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Article Archive: 2009

The neuroscience of screwing up
12/30/09   Behaviour
"The reason we're so resistant to anomalous information - the real reason researchers automatically assume that every unexpected result is a stupid mistake - is rooted in the way the human brain works. Over the past few decades, psychologists have dismantled the myth of objectivity. The fact is, we carefully edit our reality, searching for evidence that confirms what we already believe. Although we pretend we're empiricists - our views dictated by nothing but the facts - we're actually blinkered, especially when it comes to information that contradicts our theories. The problem with science, then, isn't that most experiments fail - it's that most failures are ignored."

Kodak, Bill Gates and efficient markets
12/30/09   Buffett
"there is little question that if you understood the implications of digital photography in 1991 you were - at least on that item - the smartest guy in almost any room. And it did not help you make (much) money."

Are homes now "cheap"?
12/30/09   Real Estate
"House prices are not cheap nationally. This is apparent in the price-to-income, price-to-rent, and also using real prices. Sure, most of the price correction is behind us and it is getting safer to be a bottom caller! But "cheap" means below normal, and I believe that is incorrect."

Prepare for a Keynesian hangover
12/29/09   Markets
"What's happening is that U.S. banks have been behaving exactly like developing country banks during earlier crises, such as Indonesian banks in the late 1990s - raising lending to their worst borrowers to keep them alive, lest the banks themselves collapse from their borrowers' defaults. For U.S. banks, these zombie borrowers are their affiliated financial entities set up to manage so-called off-balance-sheet activities - such as the famous SIVs (structured investment vehicles) created by Citigroup and others during the boom. Thus, the massive fiscal and monetary bailouts of the banks have served to worsen the credit misallocation that led to the general economic collapse in 2008."

Texas' banks hold lessons
12/29/09   World
"When the financial system collapsed last year, a short-handed Federal Deposit Insurance Corp. went looking for people schooled in the grim art of cleaning up failed banks. At least the FDIC knew just where to find the grizzled veterans: right here in the heart of Texas, where a banking cataclysm two decades ago wiped out more than 650 Texas banks and savings and loans."

'D' is for death
12/29/09   Stocks
"One day you will die. This is sad. It is also an investment opportunity. Funeral homes are one of the few businesses that are guaranteed a growing audience for their services, not only over the next decade, but over the next several decades. As Boomers age, the industry made famous in the television series Six Feet Under is emerging from the low-mortality period that a funeral home expert calls "death valley" and entering a period in which customers will become more and more common."

7 of 10 robot picks beat market
12/29/09   Value Investing
"If only robots could skip, click heels or cock their elbows like celebrating hockey players. Surely our robotic stock selection tool would be that animated after posting such a great year. Ten stocks a robotic or automated filtering technique helped us choose for 2009 would have turned a million dollars into $1.685 million, if we hadn.t used play money."

Just glide to the next boardroom
12/29/09   Management
"Directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae have not all been banished from other boardrooms. In many cases, directors just seem to skate away from company woes that occurred on their watch."

Internet sales tax scofflaws
12/29/09   Taxes
"Today the major resistor against online collection of sales tax is, unsurprisingly, Amazon.com, the world's largest online retailer. Amazon, which has no retail stores anywhere, has become a target of state tax collectors because as its business has expanded, so has the value of its inventory."

Golden pay for CEOs sinks stocks
12/27/09   Management
"Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years. Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million - but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO's pocket takes $100 out of shareholders' pockets."

Doing a Buffett, on the cheap
12/27/09   Buffett
"These Buffett-esque companies, identified in a recent report by Credit Suisse quants, have a minimum return on equity of 15%. Not one has a long-term debt/equity ratio of more than 50%, and all have gross and net profit margins that have improved over the past two years."

Investment forecasts: known unknowns
12/27/09   Markets
"The uselessness of these predictions was carefully explained by the Ancient Greek philosopher Socrates, two and half thousand years ago. Not letting death, the lack of Ancient Greek stockmarkets or the fact he lived in an economy based on slavery get in the way of a good analogy, Socrates noted that he, at least, knew what he didn't know. Which in investment analysis terms is about as close to an epiphany as you're likely to get."

Michigan forces owners into unions
12/26/09   Government
"It's telling that in several states that have gone down this road, state and federal subsidies are the source of the union dues. In Michigan, the scheme is essentially throwing a cash lifeline to unions like the UAW, which are hemorrhaging members."

What bacon intake says about the economy
12/26/09   Fun
"Enough with the op-eds on the stimulus package. Stop with the hand-wringing over Wall Street compensation. Will Detroit exist in 10 years? Who cares? Bacon!"

Ten growth stocks
12/26/09   Dorfman
"A tool that has come in handy for me over the years is a stock screen that looks for growth at a low price. In more frivolous days, I used to call this paradigm the Bunny Portfolio."

How big a problem is moral hazard?
12/26/09   Government
"Do I think that we have a moral hazard problem in our system? Indisputably. The continued existance of Citibank defies belief, unless you factor in implied guarantees."

Hot stocks for a new decade?
12/26/09   Markets
"Much of the stock-market community is still just a marketing machine that happens to sell investments, the way, say, a drugstore like CVS sells pills. (Unfair? Just a little: CVS, after all, won't deliberately sell you bad pills.)"

California's in trouble
12/26/09   Government
"Without wishing to be overly dramatic, it is this sort of legislative impasse that has enabled many dictators in the past to come to power"

The government that stole Christmas
12/26/09   Government
"The science of trans-fats is not settled, but even if it were, surely a rational and humane exception must be made where it's a choice between imperfect foods and going hungry."

Congress throws estate plans into disarray
12/26/09   Taxes
"Barring a last-minute political deal, the federal estate tax is set to disappear as of Jan. 1, 2010--for just one year. Democratic leaders of Congress are vowing to resurrect the tax retroactively sometime next year, but the impending lapse has estate planners in a tizzy. They worry the lapse could turn into a nightmare for some families."

Blame it on the brain
12/26/09   Behaviour
"Willpower, like a bicep, can only exert itself so long before it gives out; it's an extremely limited mental resource. Given its limitations, New Year's resolutions are exactly the wrong way to change our behavior. It makes no sense to try to quit smoking and lose weight at the same time, or to clean the apartment and give up wine in the same month. Instead, we should respect the feebleness of self-control, and spread our resolutions out over the entire year."

Merry Christmas!
12/24/09   Christmas
"A collection of links to help inspire a little Christmas cheer."

8 Graham Stocks for 2010
12/24/09   Stingy Investing
"Graham's time-tested strategy for defensive investors beat the market again this year. But that shouldn't come as a big surprise because it's bested the market, often by a wide margin, in eight of the last nine years."

The economist's guide to happiness
12/20/09   Fun
"Spend less time with your children. Don.t underestimate the benefits of a divorce. Never serve dog food at a dinner party. These are some of the unexpected revelations to have emerged from an unlikely combination: happiness, and economists."

Upper mismanagement
12/20/09   Management
"One of the themes that came up while I was profiling White House manufacturing czar Ron Bloom earlier this fall was managerial talent. A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them? It's not obvious that you would."

Thinking about politics
12/20/09   Government
"Bruce Yandle uses bootleggers and Baptists to explain what happens when a good cause collides with special interests. When the city council bans liquor sales on Sundays, the Baptists rejoice - it's wrong to drink on the Lord's day. The bootleggers, rejoice, too. It increases the demand for their services. The Baptists give the politicians cover for doing what the bootleggers want. No politicians says we should ban liquor sales on Sunday in order to enrich the bootleggers who support his campaign. The politician holds up one hand to heaven and talk about his devotion to morality. With the other hand, he collects campaign contributions (or bribes) from the bootleggers."

When an annual report speaks volumes
12/20/09   Stocks
"Want to find a great long-term investment? Look for an annual report that treats you like a human being. Most don't. The standard-issue annual report features heroic photos of the CEO, staged snapshots of maniacally grinning workers, and vague assurances that, despite enormous challenges being faced by the stalwart management team, the future looks just fine. Only a handful of annual reports talk to you like a partner. These reports don't spend a fortune on glamour shots of smokestacks basking in the sunset. They avoid canned promises to "respect all our stakeholders." Instead, they deliver a blunt assessment of both the firm's successes and its failures. In a high proportion of cases, these exceptionally honest reports come from companies that are also exceptionally good at making you money."

Ten years after
12/20/09   Stocks
"I've been working on a year-end piece - this is my last day at the office in 2009 - and I came across an article from Feb. 20, 2000, in which 10 money managers each chose one stock to buy then and hold until 2010. It's almost 2010, so I checked to see how they had done. For most, not well." and yet "Here is more good news. Thanks largely to Henry Schlein, an investor who bought $1,000 of each of those 10 companies, and held on, would now have more than $13,000, even with losses on eight of the holdings. That performance is much better than that of the overall market."

Will fees stop bugging investors?
12/20/09   Zweig
"Don Phillips, managing director at Morningstar Inc., the fund researcher, argues that 12b-1 fees "are a farce, because they don't capture all the distribution costs." Some fund managers pay for marketing out of their management fees, for example. Mr. Phillips suggests that funds should overhaul their financial statements by sorting all expenses into three main buckets: "investment management," or what it costs to research and run the portfolio; "sales and marketing," or what it costs to distribute the fund; and "operations," or overhead like accounting and legal expenses."

From the 'do a little evil' file
12/20/09   Management
"Thanks to an extremely fortuitously timed stock-option repricing (exchange), Googlers have made a killing in the past eight months at shareholder expense."

Is Mr. Market off his meds?
12/18/09   Stingy Investing
"The market often behaves like a deranged manic-depressive and it was clearly off its meds this year. Just last winter it was in a deep funk, and panicky investors couldn't sell fast enough. Then all of a sudden, the gloom vanished, the market reversed course, and it shot skyward. It's all a bit zany. But how should you deal with such massive market swings? Benjamin Graham had the answer. You should help out manic-depressive investors. Buy when they rush to sell. Sell when they line up to buy."

Montier on Value Investing
12/17/09   Montier
"I've been thoroughly enjoying James Montier's new book Value Investing: Tools and Techniques for Intelligent Investment. I heartily recommend it to value investors. "

Value in the TSX60
12/16/09   Tipsheet
"Our value scorecard for stocks in the large-cap S&P/TSX60 highlights stocks with the best value ratios. It also alerts you to those with the worst value metrics. The whole list is shown in the spreadsheet below."

The worst-run big city in the U.S.
12/16/09   Government
"It's time to face facts: San Francisco is spectacularly mismanaged and arguably the worst-run big city in America. This year's city budget is an astonishing $6.6 billion - more than twice the budget for the entire state of Idaho - for roughly 800,000 residents. Yet despite that stratospheric amount, San Francisco can't point to progress on many of the social issues it spends liberally to tackle - and no one is made to answer when the city comes up short."

A career spent finding value
12/16/09   Tweedy
"'He was something of a collector,' said analyst A. Michael Lipper of Lipper Advisory Services. 'It took a lot of disappointment for him to get rid of an underperforming stock. Could somebody else have produced better results by getting rid of the losers? One might think so, but it wasn't [Tweedy, Browne's] style.'"

Excess cash and mutual fund performance
12/16/09   Funds
"I document a positive relationship between excess cash holdings of actively managed equity mutual funds and future fund performance. The difference in returns of portfolios of high and of low excess cash funds amounts to over 2% annually, or approximately 3% after standard risk adjustment. I study whether this difference in performance can be explained by the differences in managerial stock selection skills, market-timing abilities, fund liquidity needs, and operating costs. I show that managers of high excess cash funds make more profitable stock purchasing decisions, while low excess cash fund managers make better sell decisions. Neither high nor low excess cash groups exhibit significant market-timing skills; however, funds with volatile excess cash holdings are successful market timers. The difference in returns between high and low excess cash groups is particularly pronounced during periods of low fund flows, suggesting that high excess cash funds are better able to anticipate fund outflows. Finally, I show that high excess cash funds incur significantly lower operating expenses than do their low excess cash peers. I additionally document new important determinants of mutual fund cash balances, showing that funds with riskier or less liquid shareholdings, as well as those with higher return gap measures hold more cash. The determinants I consider jointly explain three times more cross-sectional variation in cash positions than variables studied in prior literature."

Altman Z-Scores for the TSX Composite
12/16/09   Tipsheet
"How likely is a firm to go bankrupt? If in doubt, you can just look up its Altman Z-Score. High scores indicate that bankruptcy in the next two years is unlikely. Low scores indicate that the firm is at risk. I've listed the Altman Z-Scores (AltZ) for the stocks in the S&P/TSX Composite below. But you won't find financials in the list because the method was developed for non-financials."

Top 500 U.S. Stocks
12/16/09   Stingy Investing
"Hints of economic recovery are in the air and the U.S. stock market is starting to sparkle. It's true that a host of worries remain, but that hasn't stopped investors from looking beyond the economy's current troubles to the return to normalcy. As a result, stocks are up smartly from their lows. Even better, our highest-ranked stocks from last year provided some handsome returns. These high-grade U.S. stocks gained 24.1%, not including dividends. That's much better than the S&P 500 (SPY), which only climbed 4.2% over the same period."

Dividend growth lives
12/16/09   Dividends
"Still need convincing that dividend growth stocks, and utilities in particular, deserve a place in a well-diversified portfolio? In his December investment outlook, Pacific Investment Management Co.'s Bill Gross - manager of the world's biggest bond fund - urged investors to move money out of ultra-low-yielding savings accounts and money market funds and into utilities stocks. Utilities are reasonably priced, and "their growth in earnings should mimic the U.S. economy as they always have, and most importantly, they yield 5 to 6 per cent, not .01 per cent," he wrote."

Sardar Biglari's 2009 letter
12/15/09   Management
"Because metrics are proxies for performance, managing by a single metric causes the tail to wag the dog. Using just one metric is akin to taking a picture of a two-ton elephant: No single angle can capture the 'big picture.' Analysts who evaluate same-store sales trends almost to the exclusion of other metrics, and the CEOs - who either primarily weigh that one piece of data or (shudder) listen to the pundits - do their best to deliver on that one statistic, but usually cost their shareholders dearly."

Picking (up) winners without placing a bet
12/14/09   Fun
"For the past 10 years, Jesus Leonardo has been cleaning up at an OTB parlor in Midtown Manhattan, cashing in, by his own count, nearly half a million dollars' worth of winning tickets from wagers on thoroughbred races across the country. During his glorious run, Mr. Leonardo, 57, has not placed a single bet."

Why social beats search
12/14/09   Markets
"That's a controversial post headline and I don't mean that social will always beat search, but there's a rising chorus out there about "content farms" and search optimized content creation that is worth touching on."

Christopher H. Browne dies
12/14/09   Tweedy
"His firm, where he had worked since 1969 and which his father co-founded, occupied a special niche in Wall Street lore due its relationships with two legendary clients: Ben Graham, author of two seminal books on the subject of how to value stocks, and Mr. Graham's most famous pupil, Warren Buffett. Tweedy Browne brokered trades for Mr. Graham from the 1930s through the .50s and from that experience developed an extensive business relationship with Mr. Buffett."

Bad investment ideas for 2010
12/14/09   Fun
"I always did like the Grinch a lot better before those meddling Whoville residents swelled up his heart. In tribute to that (ig)noble creature, I offer Bad Investment Ideas for 2010. Unlike all those sappy happy Best Investment Ideas pieces from my fellow Morningstar analysts that congest your inbox and befoul your spirits, this article delivers recommendations that would warm the Grinch's soul, if he had one. Ideas that, if implemented, would lead to wonderfully empty space under next year's Christmas trees."

A stock trade a day keeps stress away
12/14/09   World
"Traders seeking a break from volatile global markets may want to head to Bhutan's bourse, where stocks are traded on just four computers -- when they have not crashed -- only twice a week."

Kill these job-killers
12/14/09   Government
"Here's a thought: Instead of trying to "create" jobs by tweaking this tax break or increasing that spending program, why not stop doing things that destroy jobs?"

Capitalist pigs and global warming
12/14/09   Fun
"Dear Secretary of State, My friend, who is in farming at the moment, recently received a check for 3,000 from the Rural Payments Agency for not rearing pigs. I would now like to join the 'not rearing pigs' business. In your opinion, what is the best kind of farm not to rear pigs on, and which is the best breed of pigs not to rear?"

What matters now
12/14/09   Books
"Here are more than seventy big thinkers, each sharing an idea for you to think about as we head into the new year. From bestselling author Elizabeth Gilbert to brilliant tech thinker Kevin Kelly, from publisher Tim O'Reilly to radio host Dave Ramsey, there are some important people riffing about important ideas here. The ebook includes Tom Peters, Jackie Huba and Jason Fried, along with Gina Trapani, Bill Taylor and Alan Webber. Here's the deal: it's free."

Select dividend club
12/14/09   Dividends
"Canada's most exclusive dividend club just got a whole lot smaller. After a year in which some high-profile companies slashed their dividends and many others failed to increase their payments as they dug in for the recession, the S&P/TSX Canadian Dividend Aristocrats index is losing 15 members - including most of the banks - and gaining just one."

Menu mind games
12/11/09   Behaviour
"William Poundstone dissects the marketing tricks built into menus - for example, how something as simple as typography can drive you toward or away from that $39 steak."

Market-timing losses in dispute
12/11/09   Hallett
"Despite mutual fund companies' insistence that the scandal over illegal market-timing that erupted five years ago is an old and dead issue, there's never been a full industry-wide accounting of all investor losses."

Confronting high risk and banks
12/11/09   Government
"Of course, banks also engaged in regulatory arbitrage, by moving from one regulator to another to seek more lenient treatment. Their route to regulatory success - at least in terms of building an empire - was to spike the punch bowl. The banks now want to stop FASB from forcing them to mark assets to market, or reveal their current market value. And they have some sympathy from bank regulators, which fear that marking to market can make banks look too healthy in good times and too unhealthy in bad times. That appalls investors."

Obama's big sellout
12/11/09   Government
"What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different." [Looks like the honeymoon is over...]

Put option: default, then rent
12/11/09   Real Estate
"Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out."

Buying green makes you do bad things
12/11/09   Behaviour
"While mere exposure to green products may 'prime' us to think about social consciousness and perhaps improve our behavior, if we actually buy a green product, we appear to take it as license to act like jerks."

The importance of checking
12/11/09   Behaviour
"Newman said, 'ah, that's the spinach mistake.' Knowing only that spinach is good for me and unaware of any vegetable transgressions, I asked him to elaborate on his response. The story is that in 1870, a German chemist named Erich von Wolf collected the nutritional value of green vegetables, including spinach. In transposing the figures from his notebook to the final table, von Wolf apparently misplaced a decimal point, hence overstating spinach's iron content by a factor of ten. (Roughly 35 mg per 100 g serving versus 3.5 mg.) Once in print, the perception of spinach's nutritional value took on a life of its own."

Enjoy the January rebound
12/10/09   Dorfman
"You wouldn't kick a man while he was down, would you? But the stock market would. Most years, investors put selling pressure in November and early December on stocks that have declined from January through October. Why? Blame the tax man."

A look inside Buffett's battery bet
12/10/09   Buffett
"When MidAmerican bought its BYD stake, the media jumped to the conclusion that Mr. Buffett was placing a bet on electric cars. Cannily, Mr. Buffett and MidAmerican executives made no effort to dispel this impression. But all evidence suggests their interests lay elsewhere. MidAmerican Energy Holdings runs power grids that generate more energy from renewable sources than any major American utility. MidAmerican's subsidiary in Oregon, PacifiCorp, recently erected a building the size of ten 40-foot storage containers that houses BYD batteries. Those batteries are being tested for the storage of wind-generated energy. BYD's real contribution to Mr. Buffett's portfolio will probably be low-cost, relatively low-tech batteries that store wind and solar power for use on days that are breezeless and cloudy."

2009 year-end financial deadlines
12/10/09   Taxes
"With the end of this year just around the corner, here are some personal finance deadlines to note"

Requiem for the dollar
12/05/09   Grant
"Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head. I wonder, though, just how far we have really come in the past 200-odd years."

Chinese chocolate mystery
12/05/09   Fun
"Last week, at the end of one of my dispatches from China, I asked readers to help me understand why I couldn't find a chocolate bar in the world's most populous country. I wasn't implying there was no chocolate in China, but I was surprised that after five days in offices, factories, hotels, restaurants, transit hubs, roadside rest stops, ferry terminals, and street markets I had yet to come across a Hershey's bar or the Chinese equivalent."

Rodriguez flouts 'small mind' investor rules
12/04/09   Value Investing
"Robert Rodriguez ignores most rules of the mutual-fund industry, an approach that's helped him beat all rival managers over the past 25 years."

The CEO may not change the company
12/04/09   Zweig
"How much of a difference should investors expect when General Motors - or any company - brings in a new chief executive? Not much."

Why didn't Canada's housing market go bust?
12/03/09   Real Estate
"Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust."

Why loan modifications fail
12/03/09   Real Estate
"Why are so few temporary mortgage modifications turning permanent? One reason may be the same one that a lot of bad loans were made in the first place. Borrowers can declare their income, and the banks are willing to grant temporary modifications based on those figures, without any evidence to confirm them. But to make a modification permanent, the banks have to see proof of income, and the borrower has to make three monthly payments of the new lower amount. In most cases, those requirements are not being met."

Ride the recovery
12/03/09   Dorfman
"In the early stages of economic recoveries, three stock-market sectors usually do well: energy, materials and industrials. In this column, I recommend a few stocks in these key groups."

Institute for Financial Learning Ponzi Scheme
12/03/09   Crime
"Predictably, mostly elderly people seem to have been the biggest victims of this scam and it is outrageous that crimes such as this that are so devastating on so many people does not seem to result in punishment that fits the severity of the crime."

Think like Buffett
12/03/09   Value Investing
"Buy-and-hold investing has its share of fans. If you admire Warren Buffett, Benjamin Graham, David Dodd, Charlie Munger, John Templeton, Joel Greenblatt or Seth Klarman, you're one of them."

Foxes guard the financial henhouse
12/03/09   Government
"Now imagine the uproar if Obama actually allowed Goldman, rather than its ex-employees, to regulate risk in the financial markets. And yet the administration and its allies in Congress are poised to do just that."

An energy answer in the shale below?
12/03/09   World
"Just a few years ago, the industry didn't have the technology to unlock these reserves. But thanks to advances in horizontal drilling and methods of fracturing rock with high-pressure blasts of water, sand and chemicals, vast gas reserves in the United States are suddenly within reach."

Coal world
12/03/09   World
"It might even be motivating. Because unless we get serious about using the remaining oil to fund the 25 year construction phase for a new class of power generation, the world will become ever more energy impoverished. And when you.re impoverished, you don.t burn expensive oil. And you certainly don.t build out vast wind power and solar capacity. When you.re impoverished you burn coal."

RRSPs and the GIS don't mix well
11/29/09   Retirement
"Canadian seniors with low incomes receive a Guaranteed Income Supplement (GIS) from the government. Within a certain income range, each additional dollar of income reduces the GIS payments by 50 cents. This amounts to a 50% tax on this income. Combining this with the regular income taxes, the effective tax rate on RRSP withdrawals can be over 70%."

A growing disaster
11/29/09   Government
"Allowing a higher percentage of ethanol in gasoline will not make us less dependent on such foreign energy sources. It will not help the environment. It will not lower consumer prices. And it will result in the poor of the world having less to eat. Instead of raising federal mandates on ethanol, Congress and the Obama administration should end them entirely."

Too late for the junk-bond party?
11/29/09   Zweig
"Baylor University finance professor William Reichenstein says that junk-bond returns mirror what you would get if you put two-thirds of the money in investment-grade bonds and one-sixth each in large-company stocks and small-company stocks - all of which you probably own already."

An economist's invisible hand
11/29/09   Economics
"At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today. The favored candidates include John Maynard Keynes, the patron saint of stimulus programs; Hyman Minsky, an American disciple of Mr. Keynes who warned about the dangers of financial deregulation; and Milton Friedman, the late Chicago economist. (Mr. Friedman's free market principles are out of vogue, but Federal Reserve Chairman Ben Bernanke recently took his advice on how to prevent depressions by pumping money into the economy.) The winner's name, however, turns out to be much less familiar: Arthur Cecil Pigou"

Dangers of an overheated China
11/29/09   World
"China has had a 30-year run of stellar economic growth. But it's only human nature for such expansion to breed too much optimism, overextending an entire economy. Americans have found this out the hard way in their own financial crisis. History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern?"

Wave of debt payments facing U.S.
11/25/09   Debt
"The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.'s on terms that seem too good to be true."

How little we know
11/24/09   Government
"We are what we repeatedly do. Not what we say we are. Not what we.d like to be. But what we do. What we do as a body politic is rescue rich people from the consequences of their decisions. That is bad for democracy and bad for capitalism. Until we fix that, we as citizens are playing a game of 'heads - Wall Street executives win a ridiculously enormous amount, tails - they just win a ridiculous amount, paid for by the rest of us.' Until we fix that, little else matters."

How much choice would you like?
11/24/09   Behaviour
"Benjamin Scheibehenne, a psychologist at the University of Basel, was thinking along these lines when he decided (with Peter Todd and, later, Rainer Greifeneder) to design a range of experiments to figure out when choice demotivates, and when it does not. But a curious thing happened almost immediately. They began by trying to replicate some classic experiments - such as the jam study, and a similar one with luxury chocolates. They couldn't find any sign of the 'choice is bad' effect."

More stocks may not make a portfolio safer
11/22/09   Zweig
"As many studies have shown, at least 40% of the variability in returns can be reduced by moving from a single company to 20. Once a portfolio contains 20 or 30 stocks, adding more does little to damp the fluctuations in wealth over time. But this research on diversification was based on the average results of a large number of portfolios randomly generated by computer. Something entirely different happens when flesh-and-blood humans try to pile up stocks one at a time."

Investors will buy anything
11/19/09   Fun
"If you thought those double and triple leveraged ETFs were pushing the envelope, how about an ETF that provides a 100-times leveraged play on the technology-heavy Nasdaq exchange? Let me warn you upfront that the following concerns an Onion-style parody, but it's nevertheless swept through the blogosphere. The scary part is that not only did many people actually believe this product was launched last Friday (the 13th, fittingly) but some even indicated an interest in buying such a product."

Gold can make you poor
11/19/09   Markets
"Problem is, Winkler also reproduces a chart that shows seven-and-a-half centuries of real gold prices. At least to my eyeballs, it appears that if you had bought gold between 1415 and 1765 or so, you would have to wait until around the mid-1960s to be back to even in terms of purchasing power. Call me crazy, but I like my investments to pay off in a century or less."

What are these home owners thinking?
11/19/09   Real Estate
"Those who fail to study history are condemned to repeat it. Those who ignore very recent experience are just being stupid."

The economics of pinball
11/19/09   Fun
"Video games competed by adding levels of play with increasing difficulty. Any new player could quickly get chops on a new game because the low levels were easy. This ensured that new players were drawn in easily, but still they were continually challenged because the higher levels got harder and harder. By contrast, the physical nature of pinball, its main attraction to hardcore players, meant that there was no way to have it both ways. Eventually, to keep the pinballers playing, the games became so advanced that entry-level players faced an impossible barrier. High-schoolers in 1986 were either dropouts or professionals in 1992 and without inflow of new players that year essentially marked the end of pinball."

The debt economy
11/16/09   Debt
"John Kenneth Galbraith wrote that all financial crises are the result of 'debt that, in one fashion or another, has become dangerously out of scale.' The recent financial crisis was no exception, with everyone - homeowners, private-equity investors, our biggest banks - taking on enormous amounts of debt. If it's frustrating that the government is footing the bill to clean up the mess, it's even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn't get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked."

Using the lottery effect to make people save
11/16/09   Zweig
"Based on recent headlines, you might think that Americans are finally saving again. Want to bet? In 2007, the latest year for which final numbers are available, Americans spent $92.3 billion on legalized gambling, according to Christiansen Capital Advisors; that same year, says the U.S. Bureau of Economic Analysis, Americans saved only $57.4 billion."

Is there a method in cellphone madness?
11/16/09   Behaviour
"Here's a consolation prize to the millions who recoil in bafflement from cellphone companies' labyrinthine price plans, with their ever more intricate arrays of minutes, messages and megabytes: Economists don't understand them, either."

Malcolm Gladwell, eclectic detective
11/14/09   Books
"Readers have much to learn from Gladwell the journalist and essayist. But when it comes to Gladwell the social scientist, they should watch out for those igon values."

Paying a price for the thrill of the hunt
11/14/09   Markets
"The dollar auction game was invented by a pioneer of game theory, Martin Shubik of Yale, and it illustrates the concept of 'escalation of commitment.' Once people are trapped into playing, they have a hard time stopping. (Consider Vietnam.) The higher the bidding goes, and the more each bidder has invested, the harder it is to say 'uncle.' The best advice you can give anyone invited to play this particular game is to decline. Some games and battles are like that: even when you win, you lose. When you see at the start that such a dynamic is likely, you're better off just walking away."

Job losses mount, enduring and deep
11/14/09   Economy
"The overall unemployment rate, which reached 10.2 percent on a seasonally adjusted basis last month, remains below the post-World War II peak of 10.8 percent, reached in late 1982. But the proportion of workers who have been out of work for a long time is higher now than it has ever been since the Great Depression."

