 10/01/08   Permlink   Broken Link Government "Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening." A contrarian gets the last laugh 10/01/08   Permlink   Broken Link Value Investing "Vito Maida says he's lucky. But he could just as easily say, "I told you so." More than four years ago, with stock prices roaring upward and a global real estate boom gaining pace, the Toronto money manager sat down to pen his thoughts on the markets, and realized that his views were out of step with the rest of the financial world." Canada may face housing bust: Shiller 10/01/08   Permlink   Broken Link Real Estate "The Canadian housing market could face a similar housing bust to the United States, particularly in more bubbly markets as Vancouver and Calgary, said Robert Shiller, the Yale University professor who predicted both the 1990s stock market boom and bust and the US housing slump." U.S. home prices declined 16.3% in July 09/30/08   Permlink   Broken Link Real Estate "The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June." Corporate bonds worse than equities 09/29/08   Permlink   Broken Link Bonds "Even though equity markets are down nearly 7% today, the corporate bond market is even worse. Below we highlight a price chart of an ETF that tracks an index of investment grade corporate bonds (LQD). As shown, the ETF is down nearly 10% today!" The 50-100 year storm has arrived 09/29/08   Permlink   Broken Link Markets Keen slides from a Fairfax presentation. U.S. House rejects rescue plan 09/29/08   Permlink   Broken Link Government "The financial-rescue plan intended to restore confidence in the U.S. banking system collapsed in partisan wrangling as the House of Representatives voted down the proposal backed by the Bush administration and congressional leaders of both parties." Lehman's '100% principal protection' means pennies 09/29/08   Permlink   Broken Link Bonds "A brochure pitching $1.84 million of notes sold by Lehman Brothers Holdings Inc. in August, a month before the firm filed for bankruptcy, promised '100 percent principal protection.' Buyers had 'uncapped appreciation potential' pegged to gains in the Standard & Poor's 500 Index, the brochure said. In the worst case, they would get back their $1,000-per-note investment in three years. Only the last in a list of 15 risk factors mentioned the biggest danger: 'An investment in the notes will be subject to the credit risk of Lehman Brothers.' Lehman's Sept. 15 bankruptcy leaves holders of the notes waiting in line with other unsecured creditors for what's left of their money." Citigroup to buy Wachovia banking assets 09/29/08   Permlink   Broken Link Stocks "Citigroup will acquire Wachovia's massive deposit network, as well as over $300 billion worth of Wachovia's loan portfolio and the company's debt. Citigroup said it will absorb up to $42 billion of losses on those loans, while the Federal Deposit Insurance Corporation will be on the hook for anything beyond that." Breakthrough on rescue plan 09/28/08   Permlink   Broken Link Government "Companies that sell debt to the government will issue stock warrants to the government so that taxpayers 'can gain as companies recover' from economic difficulties, Conrad said. " The monster that ate Wall Street 09/28/08   Permlink   Broken Link Derivatives "What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves." Tumult jars bond-tracking ETFs 09/26/08   Permlink   Broken Link Indexing "Exchange-traded funds that track bonds have been running into trouble trading at prices that match their underlying values, raising questions about one of their key promises to investors." Fate of bailout plan remains uncertain 09/25/08   Permlink   Broken Link Government "The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling press conferences and interviews rife with partisan finger-pointing. In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr. literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to 'blow it up' by withdrawing her party's support for the package over what Ms. Pelosi derided as a Republican betrayal. "I didn't know you were Catholic," Ms. Pelosi said, a wry reference to Mr. Paulson's kneeling, according to someone who observed the exchange. She went on: "It's not me blowing this up, it's the Republicans." Mr. Paulson sighed. "I know. I know." It was the very outcome the White House had said it intended to avoid, with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations." Economists urge congress not to rush 09/25/08   Permlink   Broken Link Markets "More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely." JPMorgan buys WaMu's deposits as thrift is seized 09/25/08   Permlink   Broken Link Stocks "The U.S. government closed Seattle-based Washington Mutual amid customer withdrawals of $16.7 billion since Sept. 15, the Office of Thrift Supervision said in a statement. WaMu had 'insufficient liquidity' and was in an 'unsound' condition, the OTS said." Housing costs: Half your income? 09/25/08   Permlink   Broken Link Real Estate "More than 7.5 million homeowners spend at least half of their income on housing; 19 million are above 30%. That's 53% of all homeowners with mortgages. No wonder Americans feel strained." It's the bailout, stupid! 09/25/08   Permlink   Broken Link Buffett "Compared to the ham-handed hastiness in Washington, Warren Buffett's helping hand to Goldman Sachs was an elegant and brilliant stroke for both parties. The greatest investor of our time becomes the largest shareholder of our finest investment bank turned bank holding company." I won't give Goldman my $200 Million lottery win 09/25/08   Permlink   Broken Link Fun "Tomorrow's Europe-wide lottery offers a tax-free, lump-sum jackpot worth about $200 million. When I hand over my winning ticket, though, I will face a dilemma: Where do I stash my luck-gotten gains?" Warren Buffett explains his Goldman investment 09/24/08   Permlink   Broken Link Buffett "Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check." Beware ETNs 09/24/08   Permlink   Broken Link Funds "Perhaps this might be a good time for a story to remind your readers about the difference between an ETN and ETF: an ETN is just a pre-paid forward contract, a form of debt security. There is no underlying basket of assets, unlike mutual funds or ETFs." Beware ETNs, Part 2 09/24/08   Permlink   Broken Link Funds "This alone makes it very dangerous to buy an ETN: you're taking a huge amount of counterparty risk and not being paid for it at all. If this had happened a couple of years ago, I might have suggested a monoline wrap to set investors' fears at rest." Credit traders sowing seeds of destruction 09/24/08   Permlink   Broken Link Markets "The $62 trillion market for credit- default swaps, created to protect banks from loan losses, helped fuel a near-meltdown in the financial system and now may be regulated for the first time." Goldman to raise $7.5 billion from Berkshire 09/23/08   Permlink   Broken Link Buffett "Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its stock." Income 2008 09/23/08   Permlink   Broken Link Stingy Investing "Do you dream of relaxing on a sunny beach, drink in hand, while your investment portfolio throws off piles of cash? That's the life of an income investor. To help you get to that beach as quickly as possible, we have once again ranked the biggest trusts and stocks in Canada based on their ability to put steady streams of cash into your wallet." Retirees need only 60% of working income 09/23/08   Permlink   Broken Link Retirement "The Russell finding is closer to the 50 or 60% replacement ratio that actuary Malcolm Hamilton has often cited, and for similar reasons: "Certain living expenses tend to drop significantly during retirement as most retirees are mortgage-free and no longer incur employment costs such as daily transportation," says Irshaad Ahmad, president and managing director for Russell Canada" Stopping a financial crisis, the Swedish way 09/23/08   Permlink   Broken Link World "A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar? It does to Sweden. The country was so far in the hole in 1992 - after years of imprudent regulation, short-sighted economic policy and the end of its property boom - that its banking system was, for all practical purposes, insolvent. But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing." CEO murdered by mob of sacked Indian workers 09/23/08   Permlink   Broken Link World "Corporate India is in shock after a mob of sacked workers bludgeoned to death the chief executive who had dismissed them from a factory in a suburb of Delhi." A disability epidemic among a railroad's retirees 09/23/08   Permlink   Broken Link Government "Virtually every career employee - as many as 97 percent in one recent year - applies for and gets disability payments soon after retirement, a computer analysis of federal records by The New York Times has found. Since 2000, those records show, about a quarter of a billion dollars in federal disability money has gone to former L.I.R.R. employees, including about 2,000 who retired during that time. The L.I.R.R.'s disability rate suggests it is one of the nation's most dangerous places to work. Yet in four of the last five years, the railroad has won national awards for improving worker safety. 'Short of the gulag, I can't imagine any work force that would have a so-to-speak 90 percent disability attrition rate,' said Glenn Scammel, long one of Capitol Hill's top experts on railroads. 'That defies both logic and experience.'" Hedge fund returns money 09/22/08   Permlink   Broken Link Funds "The best-performing hedge fund manager of the past two years has closed down his funds and is returning money to investors after concluding that the danger of losing money from a bank collapse is too high." Lessons from a 'lost decade' 09/22/08   Permlink   Broken Link Markets "Most dismiss the idea that America could suffer the same fate as Japan, but some of the differences are overstated. For example, some claim that Japan's bubble was much bigger than America's. Yet average house prices nationwide rose by 90% in America between 2000 and 2006, compared with a gain of 51% in Japan between 1985 and early 1991, when Japanese home prices peaked" Oil traders caught in squeeze 09/22/08   Permlink   Broken Link Markets "Crude oil climbed more than $25 a barrel, the biggest gain ever, as traders scrambled to unwind positions on the October contract's last day of trading. The more-active November contract rose $6.62." The day the ticking time bombs went off 09/21/08   Permlink   Broken Link Derivatives "The underlying philosophy behind derivatives sounds terrific. The weak can get rid of risks they can't handle and the financial system should be stronger as a result. In the right hands, derivatives can perform this role. But the general practice is very different, as the great investor Warren Buffett worked out years ago. His 2002 letter to his Berkshire Hathaway shareholders made headlines by condemning derivatives as "financial weapons of mass destruction". They were "time bombs, both for the parties that deal in them and the economic system"." The mortgages of the future 09/21/08   Permlink   Broken Link Real Estate "Mortgages could be structured differently, so that adjustments in payments would be made as a matter of routine - systematically, automatically and continuously - starting even before any distress is perceived by borrower or lender. By avoiding thousands and even millions of individual family crises, we might also make institutional crises, like the collapse of Lehman Brothers and Bear Stearns, less likely." Whitman's glass-half-full take on market 09/21/08   Permlink   Broken Link Whitman "Marty Whitman, the octogenarian dean of deep-value investing, sees great bargains to be snapped up from the current stock market meltdown. "It's a great time," enthused the 83-year-old founder of New York-based Third Avenue Management LLC before speaking yesterday at a conference organized by AIC Ltd. "We can't try to pick the bottom, but it seems to me that there are great values out there now, just like in 1974," the firm's co-chief investment officer said in an interview." Take advantage of the dividend tax credit 09/21/08   Permlink   Broken Link Taxes "It's interesting, but the marginal tax rate on eligible dividends is now lower than the rate on capital gains in most provinces at most income levels. In fact, at lower income levels, the marginal tax rate on eligible dividends is often negative. That is, adding more eligible dividend income to your tax return can actually reduce your overall tax bill. Why? Because the dividend tax credit available will offset not only that dividend income, but the tax on other income as well. British Columbia has the deepest negative marginal tax rate in 2008 at negative 15.55 per cent for the lowest income earners. This means, for example, that if you live in B.C., are in the lowest tax bracket, and you add one dollar of eligible dividend income, you'll actually pay 15.55 cents less in tax than without the dividend. What a bargain." Top-earning pirates 09/21/08   Permlink   Broken Link World "Depletion of fortune due to rum and wenches was not assessed, nor were divisions of treasure among the crew. Plunders were often split in equal shares, with the captain receiving double--not much of a premium for leadership. A good lesson to modern shareholders: The best way to achieve fair compensation and rule out golden parachutes is to have your leaders expecting murderous revolts if they hoard profits." Ban the shorts? A BIG mistake! 09/19/08   Permlink   Broken Link Government "For all the talk of capitalism now being dead given the government's plan to likely assume much of the banking industry's mortgage-related illiquid assets as well as the takeovers of Fannie Mae, Freddie Mac and AIG, the SEC's action is far more ominous for those who believe in free markets." Pain spreads as credit vise grows tighter 09/19/08   Permlink   Broken Link Economy "Lenders of all types had already been raising the bar for borrowers, turning away all but the best customers. This week, they became even less willing to part with their money, further crimping budgets and family spending. An economy propelled by easy credit for more than a decade is fraying as credit disappears. American Express, to take one striking example, is reducing the maximum credit limit for half of its tens of millions of cardholders." John Bogle says U.S. government seems 'punch drunk' 09/19/08   Permlink   Broken Link Bogle "John Bogle, who created the $106 billion Vanguard 500 Index Fund in 1976, said the U.S. government is 'punch drunk' with proposals to rescue the financial system." Mathematicians predicted crash years ago 09/19/08   Permlink   Broken Link Markets "Mandelbrot, 83, contends that portfolio theory, which tries to maximize return for a given level of risk, treats extreme events (like, say, yesterday's market shockers) with 'benign neglect: it regards large market shifts as too unlikely to matter or as impossible to take into account.' The faulty assumption of modern portfolio theorists, in Mandelbrot's view, is that price changes do not drift far from the mean when observing daily ups and downs - so extreme events are exceedingly rare. 