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| Not so fast | ||
| 05/12/08 | Markets | |
| "Research by the London Business School looked at 17 countries over 108 years. The countries with the slowest-growing economies (as measured by GDP growth over five-year periods) returned 8% a year; the markets in the fastest-growing economies, by contrast, returned just 5% a year. When a broader group of 53 economies, including many emerging markets, were examined, the tortoises beat the hares by a wider margin - 12% to 6-7%." | ||
| Has equity always earned a premium? | ||
| 05/12/08 | Markets | |
| "Past performance is no guarantee, but history tells us that the equity risk premium has been persistent. This column shows that British investors enjoyed relatively high returns in the nineteenth century, though today.s UK market differs greatly from its formative ancestor." | ||
| Overplaying their hand | ||
| 05/12/08 | Miller | |
| "There are different kinds of investors in the world. One kind is a long-term patient type who runs mutual funds for the average Joe. A second is a risk arbitrageur - known on Wall Street as an "arb" - who speculates on pending deals. When a proposed takeover surfaces and the target's stock price runs up, Mr. Patience tends to sell to the arbs, happy to take his profit and letting the arbs bear the risk of whether the deal gets done and at what price. Recently, however, two of the biggest and best-known mutual fund investors - Gordon Crawford of Capital Research Global Investors and Bill Miller of the Legg Mason Value Trust (LMVRX) blurred the distinction between the investment and arb worlds, and their shareholders paid the price." | ||
| Subprime in sheep's clothing | ||
| 05/08/08 | Real Estate | |
| "Unlike subprime folk with expired teasers who have been putting capital into their homes for months and perhaps years, many Alt-A borrowers with years left on their payment-lite teaser periods are going to wake up one day to homes that have hugely deteriorated in price and have little if any equity in them. That is the exact recipe for foreclosure that bank insiders and credit analysts are warning about. Mark Zandi of Moody's Economy.com estimates that, by the end of June, 21.0% of all first-mortgage holders in the United States, or 10.6 million homeowners, will have zero or negative equity in their homes. For now, Alt-A loans are performing better than subprime mortgages. The risk, however, is that generally well-heeled Alt-A borrowers will adopt the same flippant attitude to paying their debts as lenders did in evaluating them. An additional pressure: 23.7% of Alt-A loans were not taken out for primary residences are often considered investments and have a higher rate of foreclosure. Only 8.7% of subprime mortgages were for absentee landlords, according to the New York Federal Reserve Bank." | ||
| Doubts raised on big backers of mortgages | ||
| 05/06/08 | Real Estate | |
| "As home prices continue their free fall and banks shy away from lending, Washington officials have increasingly relied on two giant mortgage companies - Fannie Mae and Freddie Mac - to keep the housing market afloat. But with mortgage defaults and foreclosures rising, Bush administration officials, regulators and lawmakers are nervously asking whether these two companies, would-be saviors of the housing market, will soon need saving themselves." | ||
| Subprime outcomes | ||
| 05/06/08 | Real Estate | |
| "Our second point is that house price depreciation - negative house price appreciation(HPA) - is the main driver of foreclosures. The easiest way to see this is to look at aggregate data. Figure 1 shows that periods of exceptionally high HPA in Massachusetts, as in 2002-2004, are associated with exceptionally low numbers of foreclosures, while periods of negative HPA, such as 1989-1991 and 2005-2007, are associated with high foreclosure rates. Cash flow problems at the household level, driven by job loss, for example, play a role, but only when HPA is low. For example, in 2001, a recession generated a record high number of delinquencies, a sign that many households had problems making monthly mortgage payments. During this time, however, there was a record low number of foreclosures in Massachusetts. Thus, the phenomenal levels of HPA in the early 2000s enabled many borrowers to either refinance or sell to avoid foreclosure." | ||
| Foreclosure woes require action | ||
| 05/06/08 | Markets | |
| "Unemployment statistics, according to Bernanke, do not explain the increased delinquencies of many areas, including California, Florida and parts of Colorado, where foreclosure filings have increased even when unemployment generally have fallen. More revealing was the close correlation between declining home prices and high delinquency rates. On the home price decline map, states like California and Florida were drenched in red, indicating the worst losses. On the map revealing the highest foreclosure rates, the same states were also covered in red." | ||
| Rewarding failure | ||
| 05/05/08 | Management | |
| "You might suppose that the stars are in near-perfect alignment for major reform of CEO pay. The mammoth pay and disastrous performance of Countrywide Financial's Angelo Mozilo, Citigroup's Chuck Prince, and Merrill Lynch's Stan O'Neal should be enough to make the public furious. Each CEO departed with $100-million-plus compensation after misadventures with subprime mortgages. Now add the economic slowdown to the mix; ordinary Americans are worried about making ends meet while failed pooh-bahs rake it in. Then throw in one more element - a presidential election. Put it all together, and how could change not be imminent?" | ||
| The siege of State Farm | ||
| 05/05/08 | Law | |
| "For State Farm Insurance - the nation's leading auto and home insurer - coping with once-in-a-lifetime disasters is everyday business. Risk analysis is what it does, and its actuarial staffs are prepared for every eventuality. Almost. When Hurricane Katrina struck the Gulf Coast in 2005, it infamously brought a storm surge the likes of which the nation had never seen, causing more flood damage in one event than all the storms combined for as far back as there was data (37 years). Even that risk State Farm had anticipated. What it hadn't foreseen was that the storm surge would gut the home of a plaintiffs lawyer named Richard F. "Dickie" Scruggs, as well as those of his family, friends, and neighbors in Pascagoula, Miss. Scruggs was someone who could render all of State Farm's actuarial calculations irrelevant, because he had the power and know-how to force it to rewrite its contracts retroactively. He had been the scourge of Fortune 500 companies for two decades, precisely because he tended to change the rules of any game he chose to play." | ||