The lost decade
11/14/09   Markets
"we've already had our lost decade. When 2010 dawns in several weeks, it will bring down the curtain on a decade - the oughts - in which a great deal and not much at all happened, economically and financially speaking. In fact, a startling number of contemporary indicators are at or below the levels at which they stood 10 years ago."

A six thousand year-old bubble
11/13/09   World
"In a world with multiple fiat moneys, the zero value of money equilibrium lurks for each of the fiat currencies, including gold. Admittedly, as regards gold, so far so good. Gold has positive value. It has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history."

Acorn and the housing bubble
11/13/09   Real Estate
"Fannie and Freddie also acquired $2.2 trillion in subprime loans and private securities backed by subprime loans from 1997 to 2007. Acorn and the other advocacy groups succeeded at getting Congress to mandate "innovative and flexible" lending practices such as higher debt ratios and creative definitions of income. And the serious delinquency rate on Fannie and Freddie's $1.5 trillion in high-risk loans was 10.3% as of Sept. 30, 2009. This is about seven times the delinquency rate on the GSEs' traditional loans. Fifty percent of the high-risk loans are estimated to be CRA loans, with much of the remainder useful to the GSEs in meeting their affordable-housing goals."

What is expert advice worth?
11/13/09   Markets
"In the sixth century B.C.E., the Chinese philosopher and poet Lao Tzu made a timeless statement: "Those who have knowledge don't predict. Those who predict don't have knowledge." Well over 2,000 years later, it has yet to be better said. Yet the business press never tires of printing predictions by economists and other market animals. At what pace will the economy grow next year? In two years and in three? Whence stocks, up, down or nowhere special? These are common questions and the analysts generally stand tall and answer them with remarkable authority and confidence. How seriously should you take their forecasts?"

Bad decisions may be contagious
11/13/09   Behaviour
"Like the flu, a person's emotional state can be contagious. Watch someone cry, and you'll likely feel sad; think about the elderly, and you'll tend to walk slower. Now a study suggests that we can also catch someone else's irrational thought processes."

Keeping America great
11/13/09   Buffett
"We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially."

Squawking hawks
11/13/09   Fun
"A once-endangered species is staging a robust comeback: the deficit hawk. Hunted nearly to death during the Bush years, many varieties not seen in Washington in a decade are now perching on branches and dropping their wisdom. Look, there's the puff-chested congressional peacock hawk, frequently seen strutting about Sunday-morning-TV-show sets complaining about pork while emitting loud honks on the receipt of stimulus funds. The furrowed-brow warbler hawk (natural habitat: the op-ed pages) loathes deficit spending for the purpose of eliminating social injustice but loves it when the spending is used to finance military actions abroad. The blue-bellied partisan hawk nests in think tanks; it goes mute when members of its own party run the show but squawks loudly when opponents run up debt. On Nov. 3, birders sighted the rare skinny parrot hawk, which repeats back calls about fiscal probity. Said President Barack Obama on that date: 'The government is going to have to get serious about reducing our debt levels.'"

Barbarians at the discount retailer
11/12/09   Markets
"Discount retailer Dollar General returns to the public markets on Friday, two years after it was taken private by a team of private equity firms. Its debut will be closely watched, mainly because a retailer whose sales and profits have soared while the economy has struggled is expected to prove popular. But it's also a test of whether investors will let Kohlberg Kravis Roberts and other private equity giants get away with their old tricks in this recovering economy."

Has market got ahead of itself?
11/12/09   Value Investing
"It's common to hear investing pros marvel at what they see as the passivity and fearfulness of the individual investor. But with the stock markets up from their bear market lows by about 50 per cent in just eight months, there are those in the financial world who think stocks have gotten ahead of themselves. Mr. Maida is one of them."

Patient Capital Q3
11/12/09   Value Investing
"Perhaps most worrisome is that the appetite for excessive risk has returned. Some market observers have commented that hedge funds and speculators are borrowing US dollars at close to zero interest rates and investing the proceeds in the financial markets. In Canada, we have witnessed a renewed interest in speculative resource investments. In the past this behaviour has not bode well for future equity returns."

U.S. is destroying manufacturing
11/12/09   World
"'What do you think I am going to do?' Farr asked. 'I'm not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs.'"

Chanos condemns 'monstrous idea'
11/11/09   Accounting
"Famed hedge-fund manager James Chanos in recent speeches has outlined lessons from the financial crisis. A top one: 'Accounting matters a lot.' Chanos, who has flagged numerous accounting frauds over the years including the one that ultimately brought down Enron Corp., is concerned investors will quickly forget this and other warnings from the implosion of the financial system."

The greatest trade ever
11/11/09   Markets
"How hedge fund manager John Paulson bet against the real estate bubble and made $15 billion in a single year."

How to catch a fraud
11/11/09   Accounting
"One indicator was particularly telling, and it's surprisingly obvious: number of employees. For companies that didn't commit fraud, the change in revenue and the change in employees stayed within about 4% of each other. For fraudulent companies, the difference was 20%."

Big-spending, high-taxing, lousy-services paradigm
11/10/09   World
"It's true that many people are less sensitive to taxes and more concerned about public goods, and these consumer-voters will congregate in places with extensive services. But it's also true, all things being equal, that everyone would rather pay lower than higher taxes. The high-benefit, high-tax model can work, but only if the high taxes actually purchase high benefits - that is, public goods that far surpass the quality of those available to people who pay low taxes. And here, California is decidedly lacking."

Murdoch to Google: search this
11/10/09   Stocks
"As unlikely as it sounds, Rupert Murdoch may end up being our last best hope for a peaceful solution to the Internet's war on professional journalism. A man who many blame for commodifying, globalizing, sensationalizing, and cheapening news is considering taking a stand against a force even bigger than himself: the Web link."

Detroit: Urban Laboratory
11/10/09   World
"As the focus on agriculture and even hunting show, in Detroit people are almost literally hearkening back to the formative days of the Midwest frontier, when pioneer settlers faced horrible conditions, tough odds, and often severe deprivation, but nevertheless built the foundation of the Midwest we know, and the culture that powered the industrial age. No doubt in the 19th century many of those sitting secure in their eastern citadels thought these homesteaders, hustlers, and fortune seekers crazy for leaving the comforts of civilization to head to places like Iowa and Chicago. But some saw the possibilities of what could be and heeded the call to 'Go West, young man.' We've come full circle."

Stocks Ben Graham might buy
11/10/09   Graham
"What I call Graham stocks have a share price that's less than book value (corporate net worth) and less than 12 times earnings, as well as debt less than 50 percent of stockholders' equity."

Public pensions face ugly choices
11/10/09   Government
"States and municipalities are in deep financial trouble. Pension performance has faltered. Over a trillion dollars worth of municipal pension fund assets have been erased in the recent market meltdown. The average public pension plan is 35% under-funded, and things are getting worse. A wave of municipal bankruptcies could well follow."

CMHC needs to review policies
11/06/09   Real Estate
"Another characteristic similar to the U.S. meltdown is the fact AVMs, RATs, no physical inspections and speedy credit approvals enhanced a form of mortgage fraud known as "boost and flip.""

Goodbye to reforms of 2002
11/06/09   Accounting
"Sarbanes-Oxley was passed, almost unanimously, by a Republican-controlled House and a Democratic-controlled Senate. Now a Democratic Congress is gutting it with the apparent approval of the Obama administration."

Are liberals smarter than conservatives?
11/06/09   Behaviour
"Who are smarter, liberals or conservatives? This is the kind of question that could spark fierce and endless debates between political opponents, but what if we could know, scientifically, that one side has the edge in brainpower? Should that change how we think about political issues? Though few partisans on either side are likely to admit it, most people at one time or another have suspected that their political opponents are dim bulbs."

Innovation is not rewarded
11/06/09   Behaviour
"We all benefit from the Pasteurs, the Fords, even the Bill Gates. They create things with spillovers. Yet, you average innovator is simply wrong, hearing dog whistles others don't, and like Van Gogh getting his appreciation after dying, most innovators do their bidding for those they do not know. Deviating from the consensus produces all the things that has elevated us from hunter-gatherers, yet, the record for the individual innovators themselves, is decidedly negative."

Bondholders extract revenge
11/06/09   Bonds
"Companies in dire straits often roll the dice in a bid to stave off bankruptcy. The problem is that last-ditch efforts to raise new funds or restructure often come at the expense of bondholders."

What would Warren do?
11/06/09   Buffett
"There is no shortage of motives assigned to Buffett’s motivations for the deal. They include: anxiety about sitting on cash, a general economic play, a bet on another stimulus, a bet on coal, a bet on a turn in the rail economy, a desire to make Berkshire easier to run for a successor, or a desire to be a member of the S&P 500. Then again it might be as simple as the fact that Buffett thinks Burlington Northern is undervalued."

The quiet death of the Kyoto protocol
11/06/09   World
"Reading the climate-change news in recent weeks, one might wonder who won the last election. The Obama administration has rejected the Kyoto Protocol (ensuring it will expire), adopted some of former President George W. Bush's key positions in international climate negotiations, and demurred when asked about reports that the president has decided to skip the December climate summit in Copenhagen. United Nations climate negotiator Yvo de Boer has concluded that it is 'unrealistic' to expect the conference to produce a new, comprehensive climate treaty - which also describes the once-fond hopes for passage of domestic climate legislation this year - or even in Obama's first term. This is not how it was supposed to be."

Berkshire buys Burlington
11/03/09   Buffett
"Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in the company's biggest takeover under Warren Buffett."

Galleon and the trouble with insider trading
11/02/09   Markets
"It happened almost every earnings season. My hedge fund would own a million shares in some company and two weeks before it was to report quarterly earnings, its stock would start dropping. There was no news to explain it. We were in the dark, even though it was my job to know. Inevitably, the company would report a disappointing quarter, missing Wall Street's earnings expectations by a penny or two. Someone knew. A salesman's brother-in-law heard a few deals didn't close. Or maybe an insider was singing. The recent arrest of Galleon Group hedge fund's Raj Rajaratnam on insider trading charges puts a spotlight on this game. Is trading on industry knowledge widespread? Absolutely. That's how many hedge funds and mutual funds get an edge. Is insider trading also widespread? Only the Securities and Exchange Committee's wire-tappers know for sure."

Free for a fee
11/02/09   Indexing
"I present and test a rational expectations model consistent with the finding that active funds underperform index funds by an amount roughly equal to their fees. Investors receive privately observed wealth shocks that cause them to rebalance. These shocks also induce noise in stock prices through a wealth effect. As a result, investors tend to buy in and out of index funds at the wrong time, failing to attain the buy-and-hold return of the index fund. Empirically, looking at individual as well as aggregate fund returns, I find that taking into account the timing of investment can account for most of the buy-and-hold advantage of index funds."

We're governed by callous children
11/01/09   Government
"We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists - they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice."

Up against a wall of debt
10/30/09   Debt
"The idea that the government of a major advanced country would default on its debt - that is, tell lenders that it won't repay them all they're owed - was, until recently, a preposterous proposition. Argentina or Russia might stiff their creditors, but surely not the likes of the United States, Japan, or Great Britain. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse."

Where SuperFreakonomics falls down
10/28/09   Books
"Almost everybody has had the experience of wondering if the problem with one's car is really as serious as the auto mechanic says - or if the mechanic is blowing it up to charge more. In our dealings with the body shop, as in many other situations, we are at what the experts would call a humongous informational disadvantage. We are always conscious of the possibility of getting charged way too much. And we sometimes are - but rarely do we run into the perfectly unscrupulous tradesman who rips us off as badly as we fear he can. Car repair isn't one of the professions that Steven D. Levitt and Stephen Dubner look at in their best-selling Freakonomics or their new SuperFreakonomics. But it's an example that's familiar to everyone and useful in thinking about questions like 'How do we know when we're getting a fair deal?' or 'How likely are we to be misled in our dealings?' or (for those who are, like me, clueless about cars), 'Why don't we get ripped off all the time?'"

A drop in the wrong bucket
10/28/09   Government
"The president has proposed sending a $250 check to every Social Security recipient, which sounds pretty good at first. The checks would be part of his admirable efforts to stimulate the economy, and older Americans are clearly a sympathetic group. Next year, they are scheduled to receive no cost-of-living increase in their Social Security benefits. Yet that is largely because they received an artificially high 5.8 percent increase this year. For this reason and others, economists are generally recoiling at the proposal."

Charlie Munger: Boom and bust is normal
10/27/09   Munger
"Today, Munger says he may only speak to Buffett once a week, but his key influence on the success of Buffett's enterprise over many decades is undisputed."

What's killing California?
10/27/09   World
"The real problem could be much more simple and yet much more terrifying in its implications. California has simply now outgrown its youth and is now well into its middle age. Like the Rust Belt before it, California is now old. As with people as they age, .chronic lifestyle diseases. hit places too. These are: unfunded liabilities, the end of growth economics, and institutional rigidity, each of which builds on the one before it."

Why banks stay big
10/26/09   Stocks
"Maybe megabanks are what we need. Certainly most developed nations have banking systems even more concentrated than ours. The trouble is that the 'market' for banking is so distorted - by switching costs, by government subsidies and guarantees, and by the banks' market power - that it's hard to know whether big banks are adding value or are simply exploiting their oligopolistic positions."

Against apple picking
10/26/09   Fun
"Apple picking is a cherished rite of fall, a wholesome and fun family outing, a throwback to a simpler time when people weren't so disconnected from the production of their sustenance. I look forward to it every year. It's also a wasteful scam."

Staying calm in a world of dark pools
10/26/09   Zweig
"In 1976, the great financial analyst Benjamin Graham declared that "the stock market resembles a huge laundry in which institutions take in large blocks of each other's washing ... without rhyme or reason." Mr. Graham died that year, but today he would laugh at the speed of the spin cycle. He would then ignore the momentary vibrations in a company's stock price and go right back to analyzing the value of its business. As an investor, you are free to choose your own time horizon. If other people want to try earning a few fractions of a penny a few thousand times a day, you should wish them well -- and refuse to join them."

Dividend appeal
10/26/09   Dorfman
"Dividends are as old-fashioned as corsets, if you listen to most investors. How wrong they are."

US bank charge-off rates exceed depression
10/26/09   Markets
"Bank charge-offs - loans written off as uncollectable - have reached $116 billion year to date, or 2.9 percent of outstanding loans on an annualized basis, Moody's said in a report. By comparison, bank charge-offs were about 2.25 percent in 1932, the third year of the Great Depression, Moody's said."

Schloss' factors
10/26/09   Schloss
"Price is the most important factor to use in relation to value."

Learning to love insider trading
10/25/09   Law
From the what could possibly go wrong file, "Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell"

Subprime mortgages: Myths and reality
10/25/09   Markets
"Subprime is just another boom and bust story; just another example of the manner in which easy money will find an outlet. Usually, of course, easy money will express itself in terms of inflation; since there was not much inflation in the period 2001-07, the Fed missed the underlying problem."

Is 'honest services fraud' a bogus charge?
10/25/09   Crime
"Critics of the law say it unfairly gives prosecutors a way to bring vague charges when they can't build a case for more conventional crimes like bribery. "It's been very, very broadly applied," says Patricia Pileggi, a former U.S. prosecutor who is now an attorney with the firm Schiff Hardin in New York. "It's useful to prosecutors because they are not required to prove that somebody got a tangible, monetary benefit" from their actions."

Hu versus Sarkozy
10/25/09   World
"There is no more reliable rule than the 95% rule: 95% of what you read about economics and finance is either wrong or irrelevant."

The dog ate your mortgage
10/25/09   Real Estate
"But some judges are starting to scrutinize the rules-don't-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit. One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn't proved its claim to a delinquent borrower's home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That's right: the mortgage debt disappeared, via a court order."

American austerity is about to begin
10/25/09   Markets
"While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path."

The return of the Why-P.O.
10/23/09   Stocks
"What in tarnation is a Why-P.O. you ask? It's an IPO so pointless for investors to be involved with that you can only scratch your head after reading the prospectus and ask 'Why?'."

Homebuyers' handout
10/22/09   Real Estate
"Following the cash-for-clunkers idiocy, the federal government may extend its subsidy for homebuyers. The $8,000 tax credit for first-time homebuyers is due to expire Nov. 30, but our solons in the Senate are looking to push back that deadline and possibly expand the credit to $15,000 to most homebuyers, not just newbies. As with the clunker cash, Uncle Sam is giving money to folks to do what they would have done anyway."

Magic tricks on the corporate books
10/22/09   Accounting
"Accounting shenanigans bubble to the surface every few years. In the dot-com days the trick was to book virtual revenues. After the tech bust, tinkering with expenses was all the rage. Now forensic auditors and analysts worry that troubled companies are playing fast and loose with asset valuations and cash management."

Bond, Fake Bond
10/22/09   Crime
"It sounds like something out of a summer caper flick: Two men carrying Japanese passports were apprehended trying to enter Switzerland from Italy via commuter rail in June. The men looked out of place on the train, which tends to carry low-income manual laborers. That was enough to raise the suspicions of the Italian authorities, who detained the passengers and rifled through one of their briefcases. Inside was what appeared to be $134 billion in U.S. Treasury bonds labeled with denominations of $500 million and $1 billion. (This despite the fact that the Treasury has never produced bonds in denominations greater than $100,000.) Later this summer, history seemed to repeat itself when Italian authorities intercepted another cache of false T-bills from the Philippines destined for the United States worth an alleged $116 billion. Why on earth would anybody create fake Treasury bonds - in such eye-popping denominations?"

The pyramid principle
10/22/09   Stocks
"Right now America.s banking system resembles a pyramid. At the top, two or three firms are doing well. But beneath them are a handful of giant conglomerates that are struggling towards profits, a tier of middling banks with overexposure to risky assets, and a vast base of small banks in deep, deep trouble."

Extremists share their opinions
10/21/09   Behaviour
"People with relatively extreme opinions may be more willing to publicly share their views than those with more moderate views, according to a new study. The key is that the extremists have to believe that more people share their views than actually do, the research found."

Cheap and ugly can be beautiful
10/21/09   Value Investing
"Bruce Greenwald talks value investing in 2 parts."

The warning
10/20/09   Derivatives
""We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?""

Investor timing ability
10/20/09   Funds
"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."

Downside by Style
10/19/09   Tipsheet
"Value stocks didn't fare well in the recent downturn. Even high yield stocks, which provided downside protection in past bear markets, did just as poorly as the markets. The winners were growth stocks and dividend growth stocks. "

The view from inside a depression
10/18/09   Markets
"In January 1931, a lawyer named Benjamin Roth, 38 years old, solidly Republican, a solo practitioner in Youngstown, Ohio, decided to start a diary. Realizing that he was 'living through an historic thing that will long be remembered' - as he put it in one early entry - he wanted to keep a record for posterity."

CMHC's growth fuels worries over new risks
10/18/09   Government
"The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight." [CMHC, helping to make Canadian real estate more expensive since 1946.]

Recession is over
10/18/09   Economy
"The worldwide recession appears to have ended, with surveys showing manufacturing activity is on the rise nearly everywhere."

Take off the blinders
10/18/09   Funds
"In the mad dash to buy bond funds -- about $200 billion so far this year -- investors are overlooking fees. Most of the new bond money is going not into dirt-cheap index funds, but into far more expensive, actively managed portfolios. The average annual cost of owning a taxable bond fund, according to Morningstar, is 1.03% of invested assets, with a maximum of 2.98%. In a world of 3% to 4% Treasury yields, with the risk of losses if interest rates rise, those fees loom large."

Galleon case ushers in wiretaps
10/17/09   Crime
"U.S. prosecutors who used wiretaps to make their insider trading case against billionaire Raj Rajaratnam, founder of hedge fund firm Galleon Group, said they will use similar tactics to fight future crimes on Wall Street."

Yield hogs out-stampede stock bulls
10/16/09   Bonds
"In 1993, there was a headlong rush into bond funds as investors fled what then was unimaginably low money-market rates of 3%. In 1994, they learned an expensive lesson in bond-market math: when yields go up, prices go down. When the Federal Reserve hiked short-term rates that year, there was a frightful bear market, which featured the first rout in exotic mortgage-backed securities."

Exit, pursued by a bear
10/15/09   Markets
"Private equity firms like to talk about creating value over the long term. But like all good investors, they're opportunistic. They jump at opportunities to acquire companies when owners are desperate, and they leap at opportunities to cash out when the public debt and stock markets are in a credulous phase. In the go-go credit years, private equity firms minted money by having companies they controlled issue bonds and use the proceeds to pay the owners a special dividend. The credit crisis put an end to that strategy. So they're back to extracting value by selling stock. And they can do so only when markets are comparatively forgiving and complacent, when investors have let down their guard. (There were very few IPOs and private equity exits in March and April, when tolerance for risk was extremely low.) If a slew of private-equity-backed cash-out IPOs find a rapturous reception in coming months, it could be a warning that investors are become as irrationally exuberant as they were when the Dow first crossed 10,000 in the spring of 1999."

How different are dogfighting and football?
10/12/09   Health
"In a fighting dog, the quality that is prized above all others is the willingness to persevere, even in the face of injury and pain. A dog that will not do that is labelled a 'cur,' and abandoned. A dog that keeps charging at its opponent is said to possess 'gameness,' and game dogs are revered. In one way or another, plenty of organizations select for gameness. The Marine Corps does so, and so does medicine, when it puts young doctors through the exhausting rigors of residency. But those who select for gameness have a responsibility not to abuse that trust"

Obama fails to win Nobel prize in economics
10/12/09   Fun
"While few observers think Obama has done anything for world peace in the nearly nine months he's been in office, the same clearly can't be said for economics. The president has worked tirelessly since even before his inauguration to wrest control of the U.S. economy from failed free markets, and the evil CEOs who profit from them, and to turn it over to wise, fair and benevolent bureaucrats."

Don't let a market crash hit you
10/11/09   Markets
"Benjamin Graham -- Mr. Buffett's mentor -- advised splitting your money equally between stocks and bonds. Graham added that your stock proportion should never go below 25% (when you think stocks are expensive and bonds are cheap) or above 75% (when stocks seem cheap). Graham's rule remains a good starting point even today. If time turns out to be your enemy instead of your friend, you will be very glad to have some of your money elsewhere."

A Bounce? Indeed. A Boom? Not Yet.
10/11/09   Real Estate
"At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs - including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 - in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility."

Not so fast
10/09/09   Management
"He is the 'Father of Scientific Management' (it says so on his tombstone), and, by any rational calculation, the grandfather of management consulting. Whether he was also a shameless fraud is a matter of some debate, but not, it must be said, much: it's difficult to stage a debate when the preponderance of evidence falls to one side."

Gold is still a lousy investment
10/08/09   Markets
"Gold, like other commodities, is a notoriously volatile and fickle investment. It has enjoyed periods of very high interest from investors, followed by long bouts of absolute indifference. Today, it is having one of the former, shining brightly in an otherwise tumultuous investment environment. The question for investors: Will gold remain bright or not? More long term, what role should gold play in an investor's portfolio? The answer to both questions might disappoint the growing golden horde."

There's no such thing as too big to fail
10/08/09   Markets
"The collapse of a financial institution is not necessarily a disaster. If free markets are to thrive, we must not allow giant, state-supported banks to believe that they are indestructible, Niall Ferguson warns"

How nonsense sharpens the intellect
10/08/09   Behaviour
"Still, the new research supports what many experimental artists, habitual travelers and other novel seekers have always insisted: at least some of the time, disorientation begets creative thinking."

Buffett selling means you shouldn't be buying
10/08/09   Buffett
"It's not often that Warren Buffett gives the investing public a reason to believe he's not on their side. Then again, it's not every day that Buffett's Berkshire Hathaway Inc. shows up on the list of selling shareholders in another company's initial public offering."

Solid investor Howson hands off reins
10/04/09   Value Investing
"Rick Howson, who excelled in managing the same value-style Canadian equity fund for two full decades until stepping down this week, was never what you would call a high-profile "star" manager."

Kahn's top picks
10/04/09   Value Investing
"Another Kahn favourite is pork processor Seaboard, which has managed to remain profitable even as larger competitors have stumbled. "I don't eat pork, but a lot of people do," he says."

Marshmallows and self-control
10/03/09   Behaviour
"Psychology professor Walter Mischel's 1960s experiment involving children, sugary sweets, and self-control has become a classic. The set-up is simple. A researcher lets a child pick a favorite food from a tray of cookies, marshmallows, candies, pretzels, and other sweets. The researcher puts that treat on the table in front of the child and makes an offer. The child can eat it now. Or the child can wait a few minutes while the researcher goes to check on something else, and get two treats when the researcher returns. If the child loses patience, she can ring a bell, the researcher will come right back, and the child can eat the treat right away. She does not get another one, of course." [Be sure to watch the cute video.]

Information suppression in competitive markets
10/02/09   Academia
"Our analysis begins with the observation that consumers sometimes fail to anticipate contingencies. When consumers pick among a set of goods, some consumers do not take full account of shrouded product attributes, including maintenance costs, prices for necessary add-ons, or hidden fees. Bank accounts, for example, have many shrouded attributes like fees and surcharges. A bank may prominently advertise 'free checking,' but the advertising won't highlight the $30 fee for a bounced check, the $15 surcharge for a checkbook, or the $2 penalty per check for writing more than five checks in a month. Many consumers do not know the details of this fee structure until after they open their account."

After Empire
10/02/09   World
"The young black doctors who earned the same salary as we whites could not achieve the same standard of living for a very simple reason: they had an immense number of social obligations to fulfill. They were expected to provide for an ever expanding circle of family members (some of whom may have invested in their education) and people from their village, tribe, and province. An income that allowed a white to live like a lord because of a lack of such obligations scarcely raised a black above the level of his family. Mere equality of salary, therefore, was quite insufficient to procure for them the standard of living that they saw the whites had and that it was only human nature for them to desire - and believe themselves entitled to, on account of the superior talent that had allowed them to raise themselves above their fellows. In fact, a salary a thousand times as great would hardly have been sufficient to procure it: for their social obligations increased pari passu with their incomes."

For once analysts are onto something
09/28/09   Dorfman
"From 1998 through 2007, the four stocks rated highest by brokerage-house analysts at the beginning of the year dropped 1.7 percent, on average, in the ensuing 12 months. The four stocks they rated lowest gained 2.2 percent. Neither group beat the Standard & Poor's 500 Index, which had an average annual gain of 7.2 percent."

The case for global dividends
09/28/09   Dividends
"If you're a Canadian investor who believes in dividends, the fact that Canada makes up but 4% of the world's stock markets should lead you to a logical conclusion: that global dividends should make up a good chunk of your total portfolio."

Rational irrationality
09/28/09   Markets
"A number of explanations have been proposed for the great boom and bust, most of which focus on greed, overconfidence, and downright stupidity on the part of mortgage lenders, investment bankers, and Wall Street C.E.O.s. According to a common narrative, we have lived through a textbook instance of the madness of crowds. If this were all there was to it, we could rest more comfortably: greed can be controlled, with some difficulty, admittedly; overconfidence gets punctured; even stupid people can be educated. Unfortunately, the real causes of the crisis are much scarier and less amenable to reform: they have to do with the inner logic of an economy like ours. The root problem is what might be termed 'rational irrationality' - behavior that, on the individual level, is perfectly reasonable but that, when aggregated in the marketplace, produces calamity."

The mortgage machine backfires
09/27/09   Law
"As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn't own the note or the mortgage, could not move against a borrower. Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say."

Then they came for the Fresca
09/27/09   Government
"A nonalcoholic sequel to the Whiskey Rebellion seems to be brewing. And Slate may be joining it. I'll call it the Fresca Rebellion, in honor of our editor, David Plotz, a hard-core addict of the citrus-flavored soft drink. For a long time, the only discernible libertarian around here was Jack Shafer, a man unable to wean himself from speech, guns, and other annoying constitutional amendments. But lately, other folks seem to be getting a bit Ayn Randy. On Saturday, Jacob Weisberg blew the whistle on New York Mayor Michael Bloomberg for trying to ban outdoor smoking in public parks ("First They Came for the Marlboros"). Yesterday, Daniel Engber went after the hypocrisy and overreaching of soda-tax advocates. And I've become such a knee-jerk defender of burgers and fries that I'm tempted to seek funding from the Competitive Enterprise Institute."

Freedom Investment Club wavering on ruin
09/25/09   Crime
"The Vancouver-based Freedom Investment Club has turned into a tar-pit for its 5,500 members. Far from providing them with financial freedom, it has bound them with debt, foreclosure action and the prospect of losing their entire investment."

Marriage is a costly luxury
09/25/09   Taxes
"The working poor, by contrast, are in a highly undesirable position when it comes to marital status and taxes. It literally doesn't pay for working poor parents to marry. Instead, it costs them precious money in the form of lost tax credits. We researched the tax consequences in 2008 for two working poor individuals and their dependents and made some significant (some would say startling) discoveries."

An economics of magical thinking
09/23/09   Economics
"The unreasonableness of this standard of rationality helps to explain why macroeconomists of all camps and finance theorists find it hard to account for swings in market outcomes. Even more pernicious, despite these difficulties, their models supposedly provide a 'scientific' basis for judging the proper roles of the market and the state in a modern economy. But incoherent premises lead to absurd conclusions"

Farewell America
09/21/09   Taxes
"Our bank is in the process of recommending our clients to exit from all direct investments in US securities. This, on the grounds of the threat of inheritance tax coupled with the uncertainty as to whether one might not, one way or another, be turned into a US person."