'Typhoons, in effect, are defined out of existence,' he wrote." Paulson, Bernanke push new plan 09/19/08   Permlink   Broken Link Markets "U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. " Money markets get a lifeline 09/19/08   Permlink   Broken Link Markets "The Treasury Department and Federal Reserve took steps Friday to help stabilize the U.S. money market fund industry, which has come under severe strain following the dramatic events that took place across the financial system this week. The Treasury said it would guarantee up to $50 billion dollars for the next year for both retail and institutional investors." Short sellers under fire 09/19/08   Permlink   Broken Link Markets "The SEC said today that it will halt short selling of U.S. banks, insurance companies and securities firms through Oct. 2, while the Financial Services Authority in the U.K. banned short sales of financial shares for the rest of the year. " AIG booted out of the Dow 09/18/08   Permlink   Broken Link Markets "Dow Jones & Company, which oversees the 30-stock index, said that Kraft Foods (KFT) will take AIG's place." Russian emergency funding fails to halt stock rout 09/17/08   Permlink   Broken Link World "Russia poured $44 billion into its three largest banks and halted stock trading for a second day in a bid to stem the most severe financial crisis since its devaluation and debt default a decade ago. The Finance Ministry extended the repayment period on loans available to OAO Sberbank, VTB Group and OAO Gazprombank to three months from one week. The benchmark Micex stock index plunged as much as 10 percent, taking its three-day decline to 25 percent, and brokerage KIT Finance said it's in talks with investors to sell a stake after failing to meet some obligations." Counterparty risk and CDSs 09/17/08   Permlink   Broken Link Derivatives "Given the crisis on Wall Street and the focus on American International Group Inc., one of the world's largest insurers, everybody is suddenly talking about counterparty risk. What is counterparty risk, and why is it now an issue? In the simplest terms, counterparty risk is the chance that the person on the other side of a deal - the counterparty - won't be there when it's time to pay up. Take an example most people can relate to: Selling a home. There's always the chance that when it comes time to close the deal a month or so down the road, the buyer won't show up or won't have the money." Global equity market declines 09/17/08   Permlink   Broken Link Markets "There's no doubt about it -- it's bad everywhere" [Falling like a BRIC. China -68.34%, Russia -57.44%, India -36.36%, Brazil -33.04%.] Money market fund says customers could lose money 09/17/08   Permlink   Broken Link Funds "The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested. This is only the second time in history that a money market fund has 'broken the buck' - that is, reported a share.s value was less than a dollar." A map of the limits of statistics 09/16/08   Permlink   Broken Link Taleb "We can identify where the danger zone is located, which I call "the fourth quadrant", and show it on a map with more or less clear boundaries. A map is a useful thing because you know where you are safe and where your knowledge is questionable. So I drew for the Edge readers a tableau showing the boundaries where statistics works well and where it is questionable or unreliable. Now once you identify where the danger zone is, where your knowledge is no longer valid, you can easily make some policy rules: how to conduct yourself in that fourth quadrant; what to avoid." AIG gets up to $85 Billion Fed loan 09/16/08   Permlink   Broken Link Stocks "The U.S. government agreed to lend as much as $85 billion to American International Group Inc. in exchange for a 79.9 percent stake to save the country's biggest insurer from collapse." Steeper drop in Canada's existing home prices 09/15/08   Permlink   Broken Link Real Estate "The average price of a home sold in Canada's major markets dropped 5.1% in August from a year ago, the largest decline in more than 12 years, according to the Canadian Real Estate Association. House prices have dropped for three straight months and it's probably only the beginning, says Benjamin Tal, senior economist with CIBC World Markets." AIG falls 09/15/08   Permlink   Broken Link Stocks "AIG, seeking to raise $20 billion in capital and sell $20 billion of assets, rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. AIG instead sought a $40 billion bridge loan from the Federal Reserve, the New York Times reported, citing an unnamed person. The shares plunged $6.25 to $5.89 at 9:42 a.m. in New York Stock Exchange composite trading. Warrren Buffett, chairman of Berkshire Hathaway Inc., 'is thought to be in talks' with AIG about a possible investment, the Insurance Insider reported today, citing unidentified sources." [It seems likely that Buffett would take a pass on the firm but be willing to buy some of its assets at fire-sale prices.] Lehman files biggest bankruptcy case 09/15/08   Permlink   Broken Link Stocks "Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history. The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990." [So much for the too big to fail idea] Skimming the froth 09/15/08   Permlink   Broken Link Markets "Emerging markets have been subject to some violent downswings in the past and, with the economic health of some countries deteriorating, there is scope for some nasty shocks in terms of corporate profits and bank losses. Long-term investors may be willing to put up with the bad news in the hope of a rebound in 2009 but it seems unlikely that we will be hearing any more safe haven talk for a while." Wall Street banks teeter 09/15/08   Permlink   Broken Link Stocks "In one of the most dramatic days in Wall Street.s history, Merrill Lynch agreed to sell itself to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, hurtled toward liquidation after it failed to find a buyer. The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments. But even as the fates of Lehman and Merrill hung in the balance Sunday night, another crisis loomed as the insurance giant American International Group appeared to teeter. A.I.G. sought a $40 billion lifeline from the Federal Reserve, without which the company may have only days to survive." Bank of America said to buy Merrill 09/14/08   Permlink   Broken Link Stocks "Bank of America Corp. reached a deal to acquire Merrill Lynch & Co. for about $44 billion, the Wall Street Journal reported, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week and smaller rival Lehman Brothers Holdings Inc. neared bankruptcy." Lehman said to prepare bankruptcy filing 09/14/08   Permlink   Broken Link Stocks "Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation. Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm's plans. A final decision still wasn't made, though none of the other options being considered appeared to have much standing, the person said, declining to be identified because the discussions haven't been made public." Value and momentum everywhere 09/13/08   Permlink   Broken Link Academia "We study jointly the returns to value and momentum strategies for individual stocks within countries, stock indices across countries, government bonds across countries, currencies, and commodities. Value and momentum generate abnormal returns everywhere we look. Exploring their common factor structure across asset classes, we find that value (momentum) in one asset class is positively correlated with value (momentum) in other asset classes, and value and momentum are negatively correlated within and across asset classes. Long-run consumption risk is positively linked to both value and momentum, as is global recession risk to a lesser extent, while global liquidity risk is related positively to value and negatively to momentum. These patterns emerge from the power of examining value and momentum everywhere at once and are not easily detectable when examining each asset class in isolation." Florida's big insurance problem 09/13/08   Permlink   Broken Link Government "When Hurricane Ike took a left on Sept. 8, heading away from Florida, locals breathed a sigh of relief. Not only are their homes on the line with each burst of violent weather but their pocketbooks are increasingly at risk, too. Over the past four years, Florida taxpayers' vulnerability to a major weather catastrophe has grown. The quasi-governmental company that was conceived as an insurer of last resort, Citizens Property Insurance, has become Florida's top underwriter of homeowners' insurance. Citizens now has more than $433 billion of property exposure on its books, and Florida has exacerbated that risk by getting into the reinsurance business as well." Paulson, Bernanke resisting aid for Lehman 09/13/08   Permlink   Broken Link Government "Henry Paulson and Ben S. Bernanke may have to weather more speculative attacks on financial institutions as they resist using public funds to aid the sale of Lehman Brothers Holdings Inc." Hurricane Ike may cost insurers up to $18 Billion 09/13/08   Permlink   Broken Link Disaster "Ike may cause $8 billion to $18 billion in insured losses on land as it moves from coastal Galveston to Houston and further inland, the Oakland, California-based firm said in an e- mailed statement today. Disruption to energy production is 'not expected to be extensive,' the firm said. Flagstone Reinsurance Holdings Ltd., the Bermuda-based insurer, predicted damage of $10 billion to $16 billion industrywide." Warren Buffett's happy housing story 09/11/08   Permlink   Broken Link Buffett "Not every subprime lender is drowning in red ink. Berkshire Hathaway subsidiary Clayton Homes, the nation's largest maker and financer of prefab and mobile homes, has been a bright light in a mortgage market that has generated $500 billion in write-downs since the start of 2007." Ways to gauge value 09/10/08   Permlink   Broken Link Value Investing "It's what every analyst likes to cite and probably the most widely used tool on Wall Street. But the price/earnings ratio, or P/E, of a stock might not be the perfect gauge of its value, especially now." Retailers reprogram workers 09/10/08   Permlink   Broken Link Management "Retailers have a new tool to turn up the heat on their salespeople: computer programs that dictate which employees should work when, and for how long." Thinking long term about the equity premium 09/10/08   Permlink   Broken Link Markets "The equity premium has been that large because people were extremely unsure how compelling global events would play out - at the time those events were occurring. Try to appreciate the incredible uncertainty associated with two World Wars, the Great Depression and the Cold War." What your global neighbors are buying 09/08/08   Permlink   Broken Link World "How people spend their discretionary income - the cash that goes to clothing, electronics, recreation, household goods, alcohol - depends a lot on where they live. People in Greece spend almost 13 times more money on clothing as they do on electronics. People living in Japan spend more on recreation than they do on clothing, electronics and household goods combined. Americans spend a lot of money on everything." American savers have drawn the short straw 09/08/08   Permlink   Broken Link Thrift "American savers, take a bow. This is your moment of vindication. Your hour of glory. And you earned it (in a manner of speaking). You resisted the siren call of plastic teaser APRs, dutifully living within your means to store money for a rainy day. You never took out an interest-only mortgage. Never had to pawn the copper pipes from your exurban McMansion to pay the reset on your liar loan. Your credit score would have gotten you into Harvard at age 12. Good for you! Your reward: injurious savings yields, inflationary rot, and election-season neglect, all served up with a dollop of institutional insecurity." Fannie, Freddie credit-default swaps 09/08/08   Permlink   Broken Link Markets "Investors may be forced to unwind contracts protecting $1.47 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. government seized control of the companies in a bid to bolster the housing market. Thirteen 'major' dealers of credit-default swaps agreed 'unanimously' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today." International exposure has never hurt so bad 09/07/08   Permlink   Broken Link Markets "The declines recently in global equity markets have really been astounding. Japan, Spain, Brazil, India, Italy, South Korea, Singapore, Sweden, Taiwan, and Hong Kong all join China and Russia with equity markets off at least 30% from their 52-week highs. North American countries rank 1,2,3 as far as countries holding up the best. International exposure has never hurt so bad." Long-Term Capital: It's a short-term memory 09/07/08   Permlink   Broken Link Markets "A financial firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out. The firm isn't Bear Stearns - it was Long-Term Capital Management, the hedge fund based in Greenwich, Conn., and the rescue occurred 10 years ago this month." Student tax planning can save a bundle 09/07/08   Permlink   Broken Link Taxes "So, if you've got a child heading off to postsecondary school this year, congratulations, I expect your child will make smarter decisions. And there are some smart decisions related to your child's tax planning that can help too. Let me share some of those today." U.S. takeover of Fannie, Freddie 09/07/08   Permlink   Broken Link Markets "Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on the initial investments. As a condition for the assistance, Fannie and Freddie will have to reduce their holdings of mortgages and securities backed by home loans. The portfolios 'shall not exceed $850 billion as of December 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion,' the Treasury said." Mad TV - Free Credit Card 09/06/08   Permlink   Broken Link Fun A skit on the perils of credit from Mad TV The 65 mpg Ford the U.S. can't have 09/05/08   Permlink   Broken Link World "If ever there was a car made for the times, this would seem to be it: a sporty subcompact that seats five, offers a navigation system, and gets a whopping 65 miles to the gallon. Oh yes, and the car is made by Ford Motor (F), known widely for lumbering gas hogs." Your dog's bite could bankrupt you 09/04/08   Permlink   Broken Link Law "But all dog owners need to understand their potential liability should their animal bite, maul or, heaven forbid, kill someone. A single bite could cost you tens of thousands of dollars -- a lawsuit hundreds of thousands -- and your insurance coverage might not apply. If the attack is especially serious, you could even go to jail." Buffett becomes vulture 09/02/08   Permlink   Broken Link Buffett "Ron Peltier runs HomeServices of America Inc., the second-largest U.S. real estate brokerage, and unlike No. 1 NRT Inc., his company is making money in the worst housing slump since the Great Depression. HomeServices also has a parent, Warren Buffett's Berkshire Hathaway Inc., with $28 billion of cash to help finance the purchase of brokerages that can't weather the housing recession. By contrast, NRT's parent Realogy Corp., owned by Leon Black's Apollo Management LP, has at least $875 million of debt that has an 89 percent chance of defaulting within five years, credit-default swaps tracked by London-based CMA DataVision indicate." 