Tax plan could cripple industry
09/21/09   Indexing
"Exchange-traded fund companies are warning higher taxes could wipe out the $25-billion industry, as cost-conscious investors take their money to the U.S and buy the same products for less."

From bear to bull
09/21/09   Grant
"Though we can't see into the future, we can observe how people are preparing to meet it. Depleted inventories, bloated jobless rolls and rock-bottom interest rates suggest that people are preparing for to meet it from the inside of a bomb shelter."

The hazard of moral hazard
09/19/09   Government
"When someone insures you against the consequences of a nasty event, oddly enough, he raises the incentives for you to behave in a way that will cause the event. So if your diamond ring is insured for $50,000, you are more likely to leave it out of the safe. Economists call this phenomenon 'moral hazard,' and if you look around, you will see it everywhere."

The looming retirement crisis
09/18/09   Retirement
"Wilful neglect leading to inevitable disaster is quietly cascading across Canada's entire retirement savings system. Many haven't made sufficient provision, and a bailout seems neither feasible nor likely."

When work doesn't pay
09/18/09   Taxes
"Middle-class folks are finding that a raise or second paycheck doesn't always mean living better. Time to work less?"

Believing everything you read
09/18/09   Behaviour
"You shouldn't believe everything you read, yet according to a classic psychology study at first we can't help it."

Macroeconomist says macroeconomics successful
09/18/09   Economics
"Macroeconomics is the triumph of hope over experience, and has been no more successful than sociology. I think it's great that some people are working on this, but let's not kid ourselves that there has been any progress. It is easy to think that merely because a lot of intelligent people have published peer reviewed articles, knowledge must be increasing. The bottom line is the data, and real time experience with macroeconomic models has been horrible as always. It is nice that some of the bad models of the past are now known to be wrong, but the set of wrong models is infinite, so that does not imply we are getting closer to the correct model merely by excluding more bad ones."

100% gain to erase a 50% loss
09/18/09   Stingy Investing
"After recoveries of 45% or more in major stock markets since the Crash of 2008, investors may well wonder how it is they're still not back to even. There are two reasons. One, broad markets are still below the highs reached before the crash. Two, the arithmetic of loss means a 50% loss followed by a 50% rise does not mean you're back to even."

Global debt comparison
09/16/09   Debt
The Economist's debt clock

Krugman's critics go on the warpath
09/16/09   Economics
"If you are inclined to believe that government should steer clear of any intervention in the economy, or stand with partisans who lean to the right-wing side of political economy debates, then you will likely agree with Donald Luskin that John Cochrane's riposte to Paul Krugman's "How Did Economists Get It So Wrong?" is "devastating.""

You can't handle the truth about stocks
09/16/09   Markets
"Conventional financial planning has it all wrong, argues economist Zvi Bodie. If you need the high return of stocks to reach your goals, he says, then you can't afford to invest in them."

The checklist
09/14/09   Health
"In December, 2006, the Keystone Initiative published its findings in a landmark article in The New England Journal of Medicine. Within the first three months of the project, the infection rate in Michigan's I.C.U.s decreased by sixty-six per cent. The typical I.C.U. - including the ones at Sinai-Grace Hospital - cut its quarterly infection rate to zero. Michigan's infection rates fell so low that its average I.C.U. outperformed ninety per cent of I.C.U.s nationwide. In the Keystone Initiative's first eighteen months, the hospitals saved an estimated hundred and seventy-five million dollars in costs and more than fifteen hundred lives. The successes have been sustained for almost four years - all because of a stupid little checklist."

But who is watching regulators?
09/14/09   Government
"Senior regulators who stood idly by for years as financial firms built their houses of cards have been rewarded with even bigger jobs or are jockeying for increased responsibilities. The Federal Reserve Board, for example, wants to become the financial system's uber-regulator, even though its officials did nothing as banks made deadly decisions to lend recklessly and leverage themselves to the max. Awarding increased power to those who failed in their oversight duties flies in the face of all notions of accountability."

Jean-Marie Eveillard interview
09/14/09   Value Investing
"I'm old enough to remember when banking was a fairly simple, almost utility-type business, where the bank took deposits and made loans to the local businessman, to individuals, etc. And it was not a highly profitable business, and bank stocks sold cheaply, at book or slightly above or below book. They were looked at, I think, by most investors, a little bit like electric utility stocks, whereby you got a decent yield, there was not much growth, and the profitability was not great, but they were looked at as safe investments for widows and orphans. And then, as time went by, and I think beginning with a gentleman who used to run Citibank in 1970, when he said, "We're gonna grow our earnings per share 15% a year forever." Banks became something different in the past 10 years or more. They became disguised hedge funds because of the importance of proprietary trading, and for other reasons as well."

The ghost fleet of the recession
09/13/09   World
"The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year."

Flaw in markets: humans
09/13/09   Markets
"Memories are short. Immediately after a severe flood, most people are reluctant to build on a flood plain. But land on flood plains is cheaper, and the prospect of short-term advantage quickly lures many to abandon their caution. That is why many jurisdictions adopt strict regulations against building on flood plains. The same logic dictates regulation to limit the damage caused by financial bubbles. The list of financial practices that merit regulatory scrutiny is long. But the most important first step is to limit leverage."

The man who saved billions
09/13/09   World
"Norman Borlaug, the man who saved more human lives than anyone else in history, has died at age 95. Borlaug was the Father of the Green Revolution, the dramatic improvement in agricultural productivity that swept the globe in the 1960s. For spearheading this achievement, he was awarded the Nobel Peace Prize in 1970."

Peak oil as a behavioral problem
09/10/09   World
"Reaching a peak in worldwide oil production has been largely discussed as a geological, economic, and political event. Missing from much of this discussion are behavioral aspects of peak oil. In the present paper I examine peak oil as a behavioral problem. At the outset the nature of peak oil is discussed, followed by a review of the projected date of the peak and the social and economic consequences of reaching a peak. Behavioral aspects of peak oil are then discussed, especially the challenges involved in responding effectively to a projected peak-oil future."

Graham's Simple Way 2009
09/10/09   Stingy Investing
"I like to use stock screens to find interesting value stocks and Benjamin Graham's Simple Way is one of my favourites. Regrettably, the bear market wasn't kind to the Simple Way over the last year. But I've high hopes that value stocks will stage a sterling comeback."

Leveraged ETFs
09/10/09   Indexing
"In fact, some of the common myths and criticisms surrounding double ETFs are based on a simple misunderstanding of their intended exposures. While some have expressed frustration about the lack of tracking of holding period returns, it's important to realize that tracking holding period returns risks losing more than 100% of the original capital. BetaPro's structure, which is rebalanced daily, is needed to limit losses to 100% in a double ETF and provide investors with non-recourse exposure. When measured against their intended daily exposures, BetaPro double ETFs have seen excellent tracking of their target benchmarks. Longer holding periods, however, have been observed with good tracking of index holding period returns. Volatility and a couple of other factors, however, will ultimately determine tracking of holding period returns."

Foreclosed homes threatened by hurricane
09/10/09   Fun
"In what forecasters are predicting will be the largest, most devastating disaster to hit Florida since the national economy collapsed, a Category 5 hurricane neared the Gulf coast this week, threatening thousands of repossessed and long deserted homes. According to meteorologists, the incoming tropical storm could leave as many as 3 million residents every bit as homeless as they've been for the past year or so."

Buffett recalculating his bets
09/08/09   Buffett
"After counseling Washington to rescue the nation.s financial industry and publicly urging Americans to buy stocks as the markets reeled, in he swooped. Mr. Buffett positioned himself to profit from the market mayhem - as well as all those taxpayer-financed bailouts - and thus secure his legacy as one of the greatest investors of all time."

Dividends and the frozen OJ syndrome
09/07/09   Dividends
"In light of the powerful historical evidence that companies can grow and still pay out somewhere around half their earnings as dividends, why is the demand for dividends today so small? If the theoretical case for high payout ratios is beyond dispute, why is the demand for dividends so small? In the wake of corporate and accounting scandals that one might expect to lift the demand for dividends, why is the demand for dividends so small? In view of the radical change in the taxation of dividends, why is the demand for dividends so small? As the King of Siam put it, 'It is a puzzlement.'"

The societal risk premium
09/06/09   Markets
"Financial economists like to talk about the risk-free rate: basically, the time value of money sitting in a perfectly safe vehicle. From an historical perspective per se, the very use of the term is fascinating. After all, it implies a society that is strong and stable enough to support a risk-free investment. Living in what is likely the most secure political, social, and economic environment ever seen on the planet, we take the existence of a "risk-free investment" for granted. But this is not always the case."

Efficiency and beyond
09/05/09   Economics
"The efficient-markets hypothesis has underpinned many of the financial industry's models for years. After the crash, what remains of it?"

How did economists get it so wrong?
09/05/09   Economics
"To be fair, finance theorists didn't accept the efficient-market hypothesis merely because it was elegant, convenient and lucrative. They also produced a great deal of statistical evidence, which at first seemed strongly supportive. But this evidence was of an oddly limited form. Finance economists rarely asked the seemingly obvious (though not easily answered) question of whether asset prices made sense given real-world fundamentals like earnings. Instead, they asked only whether asset prices made sense given other asset prices. Larry Summers, now the top economic adviser in the Obama administration, once mocked finance professors with a parable about 'ketchup economists' who 'have shown that two-quart bottles of ketchup invariably sell for exactly twice as much as one-quart bottles of ketchup,' and conclude from this that the ketchup market is perfectly efficient."

The cupcake bubble
09/04/09   Fun
"In recent years, the response to a popped economic bubble has been to create a new one. The pierced dot-com/telecommunications bubble paved the way for the housing/credit bubble. That punctured bubble may be giving way to an alternative energy bubble. But I've got my eyes on a smaller, but no less revealing, one: the Cupcake Bubble."

Ramen profitable
09/04/09   Business
"Now that the term "ramen profitable" has become widespread, I ought to explain precisely what the idea entails. Ramen profitable means a startup makes just enough to pay the founders' living expenses. This is a different form of profitability than startups have traditionally aimed for. Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time."

Mixing solar with coal
09/04/09   World
"A project that will add solar power to a coal-fired power plant could reduce the amount of coal required to generate electricity and dramatically cut the cost of solar power."

Total liabilities
09/04/09   Markets
"Spotting a doomed bank, it seems, may only be possible once it is going to hell. Yet there was a common ingredient in most failures: an over-reliance on wholesale borrowing."

The growth illusion
09/03/09   World
"When investors pick the countries they want to back, they tend to be guided by economic growth prospects. The faster an economy grows, they reason, the faster corporate profits will grow in the country concerned, and thus the higher the returns investors will achieve. Alas, this is not the case."

Arithmetic returns for junk biased
09/03/09   Bonds
"junk bonds have not outperformed investment grade bonds since data on junk bonds really became available, around 1987. This is the real corporate bond puzzle, in direct contrast to the corporate bond puzzle most acaddemics address, which is the anomalously high return premium between BBB and AAA bonds (around 100 basis points annually)."

Henry Paulson's longest night
09/01/09   Government
"In 2006, Goldman Sachs C.E.O. Henry Paulson reluctantly became Treasury secretary for an unpopular, lame-duck president. History will score his decisions, but the former Dartmouth offensive lineman definitely left everything on the field. In private conversations throughout his term, as crisis followed crisis.Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G., and so forth.Paulson gave the author the inside track, from the political lunacy and bailout plans to the sleepless nights and flat-out fear, as he battled the greatest economic disruption in 80 years."

The dark side of prostate cancer screening
08/31/09   Health
"Studies rolling in now show a very small benefit, at best, from PSA tests. Earlier this year, a major European trial found that PSA tests only saved a few lives: 48 patients had to be diagnosed and treated to prevent one prostate cancer death over nine years. A big American study found that PSA tests didn't lower the prostate cancer death rate at all."

Berkshire without Buffett
08/28/09   Buffett
"Few things are guaranteed in the investment universe, but here's one: Whoever takes over from 79-year-old Warren Buffett as the head of Berkshire Hathaway will have a hard time filling his shoes."

Our big chance
08/27/09   World
"For Canada, a country that has spent the better part of 20 years nervously wringing its hands over its perceived inadequacies, the dramatic reversal over the past year has been striking. Our banks were once seen as lacking innovation; now world leaders hail the boring Big Five as being among some of the safest and most profitable banks in the world. We fretted that our economy was overly reliant on commodities; now our rocks, oil and gas are seen as a natural hedge against havoc in the manufacturing sector. We worried that Canada's strict mortgage rules were a drag on our housing market; now we can brag that we don't put people into homes they can't afford. Almost any way you look at it, Canada is uniquely positioned. So as other developed nations struggle, the question is: will we squander this once-in-a-generation opportunity or take advantage of our good fortune to punch above our weight?"

Ego and the CEO
08/27/09   Management
"Which is the biggest red flag for a potential accounting fraud: Bad corporate governance, an overinflated share price or too many stock options? None of the above, according to a new study by researchers from three Canadian universities. They argue that the biggest risk factor for fraud is a CEO with a truly oversized ego."

Overmighty finance levies a tithe on growth
08/27/09   Economy
"The protracted debate over how to clean up after the financial crisis - and how to reform our accident-prone financial system to prevent another such episode - is stuck on the problem of how to regulate markets without undermining the benefits they bring. What is sorely missing is any real discussion of what function our financial system is supposed to perform and how well it is doing that job - and, just as important, at what cost."

4 cheapskate stocks
08/25/09   Dorfman
"I screened U.S. stocks with a market value of $500 million or more to find ones that are cheap by all of my favorite yardsticks. These stocks sell for less than 12 times earnings, less than one times book value (corporate net worth) and less than one times revenue. I also required that corporate debt be less than stockholders' equity. Of the more than three dozen stocks that passed the test, I recommend these four."

'Peak oil' is a waste of energy
08/25/09   World
"A careful examination of the facts shows that most arguments about peak oil are based on anecdotal information, vague references and ignorance of how the oil industry goes about finding fields and extracting petroleum. And this has been demonstrated over and over again"

Federal pay continues rapid ascent
08/24/09   Government
"In 2008, federal worker compensation averaged a remarkable $119,982, which was more than double the private sector average of $59,909."

Are management consultants necessary?
08/24/09   Management
"Most people in the business world know there's a lot of phony expertise floating around. Most of it you can explain on anthropological rather than technical grounds: we have a very complex economy that requires management, and management needs legitimacy. It does this through credentials and so-called expertise, and creates a whole class of people who are accountable only to themselves. For me the problem is the idea there's a general field of management that applies across all different kinds of businesses. That's what I think is all baloney."

It's still the one
08/24/09   World
"Oil's very future is now being seriously questioned, debated, and challenged. The author of an acclaimed history explains why, just as we need more oil than ever, it is changing faster than we can keep up with."

Krugman wars with Ferguson over inflation
08/24/09   Markets
"Henry Kissinger, who knows a bit about fights, both political and intellectual, once observed that the reason academic tussles were so vicious was 'because the stakes are so small'. And although that is true in one sense - it doesn't matter very much whether the professor from Princeton doesn't like his rival from Harvard - it is wrong in another. The stakes in this row are pretty high."

Spend now, pay later
08/22/09   Thrift
"With noble intentions, much of what was advocated and popularized by the Woodstock generation involved an increased role for government in the economy. They argued that 'smart people' in the government would 'manage' the economy and 'protect' people from themselves. Government would run 'temporary' deficits and 'create' jobs. It was argued that society's prosperity needed to be shared through government-administered programs, regulations and taxes."

American health care killed my father
08/21/09   Health
"After the needless death of his father, the author, a business executive, began a personal exploration of a health-care industry that for years has delivered poor service and irregular quality at astonishingly high cost. It is a system, he argues, that is not worth preserving in anything like its current form. And the health-care reform now being contemplated will not fix it. Here's a radical solution to an agonizing problem."

Grant's summer break
08/21/09   Grant
"This compilation of recent articles, the first annual Grant's Beachhead issue, is for you."

Las Vegas' medical mafia
08/21/09   Crime
"Prosecutors charge that a group of top Las Vegas plaintiffs lawyers and doctors, with the 64-year-old Awand at its center, conspired in an audacious fraud. The participants appeared to act independently but instead colluded. Unwitting accident victims were recruited as plaintiffs and then persuaded to undergo serious, sometimes needless, surgeries. The procedures, in turn, helped inflate the size of personal-injury claims. The result was multimillion-dollar insurance settlements, even for dubious cases, and lucrative fees for the doctors, the lawyers, and, of course, Howard Awand."

The greenback effect
08/19/09   Buffett
"The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself."

S.E.C. floats a short proposal
08/18/09   Markets
"The Securities and Exchange Commission, after months of considering what to do about short-selling, came up with a new idea on Monday that could make it virtually impossible to place an order to sell stock short and be sure it would be executed quickly."

High turnover could be a red flag
08/18/09   Funds
"Perhaps most significantly, funds that trade a lot can be hard on investors' wallets. That's because a fund incurs transaction costs each time its manager buys or sells a stock. Not only do funds pay commissions to buy and sell, but they also incur so-called market-impact costs. Large funds rack up market-impact costs because it might take them a while to buy or sell securities; as they're doing so, they may ultimately obtain a less advantageous price than a smaller, more nimble fund would receive. Shareholders ultimately foot the bill for these costs through lower net returns."

The latest roadblock for California
08/18/09   Government
"Litigators go to court to undo cuts made by legislators and the governor. The state is spending billions of dollars fighting the lawsuits and dealing with increasingly unfavorable rulings."

Homebuilders begin to appeal
08/18/09   Dorfman
"Is it time to buy the homebuilders, which were market darlings in 2003 through 2005? The bullish case begins with the fact that the stocks had fallen so far. As a group, they plunged an astonishing 90 percent from July 20, 2005, through Nov. 21, 2008. That's comparable to the slide in Internet stocks in 2000- 2002. By some measures, the homebuilders had it worse. By the same token, homebuilding stocks are cheap. The question is whether they deserve to be."

What would Warren do?
08/16/09   Buffett
"More like the early Christians in pagan Rome than the millions of Muslims thronging Mecca, Buffett's hard-core 'value investors' are few, and in many ways, their entire lives run against the grain of the dominant culture. Only here in Omaha, for one weekend a year, are they a majority. The meeting, with its quasi-ritual speeches, canonical stories and jokes, and the fellowship of other value investors, helps to brace them against a society that almost actively rejects their austere financial philosophy."

Help with unwinding loved one's estate
08/16/09   Cestnick
"We then started talking about the work that it can be to look after an estate after someone has passed away. Not the most uplifting conversation, I know, but Nancy had questions, because her mother had just passed away, leaving her and her brother to look after the estate. Here's a checklist of important financial issues to deal with when someone passes away."

The three-dimensional portfolio
08/16/09   Indexing
"Here's a mind-blowingly simple answer to the basic but crucial question of how many securities are required for a properly diversified portfolio. Three. You read that right. If you're portfolio building with exchange-traded funds (ETFs), three are all you need for a lifetime of diversified investing."

It's easy to front-run a TIPS ETF
08/16/09   Indexing
"Seeking a safe haven from inflation, this year investors have stashed $5.6 billion into the iShares Barclays Treasury Inflation Protected Securities ETF (TIP). Problem is, this ETF may not be the safe haven they expect."

Toxic loans topping 5%
08/16/09   Stocks
"More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank.s equity and threaten its survival."

Do your legwork before hiring an adviser
08/14/09   Brokers
"There's a kind of investment risk that is statistically very rare, but crushing if it happens to you. It's called adviser risk and, thanks to coverage of the scheme allegedly perpetrated by Montreal financial adviser Earl Jones, we have a horrifying view of what it means. As much as $30-million to $50-million belonging to Mr. Jones's clients, many of them seniors, has allegedly disappeared. Some victims are looking at having to sell their homes, while others have had to rely on food banks to get by."

Free money! Honest
08/13/09   Markets
"The financial world's attention may be on the high frequency trading programmes employed by numerous banks and hedge funds. But there is another story. Algorithmic trading, by eliminating the human touch, presents an uncomfortably tempting proposition to the retail investor. One area where this is clearly becoming evident is in the loosely regulated spot foreign exchange market. Scores and scores of products claiming to have the ability to make you money while you sleep, with no need for financial knowledge at all, are hitting the marketplace."

Flipping out
08/12/09   Fun
"Yet recent research into coin flips has discovered that the laws of mechanics determine the outcome of coin tosses: The startling finding is they aren't random. Instead, for natural flips, the chance of a coin coming up on the same side as it started is about 51 percent. Heads facing up predicts heads; tails facing up predicts tails."

Theory of games and economic misbehavior
08/11/09   Markets
""I refuse to accept however, the stupidity of the Stock Exchange boys, as an explanation of the trend of stocks," wrote John von Neumann to Stanislaw Ulam, on December 9, 1939. "Those boys are stupid alright, but there must be an explanation of what happens, which makes no use of this fact.""

The next great bailout
08/10/09   Government
"In Washington these days, the only topics of discussion seem to be how many trillions to throw at health care and the recession, and whom on Wall Street to pillory next. But watch out. Lurking just below the surface is a bailout candidate that may soon emerge like the great white shark in Jaws: Social Security."

Cruel windfall
08/08/09   World
"In modern economic thinking, peace and prosperity go hand in hand. However, there are good reasons why in pre-modern societies, the opposite relationship held true - war, disease, and urban death spelled high incomes. This column explains why Europe's rise to riches in the early modern period owed much to exceptionally bellicose international politics, urban overcrowding, and frequent epidemics."

Mommy I'm bored
08/07/09   Fun
"My 9-year-old daughter does not go to camp until later this month. That's when her drama camp begins. But the plot has already thickened in my house with a steady chorus of: Mommy, I'm Bored! Here's what we're doing to cure the summer blues"

Why Japan isn't rising
08/06/09   World
"Japan's rise literally from rubble into an industrial powerhouse is one of the greatest economic stories of the 20th century. But a slow response to the bursting real-estate and stock bubbles of the 1980s consigned the country to a decade of economic slumber from which it has yet to fully awake."

Hunches prove to be valuable
08/05/09   Behaviour
"Everyone has hunches - about friends. motives, about the stock market, about when to fold a hand of poker and when to hold it. But United States troops are now at the center of a large effort to understand how it is that in a life-or-death situation, some people's brains can sense danger and act on it well before others. do."

Thaler responds to Posner
08/04/09   Behaviour
"The proposal that particularly draws Posner's ire is the idea that the Agency would designate a few types of "plain vanilla" mortgages and suggest that unsophisticated shoppers concentrate their search on those. The idea is very similar to the standard leases used in most rental agreements. The landlord can change the terms of the standard lease, but those changes are done in a way that makes them quite salient to prospective tenants, and the tenants are alerted to the fact that these terms are not the usual ones. The plain vanilla mortgages would all have the same terms (like the standard leases) and issuers who want to offer different kinds of mortgages would have to make their modifications clear. Only mortgages judged to be very dangerous would be banned."

America's disappearing millionaires
08/03/09   Economy
"It hasn't been a good recession for the rich. The late boom was extraordinarily top-heavy, with the overwhelming majority of economic gains seemingly defying gravity and flowing to the top rung of the economic ladder. Now those with the most assets and income have the most to lose. Add together the declining markets, an imploding finance sector, a real estate rot that has eaten its way up from the ground floor to the penthouse, and the predations of Bernie Madoff and Sir Allen Stanford, millionaires who ripped off other millionaires, and, as my Newsweek colleague Robert Samuelson notes, these are tough times for the wealthy."

When good thinking goes bad
08/02/09   Behaviour
"What do Apple, Inc.'s craziest fanatics, Wall Street, and the case of the Harvard professor and the police officer have in common?"

The rule of law and the wealth of nations
08/01/09   World
"Private factors thus provide the four elements of talent, capital, matchmaking, and accountability, and government sets these four basic rules for entry into and exit from certain activities, rights of investors, and the provision of a risk-free asset, the latter anchoring prices and negotiations."

Bashing Goldman Sachs
07/31/09   Fun
"America stands at a crossroads, and Goldman Sachs now owns both of them. In choosing which road to take, ordinary Americans must not be distracted by unproductive resentment toward the toll-takers. To that end we at Goldman Sachs would like to dispel several false and insidious rumors."

A surtax on the top 1%
07/31/09   Taxes
"It seems almost certain at this point that whatever health reform legislation is ultimately enacted by Congress, its principal funding will come from a surtax on the top 1% or so of taxpayers. This is a very bad idea for reasons that have little to do with the economic effects of taxation."

GMO Q2
07/30/09   Markets
"A year is certainly a long time in markets, and so is a quarter. A year ago, equities globally - and everything else for that matter - were very overpriced, particularly if they were risky. A quarter ago, in mid March, prices everywhere were cheap. Now they have all - or almost all - converged for a few unusual moments at fair value. A year ago, it was very easy to know what to be: a risk avoider. It was not so easy reinvesting when terrifi ed, but most of us knew that we should have been doing more. But today? It's diffi cult to be inspired at fair value."

Gone for a Burton
07/30/09   Indexing
"Over the 20 years to end-December, 68% of all active US large cap funds underperformed the S&P 500 index (over 10 years, it was 64%). The underperformance, relative to Vanguard's S&P 500 index fund, was around 0.9% a year."

Computer trading is good competition
07/30/09   Markets
"Stock specialists who consolidate retail orders to buy and sell have been ripping off customers since trading began. The first head of the SEC was Joe Kennedy, who was a master stock manipulator in the 1920's. He was a master of the stock pool (bucket shop), a then-legal stunt in which a few traders conspired to inflate a stock's price, selling out just before the bubble burst."

Debt dogs of summer
07/29/09   Dorfman
"Beware of the stocks leading the U.S. market higher this summer. Based on a sampling taken last week, I estimate that 90 percent of the top performers in the first three weeks of July were companies with debt greater than stockholders' equity. Less than one third of big, publicly traded U.S. companies carry such a heavy debt burden."

Amazon's troubling reach
07/29/09   Stocks
"Last week, in a stunning display of public irony, Amazon.com remotely deleted digital copies of George Orwell's novels "1984" and "Animal Farm" from customers' Kindles after learning that the electronic publisher of these works, MobileReference, did not have the rights to them. For a couple of days, observers in print and on the Web outdid themselves, noting that in "1984," government censors rewrite history by consigning offending news items to an incinerator chute known as the memory hole. Orwell's technological vision might have been primitive, but he seems to have predicted something fundamental about the dangers of information systems."

Jobless checks for millions delayed
07/29/09   Government
"Years of state and federal neglect have hobbled the nation's unemployment system just as a brutal recession has doubled the number of jobless Americans seeking aid. In a program that values timeliness above all else, decisions involving more than a million applicants have been slowed, and hundreds of thousands of needy people have waited months for checks."

Betting on black swans
07/26/09   Taleb
"Hope is a good thing, and motivates a lot of hard work and creativity. But it would be foolish to think that the more improbable, the more speculative, the more derided by economists, the better the risk-adjusted return merely because of this. This tendency to buy into lottery ticket leads to all sorts of really bad investments"

Berkshire profit on Goldman
07/26/09   Buffett
"Warren Buffett's option to buy shares of Goldman Sachs Group Inc., part of an agreement reached at the depths of the credit crisis, has earned a profit on paper of more than $2 billion, a return of about 44 percent."

Edwards and Montier ride again
07/26/09   Montier
"However, we are less convinced that AMH is a terribly useful concept. As we understand it, the AMH provides a halfway house where sometimes markets are irrational and sometimes they are rational. We would argue that the amount of time that markets are rational is near negligible."

Buffett's $91,000 shares are a steal
07/23/09   Buffett
"Buffett sounded upbeat at Berkshire's annual meeting in May, saying he thought Berkshire stock could best the S&P 500 in the coming years. He noted that the stock hadn't kept pace with the growth in retained earnings in recent years. Asked whether Berkshire's competitive advantage would die with him, Buffett replied that Berkshire's strengths -- including a unique business mix and culture, long-term orientation and patient shareholder base -- will outlive him."

Help desperately wanted
07/23/09   Economy
"Here's a suggestion for people with a death wish. Stroll through Windsor, Ont., or a Newfoundland outport, and chat up the older residents about their employment prospects. After you've listened to their tales about massive layoffs in the automotive sector and dried-up opportunities in natural resources, tell them that Canada is facing a labour shortage. Then start running."

Fiscal ruin of the Western world beckons
07/23/09   World
"No doubt Ireland has been the victim of a savagely tight monetary policy - given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base."

Using garbage to measure consumption
07/23/09   Economy
"The equity premium puzzle has been festering unsolved in economic circles since the 1980s. The puzzle is this: economists can.t adequately explain why investors demand such high-risk premiums to own volatile stocks over relatively steady bonds. The risk premium for stocks over bonds in the long term is about 6%. But 6% seems like too big a premium to economists. In theory, one way to explain the premium would be to look at consumption, a broad measure of wealth. People should demand a premium from an investment that goes down when consumption goes down."