10 questions for John Dorfman 09/02/08   Permlink   Broken Link Dorfman "The Robot screen contains low P/E outliers. It calls our attention to some of the very cheapest stocks in the market, in the bottom percentile of price/earnings ratios. It screens out stocks that have excessive debt. From this screen we recently bought Om Group (OMG), the largest U.S. dealer in cobalt. It also deals in metal powers. The stock is selling for less than book value and less than six times earnings. We also bought some Cal-Maine Foods (CALM). It produces and sells eggs. Now that some of the crazier diet fads seem to be receding, I figure that eggs can rebound a little bit as part of a well-rounded diet for most Americans. The stock sells for 6 times earnings." Buffett's best man 09/02/08   Permlink   Broken Link Munger "Munger, 84 and blind in one eye, walks stiffly to the stage. A prestigious physics professor waits to interview him, but once the lanky, thick-bespectacled guest starts blaspheming some favorite targets, the prof rarely gets a word in edgewise. Munger's topic du jour is the spiraling credit crisis: He flings vitriol at bankers, saying they've been selling investors "a hapless mess of super-complexity." The accounting profession has "disgraced itself" with its lax standards, and so has academia. "The idea that we need derivatives is just so much twaddle," he says. Yet despite all this inanity and skullduggery, Munger still sees the investing world as a place where common sense can triumph -- if only because "it isn't so common."" The death of the credit card economy 09/01/08   Permlink   Broken Link Debt "The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a "borrow and buy" economy to the "cash and carry" model of our grandparents." Is debt your destiny? 08/31/08   Permlink   Broken Link Debt "Credit changes the way we spend and think. If you're broke, research shows, there's a good chance you'll stay that way a long time. But there are ways to fight the pattern." Financial advisers vs. academia 08/29/08   Permlink   Broken Link Brokers "Do investors need financial advisers? Not according to some university professors and other researchers. Financial advisers say they have the expertise to guide investors to better results and can keep them from making mistakes such as under-diversifying, chasing hot funds/stocks, and selling out at the bottom of a bear market. However, empirical studies carried out by academics find otherwise. Let's take a look at three." A nightmare on Wall Street 08/29/08   Permlink   Broken Link Markets "Like a Hollywood monster that is impervious to bullets, the credit crisis refuses to lie down and die. The authorities have bombarded it with interest-rate reductions, tax cuts, special liquidity schemes and bank bail-outs, but still the creature lumbers forward, threatening new victims with every step. Global stockmarkets are suffering double-digit losses this year, and credit markets are once again gummed up." September: The horror story 08/29/08   Permlink   Broken Link Markets "The Dow during the average September has lost 1.13%, which compares to an average gain among all other months over the last 112 years of 0.75%. That works out to an average spread between September and all others months of 1.88 percentage points per month -- which is impressively large. Nor is September's awful record the result of just a few years in the sample. The pattern in fact is remarkably consistent: September was among the worst performing months in all but one of the decades of the 20th century. Only between 1911 and 1920 was its performance above par, when its average performance for the decade came in second." The Halloween effect in US sectors 08/28/08   Permlink   Broken Link Academia "All US stock market sectors and industries perform better during winter than during summer in our sample from 1926-2005. In more than two-third of all sectors and industries this difference in summer and winter returns, known as the Halloween effect, is statistically significant and in half of all sectors and industries risk premia are negative during summer. However, while all sectors and industries show this effect, there are large differences across sectors and industries. The effect is almost absent in sectors related to consumer consumption but strong in production sectors." There's more to the story than dividend yield 08/27/08   Permlink   Broken Link Dividends "There are two ways a company returns capital to shareholders: dividends and share buybacks. True yield measures the dividend yield, adjusted for any growth or shrinkage in the number of shares outstanding." Real national prices decline to Q4 2002 levels 08/27/08   Permlink   Broken Link Real Estate "In real terms, the Case-Shiller National Home price index is off 25% from the peak. Real prices are now back to the Q4 2002 level (nominal prices are back to mid-2004)." Consumers as accurate as economists 08/27/08   Permlink   Broken Link Economics "Thomas and Alan Grant of Baker University in Kansas analyzed surveys of U.S. and Australian consumers collected from 1978 through 2005. For the U.S. data they used the Michigan Survey, which involves monthly telephone interviews with 500 households. The U.S. respondents were asked several questions, including how much prices will go up or down in the next 12 months. On average, the consumers predicted inflation rates that were off by 1.1 percentage points. The researchers compared the results with those found with the Livingston Survey of professional economists, finding a similar error in predictions." An active value strategy in disguise 08/27/08   Permlink   Broken Link Indexing "In this paper we critically examine the novel concept of fundamental indexation. We argue that fundamental indexation is by definition nothing more than an (elegant) value strategy, because the weights of stocks in a fundamental index and a market capitalization-weighted index only differ as a result of differences in valuation ratios. Moreover, fundamental indices more resemble active investment strategies than classic passive indices, because (i) they appear to be at odds with market equilibrium, (ii) they do not represent a buy-and-hold strategy and (iii) they require several subjective choices. Last but not least, because fundamental indices are primarily designed for simplicity and appeal, they are unlikely to be the most efficient way of benefiting from the value premium. Compared to more sophisticated, multi-factor quantitative strategies, fundamental indexation is likely to be an even more inferior proposition." These Olympics are unreal 08/25/08   Permlink   Broken Link Fun "These Olympics are unreal. And that's not a good thing exactly how we planned it." Wise investing: no substitute for saving 08/25/08   Permlink   Broken Link Thrift "The problem is that while the financial-services industry is very good at marketing and selling investment products, it's very bad at marketing and selling thrift, and living within one's means. After all, the only thing which is marketed more aggressively than investments is credit products. But if you want a financially comfortable retirement, the first best and pretty much only thing you need to do is save a lot of money while you're working." The backstory on the Buffett book 08/25/08   Permlink   Broken Link Buffett "One of the most anticipated books of the fall is "The Snowball: Warren Buffett and the Business of Life." The title's publisher, Bantam, paid $7.2 million for the North American rights and expects to sell more than 1 million hardcover copies of "The Snowball," which is due out Sept. 29. Few investors have generated as much sustained public interest as Mr. Buffett, one of the world's richest men, with a fortune estimated as high as $62 billion. R.R. Bowker's Books in Print says there are an estimated 60 titles in print about him, with more than a dozen new ones on tap this year. Now Bantam is about to find out whether there's a limit to Buffetmania." The giant pool of money 08/23/08   Permlink   Broken Link Markets "A special program about the housing crisis produced in a special collaboration with NPR News. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall Street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money." Dazzling dandelions foment new commodities craze 08/22/08   Permlink   Broken Link Fun "Commodities speculators have a new darling: dandelions. Each day brings a new Wall Street report touting dandelion leaves and flowers for use as both feed for livestock and fuel for vehicles." [Drink some dandelion wine while soaking in the silliness.] Three hours with Warren Buffett 08/22/08   Permlink   Broken Link Buffett "I think I said one time that, you know, you only find out who's been swimming naked when the tide goes out. Well, we found out that Wall Street has been kind of a nudist beach. There's--it's just one discovery after another of firms that either didn't know what they were doing or that did things that they shouldn't have knowingly. And all of the troubles have not been revealed the first time around, usually, so there's considerable disillusionment that's set in in terms of are these guys telling us the truth now or maybe they just don't know what the truth is." Clouds gather again over the Pampas 08/22/08   Permlink   Broken Link World "At 55% of GDP, Argentina's public debt is still large. But the cost of servicing it has been low, partly because of the tough restructuring Mr Kirchner imposed on bondholders. Even so, to service its debts, the government needs to find an extra $2.5 billion or so next year. It cannot tap the international capital markets, because it has still not settled with some bondholders nor its sovereign creditors in the Paris Club. Instead, it is relying on Hugo Chavez. This month Venezuela's president bought another $1 billion in Argentine bonds (taking his total purchases to $7 billion). The latest bonds pay interest of 15% - the same rate agreed by Domingo Cavallo, a former finance minister, in a notorious bond swap in 2001 on the eve of the collapse." Investor timing and fund distribution channels 08/21/08   Permlink   Broken Link Academia "This study examines the investment timing performance of equity mutual fund investors and its relationship to the distribution arrangement of the fund. We find that investors who transact through investment professionals using conventional distribution arrangements experience substantially poorer timing performance than investors who purchase pure no-load funds. Investors in all three principal load-carrying retail share classes (A, B, and C) significantly underperform a buy-and-hold strategy. Among all load funds, Class B investors suffer from the poorest cash flow timing, underperforming a buy-and-hold strategy by 2.28% annually, compared with annual underperformance of 0.78% for investors in pure no-load funds. No-load index funds are the only funds found to show no evidence of poor investor timing. Although investors are ultimately responsible for their own investment choices, these findings question the value being added by investment professionals who sell mutual fund shares through conventional distribution arrangements." Timing errors affect performance 08/21/08   Permlink   Broken Link Hallett "treat your investments like a bar of soap; the more you touch them, the smaller they get. This saying is so true. In practice, I've rarely found any need to make many changes more often than every two years. Advisors who can't resist the itch to rejig client portfolios should at least keep a running score of how their 'new' advice fares against the 'old,' unchanged portfolio in subsequent years. If the changes detract from performance more often than not, this should be kept in mind the next time the itch to switch returns." Rebundling Passive Performance 08/19/08   Permlink   Broken Link Stingy Investing "Advisors using actively managed funds have taken a beating from index-fund advisors in the popular press over the issue of fees. But the argument for indexing is usually made by relying on raw index returns and usually targets investors who don't want advice. The case for indexing is substantially weaker when all of the costs associated with advice on passive portfolios are added up." Running a hedge fund is harder than it looks 08/19/08   Permlink   Broken Link Funds "Do you remember a time, only a short while ago, when virtually anybody could start a hedge fund? It seemed so easy: billions of dollars were being thrown around like confetti, even at first-time managers. You could make money with your eyes closed. Or so it seemed." The key to happiness is freedom not income 08/19/08   Permlink   Broken Link World "Off and on, usually provoked by the release of a new study, the media will turn to the question of happiness and incomes. While the Wall Street Journal has exhibited a tendency to tout research that shows that the rich are happier, the results are far less clear-cut. Once a certain income level has been reached (typically, enough to provide for a middle class standard of living in that society and allow one to accumulate a cushion for emergencies) more money does not produce much if any gains in happiness. And some findings have been under-reported in the US. For instance, while some studies have found that being in the top income group or having high educational attainment is correlated with higher levels of happiness, living in socially stratified societies leads to less satisfaction across all groups. And remember, Nigeria, hardly a bastion of wealth, has scored as the happiest country in a multi-year international survey. An article today in the Financial Times suggests that researchers may have been looking at the wrong axis in looking for a strong correlation between income and happiness. Roberto Foa (a researcher in the same international survey mentioned above) contends that freedom is a far more important factor than economic attainment." A glossary of incompetence 08/19/08   Permlink   Broken Link Fun "The "Peter Principle" states that "in a hierarchy, every employee tends to rise to his level of incompetence; the cream rises until it sours." People who show competence are promoted whether or not they are qualified to perform competently at the next level. Eventually they go beyond their limits, become incompetent, and stop getting promoted. Macbeth, a success as a military commander, rose to become an incompetent king. Which is to say, "nothing fails like success."" [An oldie but a goodie.] Two years inside the cauldron of capitalism 08/19/08   Permlink   Broken Link Education "The weirdest and creepiest episode is when a student writes to the entire school, confessing to a 'regrettable property-damage incident', a gorgeous euphemism for urinating against a neighbouring student's door. 