Rich Harvard, Poor Harvard
07/22/09   Markets
"Only a year ago, Harvard had a $36.9 billion endowment, the largest in academia. Now that endowment has imploded, and the university faces the worst financial crisis in its 373-year history. Could the same lethal mix of uncurbed expansion, colossal debt, arrogance, and mismanagement that ravaged Wall Street bring down America's most famous university? And how much of the turmoil is the fault of former Harvard president Larry Summers, now a top economic adviser to President Obama? As students demonstrate, administrators impose Draconian cuts, and construction is halted on an over-ambitious $1.2 billion science complex, the author follows the finger-pointing."

Fifty ways to kill recovery
07/21/09   Government
"It's easy enough, of course, to mock state governments nowadays, what with California issuing I.O.U.s to pay its bills and New York's statehouse becoming the site of palace coups and senatorial sit-ins. But the real problem isn't the fecklessness of local politicians. It's the ordinary way in which state governments go about their business. Think about the $787-billion federal stimulus package. It's built on the idea that during serious economic downturns the government can use spending increases and tax cuts to counteract the effects of consumers who are cutting back on spending and businesses that are cutting back on investment. So fiscal policy at the national level is countercyclical: as the economy shrinks, government expands. At the state level, though, the opposite is happening."

Amgen, Smucker, Steelcase have value
07/21/09   Dorfman
"A stock that is rising while most are falling may be worth a look. If that stock is also inexpensive and has a good balance sheet, it might be an opportunity."

Cocksure
07/20/09   Behaviour
"From an individual perspective, it is hard to distinguish between the times when excessive optimism is good and the times when it isn't. All that we can say unequivocally is that overconfidence is, as Wrangham puts it, 'globally maladaptive.' When one opponent bluffs, he can score an easy victory. But when everyone bluffs, Wrangham writes, rivals end up 'escalating conflicts that only one can win and suffering higher costs than they should if assessment were accurate.'"

Crops, ponds destroyed in quest for food safety
07/17/09   Law
"For many giant food retailers, the choice between a dead pond and a dead child is no choice at all. Industry has paid more than $100 million in court settlements and verdicts in spinach and lettuce lawsuits, a fraction of the lost sales involved. Galvanized by the spinach disaster, large growers instituted a quasi-governmental program of new protocols for growing greens safely, called the "leafy greens marketing agreement." A proposal was submitted last month in Washington to take these rules nationwide."

Spending on food reaches historical low
07/17/09   Markets
"In the entire history of the U.S., it's only been in the last eight years that the percent of income spent on food for Americans was in single digits - since 2000 it's been below 10%. In all previous years, spending on food was in double-digits, and in most years from 1929 to 1952 it was above 20%. Consider that in 1932, spending on food at home took almost 22% of disposable income, compared to the record low of only 5.6% in 2008. Food has never been more affordable than today, as a share of income."

What's your financial IQ?
07/16/09   Behaviour
"These particular questions are the mental equivalent of optical illusions. They appear to be easy, but aren't. Tests of similar complexity which are more obviously difficult yield more correct answers so it's not simply a question of basic maths skills. Something else is going on here. Something, it turns out, that may completely screw up psychology's ideas about the way people think about finance."

The small business surtax
07/15/09   Taxes
"Jason Furman owes an apology to Michael Boskin, the Stanford economist who wrote a year ago on these pages that Barack Obama would raise American income tax rates nearly to 60%. Mr. Furman, then in the Obama campaign and now at the White House, claimed this was wrong and that Democrats would merely raise taxes back to their Clinton-era level. House Democrats are now proving that Mr. Boskin had it right, and before it's over even he may have underestimated how high taxes will go."

Is the equity risk premium 0?
07/14/09   Markets
"One of the most important constants in finance is the Equity Risk premium, that expected return on the signature risk asset, equities, over the risk free alternative (usually, long-term Treasuries). It's the one risk premium that is generally considered positive, too large even, which is a relief because in most areas the returns are decidedly negative for taking more risk. Estimates in the early 1990s were about 8%, now, around 3% annually."

The invisible hand, trumped by Darwin?
07/11/09   Behaviour
"Smith's basic idea was that business owners seeking to lure customers away from rivals have powerful incentives to introduce improved product designs and cost-saving innovations. These moves bolster innovators. profits in the short term. But rivals respond by adopting the same innovations, and the resulting competition gradually drives down prices and profits. In the end, Smith argued, consumers reap all the gains. The central theme of Darwin's narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith's account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species. In other cases, however, traits that help individuals are harmful to larger groups."

Views on the economic crisis
07/11/09   Markets
"I do not believe that deflation would be a problem with the stimulus in place, and if necessary, there will be more stimulus put in place. The current stimulus is enough so that the economy will stabilize and start recovering. Some people say stocks are not as cheap as they were in 1974 and 1982, which is admittedly true, but at the same time, there is much less competition today from cash and treasury bonds than there was then. If I owned treasury notes or bond, I wouldn't sleep too well at night. To some extent they are an accident waiting to happen."

Does stock-market data really go back 200 years?
07/11/09   Markets
"What, then, are the odds that stocks will continue to lag behind bonds for the long run? The sad truth is that history can't tell us the answer. The 1802-to-1870 stock indexes are rotten with methodological flaws. So we have only the period since then, or four distinct and complete 30-year stretches of stock returns, to base our long-term investment decisions on."

See no evil and pay no penalty
07/10/09   Crime
"For years, Beazer Homes USA was much more than a builder of houses. It was a veritable crime wave. The company defrauded buyers, particularly poor people being sold homes they could not afford. It defrauded the federal government by getting government-guaranteed mortgages for those buyers. It created subdivisions now dominated by dozens of foreclosed homes. And while it was at it, Beazer lied to shareholders about how much money it was making. First, it lied by claiming it was making less than it was. Then it lied by hiding losses when the housing bubble began to burst. To keep the lies going, the government says, the company prepared fraudulent documents to mislead its auditors."

America's future
07/10/09   Government
"Plenty of American states have budget crises; but California's illustrate two more structural worries about the state. Back in its golden age in the 1950s and 1960s, it offered middle-class people, not just techy high-fliers, a shot at the American dream - complete with superb schools and universities, and an enviable physical infrastructure. These days California's unemployment rate is running at 11.5%, two points ahead of the national average. In such Californian cities as Fresno, Merced and El Centro, jobless rates are higher than in Detroit. Its roads and schools are crumbling. Every year, over 100,000 more Americans leave the state than enter it."

Why we'll leave L.A.
07/10/09   Government
"If New Yorkers fantasize that doing business here in Los Angeles would be less of a headache, forget about it. This city is fast becoming a job-killing machine. It's no accident the unemployment rate is a frightening 11.4% and climbing."

The great public-sector pension rip-off
07/10/09   Government
"There is a lot of debate about the right discount rate to use, but the conservative approach is to take the cost of government borrowing. Use that rate, and the liability of American state and municipal pension schemes may be $3 trillion - three times the value of all the authorities' existing debts. In Britain the liability adds up to 85% of GDP."

The man who crashed the world
07/09/09   Markets
"Is it really possible for one man to precipitate a global economic catastrophe? In the August 2009 issue of Vanity Fair, contributing editor Michael Lewis, one of the most insightful Wall Street critics writing today, investigates the central role of A.I.G.'s Financial Products division in the subprime-mortgage and financial crises that necessitated a $182.5 billion taxpayer bailout out the insurance behemoth."

All risk is relative
07/07/09   Markets
"He then cites research proving that portfolios of high-beta stocks have a lower Sharpe ratio than portfolios of low-beta stocks."

Risk and return in general
07/07/09   Academia
"Empirically, standard, intuitive measures of risk like volatility and beta do not generate a positive correlation with average returns in most asset classes. It is possible that risk, however defined, is not positively related to return as an equilibrium in asset markets. This paper presents a survey of data across 20 different asset classes, and presents a model highlighting the assumptions consistent with no risk premium. The key is that when agents are concerned about relative wealth, risk taking is then deviating from the consensus or market portfolio. In this environment, all risk becomes like idiosyncratic risk in the standard model, avoidable so unpriced."

Trust
07/07/09   Behaviour
"Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it's rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest."

Bob Shiller didn't kill the housing market
07/07/09   Shiller
"Two years into the housing bust, Shiller finally sees some faint rays of sunshine (that's just light, not green shoots yet). When the June Case-Shiller figures were released, he said they showed "striking improvement in the rate of decline." Asked to look ahead, he says, "My guess is that prices will continue to fall for a while, but at a slower pace, and then stabilize. We've become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won't happen for another five to 10 years.""

Loving stocks the market left behind
07/07/09   Dorfman
"Last week, using Bloomberg stock-screening software, I combed through the 61 laggards. I eliminated 30 because their debt was greater than stockholders. equity. I chopped off another dozen because they sell for more than 15 times earnings. In a blasted market with lots of bargains, why pay so much? That left 19 stocks to consider. Here are four that I believe could make up for lost time and show significant appreciation in the next year."

Think again: Asia's rise
07/05/09   World
"Don't believe the hype about the decline of America and the dawn of a new Asian age. It will be many decades before China, India, and the rest of the region take over the world, if they ever do."

Mortgages made simpler
07/05/09   Real Estate
"In the past year, we have learned the hard way that when people take out mortgages they cannot repay, the entire economy can be disrupted. Fixing the problem is complicated. But a good first step is to make the mortgage lending process Homer-proof."

Tax appeals take rising toll on governments
07/04/09   Real Estate
"Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets."

Stop the madness that's killing jobs
07/03/09   Government
"Why is this job decline happening? The private sector - the real engine of economic and job growth - won't hire because it's scared of what it sees coming out of Washington. On the horizon, as far as the eye can see, are higher taxes, uncontrolled spending and layers upon layers of new regulations. Who would hire new workers faced with that?"

New evidence on the foreclosure crisis
07/03/09   Real Estate
"What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected."

You've got blackmail
07/02/09   Crime
"My advice: If AOL comes after you, then go after AOL."

Cash-poor California turns to IOUs
07/02/09   Government
"Here come the California IOUs. Unable to meet its bills for the second time this year, the state started printing IOUs on Thursday. Some 28,750 IOUs worth $53.3 million will be issued initially, mainly for personal income tax refunds."

The 15 creepiest vintage ads
07/02/09   Fun
"What do murder, pedophilia, suicide and a baby tiger have in common? They have all been used to sell stuff in these amazingly disturbing vintage ads"

$70 oil, but where's the demand?
06/30/09   Markets
"Why all the fuss over oil demand? Because it's critical to know what's behind rising oil prices. If it's demand - if nations like the U.S., China and India are consuming more oil because they're building infrastructure and powering factories - then indeed higher prices are a bullish sign for global economic growth, even if it means some grumbles at the pump. But if it's not demand at play, as the IEA's outlook seems to suggest, then rising oil prices start to look a lot more sinister - especially because higher oil prices take a chunk out of consumers' pocketbooks and companies' earnings, a scenario that unfolded to much dismay last summer, when prices topped out in July at over $145 a barrel."

Priced to sell
06/30/09   Markets
"And there's plenty of other information out there that has chosen to run in the opposite direction from Free. The Times gives away its content on its Web site. But the Wall Street Journal has found that more than a million subscribers are quite happy to pay for the privilege of reading online. Broadcast television - the original practitioner of Free - is struggling. But premium cable, with its stiff monthly charges for specialty content, is doing just fine. Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff). The company could one day give away the iPhone to boost downloads; it could give away the downloads to boost iPhone sales; or it could continue to do what it does now, and charge for both. Who knows?"

The origins of the corporate boards
06/30/09   Management
"Prompted by the litany of complaints about corporate boards - as once again highlighted by recent corporate scandals - this paper seeks to add to the literature on why corporation laws in the United States (and, indeed, around the world) generally call for corporate governance by or under a board of directors. Moreover, this paper takes a very different approach in searching for an answer. Instead of theorizing, this paper examines historical sources in order to look at how and why an elected board of directors came to be the accepted mode of corporate governance. This will entail a reverse chronological tour all the way back to the antecedents of today's corporate board in fourteenth through sixteenth century companies of English merchants engaged in foreign trade. The central insight of this chronology is that the corporate board of directors did not develop as an institution to manage the business corporation. Rather, it is an institution the business corporation inherited when the business corporation evolved out of societies of independent merchants. This paper also shows how these merchant societies based their adoption of the antecedents of today's corporate board on widespread political theories and practices in medieval Europe that, although hardly democratic, often called for the use of collective governance by a body of representatives. The discovery of the historical and political origins of the corporate board, besides being interesting in its own right, suggests that the current frustration with corporate boards may arise from confusing an institution designed to achieve political legitimacy through consent of the governed, with the goal of assuring efficient management of a business on behalf of passive investors." [via prefblog.com]

U.S. home prices down 18%
06/30/09   Real Estate
"The 10-City and 20-City Composites declined 18.0% and 18.1%, respectively, in April compared to the same month in 2008. These are improvements over their returns reported for March, down 18.7% for both indices."

GICs are safe, but don't expect much
06/27/09   Thrift
"So what's the lesson? First, fees matter a great deal. Second, while a stock-filled portfolio may provide higher returns, that comes with risk. A GIC-only portfolio may not be exciting, but investors sleep well at night. "

The long view
06/27/09   Markets
"In real terms, the S&P 500 index is back to trend having been way above the line in both 2000 and 2007. In terms of profits, earnings are now well below trend, thanks to the massive write-offs from banks. But they were well above trend just two years ago. If one assumes a return to trend earnings of a little under $54 and an average price-earnings multiple of 15.3, then that puts fair value for the S&P of around 820, a bit below current levels. The problem, however, is that it looks very like we are in a secular, or long-term, bear market that started in 2000. These periods have lasted 17-20 years and have ended with p/e ratios in the single digits. So we may have a long way to go. One problem is the lack of dividend income. Over the last century, share prices have risen by around 1.6% per annum in real terms; dividends have added a further 4.4 percentage points of return. But the S&P 500 yields just 2.8% at present, pointing to below average returns from here."

Why isn't the stimulus stimulating?
06/27/09   Government
"It's no secret that the Obama administration is deeply troubled by the continuing rise in unemployment. The national unemployment rate has risen to 9.4% from 7.2% in December and 5.5% in May 2008. The number of employed workers has fallen to 132 million from 135 million in December and 137.5 million in May 2008. Unemployment animates Democrats the way taxes animate Republicans--it's the issue that is important to them above all others. It's also the issue on which the Obama administration believes voters will primarily judge it in 2012. The recent dip in Obama's poll ratings could easily become a collapse if the economy doesn't turn around soon."

BoE financial stability report
06/27/09   Markets
"The Bank of England has released its June Financial Stability Report filled with the usual tip-top commentary and analysis."

Exotic ETFs are toxic ETFs
06/27/09   Indexing
"Just as the exotic charms of Cleopatra confounded Julius Caesar, the foreign wiles of Delilah did for Samson and the mystique of Heather Mills. fake leg ensnared Paul McCartney, so the mysterious allure of the exotic ETF is undermining the original purpose of these investment vehicles. As usual the investment industry has worked its magic and turned a really useful investment tool into a method for speculating in snake oil."

A recession measured by new-home sales
06/27/09   Real Estate
"There have been bad housing markets before, but never in post-World War II history has the market for new homes suffered as badly as it has in this decline."

Exit ahead? not so fast
06/24/09   Economy
"Notwithstanding the so-called green shoots that appear to be popping up in various series of economic statistics, other numbers show things to be withering, if not rotting outright. What's more these data are not seasonally adjusted or otherwise fudged. They're tax receipts, and nobody pays taxes on phony, phantom jobs or earnings."

A tale of two depressions
06/24/09   World
"Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices."

U.S. economy in "shambles"
06/24/09   Buffett
"In a live interview on CNBC today, Warren Buffett said there has been little progress over the past few months in the "economic war" being fought by the country. "We haven't got the economy moving yet." While the economy is a "shambles" and likely to stay that way for some time, he remains optimistic there will eventually be a recovery over a period of years."

Efficient markets theory is dead
06/24/09   Montier
"The efficient markets hypothesis, or EMH, is the financial equivalent of Monty Python's dead parrot. No matter how much you point out that it is dead, the believers simply state that it is just resting. In part this is testament to the high degree of inertia that academic theories enjoy. Once a theory has been accepted it seems to take forever to dislodge it."

A lost decade for jobs
06/23/09   Economy
"Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back."

Timing Temptation
06/22/09   Stingy Investing
"Buy-and-hold investing is a crock. That's what many investors are saying these days and, after a bruising bear market, it's not hard to understand why. If only they had sold at the top and bought back at the bottom. Problem is, getting the timing right is much easier said than done."

Even when down, bet on the best
06/22/09   Stingy Investing
"As the illustration shows, four of the current 10 "dogs" have yields above 6%: Merck & Co. Inc., Verizon Communications, AT&T Inc. and E I Du Pont de Nemours and Co. Even after massive cuts to their dividends, Pfizer Inc. still yields 4.38% and General Electric Co. 3.24%. Based on current data, Norman Rothery, founder of StingyInvestor.com,would eliminate Alcoa Inc., Bank of America Corp, G. E. and JP Morgan Chase and Co. from the list. They would be replaced with Caterpillar Inc., Chevron, Home Depot Inc. and J&J, after which Rothery's updated list of 10 dogs would sport an average yield of 4.9%. Berkshire Hathaway owns G. E. and Kraft Foods Inc., while Pfizer and Home Depot Inc. are favourites of other prominent value investors. However, Rothery prefers to look farther afield than the Dow."

How self-made titans launched
06/18/09   Management
"Yet for entrepreneurs who have truly creative ideas, unrelenting devotion and oodles of ability to execute--but who may not have fat trust funds to lean on--there's reason for hope. Scan the Forbes list of the world's wealthiest people and you'll find moguls from startlingly humble origins."

The story of 9 failed currencies
06/18/09   World
"Rare are those instances in which entire economies are disrupted to the point - typically as a result of rampant inflation, or hyper inflation - that an entire form of currency is discarded, reformed or replaced. But it does happen."

Ghost cities may be bulldozed
06/18/09   Government
"The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature."

Praise for Peter Bernstein
06/18/09   Books
"Peter Bernstein aimed for large targets, and gave broad and convincing evidence of how markets worked. He only erred in letting Modern Portfolio Theory and Keynesianism affect him. With that, I hail Peter Bernstein, regretting his demise. He will be missed, as few of us had such global vision of markets as he had."

The dead parrot of finance
06/18/09   Montier
"Montier's charge sheet is a lengthy one. He says EMH has left us with a long list of bad ideas that have influenced the investment industry. These include an obsession with benchmarking, the capital asset pricing model, risk management etc."

Investors are getting killed in ETFs
06/18/09   Indexing
"A new analysis by Vanguard Group founder John Bogle indicates that investors are generally making poor decisions when buying and selling exchange-traded funds."

Don't count on TIPS
06/17/09   Bonds
"TIPS protect you from inflation with one hand, but they punish you with interest-rate hikes with the other."

California's economy: too big to fail?
06/17/09   Government
"Though few experts think California will default on its debt - following the example New York City set in 1975 and Cleveland in 1978 - the mere possibility is troubling for the credit markets. "If California truly defaults, I am sure it will shake the faith of bondholders and noteholders in the overall municipal finance system," says Dan Boyd, senior fellow at the Rockefeller Institute of Government. "That would undoubtedly lead to higher issuance costs to additional state and local government loans.""

The irrational pursuit of growth
06/16/09   Management
"Why are so few companies opposed to sucking cash out of a business and returning it rather than reinvesting it at sub-par rates of return?"

Swan song
06/16/09   Taleb
"But the failures of the Niederhoffers and AIGs do not translate to a validation of Taleb-style catastrophism because these two approaches turn out to be linked. They are mirror images. In noncatastrophic times, the Niederhoffers and AIGs make money consistently and quietly and then end up losing it conspicuously and painfully. The Talebs make money rarely, amaze everyone because they do it when everybody else is getting killed - and so make it easy to forget about years of steady losses. Over the long run, the anti-catastrophists often do fairly well (if they don't get too greedy and make bets that cost them all their money in even a small market drop). But it is the catastrophists, a la Taleb, who look smarter. If you're always planning for crisis, you look like a genius when it does come."

Would you wear a serial killer's sweater?
06/15/09   Behaviour
"So, would you wear a serial killer's sweater? No blood spatters or anything. Heck, let's even say it has been dry cleaned. Psychologist and cognitive neuroscientist Bruce Hood has been known to brandish a cardigan belonging to the serial killer Fred West in the lecture hall. West tortured, raped, and murdered at least 12 women. Of course, a moment's reflection will reveal that his sartorial choices probably had nothing to do with his grisly hobby. And there's no possibility of catching serial killer disease from his sweater, right?"

Obituaries offer short-sale tip sheet
06/15/09   Markets
"What they found from their worldwide study of 8,191 companies and 122 sudden deaths since 1973 was a 1.7 percent decline in geographically connected firms, meaning those companies headquartered in the town in which the politician was born or lived."

Case closed
06/15/09   Academia
"This article provides conclusive evidence that the U.S. stock market is highly inefficient. Our results, spanning a 45 year period, indicate dramatic, consistent, and negative payoffs to measures of risk, positive payoffs to measures of current profitability, positive payoffs to measures of cheapness, positive payoffs to momentum in stock return, and negative payoffs to recent stock performance. Our comprehensive expected return factor model successfully predicts future return, out of sample, in each of the forty-five years covered by our study save one. Stunningly, the ten percent of stocks with highest expected return, in aggregate, are low risk and highly profitable, with positive trends in profitability. They are cheap relative to current earnings, cash flow, sales, and dividends. They have relatively large market capitalization and positive price momentum over the previous year. The ten percent with lowest expected return (decile 1) have exactly the opposite profile, and we find a smooth transition in the profiles as we go from 1 through 10. We split the whole 45-year time period into five sub-periods, and find that the relative profiles hold over all periods. Undeniably, the highest expected return stocks are, collectively, highly attractive; the lowest expected return stocks are very scary - results fatal to the efficient market hypothesis. While this evidence is consistent with risk loving in the cross-section, we also present strong evidence consistent with risk aversion in the market aggregate's longitudinal behavior. These behaviors cannot simultaneously exist in an efficient market."

Know what you own
06/15/09   Indexing
"While the rest of the investment industry (open-end and closed-end funds) comes under consistent scrutiny, the ETF industry to-date has largely escaped a hard look. However those times just might be changing."

Philip Morris gets its tobacco bill
06/15/09   Stocks
"The Family Smoking Prevention and Tobacco Control Act is revealed as yet another Beltway deal for Big Government and Big Business. Those who proclaim it a victory for public health and the public good are blowing smoke."

Why you should be long the NYT
06/14/09   Stocks
"The Times is the greatest journalism brand in the world. Journalism is going through a period of intense, painful consolidation, at the end of which there will be many fewer competitors, leaving the ones who survive with extraordinary market power and more cultural influence than they have today. The Times will unquestionably survive because it is the best, which will make it an incredibly profitable enterprise. In fact, I'd wager to say that the worse things get for the media industry generally, the better things get for the Times."

Is Vanguard sailing in uncharted seas?
06/14/09   Indexing
"What on earth was Vanguard thinking? That is what investors in Vanguard Group, the nation's largest mutual-fund company by assets under management, have been asking ever since Vanguard emerged as one of the bidders for the iShares family of exchange-traded funds last month."

Risk-management pioneer
06/14/09   Markets
"Investing has yielded a few stars so famous they are known by first name. Warren Buffett is one. Peter L. Bernstein -- the economist, investment consultant and prolific author who died on June 5 at 90 -- was another."

Currency hedging
06/13/09   Indexing
"For the 12 months to June 4, XSP lost 35.6 per cent and the S&P 500 gave up 31.6 per cent. Over the past three years, XSP's cumulative loss of 30.8 per cent was about five percentage points worse than the index."

Another blow for angioplasty
06/11/09   Health
"There's a powerful logic to the argument that people will live longer and have fewer heart attacks if their clogged arteries are repaired with a procedure called angioplasty. Most commonly, the arteries are widened with a tiny balloon threaded through their blood vessels, then kept open with slender mesh tubes called stents. The logic has turned this medical procedure into a huge - and profitable - business. Each year in the U.S., more than 1.2 million angioplasties are performed, at a cost of more than $25 billion. The cardiologists who open arteries love the sense that they are warding off death, and patients "think the angioplasty saved their lives," says Floyd J. Fowler Jr., president of the Foundation for Informed Medical Decision Making. But the data show that doctors and patients are wrong."

The Liquidity Premium
06/11/09   Markets
"Value tends to outperform growth over time. We've shown that less-liquid stocks outperform more-liquid stocks. In this section, we examine how liquidity interacts with value and growth."

Poking holes in a theory
06/07/09   Markets
"In the last decade, the efficient market hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices - meaning that perhaps the market isn't quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum."

Live your best life ever!
06/07/09   Health
"She has the power to summon the most learned authorities on any subject; who would refuse her? Instead, all too often Oprah winds up putting herself and her trusting audience in the hands of celebrity authors and pop-science artists pitching wonder cures and miracle treatments that are questionable or flat-out wrong, and sometimes dangerous."

How the small investor can beat the market
06/04/09   Graham
"I think that sometimes as value investors we spend too much time trying to emulate our idols, rather than take advantage of the opportunities that are available to us because of our small size. Greenblatt and Pzena's article affirms the idea that small investors do have an advantage, mainly in the area of net-nets where most securities are small, under followed, and often mispriced."

Buffett less bullish than you think
06/04/09   Buffett
"Somebody could have said: 'Your children and grandchildren will live better than you' in 1932, and that would have been reason to buy stocks, as well as reason to be nervous."

Return to 0% down
06/03/09   Real Estate
"The days of home buying with little or no money down may be back - this time thanks to Uncle Sam."

A 3rd wave of foreclosures
06/03/09   Real Estate
"The next group of Americans to lose their homes seemed to have good credit and affordable loans. But those families have been walloped by the recession."

No bond safe from Obama
06/03/09   Government
"Bondholders have a new risk to contend with -- the Obama administration's policy of 'shared sacrifice.' The government's approach to the bankruptcies of General Motors Corp. and Chrysler LLC illustrates how this new, unstated policy works: Bondholders are told to give up legal rights, and cash, as part of a government-mandated tradeoff that favors a politically connected special-interest group. The big threat is that this policy will extend to all bonds, including Treasury and municipal debt, not just corporate obligations."

The peril of 'buy American'
06/03/09   Government
"It's not surprising that Democrats in Congress could not resist adding a 'Buy American' provision to the fiscal stimulus bill earlier this year. It might seem sensible (or at least politically useful) to ensure that taxpayer dollars would be used exclusively to support American jobs. But as states and municipalities start spending stimulus money, the idea is starting to look as counterproductive as it should have looked from the beginning. It is sparking conflict with American allies and, rather than supporting employment at home, the 'Buy American' effort could ultimately cost American jobs."

Seasonal hurricane forecast
06/03/09   Disaster
"The Colorado State team has done a good and honest job at looking at and sharing their own accuracy over time. There is a recent paper published by Klotzbach and Gray sharing the forecast accuracy since 1987."

Nine basis points!
06/03/09   Indexing
"Has anyone noticed that Pimco, as of yesterday, is offering (now higher-yielding, lower-priced) short-term U.S. Treasuries at an expense ratio of 9 bps (0.09%)?"

Problems with housing data
06/03/09   Real Estate
"Housing is at the epicenter of the financial crisis. Home values affect wealth, personal consumption, and the need for further write downs in "legacy" (formerly known as toxic) assets. We would love to have good data about housing. Forget it. Nearly all of the housing series are flawed with significant discontinuities or conceptual problems. No matter what the data report, there will be plenty of opportunity for pundits to dispute the results for the next year or so."

As GM goes so goes California
06/02/09   Government
"Though the country has rightly focused on the mortgage mess, retirement obligations still loom as a daunting obligation. Thanks to plunging stock markets, which have decimated retirement accounts, they are more pressing than ever."

A superb fund rebounds
06/02/09   Value Investing
"Hawkins and Cates are self-assured stock pickers, as indicated by their willingness to pile a huge percentage of Longleaf's assets into just a handful of companies. As of March 31, multimedia entertainment conglomerate Liberty Media (LMDIA) made up 14% of assets. Once-dominant computer maker Dell (DELL) accounted for 10%. Chesapeake Energy (CHK), an oil-and-gas producer, and Sun Microsystems (JAVA), which is being acquired by Oracle Corp., together made up 16%."

Buy an S.U.V., save the planet
06/02/09   World
"Scientists and engineers are racing to develop technologies that will improve fuel economy and perhaps replace gasoline altogether. This is certainly to be applauded. But there may be an easier and more effective way to help wean ourselves off foreign oil and fight global warming. Interestingly, it involves not 21st-century technology but 28th-century technology - as in 28th-century B.C.E."

Hasta la vista, forests. Wood is the new coal
06/02/09   World
"Wood is becoming a hot commodity in a new low-carbon world. Power companies are burning more trees because the renewable fuel can be cheaper than coal and ignited without needing permits to release carbon dioxide, the main greenhouse gas blamed for global warming."

Reflections and outrage
06/02/09   Value Investing
"I believe superior long-term performance is a function of a manager's willingness to accept periods of short-term underperformance. This requires the fortitude and willingness to allow one's business to shrink while deploying an unpopular strategy. Additionally, in the low return changing world I foresee, a well diversified mutual fund of U.S. stocks will likely have a harder time outperforming the stock averages and index funds, as a result of its higher expense ratio. A more focused strategy will be necessary to excel. If active managers continue to adhere to their old practices, we should see a contraction in the active mutual fund management universe over the next five to ten years."

Investor exits and leaves puzzlement
06/01/09   Stocks
"I've seen my share of odd moments during annual meetings, but until Thursday I'd never seen a grown man cry during one. O.K., maybe 'cry' is a bit of an overstatement for what happened. Still, it was pretty startling when, in the middle of his speech to Target Corporation shareholders, William A. Ackman, the hedge fund manager who had waged an expensive, high-profile proxy fight against the company, suddenly choked up and stopped speaking. He wiped away a tear."

Are funds pawning shares at your expense?
06/01/09   Funds
"Your fund should lend out your securities, but the proceeds should go to you. And fund managers should reinvest the collateral only in absolutely safe securities. The current system, where they keep half the gains and stick you with all the risks, has got to go."

Due for a comeback
06/01/09   Dorfman
"Some of the nation's best and most famous investors -- Warren Buffett, David Dreman, Ken Heebner and William Miller -- had hideous years in the bear market of 2008. I refuse to believe, though, that people with a long track record of investment prowess have suddenly become stock-market eunuchs."

A conversation with Charlie Munger
05/28/09   Munger
"Charles Munger presented the Institute's 2008 DuBridge Distinguished Lecture in Beckman Auditorium on March 11. Munger, the vice chairman of Berkshire Hathaway Inc., a business partner of Warren Buffett, and one of the richest people in the United States, was joined in conversation by Caltech's Tom Tombrello, chair of the Division of Physics, Mathematics and Astronomy, and Kenan Professor and professor of physics."

Value's Downside Risk
05/27/09   Tipsheet
"If you had invested in a very simple strategy of buying low price-to-book stocks over the last 40 years [based on the cheapest quintile of the largest 1000 stocks], you'd have made about 200 times your money versus about 60 times your money if you'd invested in the S&P 500. So it's a pretty successful strategy. Now, what I want to focus on are the eight times in the last 40 years that you would have lost 20% in a naive value strategy."

The need for failure
05/27/09   Government
"First, the very notion of "too big to fail" is dangerous. It suggests that there is an insurance policy that says, no matter how risky your behavior, we will make sure you stay in business. It encourages banks to get bigger (or more interconnected), and it subsidizes risky behavior."

The unreliability of beta
05/27/09   Markets
"In summary, stock betas calculated from historical data vary considerably over short intervals, across calculation methods and across data sources and therefore may be of little or no value as an investment tool."

Income 100: Summer 2009
05/26/09   Stingy Investing
"The good news is the top income stocks - those rated A - outperformed the Canadian Dividend ETF by 7.1 percentage points and they bested the S&P/TSX Composite ETF by a whopping 15.6 percentage points."

The fat tail
05/26/09   Books
"In their entertaining new book, The Fat Tail, Eurasia Group investment strategists Ian Bremmer and Preston Keat observe that while banks likely spent $8 billion on credit-risk software in 2008, most spent 'far less energy on the assessment and management of political risk.' It's easy to make the argument that banks and businesses of all stripes ignore risk of the policy variety at their peril."

Home prices began 2009 with record declines
05/26/09   Real Estate
"The S&P/Case-Shiller U.S. National Home Price Index - which covers all nine U.S. census divisions - recorded a 19.1% decline in the 1st quarter of 2009 versus the 1st quarter of 2008, the largest decline in the series. 21-year history. The 10-City and 20-City Composites recorded annual declines of 18.6% and 18.7%, respectively. These are slight improvements from their returns reported for February."

Great Right North
05/25/09   World
"Too often in the United States, Democrats reject cuts in taxes and spending because they consider them Republican causes. Yet in Canada, center-left governments implemented many of the reforms that made these impressive numbers possible. Perhaps we have something to learn from those "socialists" to the north."

Patient Capital May 2009 letter
05/25/09   Value Investing
"We are willing to make one prediction; over the next five years long dated government securities will likely provide negative real returns. In our view, 'safe' government instruments are some of the riskiest investments available. Today three to five year Government of Canada bonds are yielding approximately 1.75% while bonds with a maturity of ten years or more are yielding 3.75%. These rates are substantially below long term averages and imply very little if any inflation in the future. We believe that the odds are very much against such a scenario."

Shorting leveraged ETFs
05/25/09   Indexing
""Rebalancing on a daily basis is beneficial if a market trends. You're going to end up with returns greater than two times, you're going to get a compound effect. You'll see returns going up and compounding daily," Atkinson says. "There have been periods where we've seen four to six times the index return over a one year period because the market was generally in one direction. We're giving you two times the leverage, but you never lose two times the exposure. We're reducing the exposure as the market moves against you.""

The great ethanol scam
05/25/09   World
"More than one major transportation-based industry in America besides Detroit is on the ropes. For the fourth time in our history the ethanol industry has come undone and is quickly failing nationally. Of course it's one thing when Detroit collapsed with the economy; after all, that is a truly free-market enterprise and the economy hasn't been good. But the fact that the ethanol industry is going bankrupt, when the only reason we use this additive is a massive government mandate, is outrageous at best. Then again, the ethanol lobby and refiners have a solution to ethanol's failure in America: Hire retired General Wesley Clark as your point man and lobby the government to increase the amount of ethanol in our fuel to 15%. The problems with that proposition are real - unlike ethanol's benefits."

Renewable energy - our downfall?
05/25/09   World
"The government, under pressure from a disparate confederation of environmentalists and greens, have agreed to press ahead with a host of renewable energy sources, including wind, tidal and wave power. Yet, despite the vast sums of public money that will be allocated to these projects and the fundamental enormity of the decisions that have been made, there has been very little in the way of open debate on the subject. Like many aspects of today's governmental system, the powers that be appear to have made a decision about future energy production based upon image, spin and the number of votes the policy will capture, while ignoring the basic truths and science that should be the foundation-stone of any policy. Nobody has even debated the absolutely fundamental question of whether any of these energy generation systems actually work."

Longleaf annual presentation
05/25/09   Value Investing
"The Longleaf Partners Funds are pleased to make excerpts from our May 7, 2009 Annual Presentation available to all shareholders online via Windows Media Player. These recorded sessions will allow those shareholders not able to attend the meeting to hear the comments and views of the Portfolio Managers."

Swensen recommends TIPS
05/25/09   Bonds
"David Swensen, the top-ranked college endowment manager in the past decade, said individual investors should own inflation-protected Treasuries because U.S. economic recovery efforts may lead to an increase in consumer prices."

Argentina: The superpower that never was
05/25/09   World
"A short century ago the US and Argentina were rivals. Both were riding the first wave of globalisation at the turn of the 20th century. Both were young, dynamic nations with fertile farmlands and confident exporters. Both brought the beef of the New World to the tables of their European colonial forebears. Before the Great Depression of the 1930s, Argentina was among the 10 richest economies in the world. The millions of emigrant talians and Irish fleeing poverty at the end of the 19th century were torn between the two: Buenos Aires or New York? The pampas or the prairie? A hundred years later there was no choice at all. One had gone on to be among the most successful economies ever. The other was a broken husk."

A great year in just five months
05/25/09   Bonds
"The market for risky high-yield, or junk, bonds has gone from ridiculously cheap to just cheap with remarkable speed. The Merrill Lynch U.S. High Yield Master II index has narrowed from a wide yield margin of 2,100-plus basis points over Treasuries with comparable maturities in February to 1,232 basis points through Thursday. Back in June 2007, the yield margin was a mere 241 basis points. (A basis point is one-hundredth of a percentage point.)"

Job losses push mortgages to foreclosure
05/25/09   Real Estate
"In the latest phase of the nation's real estate disaster, the locus of trouble has shifted from subprime loans - those extended to home buyers with troubled credit - to the far more numerous prime loans issued to those with decent financial histories."

Mohnish Pabrai at Columbia
05/23/09   Value Investing
Last bit of a lecture by Mohnish Pabrai at Columbia [video]

Take Benjamin Graham's advice
05/23/09   Graham
"It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional. Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events."

The road to bankruptcy
05/21/09   Debt
"At the end of his book's harrowing account of mortgage mistakes and credit card crises, Edmund Andrews writes: "While our misadventure had certainly been more extreme than those of many other Americans, our situation was not all that unusual." And indeed the book reads like the story of an American Everyman, easily sucked in to the alluring world of easy credit as he struggled to blend a new family. The terrifying implication is that it could happen to you--to anyone who leads with their heart and not their head. But en route to that moral, it turns out the story has been tidied up a little. Patty Barreiro, Andrews' wife, has declared bankruptcy twice. The second time was while they were married, a detail that didn't make it into either the book or the excerpt that ran in last Sunday's New York Times Magazine."

Capitalism and the cheating ethic
05/21/09   Behaviour
"But when real neutral observers - a book agent, an editor at a newspaper, the paper's readers - no longer blanch at outright deviousness so frankly told, society has lost the mechanism that restrains its citizens from widespread cheating. That's exactly what happened in the mortgage meltdown, when untold numbers of applicants, their brokers, real estate agents and assorted others openly discussed how to collude in obtaining mortgages through fraudulent means without stopping to consider the implications for society as a whole. And without the slightest sense of embarrassment, apparently."

The climate-industrial complex
05/21/09   Government
"Some business leaders are cozying up with politicians and scientists to demand swift, drastic action on global warming. This is a new twist on a very old practice: companies using public policy to line their own pockets."

Tis better to have bet and lost
05/21/09   Behaviour
"Regrets always have a bitter taste, and those involving gambling tend to linger more than most. But a new paper argues that worrying about regrets may be costing you money."

David Winters interview
05/20/09   Value Investing
"Winters says the best-of-breed businesses he favors are available today not only at 'the right price', but that they're actually 'very, very cheap'"

Dangerous toys, strange bedfellows
05/19/09   Government
"Overnight, a bunch of cheerful believers in good government found themselves on the wrong side of a do-gooding law. Under the terms of the new rules, their lead-free, hand-crafted toys were now illegal until proven clean."

Termination of investment management firms
05/18/09   Academia
"We examine the selection and termination of investment management firms by 3,400 plan sponsors between 1994 and 2003. Plan sponsors hire investment managers after large positive excess returns but this return-chasing behavior does not deliver positive excess returns thereafter. Investment managers are terminated for a variety of reasons, including but not limited to underperformance. Excess returns after terminations are typically indistinguishable from zero but in some cases positive. In a sample of round-trip firing and hiring decisions, we find that if plan sponsors had stayed with fired investment managers, their excess returns would be no different from those delivered by newly hired managers. We uncover significant variation in pre- and post-hiring and firing returns that is related to plan sponsor characteristics."

Stimulating trade wars
05/18/09   Government
"If you thought "buy American" provisions were a thing of the past, think again. Canadians are bellowing and U.S. companies trying to employ Americans are shutting down. Someone didn't think this through."

Soak the rich, lose the rich
05/18/09   Government
"Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states."

The master of money
05/18/09   Buffett
"There is now a long shelf of books about Warren Buffett, but this is the first time he has gone to any trouble to add to it. Reportedly Buffett now regrets his decision--he has apparently put some fresh distance between himself and his official biographer. If so, it's not hard to see why. Alice Schroeder is a former Morgan Stanley research analyst, able to understand and to explain Buffett's money-making, but she declined to confine herself to the business at hand. She has sought to describe Buffett's psychological landscape as clearly as his financial one. For the reader, the results are pretty terrific--there are not a lot of 838-page narratives that leave you wanting more--but for Buffett they are no doubt upsetting."

Geithner's gift to Wall Street
05/18/09   Government
"Imagine if you were not really in the market for a house but the government came along and said that it would finance 94% of a home's purchase price with a mortgage rate of less than 3%. Still not interested? Wait, Uncle Sam has some additional sweeteners: if you do the deal and buy the house for only 6% down, you also get the equivalent of rental income every month to the tune of at least an annualized yield of 10% of the purchase price. But wait there's still more: if, say, after two years, you decide you don't want the house any longer, you can just walk away from it. No need to pay the balance of the mortgage (it won't affect your credit rating), and you can keep the rental income received to date."

White swans, revulsion, and value
05/18/09   Montier
"Current market conditions, dire as they are, represent not a black swan but a predictable surprise. Unfortunately, behavioral impediments in human nature made most investors unwilling or unable to see this predictable surprise. But despite the uncertain state of today.s markets, the investment environment holds many opportunities for value investors who focus on the long term." [Only free for CFAs]

Conoco, CBS, U.S. Steel are bargains
05/18/09   Dorfman
"Seven percent of all stocks sell for less than eight times earnings and also have total debt that I consider reasonably prudent (less than stockholders. equity). There are 171 stocks in this group. From among those 171, here are half a dozen that I think hold considerable investment interest now."

Charlie Munger's words of wisdom
05/18/09   Munger
"A lifetime of practicing what he preaches has made Munger a billionaire: Good businesses are ethical businesses, he tells us. A business model that relies on trickery is doomed to fail."

Energy myths and realities
05/16/09   World
"I'm going to try to do something that seems impossible these days - and that's have an honest conversation about energy policy, global warming and what proposed 'cap and trade' regulation means for you, the generation that will have to live with the consequences of the policy choices we make. My goal is to inform you with easily verifiable facts - not hype and propaganda - and to appeal to your common sense."

My personal credit crisis
05/16/09   Debt
"At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane. But this was unlike any other time in history."

What if global-warming fears are overblown?
05/14/09   World
"His most controversial argument is that the surface temperature readings upon which global warming theory is built have been distorted by urbanization. Due to the solar heat captured by bricks and pavement and due to the changing wind patterns caused by large buildings, a weather station placed in a rural village in 1900 will inevitably show higher temperature readings if that village has, over time, been transformed into small city or a suburban shopping district, Christy says."

Chrysler and the Rule of Law
05/13/09   Government
"Fleecing lenders to pay off politically powerful interests, or governmental threats to reputation and business from a failure to toe a political line? We might expect this behavior from a Hugo Chavez. But it would never happen here, right? Until Chrysler."

Legal matters with Charles T. Munger
05/13/09   Munger
"Charles T. Munger is a man of many interests, much like his hero Benjamin Franklin. Self-taught in a range of disciplines, he's a strong advocate for interdisciplinary education saying, "If I can do it, many people can." A student of physics and mathematics before entering law school, he left his mark on the legal profession early in his career by co-founding Munger, Tolles & Olson in 1962 - a firm that is today consistently ranked at the top of its field. Now an icon of the business world, he joined forces with Warren Buffett in the mid-1960s - leaving law to become vice chairman of Berkshire Hathaway and a partner in one of the most successful firms in the world."

The secret of self-control
05/11/09   Behaviour
"Angela Lee Duckworth, an assistant professor of psychology at the University of Pennsylvania, is leading the program. She first grew interested in the subject after working as a high-school math teacher. 'For the most part, it was an incredibly frustrating experience,' she says. 'I gradually became convinced that trying to teach a teen-ager algebra when they don't have self-control is a pretty futile exercise.' And so, at the age of thirty-two, Duckworth decided to become a psychologist. One of her main research projects looked at the relationship between self-control and grade-point average. She found that the ability to delay gratification - eighth graders were given a choice between a dollar right away or two dollars the following week - was a far better predictor of academic performance than I.Q. She said that her study shows that 'intelligence is really important, but it's still not as important as self-control.'"

Zombie loans give life
05/11/09   Bonds
"Citigroup Inc. and Bank of America Corp. are also amending revolving loans to zombie borrowers on the brink of default and others with debt ratings that are among the worst. Lenders are betting the economy will improve enough to keep companies from adding to the $1.4 trillion of writedowns and losses by the world's largest financial institutions since the start of 2007."

Just buy everything
05/11/09   Indexing
"Ideally, you would have poured money into these funds when markets hit a multi-year low on March 9, but investor timing is notoriously horrible, Rothery said, noting that investors lose between three and five percentage points or more a year from trying to time the market. "They would have been better off, if they're index-oriented, to just stick with an index and go to sleep.""

Chrysler's sorry state revealed
05/11/09   Stocks
"Among the thousands of pages of documents filed in connection with Chrysler's Chapter 11 bankruptcy are affidavits from Chrysler executives that open up a window on the auto business previously closed to outsiders in this intensely competitive business. They reveal an almost unimaginable complexity in the design, manufacturing, and distribution of new cars. But what's more revealing is that the affidavits expose Chrysler's inability to successfully compete and the dangers facing the company in a prolonged bankruptcy."

Grocery giant offers investors a sweetener
05/11/09   DRPs
"Grocery giant Loblaw Cos. Ltd. announced a new dividend reinvestment plan (DRIP) yesterday that allows shareholders to use their dividends to purchase additional shares in the company at a 3% discount, a day after releasing impressive first-quarter profits. Loblaws follows Royal Bank of Canada, which sweetened its DRIP in February by offering a 3% discount and Bank of Montreal which announced a 2% discount."

Back-to-basics with Warren Buffett
05/05/09   Buffett
"Most of what Mr. Buffett said was basic and obvious - and was roundly ignored during the period leading up to this mess. 'Leverage is what causes people real trouble in this world,' Mr. Buffett said. 'You don't want to be in a position where someone can pull the rug out from under you or, emotionally, where you pull it out from under yourself.'"

U.S. gas fields go from bust to boom
05/04/09   Markets
"Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand."

How David beats Goliath
05/04/09   Management
"David's victory over Goliath, in the Biblical account, is held to be an anomaly. It was not. Davids win all the time. The political scientist Ivan Arreguin-Toft recently looked at every war fought in the past two hundred years between strong and weak combatants. The Goliaths, he found, won in 71.5 per cent of the cases. That is a remarkable fact. Arreguin-Toft was analyzing conflicts in which one side was at least ten times as powerful - in terms of armed might and population - as its opponent, and even in those lopsided contests the underdog won almost a third of the time."

CEO leverage vs corporate leverage
05/04/09   Management
"We find that firms behave remarkably similarly to how their CEOs behave personally when it comes to debt financing and leverage. We compile a comprehensive sample of home purchases and financings among S&P 1,500 CEOs. Debt financing in a CEO's recent home purchase is used as a revealed preference of the CEO's innate personal tolerance for leverage. We find a strong and robust positive relation between personal and corporate leverage. A one standard deviation (34 percentage points) increase in CEO personal leverage is found to be associated with 20 percent higher corporate leverage for the median large public U.S. firm. This relation is found to be significantly stronger for firms with weaker governance, suggesting that sorting and endogenous matching of CEOs and firms does not entirely explain our evidence. Our results have implications for our understanding of corporate capital structure decisions and suggest more generally that an analysis of CEOs' personalities and personal traits can convey important information about the financial policies of the firms they manage."

Monsters, Inc.
05/04/09   Markets
"Amid the blizzard of economic data that the government puts out every week, last Tuesday's report analyzing G.D.P. industry by industry got little notice. But it contained one very interesting piece of data: in 2008, for the first time in sixteen years, the finance and insurance industry shrank. Since 1980, this sector's share of the economy has grown by almost half. Now, apparently, the worm has turned."

The end of personal finance
05/03/09   Thrift
"That our personal finances weren't fully ours to seize didn't seem to occur to many of us until recently, when the stock market plunged almost 40 percent in a mere year, housing went into free fall, and the unemployment rate began to climb perilously toward double digits. All these facts suddenly left the personal finance industry facing a conundrum of its own making. The backbone of the self-help complex is the idea that you can do it. You. Singular. But what happens when you lose your job and can't find a new one before your six months of recommended emergency savings runs out? Or a good chunk of your retirement income is in the form of a pension from your former employer - and that employer is named Chrysler? What then?"

There's hope in those dividends
05/03/09   Dividends
"Companies that have managed to increase their payouts in this tough economic climate may be a good target for a time-tested conservative investment strategy: buying shares of solid dividend-payers."

Woodstock for capitalists 2009
05/02/09   Buffett
Live blog from the event.

Buffett fans set for 'capitalist Woodstock'
05/01/09   Buffett
"A record crowd of Berkshire Hathaway shareholders will hang on every word from Warren Buffett at this weekend's annual meeting in Omaha."

Munger favors ban on credit swaps
05/01/09   Munger
"Berkshire Hathaway Inc. Vice Chairman Charles Munger said he supports an outright ban of credit- default swaps to prevent speculators from profiting on the failure of companies."

FFH AGM Slides
05/01/09   Markets
Slides 26 to 31 and 33 are particularly interesting.

Identifying overvalued equity
05/01/09   Academia
"An overvaluation score (O-Score) that combines proxies for earnings overstatement, prior merger activity, excessive stock issuance, and the manipulation of real operating activities, identifies firms with one-year-ahead abnormal price declines averaging -27%. Finally, we propose a model that integrates various attributes of managers' behavior and predicts accounting restatements associated with fraud."

Here's the story on Berkshire's Munger
05/01/09   Munger
"Mr. Munger grew up in Omaha and joined the U.S. Army during World War II, serving as a meteorologist in Alaska. After the war, he earned a degree from Harvard Law School and became an attorney at a California firm. He also became a serious investor. He met Mr. Buffett in an Omaha restaurant in 1959. After working together on a number of investments for many years, the two joined forces full time at Berkshire in 1978, when Mr. Munger became vice chairman."

The management myth
05/01/09   Management
"The thing that makes modern management theory so painful to read isn't usually the dearth of reliable empirical data. It's that maddening papal infallibility. Oh sure, there are a few pearls of insight, and one or two stories about hero-CEOs that can hook you like bad popcorn. But the rest is just inane."

Why Harvard is bad for Wall Street
04/29/09   Markets
"The bright young things from Harvard Business School are making their way to Wall Street in droves. Some 26 percent of the HBS class of 2004 took stock-market related jobs, up from 23 percent of the class of 2003. I guess that means it's time to sell."

2008 Harvard indicator: Sell
04/29/09   Markets
"For many years I have been keeping track of a rather esoteric but nonetheless generally accurate long-term indicator of the US equity market: the percentage of Harvard MBA graduates choosing careers in Wall Street and related market-sensitive fields. If 10% or less of the year's class take market-sensitive jobs (which I identify, using the Business School's current reporting categories, as investment banking, investment management, hedge funds, sales & trading, venture capital, private equity or leveraged buy-outs), that's a long-term .Buy. signal. If 30% or more do so, that's a long-term .Sell. signal."

Bonds: Why Bother?
04/28/09   Markets
"It's now well-known that stocks have produced negative returns for just over a decade. Real returns for capitalization-weighted U.S. indexes, like the S&P 500 Index, are now negative over any span starting 1997 or later. People fret about our 'lost decade' for stocks, with good reason, but they underestimate the carnage. Even this simple real return analysis ignores our opportunity cost. Starting any time we choose from 1979 through 2008, the investor in 20-year Treasuries (consistently rolling to the nearest 20-year bond and reinvesting income) beats the S&P 500 investor. In fact, from the end of February 1969 through February 2009, despite the grim bond collapse of the 1970s, our 20-year bond investors win by a nose. We're now looking at a lost 40 years!"

Berkshire's decline spurred by derivatives
04/28/09   Buffett
"Berkshire Hathaway Inc. shareholders have a chance this year to do something that's rare among the Sage of Omaha's followers: count their losses. "

One nation, under banks
04/27/09   Government
"The spectacle of Ben Bernanke and Henry Paulson running roughshod over Kenneth Lewis and his minions at Bank of America Corp. raises a pivotal question for all Americans: Is the U.S. a nation of laws, or a nation of banks?"

GM bondholder says offer isn't reasonable
04/27/09   Bonds
"General Motors Corp. bondholders find the automaker.s offer to exchange their $27 billion in debt for equity unreasonable and said they should be treated more equitably with labor unions."

25 Years to Bounce Back? Try 4.5
04/27/09   Markets
"An investor who invested a lump sum in the average stock at the market's 1929 high would have been back to a break-even by late 1936 - less than four and a half years after the mid-1932 market low."

U.S. homeownership by age group
04/27/09   Real Estate
"Back in 1985, the homeownership rate declined significantly after people turned 70. However, more recently, the homeownership rate has stayed above 80% for those in the 70 to 75 cohort, and close to 80% for people over 75. I expect the homeownership rate to remain high for the boomer generation too."

The Markets on Flu
04/27/09   Markets
"While the Spanish flu killed millions, it didn't seem to impact the stock markets much. Mind you, World War 1 was also winding down at the time and it's hard to separate these two major events. But take a look for yourself."

Haggle your way to extra
04/24/09   Thrift
"Many people might feel uncomfortable asking a store to take less than the posted price, but not Leonardelli. A professor at the Rotman School of Management, he teaches negotiating skills to business students. In his view, the recession offers a golden opportunity to get better prices and extra perks."

Getting real on wind and solar
04/24/09   World
"Why are we ignoring things we know? We know that the sun doesn't always shine and that the wind doesn't always blow. That means that solar cells and wind energy systems don't always provide electric power. Nevertheless, solar and wind energy seem to have captured the public's support as potentially being the primary or total answer to our electric power needs."

Fannie Mae creates housing mirage
04/24/09   Real Estate
"Give money away. That was a solution to the housing crisis mortgage giant Fannie Mae hit on last year. Faced with growing numbers of homeowners unable to make mortgage payments, Fannie decided to fund loans to borrowers that were instant losers."

Success on the side
04/24/09   Management
"In the early days, Paul Buchheit, employee number 23 at Google, was focused on Web search like most other engineers. But like many other restless, smart workers, Buchheit also enjoyed hacking away at random stuff during his free time. What makes Buchheit different is that his Friday afternoon time was unusually productive: He conceived the initial prototypes for Gmail, the popular email program now used by millions of people, and AdSense, which is responsible for most of the company.s billions. AdSense is the technology that displays relevant ads on the right-hand side of the search results page."

Don't blame the elite
04/24/09   Markets
"The truth is that markets stumble upon prosperity. New ideas are constantly being tried out. Most of them are bad, but that is fine, because markets ruthlessly eliminate bad ideas. A few of them are good, and that's enough, because good ideas spread fast in a market system. In the language of biology, markets are evolutionary environments that select very powerfully for wealth-creating organizations. They attract the smart people to the right places, magnify their good qualities and smother their failures."

Down and out
04/24/09   Real Estate
"British and American consumers have been obsessed with the idea of a house as their main store of wealth, regarding it as a combination of cash cow and pension plan. But the idea that we can all get rich by buying and selling each other.s houses was always an illusion. Maybe it will die out for a decade or two."

Housing is not coming back
04/24/09   Real Estate
"The entire world is hoping that housing is about to "recover" and re-ascend its glorious bubble-era heights of valuation. But it's not going to happen."

Spat over historical trends
04/24/09   Real Estate
"For now, Mr. Lawler says, the government does a better job with its monthly index of pricing for women's undergarments than it does with housing."

Big Macs and fries
04/24/09   Thrift
"Even with glimmers of hope for the recovery, consumers are still cutting back - especially when it comes to dining out. But turning to some of fast food's biggest bargains in order to stretch your dollar in the recession may be one belt-tightening measure that could end up forcing you to loosen your buckle by a couple of notches."

Seth Klarman letters
04/24/09   Klarman
"Seth Klarman's letters from 1995-2001."

The rise of the "empty creditor"
04/22/09   Bonds
"One key economic assumption is that people act to preserve their economic interests. Those who have lent money to troubled companies, for example, generally prefer the company remain solvent; otherwise, they can't get paid back. Similarly, lenders to troubled firms frequently favor swift, out-of-court restructuring deals, in which they swap debt for stock, instead of pushing companies into Chapter 11 bankruptcy. That's because companies in Chapter 11 can languish there for years and waste scarce company assets on huge fees to lawyers, consultants, and accountants. But if a lender or creditor believes it can profit more from a complete failure.i.e., if it has an insurance policy that pays off only in the event of utter devastation - that creditor might be more inclined to push a company toward bankruptcy."

Why capital structure matters
04/21/09   Stocks
"My belief -- first stated 40 years ago in a graduate thesis and later confirmed by experience -- is that capital structure significantly affects both value and risk. The optimal capital structure evolves constantly, and successful corporate leaders must constantly consider six factors -- the company and its management, industry dynamics, the state of capital markets, the economy, government regulation and social trends. When these six factors indicate rising business risk, even a dollar of debt may be too much for some companies."

Buffett on Wells Fargo
04/20/09   Buffett
"In the end banking is a very good business unless you do dumb things. You get your money extraordinarily cheap and you don't have to do dumb things. But periodically banks do it, and they do it as a flock, like international loans in the 80s. You don't have to be a rocket scientist when your raw material cost is less than 1-1/2%. So I know that you can have a model that works fine and Wells has come closer to doing that right than any other big bank by some margin. They get their money cheaper than anybody else. We're the low-cost producer at Geico in auto insurance among big companies. And when you're the low-cost producer - whether it's copper, or in banking - it's huge."

The wail of the 1%
04/20/09   Government
"In a witch hunt, the witches have feelings, too. As populist rage has erupted around the country, stoked by canny politicians, an opposite rage has built on Wall Street and other arenas where the wealthy hold sway. Its expression is more furtive and it.s often mixed with a kind of sublimated shame, but it can be every bit as vitriolic."