'His behaviour had made him realise he still had work to do figuring out exactly who he was.' Ye-es . . . or maybe he should just resolve not to pee against people.s doors in future. Even more creepily, Delves Broughton finds that he no longer responds to such tosh with a healthy snort of laughter. 'It was serious, right? Leadership. Core values. Transformation. Being true to oneself.' It takes his wife - his American wife - to inject some common sense. 'These people are freaks..'" Court upholds ABCP plan 08/18/08   Permlink   Broken Link Markets "Investors whose funds have been locked up for more than a year in frozen asset-backed commercial paper may get their money back within as little as two months after an appeal court ruled a $32-billion restructuring plan is fair and legal." Abnormal returns from the U.S. senate 08/18/08   Permlink   Broken Link Government "The actions of the federal government can have a profound impact on financial markets. As prominent participants in the government decision making process, U.S. Senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993--1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive." Another inconvenient truth 08/17/08   Permlink   Broken Link Debt "America's infamous debt clock, near New York.s Times Square, was switched off in 2000 after the national burden started to fall thanks to several years of Clinton-era budget restraint. However, it was reactivated two years later as the politically motivated urge to splurge once again took over. The debt has since swollen to $9.5 trillion, with the value of unfunded public promises (if you include entitlements such as Social Security and Medicare) nudging $53 trillion.or $175,000 for every American.and rising. On current trends, these will amount to some 240% of GDP by 2040, up from a just-about-manageable 65% today." Opening the door to savings 08/17/08   Permlink   Broken Link Cestnick "I'm commonly asked: "Now that I'm married, what tax benefits exist?" The fact is, having a spouse can come with some tax opportunities. And by the way, a spouse under Canadian tax law includes a common-law partner (same sex or not) that you've been living with in a conjugal relationship for 12 months or more. So, when I use the term "spouse" today, I'm referring to legally married couples, or those common-law partners I just mentioned. While there will be other ideas, the following are six of the key opportunities available to spouses." Foreclosure fallout: Houses go for a $1 08/14/08   Permlink   Broken Link Real Estate "So desperate was the bank owner of 8111 Traverse Street to unload the property that it agreed to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer's closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000." Longleaf Partners Q2 2008 letter 08/14/08   Permlink   Broken Link Value Investing "We do not know how long economic uncertainty and shareholder fear will last. Bear markets do not die of old age. The mispricing, however, is providing the opportunity to own high quality companies with terrific five year outlooks that imply high long-term IRRs. We are aggressively adding personal capital to the Funds and encourage our partners to do the same. Given that bullish sentiment is at its lowest level in 14 years and that some are recommending exiting equities altogether, there is plenty of panic in the air. Historically, the best time to invest has been when owning stocks has felt the worst." Third Avenue Q3 2008 letter 08/14/08   Permlink   Broken Link Whitman "Distress securities seem to be trading at ultra attractive prices. Discounts have widened appreciably for the common stocks of very well-capitalized companies where the common stocks trade at meaningful discounts from readily ascertainable net asset values ('NAVs'); and where the prospects appear good that over the next five years, such NAVs will increase by not less than 10% per annum compounded. Admittedly, near-term outlooks are generally poor. But, TAVF focuses not on the near-term outlook, but on buying what is 'safe and cheap'. I have the unique perspective of being a distressed investor for many decades, and safe and cheap on a long-term basis seems to be about as attractive as it was in the 1970s." The wisdom of crowds? 08/13/08   Permlink   Broken Link Markets "When people discover that I am an economist, they rarely ask me for my views on subjects that economists know a bit about - such as how to respond to climate change or pay less at a supermarket. Instead, they ask me what will happen to the economy. Why is it that people won't take "I don't really know" for an answer? People often chuckle about the forecasting skills of economists, but after the snickers die down, they keep demanding more forecasts. Is there any reason to believe that economists can deliver?" One third owe more than house is worth 08/12/08   Permlink   Broken Link Real Estate "Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.com, an Internet provider of home valuations." Value stock losers Buffett, Miller poised as winners 08/11/08   Permlink   Broken Link Value Investing "The five prior times since 1952 that growth beat value two years in a row, the latter group recovered and won by 17 percentage points annually on average for seven years, the data from Societe Generale show. Cheap stocks are becoming more attractive because of tumbling commodity shares, which had led the five-year bull market that ended in October, according to Societe Generale's James Montier" Bankrupt retailers: pushed to the brink 08/11/08   Permlink   Broken Link Law "All filers are covered by the new bankruptcy law, but the changes were particularly harsh on retailers. For companies that already are short of cash - and, in the current environment, unlikely to find new financing - these new provisions in the law can amount to a death sentence. "Liquidity is sucked out of the debtor in a way that it becomes hard to survive," says Lawrence Gottlieb, chair of the bankruptcy and restructuring practice at New York law firm Cooley Godward Kronish, who has represented creditors' committees in the bankruptcies of Sharper Image and Linens 'n Things." Why Generation Y is broke 08/09/08   Permlink   Broken Link Thrift "Today, people in their 20s and 30s are more educated than ever before. Some 85% of those aged 25 and older hold a high school diploma, and 27% have a college degree. This generation of adults is also, of course, the most technologically sophisticated to date, with about half using cell phones for text messaging and 90% on e-mail. And yet stats indicate our generation's financial literacy is abysmal, with personal finances to match. Only 52% of high school seniors passed a recent national financial literacy test, meaning adults entering the work force do not know enough about basic budgeting, interest rates or taxes to make sound decisions for their own lives." Perceptions about income influence lottery purchases 08/09/08   Permlink   Broken Link Behaviour "Do you feel poor ... or at least a lot poorer than your friends and neighbors or the people you pass on the street? Then be careful. There is evidence that this feeling will cause you to do ridiculous things with your money and perhaps undermine your opportunity to eventually become richer. You might even throw your money away on the lottery." CanWest woes may force Fairfax's hand 08/09/08   Permlink   Broken Link Value Investing "Fairfax Financial Holdings Ltd. has made a name as a patient, deep-value investor in the mould of Warren Buffett's Berkshire Hathaway Inc., so the company has been surprised to find itself cast lately in the role of an activist player." Robert Tattersall 08/09/08   Permlink   Broken Link Value Investing "If you can tolerate double-digit losses like the ones we've seen recently, veteran fund manager Robert Tattersall suggests picking up a classic book on value investing and then just sitting tight. " Value funds may be poised for comeback 08/09/08   Permlink   Broken Link Value Investing "There's an old chestnut about value investors that says they're never wrong, they're just early. Unfortunately for the professional ones, when you run a mutual fund that gets marked to market every day though, it doesn't really matter. If you're early, you're wrong, and if you're wrong, you get redeemed as investors chase performance like a dog chases a rolling Frisbee." Transfers can come with tax surprises 08/09/08   Permlink   Broken Link Taxes "Be aware that you'll be subject to the U.S. estate tax as any U.S. citizen if you're considered "domiciled" in the United States. Simply residing in the U.S. doesn't make you "domiciled" there. Domicile is a concept that involves an intention to permanently reside south of the border. And so, it seems that domicile is something to be avoided. Perhaps - but only if careful planning is undertaken before your transfer, because not being domiciled in the United States can lead to tax problems too. Let me explain." The plight of the value investor 08/09/08   Permlink   Broken Link Miller "This is a tough time to be a value investor. The value philosophy tries to outsmart the stock market by investing in companies that are deemed undervalued, often trading at a low multiple relative to earnings. It was developed by Benjamin Graham and championed by Berkshire Hathaway's (BRK.A) Warren Buffett" Manulife shows Mawer love 08/07/08   Permlink   Broken Link Funds "Mawer is that rarity in the mutual fund industry, a company that does everything well, whether it be Canadian equity, U.S. and international equity, balanced or bond funds. You've probably never heard of Mawer, but Manulife certainly has. Just recently, it introduced a new lineup of Mawer-managed funds that are sold by Manulife agents. Announcements like this aren't rare in the fund industry. Many insurers strike deals in which they stick their names on funds run by smart outside firms. What's different here is the marketing fuss that Manulife is making over its new lineup of Mawer funds. You'd almost think Warren Buffet himself was on board." 'Stealth' housing bailout 08/06/08   Permlink   Broken Link Real Estate "The numbers are staggering and likely to get much larger. What we have here is, through a variety of programs, a stealth bailout where more than a trillion dollars of taxpayer guarantees have been extended to the housing market, both to keep it going and to clean up the mess from the past." Do economists need brains? 08/05/08   Permlink   Broken Link Economics "These new neuroeconomists saw that it might be possible to move economics away from its simplified model of rational, self-interested, utility-maximising decision-making. Instead of hypothesising about Homo economicus, they could base their research on what actually goes on inside the head of Homo sapiens. The dismal science had already been edging in that direction thanks to behavioural economics. Since the 1980s researchers in this branch of the discipline had used insights from psychology to develop more 'realistic' models of individual decision-making, in which people often did things that were not in their best interests. But neuroeconomics had the potential, some believed, to go further and to embed economics in the chemical processes taking place in the brain." Patient Capital Q2 2008 08/04/08   Permlink   Broken Link Value Investing "As we had hoped these investor fears have provided us with some investment opportunities. Indeed we have invested some of our capital in what we believe to be very strong companies that offer the potential for excellent long [term] returns." U.S. turns away from decades of deregulation 08/01/08   Permlink   Broken Link Government "The housing and financial crisis convulsing the U.S. is powering a new wave of government regulation of business and the economy. Federal and state governments alike are increasingly hands-on in their effort to deal with failing businesses, plunging house prices, worthless mortgages and soaring energy prices. The steps add up to a major challenge to the movement toward deregulation that has defined American governance for much of the past quarter-century since the "Reagan Revolution" of the early 1980s. In fact, some proponents today of a bigger oversight role for government are Republican heirs to the legacy of President Reagan." Sometimes even I will go with the flow 07/31/08   Permlink   Broken Link Markets "One such process suggested itself a few months back in the ABN Amro Global Investment Returns Yearbook for 2008, written by Paul Marsh, Elroy Dimson and Mike Staunton. It contains a fascinating chapter on momentum in the stock market. The conclusion was that buying momentum stocks is a rather sensible strategy, not the work of a raving madman determined to lose all his wealth." From good to great ... to below average 07/31/08   Permlink   Broken Link Management "Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the 'good to great' companies looks like it would have underperformed the S&P 500." Legg Mason Q2 letter 07/30/08   Permlink   Broken Link Miller "A group of us were standing around a few weeks ago when Warren Buffett wandered over. Chris Davis had dubbed us the Value Support Group, as we all adhered to that approach to investing. We were commiserating over how badly we had done in this market, how valuation appeared not to matter and had not for the past couple of years, how it was all about momentum and trend, and how we were all losing clients and assets over and above our losses in the market. It seemed like we needed a 12-step program to cure us of our addiction to buying beaten-up stocks trading at large discounts to our assessment of their intrinsic value." How can the New York Times be worth so little? 