Duke, Allstate, Dow ace book-value test
04/19/09   Dorfman
"With a nasty recession raging, 20 percent of all U.S. stocks with a market value of $250 million or more are selling below book value. This group includes household names such as Duke Energy Corp., Allstate Corp., Dow Chemical Co. and Time Warner Inc."

Tax fantasies of the right and left
04/17/09   Taxes
"At the same time, it's not a good idea to try to raise all that extra money just from households with annual incomes of more than $250,000. That may have been a winning campaign promise for candidate Obama, but it makes for lousy economic policy. A quick back-of-the-envelope calculation suggests that balancing the budget solely on the backs of those making more than $250,000 a year would almost surely require pushing marginal income tax rates well above 50 percent. That's a level at which taxes begin to discourage people from working and investing. Almost certainly, it is a level that would prompt them to invest significant time and money to find new ways to evade taxes."

Bankers would rather work for $0.00
04/17/09   Behaviour
"Sometimes asking someone to do something for nothing is more powerful than paying them."

A little cheating costs a lot
04/17/09   Behaviour
"Behavioural economists are having a field day with the market meltdown, as traditional cost-benefit analysis and self-interest give way to more penetrating insights about how people can be systematically wrong - and how small acts can lead to broader failures."

The panic of 1825
04/17/09   Markets
"This was the birth of central banking as we know it. The Bank of England had accepted the role of maintaining orderly markets and financial stability in a crisis. Why? Because the prices of financial assets are too important to be left to the market when it is panicked and when letting prices reach market levels will mean unemployment for hundreds of thousands in 1825, or tens of millions today."

Fairholme OID interview
04/16/09   Value Investing
"I am more optimistic now than at any time. I can't tell you whether it's going to be 31 days or 31 months or longer before our portfolio companies begin to rise from the ashes. However, I do believe they will rise."

Why I fired my broker
04/16/09   Markets
"With his 401(k) in ruins, our correspondent visits investment gurus, hedge fund managers, and a freakish Arizona survivalist with one question in mind: How can the ordinary investor recover?"

Unintended consequences
04/13/09   Taxes
"The recent Ontario budget contains a massive tax grab that our Investment Partners should be aware of. The McGuinty government is proposing the harmonization of Ontario.s provincial sales tax with the federal GST. The decision to jam an additional 8% tax on the management expense ratios (MER) of your investment products is shockingly unwise and dangerous."

Austere times? Perfect
04/13/09   Thrift
"Millions of Americans have trimmed expenses because they have had their jobs or hours cut, or fear they will. But a subset of savers are reducing costs not just with purpose, but with relish. These are the gleefully frugal."

Hanging tough
04/13/09   Management
"One way to read these studies is simply that recessions make the strong stronger and the weak weaker, since the strong can afford to keep investing while the weak have to devote all their energies to staying afloat. But although deep pockets help in a downturn, recessions nonetheless create more opportunity for challengers, not less. When everyone is advertising, for instance, it.s hard to separate yourself from the pack; when ads are scarcer, the returns on investment seem to rise. That may be why during the 1990-91 recession, according to a Bain & Company study, twice as many companies leaped from the bottom of their industries to the top as did so in the years before and after."

So you want to be the next Warren Buffett?
04/12/09   Behaviour
"The way I see it, there are really only four sources of economic moats that are hard to duplicate, and thus, long-lasting. One source would be economies of scale and scope. Wal-Mart is an example of this, as is Cintas in the uniform rental business or Procter & Gamble or Home Depot and Lowe's. Another source is the network affect, ala eBay or Mastercard or Visa or American Express. A third would be intellectual property rights, such as patents, trademarks, regulatory approvals, or customer goodwill. Disney, Nike, or Genentech would be good examples here. A fourth and final type of moat would be high customer switching costs. Paychex and Microsoft are great examples of companies that benefit from high customer switching costs."

Whitman buys American distress
04/10/09   Whitman
"For us, the principal test is credit-worthiness--don't buy common stocks of companies that need continuous access to capital markets. Or where customers or counter-parties can discontinue relationships at little or no cost."

Goldman Sachs TARP repayment pressures rivals
04/10/09   Markets
"A Goldman Sachs Group Inc. sale of stock to speed repayment of $10 billion in government money will pressure other banks to follow suit or risk appearing dependent on federal support"

David Dreman exits unbowed
04/10/09   Dreman
"There are few celebrity mutual fund managers any more. Fund groups prefer to promote themselves rather than a manager who could leave to start a hedge fund. In an age when holding on to assets is the way for a fund family to profit, they may well prefer a fund that sticks close to its peers. The new fund managers plan to own more stocks, with less concentration in any one stock, and a broader definition of value investing. They are far less likely to stand out from the crowd."

The housing crisis isn't a crisis
04/10/09   Real Estate
"His research has revealed three distinct types of housing markets--and only one of the three shows real signs of distress. Even then, that distress is only in a limited number of areas."

Depression survivors weigh in
04/10/09   Value Investing
"The three Depression survivors aren't just notable because of their ages; they're good - very good. All three have been longtime successful money managers, and two were friends and students of the great Benjamin Graham. (Walter Schloss, for example, is one of the 'Superinvestors of Graham & Doddsville' that Warren Buffett referred to in his famous 1984 Columbia University speech.) Here's a summary of what they had to say"

Why we think it's OK to cheat
04/10/09   Behaviour
"Behavioral economist Dan Ariely studies the bugs in our moral code: the hidden reasons we think it's OK to cheat or steal (sometimes). Clever studies help make his point that we're predictably irrational -- and can be influenced in ways we can't grasp."

How cheap is the market?
04/09/09   Markets
"On February 25 I published an op-ed piece in the .Wall Street Journal' entitled, "The S&P Gets Its Earnings Wrong." In that article I said that, although the S&P weights each individual's stock by its market capitalization to compute the return on the S&P 500 Index, no such methodology is used to compute aggregate earnings of the index. As a result, the billions of dollars of losses racked up by, say, AIG, whose market value is extremely low, is added dollar for dollar to the earnings of the profitable firms, such as Exxon Mobil, whose market value is more than 20 times larger. I maintained that S&P's methodology gave far too much influence to firms with big losses and low market values, and thereby gave a distorted valuation to the S&P 500 Index."

5 popular laws that don't work
04/07/09   Fun
"Really, is it ever possible to be too safe? Especially when it's our children at stake? Actually, yes. Especially when the rule or law intended to make us safe is so poorly thought-out that it either does nothing but suck up public money, or creates a ripple effect of unintended side effects."

Pulp nonfiction
04/06/09   Government
"Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry -- handsomely -- to use more fossil fuel." [From the unintended consequences file ...]

More brazen than Madoff?
04/05/09   Crime
"In a year of fabulous frauds, the one that glitzy Manhattan attorney Marc Dreier has been charged with is in some ways the most fabulous of all."

Honest man emerges from banking crisis
04/02/09   Accounting
"With so many top executives complaining they can't figure out what their companies' assets are worth, the real wonder is that more corporate directors haven't quit rather than certify financial reports they don't understand."

The manager who gave back his fees
04/02/09   Funds
"The mutual fund industry is going to hate this. Investors will be angry that they don't see more of it. Unhappy at the returns he has generated for clients, money manager Francis Chou is refunding almost all the management fees collected by his Chou Europe fund since it opened for business in September, 2003."

The incredible shrinking economy
04/02/09   World
"To lose one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan's economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan's GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery."

Why Bridgewater won't participate in PPIP
04/02/09   Government
"The only way the plan can work is if the investors buy the assets at low prices, the banks sell them at high prices, and the taxpayer covers the difference. Dalio is worried that, eventually, taxpayers will figure that out."

S&P 'dividend aristocrats' dwindle
04/02/09   Dividends
"The aristocracy is under siege. Standard & Poor's annual list of companies that increased payouts for at least 25 years is in danger of falling below 40 for the first time since 1992 after slumping profits forced executives to conserve cash."

Paper money
04/02/09   Stocks
"In other words, the newspaper companies that have failed wholesale were essentially set up to fail by inexperienced managers who believed piling huge amounts of debt on businesses whose revenues were shrinking even when the economy was growing was a shrewd means of value creation."

Buffett penalized as Citigroup borrows for less
04/02/09   Buffett
"Billionaire Warren Buffett's Berkshire Hathaway Inc. is being penalized in the bond market, paying more to borrow than bailed-out companies including Citigroup Inc. Buffett's firm paid more for its latest debt offering than Fannie Mae and Freddie Mac, the mortgage lenders that lost a combined $108.8 billion last year. Bank of America Corp. is also paying lower interest on notes under a program in which the U.S. agrees to guarantee debt. The difference in borrowing costs illustrates how government aid is giving an advantage to companies that needed multiple helpings of U.S. rescue funds."

Back to square one?
04/02/09   Accounting
"After intense pressure from lawmakers and some factions of the financial industry, the Financial Accounting Standards Board (FASB) voted on Apr. 2 to make it easier for corporate management to value assets on their balance sheets with less regard for market prices. The board, which sets U.S. accounting policy, was cheered on by the banking sector and pressured by Congress. The move may make life easier for financial institutions, letting them ride the markets' gyrations with less risk that regulators will demand they raise funds or face closure. But at the same time, it could well cloud investors' insight into how well the banks are really doing. And some observers worry the new rules will also give banks less incentive to cleanse their balance sheets by getting rid of risky assets through the Treasury's new auction program, unveiled late last month."

Cash-rich firms
04/02/09   Stocks
"One way to look at stocks is to view each share as a claim on a company's future earnings. But another way is to view each share as a claim on a company's assets. During times like these where markets for many assets are either frozen or slow-moving, liquid assets deserve a premium. So companies with high levels of cash and little or no long-term debt are well worth a look."

Prostate cancer screenings
04/02/09   Health
"I probably have prostate cancer. There's no need to feel sorry for me -- so do about half the men my age (I'm in my mid-50s). We doctors have learned this from microscopic examinations of the prostates of men who are autopsied following an accidental death. And the older men get, the more likely it is that they have prostate cancer. Autopsies of men in their 70s have found that about 80% of them had the disease. I almost certainly won't die from prostate cancer, however. The lifetime risk of prostate cancer death for American males is only about 3%. So, although the prevalence of the cancer may sound alarming, 97% of men will die from something else."

Chou 2008 letter
04/02/09   Value Investing
"The examples show that the pricing of risk has changed 180 degrees from a couple of years ago. One can argue that corporate bonds, both investment grade and non-investment grade, are mispriced more than equities. In addition, if corporate bonds are cheap, the treasuries are in bubble territory. In our opinion, this is the worst time to hold cash and short-term treasuries unless you believe we are headed into a 1930's style depression. If you believe that you should redeem all of your Fund units."

Bubblespeak
03/30/09   Government
"In his timeless 1946 essay "Politics and the English Language," George Orwell condemned political rhetoric as a tool used "to make lies sound truthful" and "to give an appearnce of solidity to pure wind." Were he alive today, Orwell might well be moved to pen a comanion piece on the use of financial lingo. Remember those toxic assets? The poorly performing mortgages and collateralized debt obligations festering on the books of banks that made truly exerable lending decisions? In the latest federal bank rescue plan, they've been transformed into "legacy loans" and "legay securities" - safe for professional inestors to purchase, provided, of course, they get lots of cheap government credit."

How the world ignored Warren Buffett
03/29/09   Buffett
"We read constantly that the current crisis is the worst in generations. That's true, but not for lack of trying. Read The Snowball and you can't help feeling the meltdown was not only inevitable but well deserved; that in fact Wall Street -- driven by a stunning combination of bottomless greed and chronic myopia -- has been striving to bring it about for decades, and has come close to succeeding on several previous occasions."

Obama's Nobel Headache
03/29/09   Government
"Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right."

High yield, low payout
03/29/09   Dividends
"How has the plain dividend yield strategy worked over the years? Stocks with high yields generally outperform those with low yields. The highest-dividend-yielding stocks were not overall leaders. Stocks ranking in decile eight had the best performance."

Canadian dividend yield strategy
03/29/09   Dividends
"What is the optimal combination of dividend yield and payout ratio for investors? We extend our coverage to the Canadian market in this report, expanding on our prior research, which examined the influences of dividend yield and payout ratios within the U.S. market. Consistent with our previous work, we find that companies with a high dividend yield and a low payout ratio had the best performance when applying our backtest methodology to large-cap Canadian companies since 1990."

The quiet coup
03/28/09   Government
"But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess - exports must be increased, and imports cut - and the goal is to do this without the most horrible of recessions. Naturally, the fund's economists spend time figuring out the policies - budget, money supply, and the like - that make sense in this context. Yet the economic solution is seldom very hard to work out. No, the real concern of the fund's senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis."

Is it back to the Fifties?
03/28/09   Markets
"US stocks have fallen more than 60 per cent in real terms since the market peaked in 2000. Anyone who started saving 40 years ago, when the postwar 'baby boom' generation was just joining the workforce, has found that stocks have performed no better than 20-year government bonds since then, a forthcoming article by Robert Arnott for the Journal of Indexes shows. These people want to retire soon and the 'cult of the equity' has let them down."

Fairfax contrarian cashes in mightily
03/28/09   Watsa
"Prem Watsa and his investment team have earned bragging rights for the next 100 years. They sidestepped most of a 50 per cent stock market crash. They bagged big profits by betting years in advance that stock prices would fall and companies would go broke. Meanwhile, their Toronto-based company clawed its way back from junk bond status to investment grade, and its share prices rose last year while most others fell."

The $2-Billion Man
03/26/09   Watsa
"Prem Watsa is the richest, savviest guy you've never heard of. He predicted the crash of '87, the Japanese collapse of 1990 and last year's meltdown, which he parlayed into a huge payoff. Now he's gobbling up shares at rock-bottom prices."

Portfolio and its bubble solution
03/26/09   Markets
"Being skeptical about this project is not because I particularly embrace the efficient market; it's because I don't, and I'm not convinced that physicists or anyone else has a decent grasp of complex systems, particularly those populated not by atoms but by wayward humans out to make a buck. Indeed, there's nothing wrong with using the markets as a test bed for physicists to probe the phenomenon of complex systems. But prediction? This is the great utopian dream of the technocrats: If we only had more data, we could model anything, predict everything."

New home sales fell 41%
03/26/09   Real Estate
"After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes. No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved."

Look who's getting the goodies
03/26/09   Government
"To understand what Washington is actually up to, you have to watch what it does, not what it says. That's especially true when it comes to Washington's role in the ongoing bailout of Wall Street, part of its "let's hope this works" plan to revive the U.S. economy. While Washington is setting the populist mob on the individual American International Group employees who got a total of $165 million in bonuses this year, far larger amounts of money are being quietly handed to Wall Street through programs that generate barely a peep of protest."

Have We Seen the Last of the Bear Raids?
03/26/09   Government
"The whole exercise was stupid, akin to buying insurance from the captain of the Titanic, who put the premiums in the ship's safe and collected a tidy bonus for his efforts."

Botox earnings put crooked E in P/E
03/26/09   Accounting
"Comprehensive income is the change in a company's shareholder equity during a given period, excluding the effects of new capital injections and dividend payments. By this measure, S&P 500 companies had combined losses in the past four quarters of about $200 billion, according to data compiled by Bloomberg and my own review of the companies' financial reports. In other words, there is no P/E ratio, because there is no E."

Long term performance of leveraged ETFs
03/25/09   Indexing
"In this paper, we study leveraged ETFs, in particular, Ultra ETFs and UltraShort ETFs from the ProShares family. These Ultra (UltraShort) ETFs are designed to provide twice (twice the opposite) of the performance of the benchmark on a daily basis. We focus on the relation between long term performance of leveraged ETFs and benchmarks. Our results show that over holding periods no greater than one month, an investor can safely assume that the Ultra (UltraShort) ETF would provide twice the return (twice the negative return) of the underlying benchmark. Over the holding period of one quarter, the UltraShort ETFs can deviate from twice the negative returns of the benchmark. For Ultra ETFs, this deviation occurs when the holding period is one year. Overall our results show that leveraged ETFs are not long term substitutes for long or short positions of the benchmark indices."

Wall St. threatens to take ball, go home
03/25/09   Government
"Wall Street has had enough and isn't going to take it any more. After months of being battered by politicians, pundits and the American people generally, the Empire is striking back"

Dan Ariely interview
03/24/09   Behaviour
"Here's a reality check for you. The total cost of every burglary theft, fraud, autotheft in US in 2004 was $16-Billion dollars. That same year regular businesses in the US lost $600-Billion dollars to employee theft and fraud. So who's the cheat? Behavioural economists like Dan Ariely understand how dishonesty and cheating is part of our less than rational relationship with money." [Audio MP3]

Rated F for failure
03/24/09   Government
"The reason for this continued reliance on ratings is simple: bad regulation. We have seen up close how legal rules that depend on ratings pervert the process."

Large stakes and big mistakes
03/24/09   Behaviour
"Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the US and India in which subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance."

How Zimbabwe slew hyperinflation
03/23/09   World
"Zimbabwe's wily street hawkers have finally found a use for the worthless 100-trillion-dollar banknotes that were issued here in January. They sell the bizarre banknotes as souvenirs to foreign tourists for $2 each. The currency with the never-ending string of zeroes is quickly fading into history, just two months after the latest notes were printed by the inexhaustible central bank. Also disappearing is Zimbabwe's phenomenal level of hyperinflation, which last year reached a stunning 89.7 sextillion per cent (a number expressed with 21 zeroes), making it the most extreme hyperinflation crisis of any country in modern times."

Mass hysteria over AIG
03/23/09   Government
"Since the beginning of the crisis I've wondered why the government has found neither the will nor the way to attack the root of the problem -- the people who borrowed money to buy homes they shouldn't have bought. Now I think I understand. It would be too simple. People would understand a lot of small payments to the guy down the street who doesn't deserve them, and become outraged. Far better to throw trillions at opaque corporations, the inner workings of which no one still really understands."

ETF rule: Keep it simple
03/23/09   Hallett
"Indexing is a simple low-cost way to obtain a diversified investment portfolio which tracks the markets. At least that's the theory. Problem is, many investors get led astray. Before they know it their portfolios become jam-packed with the new breed of expensive and risky exchange-traded funds. What was once a solid investment portfolio becomes a speculative one."

Argentina downgraded
03/23/09   World
"MSCI Barra, whose stock indexes are tracked by investors with $3 trillion in funds, downgraded the country to a 'frontier' economy from an 'emerging market' in February, citing its restrictions on foreign capital. That puts South America's second-biggest economy, after Brazil, in a category with Sri Lanka and Kazakhstan."

Genuine values
03/23/09   Dorfman
"I think investors will see some dramatic recoveries by banks, brokerage houses and insurance companies over the next two to three years. Three financial stocks that I like (and own) are Berkshire Hathaway Inc., Cullen/Frost Bankers Inc. and Goldman Sachs Group Inc."

Reverse splits
03/22/09   Markets
"According to a 2006 paper by professors at New York University, Emory University and the University of Florida, companies that entered into reverse splits between 1962 and 2001 (that.s about 1600 occurrences) underperformed the market by about 1.3% on a monthly basis for the next three years."

Performance surrounding reverse stock splits
03/22/09   Academia
"We examine long-run return performances of over 1,600 firms with reverse stock splits over a 40-year period. These stocks record statistically significant negative abnormal returns over the three-year period following the ex-split month. They also experience poor operating performances over the same time period, suggesting informational inefficiencies. However, due to their unique financial characteristics, these stocks were difficult to sell short, thus restricting arbitrageurs from earning abnormal profits, even if they correctly anticipated the price declines."

Curse you, Zillow!
03/21/09   Real Estate
"Yes, the market has plummeted at roughly the speed of a large melon dropped from a tall building. But an Internet appraisal can only compare a house's worth to that of other houses. It doesn't see inner beauty. It knows nothing of kitchen renovations or landscape improvements. It is an inherently limited measurement, as shallow and as damaging to homeowners' egos as teen fashion magazines are to body-conscious adolescent girls. Still, when I learned this week that the median Southern California home price in February was just $250,000, I did something that turned out to be a very bad idea from an emotional health perspective. I looked up my house on Zillow."

Morals: the one thing markets don't make
03/21/09   Behaviour
"Often, these past months, I have found myself going back to one of the most painful conversations I have had. It was with one of Britain's leading industrialists. He had led his company to consistent success for decades. When I met him he had retired and was near the end of his life. He was not a religious man but he was a deeply moral one. He spoke of the principles that had guided him in business and of the salary he had drawn. It was not negligible, but it was modest. What pained him was that his successor had awarded himself a salary ten times that amount, while systematically destroying the company he had so carefully built."

Punitive damage
03/21/09   Government
"The financial crisis has been widely interpreted as proof of the need for extensive government regulation of banks, insurance companies, and other capitalist institutions. The antics of politicians now that they have a greater role, however, are a vivid reminder of why they can't be trusted with such power."

Is he listening?
03/20/09   Government
"The president is now trapped between these two realms -- the governing elites who decide things and the people who are governed. Which side is he on? If he does not choose wisely, the anger could devour his presidency."

Let's put down the pitchforks
03/20/09   Government
"We're angry. We're frustrated. We feel cheated and abused. We're not going to take it anymore. But then again, we don't have much choice, do we? Sure, we can demand that a few more heads roll on Wall Street, or at the Treasury, or that a few hundred million are clawed back from financiers who never deserved it. But the reality is that no matter what we do now, tens of trillions of dollars in wealth have been lost. All that's left is simply an elaborate exercise in settling up the accounts."

The next mortgage mess
03/20/09   Markets
"Ross' American Home Mortgage Servicing claims Carrington Capital asked it to block the sale of homes to siphon money away from other investors and enrich itself."

The next AIG scandal?
03/19/09   Stocks
"Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG's supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being "healthy," as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it "a house of cards." Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG's own 300-page annual reports, Gober argues that AIG's 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree."

Market volatility and momentum
03/19/09   Academia
"We model momentum as unexpected returns due to shocks to firm fundamentals. Investors learn about the shocks from noisy information. The learning is gradual, which generates momentum. The model predicts that momentum is more pronounced when the market is more confident, because a more confident market responds to shocks at a slower speed. Using market volatility to inversely proxy for market confidence, we find supportive evidence: market volatility negatively predicts momentum profits. More specifically, momentum exists only in 60% of the months with lower volatility but not in 40% of the months with higher volatility. This effect is not subsumed by market state as an alternative predictor of momentum profitability. The model also predicts that idiosyncratic shocks, not systematic shocks, produce momentum. This prediction receives supports from empirical findings in a number of studies."

Tax on employee bonuses advances
03/19/09   Government
"Congress, moving swiftly in response to public outrage, advanced legislation to impose steep taxes on employee bonuses at American International Group Inc. and other companies that received taxpayer bailouts." [On the upside, we'll soon know which U.S. banks are healthy based on how quickly they pay the government back. I can see the ads now. Come and work for us and you won't have to pay big taxes on your bonus.]

Buffett's takeover tests passed
03/19/09   Buffett
"Warren Buffett.s renewed focus on U.S. takeovers may lead him to Sysco Corp., VF Corp. or Danaher Corp., according to criteria the billionaire investor lists in his annual report."

Buffett is unusually silent on rating agencies
03/19/09   Buffett
"In his annual Berkshire Hathaway letter, Warren E. Buffett recently urged investors to pose tough questions at the shareholders meeting in May. Here is one on the mind of some Buffett watchers: When are you going to fix Moody's?"

Naked short sales
03/19/09   Markets
"The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts."

S&P 500 Dividend Aristocrats
03/18/09   Dividends
"Since 1926, dividends have contributed to approximately one-third of total return while capital appreciations have contributed two-thirds. Therefore, both sustainable dividend income and capital appreciation potential are important to total return expectations. Managers use stable and increasing dividends as a sign of confidence in their firm's prospects, while investors consider such track records as a sign of corporate maturity and strength. The S&P 500 Dividend Aristocrats Index measures the performance of the S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. The S&P 500 Dividend Aristocrats Class of 2009 includes 52 securities diversified across 10 sectors. The constituents have both growth and value characteristics. The composition of the S&P 500 Dividend Aristocrats contrasts with that of typical dividend oriented lists and benchmarks that have high exposure to Financials and Utilities sectors and have a steep value bias."

Fed to buy $300 billion of longer-term treasuries
03/18/09   Markets
"The Federal Reserve opened a new front in its battle to bring down borrowing costs across the economy, pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds. The announcement following the Federal Open Market Committee meeting today in Washington spurred the biggest rally in longer-dated Treasuries in decades. Officials unanimously voted to expand the Fed.s balance sheet up to $1.15 trillion, and said they may broaden a program aimed at boosting consumer loans to include other assets, today.s statement showed." [Bernanke last seen flying his 'bankruptcy or bust' helicopter to Wall Street.]

Financial journalists fail upward
03/18/09   Markets
"This needs to be repeated every time someone pleads, "Who could have known?" Plenty of people did see the disaster coming. Most of them were marginalized, however, laboring at out-of-the-way econ departments, blogs and B-list think tanks. They were excluded and even ridiculed because their larger understanding of the economy was not one that fit well with the sort of Wall Street worship preached by the likes of CNBC." [See Tetlock's book called "Expert Political Judgment" for more details on why famous pundits tend to be the least accurate prognosticators.]

Have we already seen peak oil?
03/18/09   Markets
"World oil production is reckoned to have peaked in 2008 at 81.73m barrels/day - .oil. here being defined as crude oil, lease condensate, oil sands and natural gas plant liquids. If natural gas plant liquids are excluded, then the production peak remains in 2008 but at 73.79 mbd. However, if oil sands are also excluded then crude oil and lease condensate production peaked in 2005 at 72.75 mbd."

Free toothpaste for life!
03/18/09   Thrift
"There's a system behind coupons, rebates and store incentives. Figure it out, and the store aisles are rich with freebies for you and those you want to help."

10 tips for a better deal
03/18/09   Thrift
"Some people were born to haggle, negotiate, cajole, whatever you call it. The rest of us need some guidance. Here are 10 great negotiating tactics to use next time you want to get more for less."

Fund industry against Ontario tax proposal
03/16/09   Funds
"Canada's mutual fund industry is concerned a proposal to harmonize the province's sales tax with the federal GST would unfairly punish the industry and investors who use its products."

Debt is murder
03/16/09   Dorfman
"Now, more than ever, is a good time to buy stock in companies with low debt. Even in normal times, I like companies with debt less than stockholders. equity -- preferably less than 50 percent of equity. Such companies have strategic flexibility: They can fund new projects, increase dividends, buy back stock or acquire troubled rivals. Companies with high debt, by contrast, lack the financial wherewithal to do most of those things. In addition, they must spend a lot of their time renegotiating interest rates and debt covenants with banks or bondholders."

All about choice
03/16/09   Accounting
"Experience has told us that when the economy turns bad, it's time to expect more accounting shenanigans from public companies. This can happen in three ways. Sometimes, a company has been using aggressive accounting for years, and a dismal economic picture makes it difficult to hide the old chicanery any further. Other times, a firm decides to use accounting tricks to mitigate the impact of poor operating results. And then there are the opportunists, who use financial reporting to make bad times seem even worse, knowing that when the economy turns around, they can undo some of their overly negative accounting assumptions - and look all the better moving forward. This makes it an ideal time to review some of the potential accounting misfortunes that might befall investors as the economy sours."

Delving into Dividends
03/13/09   Tipsheet
"It might surprise you, but dividends are the primary source of long-term returns for stock investors. From 1900 to 2008 U.S. stocks provided average annual real returns of 6.0% including reinvested dividends. However, without the dividends, U.S. stocks only gained 1.7% a year over the same period. That's why I decided to take a close look at the history of U.S. dividends with the help of Robert Shiller's data."

Reinvesting when terrified
03/11/09   Markets
"Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before."

Currency crashes in industrial countries
03/11/09   Academia
"Sharp exchange rate depreciations, or currency crashes, are associated with poor economic outcomes in industrial countries only when they are caused by inflationary macroeconomic policies. Moreover, the poor outcomes are attributable to inflationary policies in general and not the currency crashes in particular. On the other hand, crashes caused by rising unemployment or external deficits have always had good economic consequences with stable or falling inflation rates."

Buffett's unmentionable bank solution
03/11/09   Buffett
"Now comes Warren Buffett, a big investor in Wells Fargo, M&T Bank and several other banks, who, during his marathon appearance on CNBC Monday, clearly called for suspension of mark-to-market accounting for regulatory capital purposes. We add the italics for the benefit of a House hearing tomorrow on this very issue. Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It's not so fine for regulatory purposes. It doesn't just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform."

Confessions of a pundit
03/11/09   Behaviour
"Prominent experts, therefore, are often simply those whose voices are in harmony with today's mood and who have an easier time selling their stories. That doesn't mean that the analysis is inherently flawed - only that it is inherently market-driven."

The looting of America's coffers
03/11/09   Government
"With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government's involvement is crucial to the whole enterprise."

Lessons fron the great depression
03/10/09   Government
"To start, I think it's important that I point out that there's a current recession, is unquestionably severe. It pales in comparison to what our parents and grandparents experienced in the 1930s."

Higher risk, lower returns
03/09/09   Funds
"This study makes a critical distinction between the returns of hedge funds and the returns of investors in these funds. Investor returns depend not only on the returns of the funds they hold but also on the timing and magnitude of their capital flows into and out of these funds. The capital flow effect exists for any investment but is especially relevant for hedge funds because of the large magnitude and variation in the associated capital flows. We use dollar-weighted returns (a form of IRR) to assess the properties of actual investor returns on hedge funds and compare them to buy-and-hold fund returns. Our first finding is that annualized dollar-weighted returns are on average about 4 percent lower than corresponding buy-and-hold fund returns. This performance gap rises to as much as 9 percent for "star" funds with the highest buy-and-hold returns and for funds with high volatility of capital flows, a remarkable difference in assessing long-run investment performance. In addition, dollar-weighted returns are below comparable returns for broad-based stock indexes. Our second finding is that dollar-weighted returns are more variable than their buy-and-hold counterparts. The combined impression from these results is that the return experience of hedge fund investors is much worse than previously thought."

House of cards
03/09/09   Debt
"This is the paradox of deleveraging: it's good for borrowers to reduce their debt, and good for lenders to be more rigorous in their standards, but when everyone deleverages at once it does real damage. It's like a drug addict whose dealer cuts him off: it's good to stop using, but withdrawal is painful. The end of the credit-card boom isn't going to wreak as much havoc as the end of the housing boom. But it is helping to put a brake on our spending. And, at this point, every little bit hurts."

Economy has "fallen off a cliff"
03/09/09   Buffett
"Wishes he had written the New York Times "Buy American" piece a few months later, but stands by the basic argument that you'll do better over a ten-year period with stocks that you will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't."

Dispelling myths about the 1930s
03/08/09   Markets
"After examining several aspects of the stock market's behavior during the 1930s, it would appear as though a replay of that decade might very well be less scary than assumed by many of those who superficially draw the analogy."

Slash and burn
03/07/09   Dividends
"For many firms dividend cuts are an unpleasant task that should not be shirked. There is no point in starving a business and endangering a firm.s balance-sheet in order to meet macho dividend commitments. The counter-argument, that cuts remove an important discipline on managers, hardly holds true today, when all firms are counting the pennies. That being so, when firms announced cuts why did their share prices slump? The reason has a lot to do with signalling."

Bear market snapshots
03/06/09   Tipsheet
"Robert Shiller recently updated his S&P500 data to include prices for the month of February. With the new data, and a little update of my own to include today's closing price, I had fun creating a slew of keen graphs."

The case for optimism
03/06/09   Stingy Investing
"The greatest reason for optimism is that stocks are now offering some of the best values in more than a decade. Many quality companies are available at sharp discounts. Second-tier firms are going for a song. Charlie Munger, the U.S. billionaire, says, 'Price is what you pay, value is what you get.' The value indicators I see say that this is the best time to buy since the early 1990s."

The new f***ing Citibank
03/06/09   Fun
"After Citibank becomes nationalized, expect to see commercials like this." [Warning: Harsh Language.]

Stimulus: a history of folly
03/06/09   Government
"Stimulus - that is, fiscal intervention with the express purpose of speeding up the normal regenerative process that Grant describes - is unnecessary and almost certainly harmful, a policy based on hubris and anxiety, rather than on history and good sense. Under such circumstances, the proper way to analyze discrete proposals today for spending or taxing is on their own merits, not on their supposed ability to stimulate something else. There may, in fact, be a good reason for government to spend billions of dollars today on building highways, and it has nothing to do with stimulus. It is that long-term interest rates are at historic lows and that the right highways can boost the economy in the long term. There also may be a good reason, again far apart from stimulus, for revising the tax code and reforming Social Security and Medicare. It is that Americans now understand that the economic future is not so assured as they believed a couple of years ago, and it is time for decisions to be made - in a manner careful, sensible, and unstimulated."

The Top 200 Canadian Stocks for 2009
03/04/09   Stingy Investing
"The market crash of the past few months reminds many people of the Great Depression. But we have a bit of different take on things. As Warren Buffett likes to say, you make money by being fearful when others are greedy and greedy when others are fearful. As agonizing as the past year has been, we think we are now in the middle of a tantalizing buying opportunity."

Attack of the condo craters
03/04/09   Real Estate
"Many project failures are indeed just rumours at this point, but the numbers indicate an imminent oversupply of boxes in the sky. 'It's night and day from just a few months ago,' says Adam Vaughan, a Toronto city councillor. On any given day for two years he'd receive at least one application for a new condo project in his Trinity-Spadina ward, but hasn't seen one in six months. 'There were more 50-storey buildings under construction in my ward than Calgary has ever built,' he says. Will Dunning, a Toronto real estate economist, says that although the fall-off in new projects has certainly been dramatic, it may not have been fast enough. Today, he says, there are roughly 35,000 units on the go in Toronto. But in December, just 198 new condos were sold, a stunning 81 per cent drop from the year before. 'This very large pending inventory is setting the stage for a substantial correction within the condo market,' he warned in a report late last year."

The Top 500 U.S. Stocks for 2009
03/04/09   Stingy Investing
"Warren Buffett famously warned, "unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market." Well, U.S. stocks are down nearly 50% in one of the worst bear markets ever. It's hard not to be a little panicky. But take a deep breath because there is reason to hope."

Mortgage delinquencies rise to record
03/04/09   Real Estate
"Mortgage delinquencies increased to a seasonally adjusted 7.88 percent of all loans, the highest in records going back to 1972, the Mortgage Bankers Association said today. Loans in foreclosure rose to 3.30 percent, also an all-time high."

Yes, you can raise prices
03/04/09   Management
"The signs in the window of Jay Kos, an upscale men's wear boutique on Park Avenue in Manhattan, seemed at best cheeky, at worst clueless. Surrounded by glaring economic-crisis headlines cut out of newspapers, they said, "Cashmere sweater: $2,500. Recession price: $2,500." "Lamb's fleece jacket: $11,000. Recession price: $11,000." It was an in-your-face declaration that the business, whose clients include bankers and celebrities, wasn't going to cave in to any mere economic collapse. "Some people hated it," says the shop's eponymous owner. "But most people loved it. And some people even bought because of it." That story is worth pondering because one of the most important decisions businesses must make in this recession is what to do about prices."

What are the odds of a depression?
03/04/09   Markets
"In the end, we learned two things. Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression. The bright side of a 20% depression probability is the 80% chance of avoiding a depression."

Will value investors win the day?
03/04/09   Value Investing
"In today's market, people may lose a lot of money before they make more. Yet even times like these could prove profitable in the long run for value investors."

1 in 5 mortgages underwater
03/04/09   Real Estate
"It's bad enough when the value of your house is sinking like a lead balloon. But for a growing number of Americans, their woes are compounded by owing more on the mortgage than what that house is now worth."

Hidden pension fiasco
03/03/09   Government
"Public pension funds across the U.S. are hiding the size of a crisis that.s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy."

Investment and the crisis
03/03/09   Markets
"So despite the complexity of today.s markets, the lessons in all this are oddly homespun. Mathematical models should not be relied on without a proper understanding of the economic conditions and behaviour that fed them. It is foolish to put blind faith in credit rating agencies. Do not invest in what you cannot understand. Shun arbitrage strategies that assume permanent access to liquidity. Avoid investment vehicles that inflict swingeing charges in exchange for what in most cases will amount to market performance or worse. Treat leverage with due care. Recognise that the conventional wisdom of the consulting fraternity is not conducive to contrarian behaviour, one of the keys to successful investing. Above all, beware what Charles Mackay, the 19th-century historian, called the madness of crowds."

Wall Street on the tundra
03/03/09   World
"Iceland's de facto bankruptcy - its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance - resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavik, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown."

Presidential Starts: 1900 - 2009
03/03/09   Markets
"From the time President Obama was elected to his inauguration, the DJIA put in its worst performance over all election to inauguration periods since 1900, with a decline of 17.4%. And on the day President Obama was sworn in, the DJIA put in its worst ever inauguration day performance with a decline of 4%. Since then, things haven't gotten much better. Not including the inauguration day decline, the DJIA has dropped an additional 14.92% since President Obama was sworn in. Over the last two weeks, these declines have intensified with losses in ten out of the last twelve trading days."

Lowering credit scores
03/03/09   Debt
"Wayne Brown has a dilemma. If he reduces his credit-card balance, American Express Co. will cut his credit limit to the amount of the new balance, he said. If he doesn.t make a big payment, his interest rate may skyrocket."

The start of 10 Fortune 500 firms
03/02/09   Management
"The following examples are businesses which have grown so large to be included in the Fortune 500, or the world's largest 500 companies - but which have started from the humblest beginnings. They are 'Rags to Riches' stories of unique brands, started by unique individuals that only have accumulated wealth and vast market share, but have created their own niche and never looked back."

Value investors can't beat this bear
03/02/09   Value Investing
"Usually, the silver lining for such a brutal market is that it creates plenty of opportunities for bargain-hunting investors. This downturn, however, has been especially cruel to "value" investors, those who search for companies they believe are priced lower than they should be."

Fund manager reports
03/02/09   Funds
"Mutual fund managers' quarterly letters, market commentaries, forecasts, and other reports are full of interesting tidbits and, if one looks carefully, investment ideas. Every quarter, mutual funds are required to publish reports, and many portfolio managers, research chiefs, and advisors take the time to express their opinions about the markets, individual stocks, or other items on their minds. Some fund shops publish more frequently--on a monthly or even weekly basis."

Snuggie rode silly ads to stardom
03/02/09   Marketing
"With similar products bound to appear soon and a lesser-known sleeved blanket - the Freedom Blanket - predating Mr. Clegg's, this throwdown of the throws suggests that it is not always the first one to market who wins but the one with the most aggressive marketing plan."

Bank stocks are hated
03/02/09   Dorfman
"For investors courageous enough to swim against the tide, now may be a good time to pick up bargains in the rubble of the banking industry. How can you tell which banks are on the safest footing?"

February economic summary in graphs
03/02/09   Economy
"A collection of 20 real estate and economic graphs from February"

Berkshire Hathaway 2008
02/28/09   Buffett
"Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21.5% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges. Without fail, however, we've overcome them. In the face of those obstacles - and many others - the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Buffett as lender of last resort
02/27/09   Buffett
"Warren Buffett is having a bad year or two. The numbers for profit and book value he will disclose tomorrow in the 2008 annual report for Berkshire Hathaway Inc., his conglomerate and investment vehicle, will lack the sparkle of yesteryear. This year has been no better. Berkshire.s Class A shares touched a five-year low Monday and are down 19 percent so far for 2009. Yet Buffett, 78, still knows how to play."

The gravity-defying debt problem
02/25/09   Debt
"The prices of real estate, stocks and many commodities continue to plummet this year. But one figure appears unlikely to decline substantially anytime soon, to the great distress of consumers, companies and taxpayers alike: the amount of debt piled on top of the U.S. economy."

Bankers need more skin in the game
02/25/09   Government
"There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you're less likely to take the kinds of risks that expose the rest of society to your failures. A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren't protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. In other words, don't nationalize; partnerize."

Get A Grip
02/25/09   Tipsheet
"Sure we had a big bubble in 2000, but does a repeat of the 1929-to-1932 crash appear to be a likely scenario? Not really."

The S&P gets its earnings wrong
02/25/09   Markets
"Standard & Poor's recently shocked investors with an announcement that reported earnings for its S&P 500 Index for the fourth quarter of 2008 are forecast to be negative for the first time since such data were calculated in 1936. S&P further reports that for all of 2008, earnings are expected to be less than $40 per share, indicating that the market now has a price/earnings ratio over 20, well above its historical average of 15. What this dismal news actually reflects is the bizarre way in which S&P (and most other index providers) calculate "aggregate" earnings and P/E ratios for their indexes. Unlike their calculation of returns, S&P adds together, dollar for dollar, the large losses of a few firms to the profits of healthy firms without any regard to the market weight of the firm in the S&P 500. If they instead weight each firm's earnings by its relative market weight, identical to how they calculate returns on the S&P 500, the earnings picture becomes far brighter."

The formula that killed Wall Street
02/24/09   Markets
"For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels. His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched - and was making people so much money - that warnings about its limitations were largely ignored. Then the model fell apart."

Home prices fall 18.5%
02/24/09   Real Estate
"Home prices in 20 U.S. cities declined 18.5 percent in December from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank. The decrease in the S&P/Case-Shiller index was more than forecast and followed an 18.2 percent drop in November. The gauge has fallen every month since January 2007, and year-over-year records began in 2001."

Piotroski profits
02/23/09   Value Investing
"Piotroski sought companies trading with very low price-to-book value ratios. These are often financially distressed, which is why investors tend to steer clear of them. They are cheap because they deserve to be. But occasionally, they're solid companies that are being unfairly neglected and present real buying opportunities, if you can separate the trash from treasure."

Three timeless principles
02/23/09   Graham
"Warren Buffett is widely considered to be one of the greatest investors of all time, but if you were to ask him who he thinks is the greatest investor, he would probably mention one man: his teacher Benjamin Graham. Graham was an investor and investing mentor who is generally considered to be the father of security analysis and value investing."

The Graham & Dodders
02/23/09   Graham
"Here are four well-known investors schooled in Graham and Dodd stock analysis. They're all carrying on the value tradition made famous by Buffett, the Oracle of Omaha and the richest man in the world."

Business buyer
02/23/09   Buffett
"Take a young business genius, apply a liberal dose of Ben Graham's tutelage and you have the richest man on Earth."

Dividends falling
02/23/09   Dividends
"The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century. U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data."

Can talk of a depression lead to one?
02/22/09   Markets
"The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation - because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our 'animal spirits,' reducing consumers' willingness to spend and businesses' willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy."

'Nationalize' the banks
02/21/09   Markets
"How does Mr. Roubini think the media has covered the financial crisis? "The problem," he says -- after first stating to me that he intends "no offense!" -- "is that in the bubble years, everyone becomes a cheerleader, including the media. This is the time when journalists should be asking tough questions, and I think there was a failure there. The Masters of the Universe were always on the cover, or the front page -- the hedge-fund guys, the imperial CEO, private equity. I wish there had been more financial and business journalists, in the good years, who'd said, 'Wait a moment, if this man, or this firm, is making a 100% return a year, how do they do it? Is it because they're smarter than everybody else . . . or because they're taking so much risk they'll be bankrupt two years down the line?' "And I think, in the bubble years, no one asked the hard questions. A good journalist has to be one who, in good times, challenges the conventional wisdom. If you don't do that, you fail in one of your duties."" [and in the depression years?]

California's meltdown
02/21/09   World
"California may still seem to be the dreamy land of movie stars and swimming pools, beautiful beaches and endless summer. But the reality - and perhaps the future - of the nation's largest state looks more like this gritty city on San Pablo Bay north of San Francisco, where past extravagance has collided with economic recession and the collapse of home values to push it into bankruptcy."

Double trouble
02/21/09   Markets
"House prices, in our bloodshot view, have another 20% or so to fall before hitting bottom and, at the earliest, we're talking sometime next year. And, possibly more important, a meaningful brightening of the current, profoundly bleak jobs picture, isn't in the cards for certainly as long, if not longer."

How California became France
02/21/09   World
"This week's deal likely won't keep the state in balance beyond 18 months, perhaps even fewer. "This budget will take us through 2010," says Karen Bass, the Assembly speaker, a Democrat from Los Angeles. "I don't know if it will hold." Some Democrats and Republicans privately say the best option may be failure. The rough scenario is fiscal insolvency, followed perhaps by federal receivership. No precedent or legal avenue exists for a state to reorganize its affairs under a form of Chapter 11 protection, but that striking suggestion sounds better by the day."

An interview with Robert Shiller
02/20/09   Shiller
"How do we explain the fluctuations of the business cycle, or the existence of involuntary unemployment? In answering these questions, Shiller and Akerlof turn to John Maynard Keynes's notion of the animal spirits: "the restless and inconsistent element in the economy" that is not easily explained by reference to rational actors with simple economic motivations."

Real Bubble
02/20/09   Tipsheet
"The graph shows the extent of the bubble and doesn't provide much comfort for housing bulls. Home prices will have to fall much further before reaching median levels."

Fairfax Financial's 2008 coup
02/19/09   Watsa
"The year 2008 will go down as one of history's worst, but it was the best year in the history of Canada's Fairfax Financial Holdings Limited. Its Chair and CEO, Prem Watsa, and his team, were among the few money managers who forecasted, and profited, from the economic catastrophe. As a result, Fairfax has become one of North America's 10 largest property and casualty companies."

Why banks failed the stress test
02/19/09   Markets
"By any historical standard, the financial crisis of the past 18 months has been extraordinary. Some have suggested it is the worst since the early 1970s; others, the worst since the Great Depression; others still, the worst in human history. Time will tell. Risk managers are of course known for their pessimistic streak. Back in August 2007, the Chief Financial Officer of Goldman Sachs, David Viniar, commented to the Financial Times: 'We are seeing things that were 25-standard deviation moves, several days in a row' To provide some context, assuming a normal distribution, a 7.26-sigma daily loss would be expected to occur once every 13.7 billion or so years. That is roughly the estimated age of the universe. A 25-sigma event would be expected to occur once every 6 x 10**124 lives of the universe. That is quite a lot of human histories. When I tried to calculate the probability of a 25-sigma event occurring on several successive days, the lights visibly dimmed over London and, in a scene reminiscent of that Little Britain sketch, the computer said 'No'. Suffice to say, time is very unlikely to tell whether Mr Viniar's empirical observation proves correct. Fortunately, there is a simpler explanation - the model was wrong."

Stanford attorney's exit 'screams fraud'
02/19/09   Crime
"Regulators pounced days after a lawyer at the Antigua bank at the heart of the case 'disaffirmed' everything he had told authorities. 'The attorney's withdrawal is a massive red flag' that 'screams fraud,' said Peter Henning, who teaches criminal and securities law at Wayne State University in Detroit."

Dividend and conquer
02/19/09   Dividends
"Dividends are delectable again. This is to say, the bear market is renewing investors' appreciation of the contribution that dividends make to the returns of their stock portfolios -- as opposed to capital gains."

Which talking heads to trust
02/18/09   Academia
"Which forecasters should you trust on the direction of the economy and the markets? Ask Philip Tetlock, who knows the kind of expert worth listening to - and what to listen for."

Housing starts at another record low
02/18/09   Real Estate
"Total housing starts were at 464 thousand (SAAR) in January, by far the lowest level since the Census Bureau began tracking housing starts in 1959."

Feeding a family in the depression
02/18/09   Thrift
"It was a time of making do and doing without. The Great Depression forced thousands out of their jobs, but most of the burden was shouldered by the homemaker, who had to keep the family fed."

A short history of the national debt
02/18/09   Debt
"It was not ever thus. Before the Great Depression, balancing the budget and paying down the debt were considered second only to the defense of the country as an obligation of the federal government. Before 1930, the government ran surpluses in two years out of three. In 1865, the vast debt run up in the Civil War amounted to about 30% of GDP; by 1916 it was less than a tenth of that. There even was a time when the U.S. made it a deliberate policy to pay off the national debt entirely -- and succeeded in doing so."

Investors cannot rely on mainstream media
02/18/09   Economy
"Anyone who does not follow the dynamics of the labor market is only telling part of the story. This is important. The net job loss understates the perceived impact. It also overstates the actual impact, since the job creation is ignored. Most people react to actual gross job loss and layoff announcements. The new jobs get no publicity."

For Japan, a long, slow slide
02/17/09   World
"As the United States frets noisily about a recession, Japan is quietly enduring a far more fundamental economic slide, one that seems irreversible. This country, which got rich quick in a postwar miracle of manufacturing and alarmed Americans by buying up baubles such as Rockefeller Center, is steadily slipping backward as a major economic force."

Inside the meltdown
02/17/09   Markets
"On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days."

20 dividend plays for 2009
02/17/09   Dividends
"This year likely will see the largest annual decline since 1942 in dividends paid by the companies in the Standard & Poor's 500 index. S&P projects dividends will fall by 13% in 2009, and the numbers could get worse. "We're taking an optimistic view," says Howard Silverblatt, the senior index analyst at S&P. "If corporations don't see better business conditions later this year, dividend cuts could become more widespread.""

Third Avenue Q1 2009
02/17/09   Whitman
"A Net-Net is defined as a common stock issue where the market value of high quality assets, usually readily saleable, exceeds by a comfortable margin the market value of the company's equity capitalization after deducting all liabilities. The concept of Net-Nets was invented by Graham and Dodd, the godfathers of value investing. Third Avenue has refined the Graham and Dodd definition of Net-Nets."

$8 Billion fraud
02/17/09   Crime
"The Securities and Exchange Commission accused Robert Allen Stanford, the chief of the Stanford Financial Group, on Tuesday of conducting 'a massive ongoing fraud' in the sale of about $8 billion of high-yielding certificates of deposit held in the firm's bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group."

Berkshire reduces stakes
02/17/09   Buffett
"Known as the 'Oracle of Omaha,' Buffett, 78, has become a cult figure among investors, drawing 31,000 people to that city's Qwest Center arena for his annual shareholders meeting last year. He makes most of the investment decisions at Berkshire, while Lou Simpson, 72, manages the portfolio for car insurance unit Geico Corp. Buffett has cautioned investors against assuming all moves in the equity portfolio are his."

The no-stats all-star
02/16/09   Fun
"Here we have a basketball mystery: a player is widely regarded inside the N.B.A. as, at best, a replaceable cog in a machine driven by superstars. And yet every team he has ever played on has acquired some magical ability to win."

Feds need to break up big banks
02/16/09   Government
"Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money."

Stocks now distinctly cheap
02/16/09   Markets
"One of the only silver linings of the current mess is that stocks are increasingly priced to deliver a compelling long-term return. Given that stocks had been overvalued for more than 15 years through last summer, this is a refreshing change. If the S&P does go to 600, which we think is possible, stocks will finally be a screaming buy."

Markets in 19th century Britain
02/16/09   Value Investing
"This article examines the size and value anomalies using an original dataset consisting of monthly information on stock prices and annual information on dividends for 1,051 stocks traded in the London Stock Exchange between 1825 and 1870. In this historical British stock market, smaller stocks are found to deliver significantly higher returns than the larger ones. Value stocks indicated by high dividend yield also have higher average returns than growth stocks. The empirical evidence from this article provides important and fresh new empirical evidence on the asset pricing anomalies, suggesting that the size and value anomalies are unlikely to be random events that just appeared by chance."

Cautionary tales for America from Japan
02/15/09   Government
"The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan's banking crisis have three words for the Americans: more money, faster."

Brother, can you spare a stock?
02/15/09   Markets
"In the worst of times, which are the best of stocks? So many readers have emailed me to warn that we are going into another Great Depression that I decided to find out which companies and sectors did best after the Crash of 1929. With the Standard & Poor's 500-stock index down 39% last year and another 8.5% this year, it can't hurt to learn what separated the winners from the losers back then."

Out of Keynes's shadow
02/15/09   Economics
"As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly 'inside' or 'internal' debt - owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions."

This isn't your grandfather's recession
02/13/09   Economy
"Adherents of the tax-cuts-only strategy are suspicious of free-spending Democrats, old-fashioned Keynesians, and big government. They believe - no, they know - that tax cuts are more efficient than government spending, since people and businesses make better and quicker decisions about spending than government does. And the way they read the relevant data, history, and experience, permanently reducing long-term tax rates has historically provided the best possible incentives to invest and spend. They may be right. But there are also reasons to think that what worked or made complete sense in the past may not be as effective today. The current, somewhat extraordinary circumstances, and the nation's changing economic geography, should make us wonder how effective tax cuts will be in stimulating new spending and investment."

S&P heads to first quarter ever of negative earnings
02/13/09   Markets
"This is the worst; after the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst, at Standard & Poor's. A sixth quarter of negative growth ties the prior record set when Harry Truman was president, running from the first quarter of 1951 to the second quarter of 1952. "Next quarter, we're expecting a new record of seven quarters of negative growth," Silverblatt added. As of the close of business Thursday, Silverblatt calculates S&P earnings per share, on a reported basis, at a loss of $10.44 for the quarter. If financials were taken out of the equation, that deficit would drop to $2.35 a share."

C.S. global yearbook 2009
02/13/09   Markets
"An alternative approach is to delve deeper to infer what investors in each country were expecting, on average, in the past. We do this by decomposing the historical premium into three major components, namely, (i) the (geometric) mean dividend yield net of the real risk free rate, (ii) the annualized growth rate of real dividends, and (iii) the annualized change in the price/dividend ratio over time. Of these three, the dividend yield has been the dominant factor historically. This may seem surprising, since day-to-day, investors seem focused on capital gains and stock price movements. Indeed, over a single year, equities are so volatile that most of an investor.s return comes from capital gains or losses, with dividends adding a relatively modest amount. However, reinvested dividends dominate long-run returns."

A lament for savers
02/13/09   Thrift
"Borrowers get bailed out. Run your bank into the ground and the taxpayer will lend it money. Buy a house you cannot afford and the central bank will cut interest rates to ease your burden. Meanwhile those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed to 2% in the euro zone, 1% in Britain and virtually nothing in America. No one offers to help them out, even though saving is needed to allow business investment which, in turn, generates growth. Asians, told off in the 1990s for their current-account deficits, now get lectured for saving too much. This is quite a different paradox of thrift from the usual one. In theory, everybody regards thrift as a virtue. In practice, they treat it as a vice."

Dividend ETFs offer mild defense
02/12/09   Dividends
"High-dividend stocks proved only mildly defensive during the first phase of the debt crisis, and it is instructive to consider the reasons. Beaten down considerably, this important asset class cannot be too far from the bottom and is still churning out all-important cash payments."

Patience pays off
02/11/09   Value Investing
"Maida, the son of Italian immigrants, grew up poor in Toronto's west end; he was that kid who owned just two pairs of pants. His father was a construction worker, and when his mother was sick, the family relied on help from social welfare agencies. 'Not being well off instilled in me the value of a dollar,' he says. 'That's really the crux of the whole adherence to value investing: don't lose money, because money is really hard to come by.'"

Content, once king, becomes a pauper
02/11/09   Stocks
"The value of content has never been ethereal. It has always been directly tied to what owners could "get" for it, either through advertisers or subscribers. For content to have a value, it could never be free. Its position as royalty depended on that. Content is rapidly being devalued."

Buffett found losses in 2008
02/11/09   Buffett
"Billionaire Warren Buffett likes to say his favorite length of time to hold a stock is 'forever.' That's a good thing because some of his more recent investments aren't making him money in the short run."

Outperform 99% of your neighbors
02/11/09   Behaviour
"If all you had to do was buy good (versus great) investments and then behave correctly that changes everything. I decided that the search for alpha didn.t matter (turns out it.s a fool.s errand anyway, but I didn.t know that at the time) if you lost 7% in the process just because of bad behavior. I decided to leave the complex task of finding the best investment to smart guys with the big computers; I was going to focus on the simple problem of helping people behave correctly. It turns out that outperforming your neighbor is not about finding better investments, it is about behaving better."

The relative cash holdings premium
02/11/09   Value Investing
"A hedge strategy that is long (short) stocks of firms with high (low) cash - to - assets ratios generates an average monthly return of 0.42%, before trading frictions. In other words, relative cash holdings may carry a positive premium for investors."

Cash holdings and equity returns
02/11/09   Academia
"This paper documents a new empirical finding: an investing strategy that is long in stocks of firms with a high cash-to-assets ratio (High Cash portfolio) and short in stocks of firms with a low cash-to-assets ratio (Low Cash portfolio) produces an average excess return of 42 basis points per month. The three Fama-French factors are not able to explain such a difference in average returns, while a cash factor (HCMLC) does. I propose a structural model of the firm's investing and savings decisions that rationalizes the empirical evidence relating corporate cash holdings to the average excess equity returns. I amend the real option model of the firm of Berk, Green, and Naik [1999] to allow for a non-trivial capital structure decision. In my setup, firms can finance investment by means of equity or retained earnings. Equity issuance involves pecuniary costs such as bankers and lawyers' fees. Corporate savings allow the firm to avoid costly external financing, but yield a return which is lower than shareholders would be able to obtain. Because of risky cash flows, the model generates an additional precautionary savings motive that is the key ingredient to explain the positive relationship between corporate cash holdings and average equity returns found in the data."

Do you have a crush on Canada?
02/11/09   World
"For most Americans, save for hockey fans and comedians, Canada is scarcely on the radar. But the country's stock is quietly rising, as financiers and the media extol the solvency of its banking system - a tidy little fact that stands in sharp contrast to, well, just about everywhere else."

Worthwhile Canadian initiative
02/11/09   World
"The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th."

Train to get in financial shape
02/11/09   Markets
"Welcome to the Olympics of investing. Unfortunately, you are not a spectator. The S&P 500 index of large-cap stocks has lost more than 40% since November 2007, and about $2 trillion in value has disappeared from investors' 401(k)s and IRAs, according to the Center for Retirement Research. So you probably don't feel that you have much chance of taking a victory lap. But if history teaches us anything, it's that the sweetest victories are won in markets just like this one, even if it doesn't seem that way at the time."

How we can restore confidence
02/11/09   Munger
"Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law."

Price and performance for funds
02/10/09   Academia
"Gruber (1996) drew attention to the puzzle that investors buy actively managed equity mutual funds, even though on average, such funds underperform index funds. We uncover another puzzling fact about the market for equity mutual funds: Funds with worse before-fee performance charge higher fees. This negative relation between fees and performance is robust and can be explained as the outcome of strategic fee-setting by mutual funds in the presence of investors with different degrees of sensitivity to performance. We also and some evidence that better fund governance may bring fees more in line with performance."