07/30/08   Permlink   Broken Link Stocks "At its current $12.48 stock price - down 46.3% from a year ago - Times Co. has a $1.79 billion market cap. To put this in perspective, CBS recently acquired tech publisher CNET, a much weaker media brand, for $1.8 billion. Add in the company's $1.1 billion of debt, subtract $42 million for its cash on hand, and the company's total enterprise value - a valuation measure that totals up those items in such a fashion - is just $2.85 billion." Selling the family jewels 07/30/08   Permlink   Broken Link Stocks "Selling heirloom assets is frequently a last-ditch alternative. In instances in which assets have appreciated massively (such as SunTrust's Coca-Cola stock or Merrill's stake in Bloomberg), the sales can generate hefty tax bills. Such moves are also recognitions that management has screwed things up so royally in the core business that it has no alternative but to sell the remaining assets that the market still likes. But in this climate, many banks may find they don't have a choice." Sell-side analysts more accurate than buy-side 07/29/08   Permlink   Broken Link Markets "Investors rarely have access to the buy-side analyst reports of institutional investors, and according to a new study by a trio of Harvard Business School researchers, they likely aren't missing much. The study finds buy-side analysts are more optimistic and less accurate than their sell-side counterparts, who freely distribute their recommendations." Fairfax Financial beats bad markets 07/28/08   Permlink   Broken Link Value Investing "Prem Watsa, Chair of insurance conglomerate Fairfax Financial Holdings Ltd., began to worry about a credit meltdown a few years ago. So he and his investment team devised a defensive strategy. Today, Fairfax is in great shape financially, despite lousy markets. The company has even defied gravity and two weeks ago its credit was upgraded. This reflected its stellar investment performance on its US$19.8 billion investment portfolio, good operations at its underlying insurance companies and a jump in shareholders. equity from US$2.856 billion in 2006 to US$4.8 billion today." Financial education unlikely to be of any help 07/28/08   Permlink   Broken Link Education "Teaching people how to manage their money is unlikely to make them any better off, research by the financial regulator reveals. As Britons struggle to adjust to rising inflation, higher borrowing costs and general economic uncertainty, it has emerged that there is little evidence that the millions poured into financial education programmes are of any help." Bear market opportunities 07/28/08   Permlink   Broken Link Dreman "Should you flee the market, given all this? It's a tough call, but I wouldn't. For one thing, the Administration and Congress can play a much larger role in alleviating the liquidity crisis than they have up to now. This being an election year, I have a strong feeling we'll see considerably more help from them in the next few months. Most likely the Fed will eventually move to fight inflation. Raising rates usually hurts the markets at first, but over time stocks have been one of the best inflation hedges you can find. In these circumstances, I wouldn't try to be too clever. You don't see market timers who own yachts. If you pack up now, chances are you'll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one, when market-timing investors are still on the sidelines." How to leave your wife 07/28/08   Permlink   Broken Link Thrift "If your marriage is crumbling, you need to pay attention to money matters -- or suffer harsh consequences. Here's what to do, men." [A link to a similar article for women is provided near the top of this article. But thrifty couples will work hard to avoid divorce.] Can a family eat on $100 a week? 07/27/08   Permlink   Broken Link Thrift "Did we make it? First, let's say that any reduction in my grocery bill was welcome, as most weeks we spend nearly $250 at a grocery store. That's well above the $182 budget the U.S. government considers "moderate" for a family of our size and ages. Spending less than half what we normally do was tough. A $100 budget gave us $1.19 a meal per person, obviously not enough for dinners or coffees out and barely enough to put decent meat on our plates." The Big Mac index 07/27/08   Permlink   Broken Link World "Many of the currencies in the Fed's major-currency index, including the euro, the British pound, Swiss franc and Canadian dollar, are overvalued and trading higher than last year's burger benchmark. Only the Japanese yen could be considered a snip. The dollar still buys a lot of burger in the rest of Asia too. China's currency is among the most undervalued, but a little bit less so than a year ago." Lawyer finds gaping hole in securities law 07/26/08   Permlink   Broken Link Law ""Allowing a member to resign and therefore escape sanction for improper acts committed while a member of a [self-regulatory organization] can hardly be said to protect investors. ... Certainly, the public would have less confidence in capital markets where sanctions for misconduct could be avoided by a simple letter of resignation," Judge Carnwath wrote." SEC plans to broaden curbs on short sales 07/26/08   Permlink   Broken Link Markets "The top U.S. securities regulator remains steadfast in a plan to broaden an emergency rule to curb abusive short selling despite opposition from the hedge fund industry and other short sellers. U.S. Securities and Exchange Commission Chairman Christopher Cox told lawmakers Thursday the agency would soon propose expanding the rule covering the shares of 19 major financial firms to the entire market." Shortsighted naked-short solution 07/26/08   Permlink   Broken Link Markets "The latest Wall Street cesspool is the short-selling arena, where greedy hedge funds, beleaguered investment and commercial banks and an incompetent regulator--the Securities and Exchange Commission--have made bollocks out of a crucial arena of the markets." Selling your cottage needn't be so taxing 07/25/08   Permlink   Broken Link Taxes "Let's assume that James now owns the cottage. He could shelter the cottage from tax by designating it as his PR for the years prior to 1982. For years after 1981, only one exemption is available and the couple would designate the cottage for those years. The result is twofold: There is no tax to pay on the sale of the cottage this year since it has been designated as a PR for every year it was owned. Further, Kate has not yet designated a property as her PR for the years prior to 1982. She could designate the Oakville home for those years. The result? We've now sheltered part of the eventual gain on the Oakville home as well." Dividends more reliable than share price rises 07/25/08   Permlink   Broken Link Dividends "Growth in dividend payments is far more reliable than rises in share prices, according to analysis by Fidelity International. The research found that dividend payments from the UK market have shown an annual increase in all but five years since the beginning of 1965." Fill up on pre-poll bargains 07/24/08   Permlink   Broken Link Markets "A point few fully recognise - one I've never seen mentioned anywhere - is the robust historical anomaly of US stocks outperforming non-US stocks in the few months just before presidential elections. Regardless of which election you start with, or whether stocks rise or fall through the period, or whether US stocks start off leading or lagging, US stocks overwhelmingly outperform non-US stocks in the election run-up from June through October. In non-election years the reverse has been slightly true. So overall, in all years, there is no such nation effect - only when it comes to presidential elections." The smartest advice I ever got 07/24/08   Permlink   Broken Link Markets "I was nine years old, and I saw my father reading the financial pages. They didn't look like the sports pages or the comics, so I asked him what they were. He said, "Well, these are stocks." I said, "What's a stock?" And he said, "See this thing? This represents a company. And see this 'plus .25'? That means that if you own one share of this company today, you have 25 more than you had yesterday." And I said, "I can have this thing yesterday, I can go to sleep, wake up and have 25 more and not do any work?" And he said, "Yes." I had come in from mowing the grass for three hours to earn 25. So the lesson I took was that in the stock market you can make money without doing any work. And since I have always had an almost infinite capacity for indolence, I thought, "This is great."" Wall Street's laughing all the way to the bank 07/24/08   Permlink   Broken Link Markets "The credit crisis really puts the free in free market. The freest market is supposed to be the United States, and the evidence in favour of that argument is mounting. It's just not what you think. Free, in this case, means a free ride for a select group of people. Wall Street never looked so good, or bad, depending on your perspective." Bad news sparks a stampede 07/23/08   Permlink   Broken Link Behaviour "After IndyMac Bancorp failed, customers waited in line for hours to collect their money. The police had to be called in to quell the crowd. The scenes brought to mind dire moments from the Great Depression. On the Federal Deposit Insurance Corp. Web site, IndyMac customers were told: ''If the balance in your account . . . is less than $100,000, no action is required on your part at this time.'' The money is insured. Many behavioral economists watching people herd in line at the bank -- or flush their portfolios of Fannie Mae and Freddie Mac stock -- sense a deep even primal, response at play. I suppose the only way to say this is to just say it: People are acting like frogs. When a group of frogs senses they are about to be visited by the dreaded snake, they do not hop in separate directions. They bunch up together. And they fight to get in the middle. Sheep do it. Minnows do it. It turns out that humans do, too, particularly in financial crashes." Are we a nation of financial illiterates? 07/23/08   Permlink   Broken Link Education "How important is widespread financial literacy to the health of a modern society? Well, I would say very. So would Lusardi. When you have a society with a modern and fairly complex financial system, it's probably not a good sign that more than half of the citizenry can't handle even the basics" The marks of a great value investor 07/23/08   Permlink   Broken Link Value Investing "John Templeton's market aphorisms was that "the time to buy is at the point of maximum pessimism", although I believe he has a good claim also to be the true originator of the saying that the four most dangerous words in investment are "this time it's different". Does he think that we have reached such a point in the credit crisis? Alas, we shall never hear his views again, following his death two weeks ago at the grand age of 95." Are P-E's past their prime? 07/22/08   Permlink   Broken Link Markets "The price-earnings ratio is a popular tool for investors. But these days, as both prices and earnings fluctuate rapidly, the p-e tool is getting extra attention because it tries to answer a key question: With the broad Standard & Poor's 500-stock index down almost 20% from its October peak, are stocks cheap enough to make them a great bargain for long-term investors?" Why no outrage? 07/21/08   Permlink   Broken Link Grant "Through history, outrageous financial behavior has been met with outrage. But today Wall Street's damaging recklessness has been met with near-silence, from a too-tolerant populace, argues James Grant" How to control your fears 07/21/08   Permlink   Broken Link Zweig "What goes on inside your head when your portfolio implodes? One of the fear centers in your brain, the amygdala, can respond to upsetting stimuli in 12 milliseconds, or one-25th the time it takes to blink your eye. These brain cells fire when an attack dog snarls at you, a spider drops down your shirt or the Dow Jones Industrial Average takes a dive." SEC retrenches on new short-selling rules 07/18/08   Permlink   Broken Link Markets "Under the new rule, the SEC will require short-sellers to secure borrowed shares before putting on their short sales, preventing "naked" short-selling, in which a trader doesn't properly locate shares to borrow. Naked short-selling can add extra downward momentum on a stock because without being forced to borrow the shares first, traders can short a limitless amount of stock. But the emergency rule, which is in effect for 30 days, only applied to those 19 companies among Wall Street's biggest. They are companies whose shares are not typically hard to locate or scarce for shorting, a fact that angered many earlier in the week. The American Bankers Association wants the SEC to include shares of regional banks under the requirements, and no doubt hundreds of small company chief executives would also like to be covered." Prepare to have a nose for a bargain 07/18/08   Permlink   Broken Link Graham "Stocks should be bought like groceries and not like perfume. A few days ago, I was reminded of this advice from Ben Graham, the father of value investing, by David Shapiro, the manager of the value-orientated Collins Stewart UK Focus Fund. And with the FTSE 100 index falling 250 points between last Friday and this Wednesday . wiping more than 50bn off the value of the UK.s top companies . the equity market certainly seems more like Aldi or Lidl than an eau de toilette counter at Harrods. In fact, the scent wafting from most dealing desks has smelled suspiciously like Whiff of Fear." John Templeton 07/18/08   Permlink   Broken Link Value Investing "Sir John Templeton spent his life going against the flow. In September 1939, when the war-spooked world was selling, he borrowed $10,000 to buy 100 shares in everything that was trading for less than a dollar a share on the New York Stock Exchange. All but four eventually turned profits. In early 2000, conversely, he sold all his dotcom and Nasdaq tech stocks just before the market crashed. His iron principle of investing was 'to buy when others are despondently selling and to sell when others are greedily buying'. At the point of 'maximum pessimism' he would enter, and clean up." S&P500 dividend yield highest since June 1995 07/16/08   Permlink   Broken Link Markets "The S&P 500 is currently yielding the most it has since June 1995 at 2.49%. After declining for about 20 years from the early 80s to the late 90s, the dividend yield has been on a steady rise this decade." Seeing bad loans 07/16/08   Permlink   Broken Link Markets "While a fraction of the nation's banks are expected to buckle under their growing burden of bad loans, federal regulators, bank executives and analysts agree that the vast majority of institutions are sound. Bank customers are not panicking, particularly since most of their deposits are insured. But shareholders, whose investments are by no means guaranteed, are running scared. It is becoming increasingly clear that even the strongest banks will be grappling with bad loans for years - and that the outlook for the industry could worsen further if the economy and the housing market continue to weaken. The collapse of IndyMac Bancorp last week fanned long-smoldering worries that even healthy banks confront significant challenges." Curbing short-selling abuse 07/15/08   Permlink   Broken Link Markets "The naked short regulations promise to have more teeth than last weekend's announcement that the SEC would police rumors on Wall Street. That was widely interpreted as a weak attempt to herd cats. Traders now won't be able to skirt borrowing rules to short shares of a rival firm. Up until now, traders were merely required to "locate" shares they'd be borrowing to short. As in: "Yeah, my cousin Vinny in Hoboken has them." The location requirement is a weaker standard that leaves plenty of room for "interpretation" if not outright abuse. Pre-borrowing is a much firmer commitment and eliminates the probability that a stock lender will lend out the same shares to several different traders." SEC to limit short sales 07/15/08   Permlink   Broken Link Markets "The requirement would prohibit the practice known as naked short selling, in which traders avoid the financial burden of borrowing shares when betting they'll fall." [A long overdue move.] European recession looms 07/15/08   Permlink   Broken Link World "The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency." Nation demands new bubble 07/15/08   Permlink   Broken Link Fun "A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest. "What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."" Scotiabank to buy E*TRADE Canada 07/14/08   Permlink   Broken Link Brokers "Scotiabank will purchase E(*)TRADE Canada for USD$442 million (approximately C$444 million), subject to regulatory approvals. The completion of today's announcement will double Scotiabank's footprint in the Canadian online investing market." [There goes another independent broker.] Paulson seeks authority to shore up Fannie, Freddie 07/14/08   Permlink   Broken Link Markets "Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages. Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank." The prescient are few 07/13/08   Permlink   Broken Link Indexing "The researchers found a marked decline over the last two decades in the number of fund managers able to pass the False Discovery Rate test. If they had focused only on managers running funds in 1990 and their records through that year, for example, the researchers would have concluded that 14.4 percent of managers had genuine stock-picking ability. But when analyzing their entire fund sample, with records through 2006, this proportion was just 0.6 percent - statistically indistinguishable from zero, according to the researchers." Mexicans and machines 07/13/08   Permlink   Broken Link Economics "'No job is safe from the robot threat!' warns Carey. Of course, the warning is more than a little tongue-in-cheek. There.s no need to take a sledgehammer to a robot, because, although technology shakes up the labor market, it ends up giving us higher living standards as well as more and better job opportunities." [Warning: Video contains scenes of violence and humour.] Welcome to the nanny state nation 07/13/08   Permlink   Broken Link Fun "Even if we don't particularly like something we should be wary of banning it because every ban is backed up by the force of law. Plus, would you want to live in a nation that bans everything that offends someone?" Stop worrying, and learn to love the bear 07/12/08   Permlink   Broken Link Zweig "When you bought into the gospel of "stocks for the long run," did you have any idea how long the long run can turn out to be? Exactly 10 years ago, the Standard & Poor's 500-stock Index was at 1164; it closed Friday at 1239. That's an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market." IndyMac seized by U.S. regulators 07/12/08   Permlink   Broken Link Stocks "IndyMac Bancorp Inc. became the second- biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash." Mortgage giants face pressure 07/11/08   Permlink   Broken Link Markets "One possible scenario if Fannie and Freddie's financial position worsens: Under existing law, if either company were severely low on capital, it could fall under the control of their government regulator, which would then be responsible for the firm. That step -- known as placing it in a conservatorship -- would allow the mortgage company to continue operating, but the extent of its abilities in such a distressed situation remains unclear." The $5 trillion mess 07/11/08   Permlink   Broken Link Markets "They own or guarantee $5 trillion worth of mortgages- nearly half of all the country's outstanding home loan debt - and they're crashing. Big time. If Fannie Mae and Freddie Mac go under, it will wreak yet more havoc on an already wrecked housing market - making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost on to U.S. taxpayers." Why Buffett is buying 07/10/08   Permlink   Broken Link Buffett "Buffett, 77, can afford to throw a little mud on his competitors in the private equity industry. Wall Street's acquisition machine has seized up, while Buffett, in the valedictory chapter of a career stretching back more than 60 years, is on a buying spree. He has $35.6 billion in cash to spend, and he's looking for companies that he can buy at a reasonable price, that have experienced managers he trusts, products with strong market positions or other competitive advantages." Warren Buffett gets busy 07/10/08   Permlink   Broken Link Buffett "But Buffett is putting things in perspective. Recession does not equal the second Great Depression or economic Armageddon. Rather, Buffett seems to be following the tried and true investing axiom that the best time to make long-term bets is when fear is at its peak. And make no mistake, this is a market ruled by fear right now." Spending safely 07/10/08   Permlink   Broken Link Retirement "If you're getting ready to retire, you may already be familiar with "the 4% solution." For more than a decade, financial advisers have warned retirees that draining over 4% of their nest eggs in their inaugural retirement year could ultimately lead to financial ruin. The 4% mantra started with Bill Bengen, 60, a soft- spoken investment adviser in El Cajon, Calif., who has written a series of landmark research papers since 1994 on safe withdrawal rates. What most people don't realize, though, is that Bengen no longer recommends the 4% rate." Your post-subprime portfolio 07/10/08   Permlink   Broken Link Retirement "Saving for retirement has never been easy, but the past year has made a complicated task all but overwhelming. The ongoing collapse of the credit markets, sparked initially by problems in subprime mortgages, has challenged some of investors' most cherished and reliable investment beliefs and strategies. Auction-rate securities sold as "cash equivalents" ended up sticking investors with huge losses, supposedly low-risk bond funds blew up, and for those who thought they'd pay for retirement by selling the house.well, need we say more?" Fannie Mae, Freddie losses make them 'insolvent' 07/10/08   Permlink   Broken Link Markets "While leading the St. Louis Fed, Poole roiled markets in 2003 when he said the government should consider severing its implied backing of Fannie Mae and Freddie Mac and said the companies lack the capital to weather financial market disruptions. In 2006 and 2007 he called for lawmakers to strip Fannie Mae and Freddie Mac of their charters." John Templeton dies at 95 07/08/08   Permlink   Broken Link Funds "John Templeton, the billionaire U.S. philanthropist who made his fortune as the pioneer of global investing in the postwar boom, has died. He was 95." How are we doing? 07/07/08   Permlink   Broken Link Economy "When a presidential election year collides with iffy economic times, the public's view of the U.S. economy turns gloomy. Perspective shrinks in favor of short-term assessments that focus on such unpleasant realities as falling job counts, sluggish GDP growth, uncertain incomes, rising oil and food prices, subprime mortgage woes, and wobbly financial markets. Taken together, it's enough to shake our faith in American progress. The best path to reviving that faith lies in gaining some perspective - getting out of the short-term rut, casting off the blinders that focus us on what will turn out to be mere footnotes in a longer-term march of progress." Dividends start to crumble 07/06/08   Permlink   Broken Link Dividends "If you look at dividend payouts in the past 12 months, there has been a 9.73 percent increase overall, Silverblatt said. Still, that's less than the rate the payouts rose from 2004 to 2007. Each of those years, dividend increases exceeded 11 percent, he said. Many companies are now decreasing the rate at which they increase their dividends." [How to turn 9.73 percent growth into an alarming headline.] Market turmoil? It doesn't rattle Warren 07/06/08   Permlink   Broken Link Buffett "This week's market turmoil might make you feel nauseous but it makes Warren Buffett giddy - or more so at least. Back in February, while on a visit to Toronto, Mr. Buffett told an audience that he was '370 points giddier,' referring to a drop in the Dow Jones industrial average. He added that he wasn't quite elated yet. 'Things are not ridiculously cheap.' The index is 1,000 points lower today from back then, so presumably Mr. Buffett is closer to giddiness than he was six months ago. Wouldn't it be nice to enjoy markets that roil and plunge like he does? If you invested like Mr. Buffett, you would." Bear market freak out 07/06/08   Permlink   Broken Link Markets "When it comes to investing, human nature is not our friend, and will consistently lead us to do the wrong thing at the wrong time. The chart to the right shows how investor funds have flowed into stock mutual funds so far this decade. Notice how we poured money into the stock market after the great years and panicked and sold after declines. A clear pattern of buying high and selling low, something I'm pretty sure investors didn't consciously set out to do." Mutual fund flows and investor returns 07/06/08   Permlink   Broken Link Academia "We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991-2004 equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns. In particular, the magnitude of investor underperformance due to poor timing largely offsets the risk-adjusted alpha gains offered by good-performing funds. Investors in both actively managed funds and index funds exhibit poor investment timing. We demonstrate that our empirical results are consistent with investor return-chasing behavior." Superstar CEOs 07/03/08   Permlink   Broken Link Management "Compensation, status, and press coverage of managers in the U.S. follow a highly skewed distribution: a small number of .superstars. enjoy the bulk of the rewards. We evaluate the impact of CEOs achieving superstar status on the performance of their firms, using prestigious business awards to measure shocks to CEO status. We find that award-winning CEOs subsequently underperform, both relative to their prior performance and relative to a matched sample of non-winning CEOs. At the same time, they extract more compensation following the award, both in absolute amounts and relative to other top executives in their firms. They also spend more time on public and private activities outside their companies, such as assuming board seats or writing books. The incidence of earnings management increases after winning awards. The effects are strongest in firms with weak governance, even though the frequency of obtaining superstar status is independent of corporate governance. Our results suggest that the ex-post consequences of media-induced superstar status for shareholders are negative." British house prices fall 07/01/08   Permlink   Broken Link Real Estate "House prices in Britain have fallen at their fastest annual rate for 16 years, new figures show. Average property values in June stood 6.3pc cent lower than a year before - the biggest such drop since the 1990s crash, the Nationwide building society said." My $650,100 lunch with Warren Buffett 07/01/08   Permlink   Broken Link Buffett "What would you pay to have lunch with the richest man in the world? For me and Mohnish Pabrai - a friend who, like me, runs a U.S.