Patient Capital Q4 2008
02/10/09   Value Investing
"We believe that despite the current environment the profitability of most major businesses will be higher in five years than it is today. A look over the past century shows how resilient free market economies truly are; despite two world wars, a depression, an oil shock and a multitude of other crisis, businesses and stock markets have continued to grow. It is truly remarkable how the human spirit seems to triumph over all sorts of adversity."

Oh No, Timmy!
02/10/09   Fun
"And by Timmie, I presume you mean Tim Geithner, Treasury Secretary? . . . "

A 10-year stretch that's worse than it looks
02/07/09   Markets
"Over the 10 years through January, an investor holding the stocks in the S.& P.'s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart. Until now, the worst 10-year period, by that measure, was the period that ended September 1974, with a compound annual decline of 4.3 percent."

Move over, subprime
02/07/09   Bonds
"Rotten as Alt-A loans are, worse may be to come. As unemployment in America heads towards 8%, even strongly underwritten loans will go bad. Bankers are growing increasingly anxious about the $1.1 trillion of prime mortgage loans and securities, much of which they held on to themselves, assuming it to be bombproof."

Tumbling the valuations
02/06/09   Stingy Investing
"I staggered into this December's CFA conference on Equity Research and Valuation Techniques in desperate need of a tonic. The great crash was in full swing and once-mighty companies had crumbled under the mountainous weight of dodgy debts. Here's what some of the leading lights of the industry had to say about these troubled times."

Longleaf Q4 2008
02/06/09   Value Investing
"Academicians Eugene Fama and Kenneth French recently published a study that found that value stocks have declined two years in a row only five times: during the Great Depression in 1929-32; at the beginning of WWII in 1939-41; during the Arab oil embargo of 1973-74; when the Internet bubble popped in 2001-02; and now as the housing bubble deflates. Following the four prior periods, stocks snapped back by an average of 60% in the next 12 months."

Ultimate bargain-hunter never had it so good
02/06/09   Buffett
"While Mr Buffett's October letter alluded strictly to a decision to add stocks to his personal investment account, the search for a higher return than what cash provides is a strategy he has embraced recently at Berkshire, too. 'I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was",' Mr Buffett wrote. 'Today my money and my mouth say equities.'"

Banker bashing gives cover to bigger culprits
02/06/09   Markets
"The problem is this game of pin-the-blame-on-the-banker gives cover to those who deserve a far greater share of the blame for this crisis -- the people whose job it was and is to set the rules of the game and keep things from getting out of hand."

Using the price-to-book ratio
02/06/09   Value Investing
"Price-to-book ratios have been studied extensively, with some studies suggesting a low price-to-book can lead to a strong stock price rise in the future."

Value investing comes back into vogue
02/06/09   Value Investing
"The celebrated value investor Warren Buffett stepped back on to the investment trail this week as his parent company Berkshire Hathaway injected SFr3bn ($2.6bn) in fresh capital into the struggling insurer Swiss Re. The deal, which will pay Buffett hefty annual interest and give him the right to raise his stake at an attractive price, is a sign that the billionaire investor has not lost his appetite for financial stocks."

Are dividends in dire straits?
02/06/09   Dividends
"Many companies, especially banks, have had to slash or eliminate payouts. How low will dividends go?"

Stumbling on entitlement
02/05/09   Management
"For the American public, Daschle became the latest symbol of everything that is wrong with Washington -- the influence-peddling and corner-cutting and sacrifice of the public good to private interest. Now that this system has let them down, and left them poorer and anxious about the future, people are angry about it and no longer willing to accept the corruption of the public process and the whole notion of public service."

The death of equity
02/05/09   Markets
"Global equities have returned -29% this decade, compared to 80% from government bonds. We.ve seen two 50% equity bear markets in just five years. This combination of miserable returns and extreme volatility has led some to pronounce that, after 50 years, the cult of the equity is dead."

Fish shares and sharing fish
02/05/09   World
"With their lasting stake in the fishery, and through their close bonds of community, the Seri have approximated the sole owner: they have managed their resource for sustainable yield rather than short-term gain, and today, Infiernillo Channel harbors the richest shellfish beds in the region. The narrow channel is easy for the Seri to patrol. By contrast, the tribe's other fisheries, on the opposite side of Isla Tiburon, are open to the sea and therefore difficult to monitor. Consequently, those waters have remained accessible to all. And, as you might have predicted, the shellfish populations there have collapsed to levels comparable with other locations in the Gulf. The two sides of Isla Tiburn are thus like a case-control study in the benefits of secure ownership of a fishery."

Buffett's metric says it's time to buy
02/04/09   Buffett
"Is it time to buy U.S. stocks? According to both this 85-year chart and famed investor Warren Buffett, it just might be."

19 million U.S. homes vacant in 2008
02/04/09   Real Estate
"A record 19 million U.S. homes stood empty at the end of 2008 and homeownership fell to an eight-year low as banks seized homes faster than they could sell them. The number of vacant homes climbed 6.7 percent in the fourth quarter from the same period a year ago, the U.S. Census Bureau said in a report today. The share of empty homes that are for sale rose to 2.9 percent, the most in data that goes back to 1956. The homeownership rate fell to 67.5 percent, matching the rate in the first quarter of 2001."

IBM to move laid off workers to India
02/03/09   World
"The climate is warm, there's no shortage of exotic food, and the cost of living is rock bottom. That's IBM's pitch to the laid-off American workers it's offering to place in India. The catch: Wages in the country are pennies-on-the-dollar compared to U.S. salaries. Under a program called Project Match, IBM will help workers laid off from domestic sites obtain travel and visa assistance for countries in which Big Blue has openings. Mostly that's developing markets like India, China, and Brazil."

Life at Wal-Mart
02/03/09   Stocks
"The picture above is of me, finishing my shift at the world.s largest retailer. How did I move from being a senior writer at Wired magazine to an entry-level position in a company that is reviled by almost all living journalists? It started when I read Nickel and Dimed, in which Atlantic contributor Barbara Ehrenreich denounces the exploitation of minimum-wage workers in America. Somehow her book didn.t ring true to me, and I wondered to what extent a preconceived agenda might have biased her reporting. Hence my application for a job at the nearest Wal-Mart."

Uncharted waters
02/02/09   Dividends
"The net result is that the market is pricing in a pretty severe outcome. American dividends more than halved between 1929 and 1931, but that was an extreme low; they have increased more than a hundredfold in nominal terms since then. According to Mr Long, the market is not expecting any dividend growth after 2010. Even in the depression, dividends more than doubled between 1931 and 1936. Figures from Britain, which date back to 1900, show that the biggest single fall in payouts was in 1919, when dividends fell 47%, but they more than doubled the following year. So the outlook for dividends, as reflected in swap prices, is historically unprecedented."

California delays payments
02/02/09   Government
"Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies. . . . And because of California's financial woes, credit rating agencies are taking a dim view of the state. Moody's warned in mid-January it might downgrade California's general obligation bond rating because of its budget and liquidity problems. If this happens, it will become even costlier for California to borrow." [California and bust!]

Rents are falling fast
02/01/09   Real Estate
"Fritz Frigan, executive director of sales and leasing at Halstead Property estimates that when these incentives are considered, rents are actually down some 10 percent to 15 percent since the market peak in mid-2007."

Worldwide Weimar
02/01/09   Bonds
"Imagine a country so ravaged by inflation that $1 will buy you 630 billion in the local currency, where a loaf of bread costs tens of billions, and where wheelbarrows are the new wallets. That was the Weimar Republic in November 1923. A similar prospect may now await the world economy, says French economist Jacques Attali in 'La Crise, et Apres?' ('The Crisis, and Then?'), a stinging new critique of the financial meltdown."

California's cash crunch
01/31/09   Government
"The world's eighth largest economy is on the verge of issuing IOUs. Suffering from both a $15 billion budget deficit and a multi-million dollar cash shortfall, California is days away from not having enough money to cover all of its bills."

The charges laid against us
01/31/09   Funds
"How much of Buffett.s $62bn would be the property of Buffett Investment Management and how much the property of the Buffett Foundation? The - completely astonishing - answer is that Buffett Investment Management would have $57bn and the Buffett Foundation $5bn. The cumulative effect of 'two and twenty' over 42 years is so large that the earnings of the investment manager completely overshadow the earnings of the investor. That sum tells you why it was the giants of the financial services industry, not the customers, who owned the yachts."

19 Stingy Stocks for 2009
01/30/09   Stingy Investing
"In good markets and bad, I look for two qualities when hunting for bargain stocks. I want them to be cheap and relatively safe. Not surprisingly, the combination can be difficult to achieve."

Beggar thy children
01/30/09   Economy
"Individuals and businesses invest more wisely than governments. If Obama wants to lead from the center, he needs to reassure us that entrepreneurialism will not be discouraged and risk bearing will not be punished. The capital markets will react well if the Obama administration unleashes the power of human innovation; they have reacted badly after the election, and again with the inauguration, because the markets fears that this is not in the cards. To borrow another quote from Jefferson, 'I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.'"

Macroeconomics is astrology, not science
01/30/09   Economics
"In the early 1980's, the Wall Street Journal asked liberal economist John Kenneth Galbraith and conservative economist Milton Friedman to predict the macroeconomic trends over the next two years. Both agreed that inflation would rise above 10%, and both accused the other of obtaining his prediction by reading chicken entrails. Both were wrong about inflation, but both were right about the chicken entrails."

Why market forecasts keep missing the mark
01/30/09   Markets
"Fish gotta swim, birds gotta fly and analysts and market strategists gotta try predicting what stocks will do every year. But you don't gotta act on those predictions -- at least not before you ask how likely they are to hit the bullseye."

I see dead bankers!
01/29/09   Stocks
"In The Sixth Sense, Haley Joel Osment's character is terrified because he sees dead people walking the streets, working, going to school, playing, seeing patients, oblivious to the fact that they are no longer alive. I get the same feeling today watching CNBC, reading the newspapers, walking through midtown Manhattan and counting the Town Cars idling outside the headquarters of investment banks. Like John Thain, there are lots of people who continue to act as if they are living, breathing, Wall Street players, oblivious to the fact they've been reduced to nicely dressed corpses."

Yes, bankers are overpaid
01/29/09   Economy
"The authors argue that the wage increases are related to greater skill requirements: in both the 1930s and the 1980s, there was a higher demand in financial services for employees that could handle complex transactions involving credit risk, for example. In support of that, the authors map metrics for the average educational attainment of financial services employees over the excess wage results and show that there is a fairly good relationship between the two."

The bias in reporting job losses
01/29/09   Economy
Each day's news brings more stories about layoffs at major companies. The stories get a big play in mainstream media. The leading bloggers also cite the stories and encourage readers to keep a summation of job losses. This is quite misleading. Job losses occur in highly visible chunks, as we can readily see. New jobs are created a few at a time, both in existing businesses and in new businesses. Even sophisticated observers do not recognize the ongoing job creation from the invisible hand of the market.""

Stocks that may cause 'permanent' loss
01/27/09   Montier
"Societe Generale SA strategist James Montier identified 42 stocks around the world, including News Corp. and BAE Systems Plc, that may cause a 'permanent loss of capital' for investors as valuations fall, earnings trail estimates and the companies struggle to repay debt."

How modern law makes us powerless
01/26/09   Law
"Americans don't feel free to reach inside themselves and make a difference. The growth of litigation and regulation has injected a paralyzing uncertainty into everyday choices. All around us are warnings and legal risks. The modern credo is not "Yes We Can" but "No You Can't." Our sense of powerlessness is pervasive. Those who deal with the public are the most discouraged. Most doctors say they wouldn't advise their children to go into medicine. Government service is seen as a bureaucratic morass, not a noble calling. Make a difference? You can't even show basic human kindness for fear of legal action. Teachers across America are instructed never to put an arm around a crying child."

Make interest tax deductible
01/25/09   Taxes
"Take a look at your balance sheet. Do you have any debt? If so, are you entitled to deduct the interest? Chances are, you've got some debt that is costing you interest that is simply not deductible for tax purposes."

One-on-one with Warren Buffett
01/25/09   Buffett
"We're celebrating NBR's 30th Anniversary, and so is Warren Buffett -- the legendary investor and Chairman & CEO of Berkshire-Hathaway. Recently, Buffett sat down with NBR's Susie Gharib to discuss the past, present, and future of Wall Street."

Analyzing market-linked GICs
01/25/09   Thrift
"I'm not actually a big fan of principal protection. I think the cost of this protection is too high. But for investors who want this protection, it's important to evaluate whether your market-linked GIC is a good deal or not."

Buffett of Canada buying stocks again
01/22/09   Watsa
"A famed Canadian investor dubbed the "Buffett of the North" for calling several crashes and booms over the decades is dipping his toe into the stock market again."

100 cents feels like it's worth more than $1
01/22/09   Behaviour
"We all know that $1 is equal to 100 cents. But a new study suggests that, in some situations, people may behave as if 100 cents actually has more value."

The unreality of the 'real' business cycle
01/22/09   Economy
"In classic business-cycle theory, a boom is initiated by a clutch of inventions - power looms and spinning jennies in the 18th century, railways in the 19th century, automobiles in the 20th century. But competitive pressures and the long gestation period of fixed-capital outlays multiply optimism, leading to more investment being undertaken than is actually profitable. Such overinvestment produces an inevitable collapse. Banks magnify the boom by making credit too easily available, and they exacerbate the bust by withdrawing it too abruptly. But the legacy is a more efficient stock of capital equipment."

More info leads to less knowledge
01/21/09   Academia
"Normally, we expect society to progress, amassing deeper scientific understanding and basic facts every year. Knowledge only increases, right? Robert Proctor doesn't think so. A historian of science at Stanford, Proctor points out that when it comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases."

The economy is bad, but 1982 was worse
01/21/09   Economy
"You often hear that we are now living through the worst recession since the early 1980s, and the comparison is not wrong. But it's ultimately unsatisfying, because it is a little too vague to be useful. Is the economy only a little worse than it was in the last couple recessions, as some have said, and still a long way from the dark days of 1982? Or are we instead on our way toward something that may even approach the severity of the Great Depression?"

Preventing the greatest heist in history
01/20/09   Tilson
"The new Obama administration needs to understand that greatest heist in history is underway - at least $1 trillion is being transferred from taxpayers to debt holders of failed financial institutions - and take steps to stop it before taxpayers suffer further unnecessary losses."

Money for nothing
01/20/09   Value Investing
"Anyone attuned to the pop music scene during the roaring 1980s, will perhaps remember the above title was an era-defining big hit for the British group Dire Straits back in 1985. However, the intent of this essay is not to write about showbiz, nor about the sometimes surreal behaviour of its protagonists. Rather, focus will be directed towards the surreal behaviour of stock market players during the latest crash and how cash was demonstrably given away for nothing in return; Money for Nothing if you will."

Our permanent state of routine emergency
01/20/09   Government
"The Cato Institute's James Bovard was struck by the plight of Vernon, Conn., a town ravaged in the winter of 1995-96 by, er, slightly more snow than they'd expected. So FEMA sent them a check for $40,023. Vernon had 30,000 people, and its town snow-removal costs that winter were $258,000. "That's just $8.60 per person," Bovard pointed out, "less than a 12-year-old charges to shovel out a driveway after a good snowfall." So why did they need "federal emergency" aid? Because the town had only budgeted $104,516, and so claimed to be "overwhelmed" by the additional costs. They could have asked the good burghers of Vernon to chip in an extra five bucks apiece. But why bother when FEMA's so eager to give you a warm bath in the federal love nectar? The town government wised up pretty quickly. The next winter, they set the snow-removal budget at just $69,383."

Failure of morality, not of capitalism
01/20/09   Behaviour
"What we are hearing and seeing, in other words, is a failure of morality, not of capitalism. How do we get back to the old Adam Smith/Benjamin Franklin idea of free enterprise based on a moral foundation?"

Rates: when zero is way too high
01/20/09   Government
"Trouble is, the Federal Reserve can't cut interest rates below the rate of inflation if inflation falls to zero, which many economists expect to happen soon. Clearly the Fed can't take in $1,000 and pay back only, say, $950 a year later. Rational investors would simply keep their money in cash outside the banking system to preserve its value. The solution is obvious: The Fed needs to deliberately raise the rate of inflation - maybe not all the way to 6%, but significantly above zero."

Cost of borrowing zooms up
01/19/09   Bonds
"Like consumers and homeowners, America.s corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap."

The gold reserve act
01/19/09   Government
"Under the law, no one in the U.S. was allowed to own gold without the permission of the government."

The growing foreclosure crisis
01/18/09   Real Estate
One oft-repeated assertion no longer holds true. Those in trouble are not, primarily, lower-income borrowers. The foreclosure crisis has become a wave, afflicting neighborhoods of every stripe -- but particularly communities created by the boom itself.""

Dickensian days
01/16/09   Dreman
"The time to buy value stocks is now. This is not to say that the market will immediately rebound. I don't know where the bottom is, and neither does anyone else. I can simply be confident that value stocks will do well over the long pull and that you're better off buying them when Wall Street is despondent than when it is ebullient. This Dickensian tale could have a happy ending."

Zombie debtors
01/16/09   Economy
"Zombies. Seen one lately? If not, you may soon, because they are about to menace the U.S. economy. In financial lingo, zombies are debtors that have little hope of recovery but manage to avoid being wiped out thanks to support from their lenders or the government. Zombies suck life out of an economy by consuming tax money, capital, and labor that would be better deployed in growing companies and sectors. Meanwhile, by slashing prices to generate sales, zombie companies can drag healthier rivals into insolvency."

Glorification of smoothness
01/16/09   Dorfman
"As Warren Buffett, one of the world's most successful investors, wrote in a 1996 report, 'I would much rather earn a lumpy 15 percent over time than a smooth 12 percent.' Some academics and investment practitioners place a great value on low standard deviation of returns. They reason that returns that don't vary greatly from one year to another are more likely to be replicated. The best returns, on a multiyear basis, come from investment managers who make bold decisions, and who often invest contrary to prevailing wisdom. People who follow these practices rarely have even, predictable annual results."

Hugo crawls back
01/16/09   World
"Expropriation hasn't worked so well. Chavez's state oil company, PDVSA, had virtually nothing left in its coffers after squandering $700 billion in oil earnings on political schemes like light bulb and milk factories. It needs $20 billion to develop its Orinoco Basin projects, which could produce 1.2 million barrels a day, but it can only do it with partners who have both capital and technology."

Court ruling offers a lesson on avoiding tax
01/16/09   Taxes
"The court did confirm that GAAR should not generally apply when taxpayers rearrange their borrowings to minimize their taxes. In the Lipson case, the court was fine with the interest deduction itself, but took offence to Mr. Lipson claiming the deduction by relying on the attribution rules to give him the deduction (he was the higher-income spouse, and therefore benefited more from the interest deduction). And so, we should spend some time looking at ways to arrange debt to make the interest deductible."

Biggest meltdown winner
01/16/09   Watsa
"The danger signs are if any of the three disastrous policies from the 1930s rear their ugly heads again: tariff barriers; higher taxes to balance budgets or higher interest rates to support currencies."

Fundamental value investors
01/15/09   Value Investing
"We examine novel data on the detailed investment decisions of professional value investors. We find evidence that value investors are not easily defined: they exploit traditional tangible asset valuation discrepancies such as buying high book-to-market stocks, but spend more time analyzing intrinsic value, growth measures, and special situation investments. We also test whether fundamental value investors outperform the market in our sample (January 2000 to June 2008). Analyzing buy-and-hold abnormal returns and calendar-time portfolio regressions, we conclude that value investors have stock picking skills."

Questrade rebating mutual fund trailer fees
01/14/09   Brokers
"Questrade says its Mutual Fund Maximizer makes it the only direct access brokerage to rebate this fee -- representing up to 1% or more of the value of their mutual fund investments -- back to its clients."

Will Exxon Get Googled?
01/14/09   Stocks
"And while nothing in our current energy infrastructure operates at the theoretical limits, pretty much everything is within spitting distance of Mother Nature's hard stop in terms of energy density and efficiency. Of course, there's room for progress. A 20 to 30 percent gain in efficiency in our national energy bill translates into serious money. Airlines, as well as most businesses, do back handsprings for such efficiency gains. But compared to the efficiency-created disruptions in the digital-info world, 30 percent is chump change. The reality is that we are stuck with limitations imposed by things like, well, Earth's rotation and distance from the sun, which determine the maximum energy possible from solar power. Or the biochemistry of photosynthesis, which ultimately determines biofuel economics, or the physical chemistry that dictates potential energy per pound of oil, ethanol, or lithium. "

America cannot spend its way to prosperity
01/14/09   Government
"While some stimulus is called for, we cannot spend our way into economic prosperity, especially when all new spending is debt-financed. It was troubling to see one prominent incoming senior economic official refer to the Obama administration's planned stimulus proposal as a 'down payment' on the future. How can something be a down payment when there is no equity involved? This is an example of how words used in Washington do not always fit Webster's definitions."

Fear is back on Wall Street
01/14/09   Markets
"Fears about the health of big financial firms and the overall economy have roared back into play, sending the stock market tumbling toward its lowest levels since last November. The Dow Jones Industrial Average dropped about 300 points one point Wednesday morning following the latest round of dark economic news. Retail sales fell 2.7% from a year ago in December, a decline twice as large as economists had expected."

Too big to succeed
01/14/09   Stocks
"Indeed, when it comes to conglomerates, we tend to see a two-part cycle. During the first part, acquisitions, mergers, big combinations are all the rage. Its a giant ego stroke for the CEOs, and it generates lots of fees for the iBankers. The second half of the equation comes when the awful handiwork of the M&A binge needs to be unassembled. That generates criticism of the CEOs, and lots of fees for the iBankers."

Stingy Investor Asset Mixer 2008
01/12/09   Stingy Investing
"Check out our new and improved Asset Mixer. Now with nominal return data to the end of 2008!"

4 Graham Stocks for 2009
01/12/09   Stingy Investing
"Over the past eight years I've used my take on Benjamin Graham's time-tested strategy for defensive investors to uncover undervalued U.S. stocks. I'm pleased to say that the overall results have been superb. Over the last year we handily beat the index. But even our 16.8 percentage point outperformance wasn't enough to turn a profit in what is shaping up to be a whopper of a bear market."

Trillion-dollar spree is road to ruin
01/12/09   Government
"We are in the midst of a crisis caused by so many financial institutions borrowing too much money. Somehow, a critical mass of policy makers now believes that the correct response is for the U.S. government to borrow too much money."

Why you can't trust your gut
01/11/09   Behaviour
"Turns out, the people who had imagined the stressful events said they could identify more patterns in the pictures than did the control group. The pictures, by the way, were completely random. The patterns didn't exist. The academics weren't finished. They showed one group a headline that read "Rough Seas Ahead for Investors" and showed another group the headline "Smooth Sailing Ahead for Investors." The two groups then received some fragmentary information about a couple of companies. You guessed it: The group that was worried about "rough seas" spun out more unwarranted theories about what was going on with the companies than the other group did."

Prudential, Valero headline bum-market bargains
01/09/09   Dorfman
"It's an ill wind that blows nobody good. The drop in home prices helps first-time home buyers. And the slow-motion crash in the stock market is good for value investors if they are fortunate enough to have some cash on hand. As the year begins, there are more than seven dozen stocks that meet three stringent bargain-hunting criteria"

Bailout didn't get what Buffett got
01/09/09   Government
"Henry Paulson may be the most powerful manager of money in the world and he still couldn't do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc."

BOE cuts rate to lowest since 1694
01/08/09   Bonds
"The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain.s recession. The bank rate was reduced a half-point to 1.5 percent, bringing policy makers closer to the point at which they will run out of options to fight the financial crisis with conventional tools. The pound rose against the euro and the dollar because some investors had bet on a larger reduction."

Yielding to none
01/08/09   Bonds
"In the medium term, a sharp rise in inflation is a distinct possibility. Government bonds may be offering 'return-free risk', in the neat phrase of Jim Grant"

10 investing basics from Buffett
01/07/09   Buffett
"The Oracle of Omaha became the world's richest person by adhering to simple but critical tenets. Here are his rules for smart living and savvy investing."

Marbella's billionaire spent bribes
01/07/09   World
"As an urban planning adviser in the sun- drenched Spanish resort town of Marbella, Juan Antonio Roca had after- tax income of less than 150,000 euros a year. When he was arrested for corruption in March 2006, police seized assets worth 2.4 billion euros ($3.4 billion), including a century-old palace in Madrid, a country estate equipped with a helipad overlooking the Rock of Gibraltar and a stud farm guarded by a tiger."

Woefully misleading piece on VaR
01/07/09   Markets
"The New York Times Sunday Magazine has a long piece by Joe Nocera on value at risk models, which tries to assess how much they can be held accountable for risk management failures on Wall Street. The piece so badly misses the basics about VaR that it is hard to take it seriously, although many no doubt will."

The man who made too much
01/07/09   Funds
"Hedge fund manager John Paulson has profited more than anyone else from the financial crisis. His $3.7 billion payday in 2007 broke every record, and he made it all by betting against homeowners, shareholders, and the rest of us. Now he's paying the price."

Value vs. Glamour
01/07/09   Academia
"In 1994, Josef Lakonishok, Andrei Shleifer, and Robert Vishny published a landmark study investigating the performance of value stocks relative to that of glamour securities in the United States over a 26-year period. Their research concluded that value stocks tended to outperform glamour stocks by wide margins. However, their study did not include the glamour-driven markets of the late 1990s and early 2000s. What effect might this period have on their conclusions? To find out, the Brandes Institute updated their Value vs. Glamour research, now through June 2008, to examine the comparative performance over a 40-year period. In addition, we also extended the scope of the initial study to include non-U.S. markets, seeking to determine if the value premium has been evident worldwide"

Hedge funds ruined by withdrawal limits
01/06/09   Funds
"In any investment business, the return of capital is far more important than the return on capital. By forcing investors to keep their money tied up during a bad year, the hedge funds are damaging their own reputation, and it may well never recover."

The ponzi scheme in every hedge fund
01/06/09   Funds
"Suppose some investors decide to withdraw their money from a hedge fund. The fund must liquidate the appropriate amount of its assets to pay these investors. Say the fund holds large positions in illiquid assets. The fund cannot immediately sell these assets, except at a fatal loss, so it would sell its more liquid assets. Given that the fund is more likely to inflate its estimation of the illiquid assets, it would seem that investors who withdraw early get the better returns over that time period."

Neff goes bargain hunting
01/06/09   Neff
"In a battered market, the former Windsor fund manager is finding stocks that meet his strict value standards."

The end of the financial world
01/04/09   Government
"This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don.t know what they are doing with money, who does?"

Risk mismanagement
01/03/09   Taleb
"The story that I have to tell is marked all the way through by a persistent tension between those who assert that the best decisions are based on quantification and numbers, determined by the patterns of the past, and those who base their decisions on more subjective degrees of belief about the uncertain future. This is a controversy that has never been resolved."

Why we keep falling for financial scams
01/03/09   Crime
"Intelligent people have long been ruined by frauds. Psychologist Stephen Greenspan, who specializes in gullibility, explores why investors continue to be swindled -- and how he came to lose part of his savings to Bernard Madoff."

Robot portfolio stumbles
01/03/09   Dorfman
""Well, even though historical profit figures will be a meaningless guide to performance during a recession, I had the robot select another 10 stocks to watch in 2009. Still in the list are Fairfax, methanol maker Methanex and contract energy driller Precision Drilling. Added are copper miner First Quantum Minerals Ltd., integrated energy company Petro-Canada, fertilizer make Agrium Inc., mutual fund manager AGF Management Ltd., steel distributor Russel Metals Inc., auto-parts maker Magna International Inc. and printer Transcontinental Inc.

Sears might be a good thing
01/03/09   Dorfman
"I did a study of stocks analysts love and loath, covering 1998 through 2007. It turns out that the four stocks analysts favored most as each year began did worse over the ensuing 12 months, on average, than the four stocks they most hated. Furthermore, both groups underperformed the Standard & Poor's 500 Index. Over the 10 years, the average despised stock rose 1.7 percent, compared with a loss of 2.2 percent for the adored ones. By contrast, the S&P 500 rose 7.2 percent a year on average."

The go-go investor
01/02/09   Funds
"his was a boom-and-bust story. He got rich in the process but also became the symbol of an era, in much the same way that Michael Milken became the symbol of the junk-bond-fueled excesses of the 1980s and Henry Blodget the symbol of the Internet bubble. Afterward, the portrait that was painted of him was not flattering. And it bugged him."

Buffett has 'nowhere to hide'
01/02/09   Buffett
"The stock plunge 'doesn't make any difference,' Buffett told Fox Business Network Nov. 21. 'It's happened to me three other times,' Buffett said. 'It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 percent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times.'"

Labor pains are not easily shared
01/02/09   Management
"One way to accomplish such a "share economy," Weitzman argued, would be to change the structure of compensation so that a higher percentage of it was in the form of a bonus based on company revenues and profits, with a lower base pay. That would allow firms to reduce payroll costs during a recession without having to resort to big layoffs. It would also help ensure that workers shared in the boom times as well."

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