-based investment fund - the answer is $650,100. That's how much we forked over for the privilege of dining with Warren Buffett on June 25." The new economics and the pursuit of happiness 07/01/08   Permlink   Broken Link Behaviour "The revolution begun by Kahneman and Tversky is now some three decades old, and it is generating excitement well beyond the borders of academe--and so this is a good time to examine whether it has lived up to its promise. Bruno S. Frey's Happiness and Dan Ariely's Predictably Irrational together offer a fine occasion to begin such a reckoning. Not all the revolutionaries in economics are discussed by Frey; the media star Levitt does not even make an appearance. Ariely, who teaches at MIT, helps to fill in the picture. Like Levitt, he has climbed the best-seller list with some of the most counterintuitive findings of behavioral economics. One is dry and humorless, the other is sprightly and inviting, but between them these books offer an overview of what this new economics is all about, and enable us to evaluate whether it is as innovative as its adherents claim." The Robot stalls 07/01/08   Permlink   Broken Link Dorfman "Each stock we chose early in January had a market value of at least $500 million. They all had announced more than a penny of profit per share in the latest 12-month period. They had more shareholder equity than debt, and a low share price relative to earnings. We chose the cheapest stocks without having more than one in a particular industry sector." Seth Klarman interview 07/01/08   Permlink   Broken Link Klarman "Seth Klarman is nobody.s idea of a fast-buck, quick-change investor. Since helping to found Boston-based Baupost Group in 1982 with $27 million pooled from four families, he has emulated prototypical value-investment role models like Warren Buffett and the late Benjamin Graham. He buys underpriced equities and securities of bankrupt or distressed companies and usually steers clear of leverage and shorting, though last year he made very profitable investments in credit protection and recorded his best-ever annual return (52 percent)." MoneySense Top 200 Summer Update 07/01/08   Permlink   Broken Link Stingy Investing "For most of us, picking stocks is as tricky as ordering a seven-course dinner at a swanky new restaurant. Lots of items on the menu sound appetizing, but that's where our knowledge ends. Rather than simply point and hope, smart diners look for an expert opinion on the restaurant's offerings. To provide smart investors with a similar scouting report, we're pleased to present you with our candid take on all of Canada's largest stocks. We've worked hard to produce a rating system that's easy to use, logical, and appealing to all types of investors. We think the Top 200 provides you with a more objective look at large Canadian stocks than you're likely to find from any other single source. If you're looking for a sensible take on any large Canadian stock, you'll find the Top 200 to be an invaluable way to generate promising investment ideas." What we value 06/30/08   Permlink   Broken Link Tilson "A final reason for the dearth of value investors is the human desire to be part of the crowd. If you didn't own Internet stocks during the late 1990s, not only did you suffer lousy returns, but you also felt excluded. As Montier points out, "Contrarian strategies are the investment equivalent of seeking out social pain." That's not easy to do." Roses among the wallflowers 06/30/08   Permlink   Broken Link Markets "Consider two hypothetical portfolios the researchers put together. The first owned just those stocks that traded each market day of the previous year, while the second held those stocks that had at least one no-trade day. From the beginning of 1962 through 2003, according to the researchers. calculations, the second portfolio outperformed the first by an annualized average of eight percentage points. That's a big gap. By contrast, the average small-cap stock outperformed the average large-cap issue during that period by only 2.9 percentage points, annualized, according to the researchers. And the typical value stock beat the average growth stock by 5.5 points a year." Information diffusion based explanations 06/30/08   Permlink   Broken Link Academia "In this paper we develop information based factors which outperform other popular factors used in the multifactor pricing literature such as the Fama and French size and book-to-market factors. The first factor is based on the age of an asset, measured by the number of months since the asset's IPO, while the second factor is based on the percentage of trading days an asset does not trade in a given year. Both factors attempt to capture the quality and speed of information diffusion on the market. Our information factors perform particularly well on momentum portfolios, which, Hong et al (2000) have shown to result from gradual-information diffusion. This gradual information diffusion explanation is consistent with the information argument underlying our factors, namely that, assets plagued with information problems can be miss-priced for sustained periods of time. Furthermore, our multifactor model successfully prices most industry portfolios and performs as well as the Fama and French model when pricing the 25 size/book-to-market sorted portfolios." The internet is the new 'exchange' 06/29/08   Permlink   Broken Link DRPs "Robert Gibb has 30 stocks with dividend reinvestment plans and share purchase plans in his portfolio. Only two of these stocks he bought through a broker. Normally, he exchanges shares with other people he finds on an online message board." Equal weight indexing: five years later 06/28/08   Permlink   Broken Link Indexing "Often the most powerful investment ideas are simple. The simple concept of equal weighted indexing has attracted billions of dollars in assets in last five years. While the headline cause of asset flows has been outperformance over market capitalization indices, sophisticated investors have realized that equal weighting creates a different set of risk factor exposures than market capitalization weighting that seem to work over the long term. Further, the concept randomizes factor mispricings in the market. As trading costs shrink globally, and as investors realize that turnover of equal weighted indexing is only about a fifth of active managers, we expect the concept to gain ground. Equal weighting has been used in fixed income indexes to a certain degree, and given the results of it working in international markets, we would not be surprised to see interest in equal weighted international products." Do-it-yourself ETF may not be worth your time 06/28/08   Permlink   Broken Link Indexing "Is the war against money management fees going too far? Investors - the more enlightened ones anyway - have battled high fees for years, forcing the industry to parry with low-cost index mutual funds and exchange-traded funds as well. Now, spurred by ultra-low trading commissions, some investors and financial planning pundits are aiming their guns at ETFs, arguing that you can dispense with them and create your own index funds, under certain circumstances, such as having a big enough portfolio. The arguments make sense on paper, but they're not without their shortcomings. The reality is that ETFs are pretty hard to beat if you want to invest in an index." [Fabrice makes a couple of good points and a few lousy ones. But here's his take on unbundling ETFs.] Record $2.1 Million for lunch with Warren Buffett 06/28/08   Permlink   Broken Link Buffett "The big spender who won this year's "Power Lunch with Warren Buffett" charity auction with a record high bid of $2,110,100 is Zhao Danyang of the Hong-Kong based Pure Heart China Growth Investment Fund, according to a spokesperson for San Francisco's Glide Foundation." How Canada stole the American Dream 06/28/08   Permlink   Broken Link World "Believe it or not, we now have more wealth than Americans, even though we work shorter hours. We drink more often, but we live longer and have fewer diseases. We have more sex, more sex partners and we're more adventurous in bed, but we have fewer teen pregnancies and fewer sexually transmitted diseases. We spend more time with family and friends, and more time exploring the world." The housing abyss 06/27/08   Permlink   Broken Link Real Estate "Steve Hawks, owner of RE/MAX Platinum real estate agency in Henderson, Nev., says he has been flooded with calls from people interested in "buying and bailing" - that is, buying an additional house while their credit is still good, then walking away from the old one unless they can cut a favorable deal with the lender. So far the number of people who have done so appears to be small. But Hawks says banks are receptive to lending for such purchases because they figure the buyer will be able to afford the new, cheaper place. Also, says Hawks, they know that, since the buyer's credit will become damaged, he or she won't pull the same trick on them, at least for a few years." [More madness from U.S. lenders.] Eveillard takes dim view of U.S. stocks 06/27/08   Permlink   Broken Link Value Investing "Fed policies under Greenspan, Eveillard says, precipitated "one bubble after another" -- from the implosion of technology stocks in the late 1990s to the recent real-estate price collapse and the related financial-services industry meltdown. "In the last two or three years, the financial acrobatics were extraordinary," Eveillard said. "You could get a mortgage without having to document your income, your assets, or whether you had a job."When financial history is written five or 10 years down the road," he added, "Greenspan will be seen as the worst Fed chairman since the Fed was created in 1913."" Grim expectations 06/27/08   Permlink   Broken Link Economy "Mr Taylor described how the low and stable inflation of the previous two decades emerged from a more disciplined monetary policy, inspired in part by Friedman's analysis. 'In the United States when the inflation rate approached 4% in 1968, the federal funds rate was about 5%. When the inflation rate approached 4% in 1989, the federal funds rate was about 10%, clearly a much larger response.' Once again, America's inflation rate is at 4% but the fed funds rate is just 2%. With inflation high and interest rates low, many are worried that the lessons set out by Mr Taylor and by Mr Friedman before him are being ignored." Is income volatility really rising? For whom? 06/26/08   Permlink   Broken Link Economy "The key driver of rising average levels of income risk is that life among the already risky has become even riskier. Indeed, you really need to look to the riskiest 5 percent of the distribution to find the rise in income risk. And this rise in risk among the already risky is so great as to be responsible for nearly all the rise in average income volatility. And who are these riskiest 5 percent? Jensen and Shore find that they are particularly likely to be self-employed." Mohnish Pabrai interview 06/25/08   Permlink   Broken Link Pabrai Mohnish talks markets, Buffett, and stocks. He is keen on American Express and Berkshire Hathaway. Eight centuries of financial crises 06/25/08   Permlink   Broken Link Academia "This paper offers a 'panoramic' analysis of the history of financial crises dating from England's fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for example, defaults and restructurings in India and China. As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database. We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies. Major default episodes are typically spaced some years (or decades) apart, creating an illusion that 'this time is different' among policymakers and investors. A recent example of the 'this time is different' syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape. We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses. Thus, the recent US sub-prime financial crisis is hardly unique. Our data also documents other crises that often accompany default: including inflation, exchange rate crashes, banking crises, and currency debasements." Active Fund Performance At A Passive Price 06/25/08   Permlink   Broken Link Stingy Investing "Frugal investors are often attracted to index and exchange traded funds because they offer a simple way to buy a diversified stock portfolio at a low cost. But there are other options for thrifty individuals who want to take a more active approach. I explored the money-saving possibilities of buying stocks held by index funds instead of the index funds themselves in the May 2008 edition of the Canadian MoneySaver. This month, I'll investigate a similar method for active funds where the potential savings can be much higher." Warren Buffett says sell to me, not 'porn shop' 06/25/08   Permlink   Broken Link Buffett "Warren Buffett is in Toronto, fielding questions from a crowd of 300 executives. One asks what makes people want to sell their companies to him. The Berkshire Hathaway Inc. chief executive officer replies that he tells a prospective seller to think of the company as a work of art. ``You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever,'' he says at the February meeting. ``Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''" How $10 trades change everything 06/24/08   Permlink   Broken Link Stingy Investing "In the latest Wealthy Boomer video interview -- which went up today -- Norman Rothery of The Rothery Report comes to an interesting conclusion about online trading and $10 commissions (or $9.95, which amounts to the same thing.) With a full-service brokerage, exchange-traded funds (ETFs) are a convenient way to get access to multiple stocks with a single trade. But once you move from commissions in the multiple hundreds of dollars to $10 a trade, suddenly it becomes cost-effective for individual investors to buy each component stock in an index, or cherry-pick the better ones." DRIPs a cheap way to invest 06/24/08   Permlink   Broken Link DRPs "There's no free lunch, even when investing on your own without an adviser. You still pay commissions to buy company shares, exchange-traded funds and income trust units. But you can get a free dessert (so to speak) if you reinvest the dividends to buy more shares, ETFs and trust units." Portfolio dilution excessive in Canada 06/24/08   Permlink   Broken Link Hallett "Drilling down more deeply reveals that the worst dilution occurs in our own tiny stock market. Look at virtually any wrap program and find out where most of the funds or managers are focused. I'll bet it's on Canadian stocks." SP/Case-Shiller home prices fell 15.3% in April 06/24/08   Permlink   Broken Link Real Estate "Home prices decreased 1.4 percent in April from a month earlier after a 2.2 percent decline in March, the report showed. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month to month." Mistaking consumption for investment 06/24/08   Permlink   Broken Link Real Estate "During the housing bubble a lot of people confused consumption with investment, a fact now becoming painfully obvious in Britain as prices fall and businesses suffer. As in the United States, home owners helped inflate a wider bubble by plowing money into housing-related consumption, from granite kitchen countertops to living room furniture to under floor heating. The illusion, or justification, was that this consumption, often financed via mortgage debt, was actually investment in a can't-miss real asset. It wasn't, it's stopping and the impact on the economy will be considerable." Bank failures to surge in coming years 06/23/08   Permlink   Broken Link Stocks "Only three banks have failed so far in 2008. But that number is set to surge as the credit crunch slows economic growth and hammers some lenders that grew too fast during the recent real-estate boom, experts say. The roots of today's banking crisis grew out of the boom and bust in the real estate market." The Texas ratio and Canada's big banks 06/23/08   Permlink   Broken Link Stocks "Back in the recession of the 1980s, when the oil market was in the tank and banks in Houston and Dallas were dropping like rain in April, Gerard Cassidy and his team of bank analysts at RBC Dominion Securities came up with a way to predict the likelihood of any given bank failing. They took the total of a lender's non-performing loans and divided it by the sum of its tangible equity capital plus its loan-loss reserves, yielding the Texas ratio. It's a nifty idea. What Mr. Cassidy and his team discovered was that when a bank's Texas ratio got to 100 per cent, or one to one, it was likely to become toast. The ratio was an accurate predictor of Texas bank failures and also worked a treat with troubled New England banks in the next recession in the early 1990s. Applying it to today's U.S. banking scene, MarketWatch says Mr. Cassidy and his colleagues predict that at least 150 U.S. banks will go bust in the next two or three years, and if the current economic slump morphs into a recession as deep as the ones in the 1980s and 1990s, that number may get as high as 300." Value investors: Beware the value trap 06/23/08   Permlink   Broken Link Value Investing "Norm Rothery, chief investment strategist at Windsor, Ont.-based investment research and counselling firm Dan Hallett & Associates Inc., recommends investors avoid value traps by using a nine-point system developed by Joseph Piotroski, professor of accounting at Stanford University. According to his system, returns on assets and cash flow from operations should be positive. Also, there should be momentum in fundamentals: For example, gross margins and debt should be changing for the better. Still, it's inevitable even the best of the value practitioners will stumble into value traps on occasion." Unbundling Canadian ETFs 2008 06/21/08   Permlink   Broken Link Stingy Investing "It is easy to get a simple, low fee, and broadly diversified portfolio with ETFs. Most investors can safely stop here. But perhaps I can entice you to read on about a few specialized situations. When it comes to ETFs I like to consider two options for long-term investors. The first option is to purchase the ETF and hold on. The second option is to bypass the ETF and buy the stocks that it owns. At first glance, the choice between buying a low-cost exchange-traded fund that holds many stocks or buying each individual stock appears to be obvious. The exchange-traded fund is likely to be the better bargain. However, buying stocks directly may be a good choice for some investors because the Canadian stock market is very small and it is dominated by a few big names. By holding only a few stocks you can reasonably approximate, or even fully replicate, some ETFs." Rising from the stock market rubble 06/21/08   Permlink   Broken Link Value Investing "The lock that commodities have on the Canadian market has made mutual funds with a value strategy a singularly awful investment in the past few years. But the Celestica story is a reminder that well-chosen value stocks do offer potentially fantastic rebound potential. What beaten-down Canadian stocks might be ready to pop? Let's nose around the portfolios of some of the country's top value fund managers and see what they're holding." Study finds pension-plan returns top 401(k)s 06/21/08   Permlink   Broken Link Retirement "Pension-plan returns outperformed 401(k) retirement accounts from 2003 to 2006, the most recent bull market, according to a study. Pension plans beat 401(k) plans by 1.7 percent in 2003, 2 percent in 2004, 1.1 percent in 2005 and 1.6 percent in 2006, said the survey released today by Watson Wyatt Worldwide, a global consulting company based in Arlington, Virginia. Looking at a broader period, 1995 to 2006, pensions outperformed 401(k)s by 14 percent, the study said." Defined benefit vs. 401(k) plans 06/21/08   Permlink   Broken Link Retirement "This most recent comparison finds that between 1995 and 2006, DB plans outperformed DC plans by an average of 1 percent per year. Earlier studies also found that, over time, DB plans attained higher returns than did 401(k) plans." London 'cityboy' unmasks world of analysts 06/20/08   Permlink   Broken Link Brokers "As a utilities analyst at Dresdner Kleinwort, Geraint Anderson was advising clients how to invest. At the same time, through an anonymous London newspaper column, he was telling readers how analysts wrote 'utter gibberish.'" Corporate democracy is a myth 06/20/08   Permlink   Broken Link Management "We are in this situation because there is no leadership in the executive suite. Why did we get here? Because in corporate America there are no true elections. It is tyranny parading as democracy. It.s a poison running through the blood of corporate America. Perhaps, with enough public support, the lawmakers and regulators will take note." It's mine, I tell you 06/20/08   Permlink   Broken Link Behaviour "The endowment effect was controversial for years. The idea that a squishy, irrational bit of human behaviour could affect the cold, clean and rational world of markets was a challenge to neoclassical economists. Their assumption had always been that individuals act to maximise their welfare (the defining characteristic of economic man, or Homo economicus). The value someone puts on something should not, therefore, depend on whether he actually owns it. But the endowment effect has been seen in hundreds of experiments, the most famous of which found that students were surprisingly reluctant to trade a coffee mug they had been given for a bar of chocolate, even though they did not prefer coffee mugs to chocolate when given a straight choice between the two." Your lifestyle may hurt your credit 06/19/08   Permlink   Broken Link Debt "Most borrowers know a late payment or high outstanding balance can hurt their credit. But what about frequenting a massage parlor, retreading a tire, or visiting a marriage counselor? Such activities count, too, according to a suit filed by the Federal Trade Commission in federal court in Atlanta on June 10 against card issuer CompuCredit" Why we're gloomier than the economy 06/19/08   Permlink   Broken Link Behaviour "Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread. But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim." 'Brainwashing 101 for dummies' (and investors!) 06/18/08   Permlink   Broken Link Behaviour "Yes, Wall Street's got a great con game going, but it only works because America's 95 million investors are willing victims, love playing along, actually letting Wall Street get away with it! I call it "Brainwashing 101 for Dummies." Insiders use fancier terms like neuroeconomics, behavioral finance and the new "science of irrationality." But labels aside, you're being brainwashed. And Wall Street's laughing all the way to the bank at how easy it is to dupe gullible investors by using the 11 rules of "Brainwashing 101 for Dummies." We got them for you: Everything you'll ever need to know about the big con." Remember, Cassandra was right 06/18/08   Permlink   Broken Link Montier "Some are trying to argue that the mess in the US economy/housing market/credit market is an example of Taleb's black swan. Nothing could be further from the truth. Black swan events are inherently unpredictable. However, the events unfolding now are sadly all too predictable. They are following the standard pattern for a debubbling process. Numerous psychological barriers prevent us from listening to Cassandra, but it may pay to remember that her predictions were all too accurate." The road to revulsion 06/18/08   Permlink   Broken Link Montier "Indeed, one of the lessons that should be learnt from the Japanese experience is that the banks were second round losers, a point made by Albert Edwards recently. They didn't really begin to underperform the rest of the market until the second Japanese recession of its debubbling process. They really started to suffer when their consumers (Japan Inc) started to struggle." Long-term performance following rights issues 06/18/08   Permlink   Broken Link Academia "This study finds evidence of significant long-term underperformance following rights issues made during 1986-95 in the UK. The findings are resilient to a number of methodological controls. In contrast, our results for a smaller sample of open offers made during 1991-95 show strong positive performance over a 5-year post-issue period, implying that firms making open offers had better growth prospects than firms making rights issues. During 1986-90, a period when open offers were rarely used, firms appeared to be making rights issues to exploit overvaluation. However, this was not evident for rights issues made during 1991-95, a period when open offers were more commonly used." Third Avenue Q2 2008 letter 06/17/08   Permlink   Broken Link Whitman "One of the important lessons from the Bear Stearns debacle for TAVF is to avoid owning common stocks where the businesses need to have relatively continuous access to capital markets in order to survive as going concerns." Pass the buck 06/16/08   Permlink   Broken Link Accounting "Statements such as .IFRS is already being used in most of the world.s major capital markets,. are clearly deceptions. Other claims, like that IFRS is .capable of consistent interpretation and application. around the world, contrast sharply with what the audit firms tell their clients in private. One large firm summed up IFRS as follows for its clients: More choice, less detail. Clearly, the private advice to clients is at odds with the public marketing efforts to investors." We ain't got to show you no stinking credibility 06/16/08   Permlink   Broken Link Markets "In short, mortgage foreclosures and defaults are just now hitting their stride, and we are likely to observe a second round of credit fears as those losses mount. The U.S. dollar has enjoyed a brief rebound on tightening talk from the Fed, which is likely to quickly dissipate as soon as those credit concerns revive. Meanwhile, commodity price pressure is likely to diminish by the end of summer as the result of a continuing economic downturn coupled with a flight-to-safety which will reduce monetary velocity." Credit crunch prepares feast for value hunters 06/15/08   Permlink   Broken Link Value Investing "Value investors look at measures such as price-to-earnings and price-to-book ratios to find stocks that are trading at bargain prices. A key premise of value investing is that markets often overreact to negative news, pushing stocks below their true worth. The idea is to buy the stocks when nobody else wants them, so you can profit when the market comes back to its senses. Sound simple? It isn't. Buying stocks others are ditching requires a strong contrarian streak and loads of patience while you wait for the price to recover. Sometimes it takes years; sometimes it never happens." Fair value accounting rarely fair 06/15/08   Permlink   Broken Link Accounting "Brooks added that,while FVA attempts to value investment vehicles by interpreting today's market value, proponents of this accounting standard fail to appreciate how the market works. "Fair value accounting will show a TSX sticker price for 3,000 shares the same as 300,000 shares - but the market shows us differently," explains Brooks." 'Lazy Portfolios' for stagflation 06/13/08   Permlink   Broken Link Indexing "If you don't have a Lazy Portfolio now is the time to build your own using the eight models below. And remember, back in the bad old days of the 2000-2002 bear-recession, one of them, the Coffeehouse, was killing the S&P 500 by 15 percentage points each of the three years -- more proof passive investing beats action. You also don't need a lot of funds with this strategy. That's important if you're young, new at the game or just don't have a lot of money to invest and can't afford to plunk down the $33,000 for the initial investments in an 11-fund portfolio. So let's look at the smaller portfolios first to prove the point. Here's a comparison of the bottom lines of all eight Lazy Portfolios." Canadian Tax Freedom Day: June 14 06/13/08   Permlink   Broken Link Taxes "The latest Tax Freedom Day in Canadian history was recorded in 2005, when it fell on June 25. Since 2005, Tax Freedom Day for the average Canadian family has steadily decreased. Tax Freedom Day dropped to June 23 in 2006 and June 18 in 2007. This year, Tax Freedom Day arrives four days earlier than in 2007. While recent Tax Freedom Days show a slight reduction in the tax burden, it is nevertheless a fact that Tax Freedom Day this year is over 40 days later than it was 47 years ago. In 1961, the earliest year for which the calculation has been made, Canadian Tax Freedom Day was May 3. By 1981, it had advanced to May 30, and in 2008 Tax Freedom Day will, as noted, fall on June 14." Hedge funds can vote at CSX meeting 06/12/08   Permlink   Broken Link Law "CSX argued that the brokerage firms, which nominally own the shares although they have no economic stake in the company, had good business reasons to vote as the hedge funds wish. If they did not do so, such firms would risk losing business from the hedge funds. Judge Kaplan said there were 'persuasive reasons' for concluding that the funds 'beneficially owned at least some and quite possibly all' of the shares bought by the brokerage firms to hedge their swap positions." America's hottest investor 06/12/08   Permlink   Broken Link Funds "Henry, himself a long-time shareholder in Heebner's funds, says what first impressed him about Heebner was a little gambit he had going in finance class. Classma