| Bear Stearns second brush with bankruptcy | ||
| 05/05/08 | Stocks | |
| "Bear believed that if it failed to get a new agreement that reaffirmed JPMorgan's guarantee of Bear Stearns' obligations, Bear could have been cut off from JPMorgan's Fed-backed funding and forced into bankruptcy - an outcome that many investors assumed had been forestalled by the March 16 merger agreement. The dispute that nearly brought Bear down a second time turned on whether JPMorgan would stand behind Bear Stearns' massive credit default swap book and other liabilities. The firm's lack of access to other funding had Bear lawyers preparing for a possible bankruptcy the weekend before the revised merger agreement was unveiled." | ||
| Woodstock for capitalists 2008 blog | ||
| 05/04/08 | Buffett | |
| "A shareholder asked how one can correct one's mind set away from a crowd mentality. Mr. Buffett said to read and re-read Ben Graham's The Intelligent Investor. He specifically said that chapters 8 and 20 are most poignant, but that the lessons from the book are as relevant today as they were when he first read Graham's book when he was 19 years old. He also said there are basically three lessons to take away from the book: (1) Think of stocks as owning parts of a business, (2) Use the market to serve you rather than instruct you, and (3) Always require a margin of safety when investing. In today's environment, these principles are critical, and I especially think the second one is important to remember, as, in my opinion, it can help investors tune out the rampant noise in the market, helping them improve their investment temperament over time." | ||
| Updates from the annual meeting | ||
| 05/03/08 | Buffett | |
| "Qwest Center Omaha is filled to the rafters with Berkshire Hathaway shareholders. More than 30,000 people were expected to hear Warren Buffett and Charlie Munger talk about the holding company that includes brand names like Benjamin Moore paints and Dairy Queen ice cream stores." | ||
| Interview with Warren Buffett | ||
| 05/02/08 | Buffett | |
| "CNBC's Becky Quick sits down with Warren Buffett to discuss the upcoming shareholder meeting, which starts Friday night and runs through Monday. Buffett refers to the annual event as "Woodstock for Capitalists."" | ||
| Warren Buffett deal interview | ||
| 04/30/08 | Buffett | |
| "I think we're in a recession. I mean, a recession is defined in a certain way by the National Bureau of Economic Research, but I think it's defined by the man in the street a little differently than whether there have been two quarters of reported (negative) GDP growth. And incidentally, when GDP growth is below 1% a year it's really falling on a per capita basis because our population increases about one percent. So even though the National Bureau uses an absolute figure, it's up one-tenth they don't count that as a recessionary quarter, but the GDP per capita has gone down in a quarter where the gain is half a percent or something of the sort. We are in a recession, unless you want to stick strictly to the technical definition, which I really don't think has much meaning to the fellow who has lost his job or is facing a money-market fund that isn't paying him out, or whatever it might be." | ||
| Meet the Buffetts | ||
| 04/30/08 | Buffett | |
| "Berkshire Hathaway's annual meeting happens May 3rd in Omaha and, once again, the company's billionaire chairman and CEO, Warren Buffett, will be in the spotlight. Last year, NBR brought viewers an interview with Buffett. This year, anchor Susie Gharib interviews Buffett's three children to find out what their father taught them about money and business." | ||
| New advice from on high | ||
| 04/30/08 | Buffett | |
| "Everyone will be delighted to hear the details of the minority interest in the Mars-Wrigley candy giant that was made public this week. They will hang on to every hint of the future for Berkshire's huge position in railroad stocks (already profitable) and its staged acquisition of Marmon Group, which owns and leases 94,000 rail cars that must be used to carry the increasingly valuable coal from coast to coast. Think replay of 19th century railroad magnate here without the watered down stock and internecine battles with ruthless competitors." [I was uncertain about linking this one because of its focus on capital gains. Include dividends, which have historically been a major source of profits for stock investors, and the record of past returns improves dramatically.] | ||
| Pay the taxman by midnight or else! | ||
| 04/30/08 | Taxes | |
| "Today of course is T-day in Canada: the annual tax filing deadline. If you owe the Canada Revenue Agency income taxes for calendar 2007, the penalty and interest clock starts ticking at midnight: the moment April 30th turns into May 1st. If the CRA owes you there is less urgency but if you have a refund coming, the sooner you file your tax return the sooner you can cash the cheque and put your money to work." | ||
| Warren Buffett - in 1974 | ||
| 04/30/08 | Buffett | |
| "Stay dispassionate and be patient is Buffett's message. "You're dealing with a lot of silly people in the marketplace; it's like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be OK." First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression." | ||
| Fee-only must mean just that | ||
| 04/29/08 | Brokers | |
| "Canadian financial planners should eliminate the ambiguity by scrapping the phrase "fee-only" when charging fees computed as a percentage of client assets. Instead, they should use the term "asset-based," which is far less confusing for clients." | ||
| House prices decline | ||
| 04/29/08 | Real Estate | |
| "House prices dropped 2.6 percent in February from a month earlier, after a 2.4 percent decline in January, the S&P/Case- Shiller report showed. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month. The group's 10-city composite index, with a history back to 1987, fell 13.6 percent in the 12 months ended in February, also the most on record. Nineteen of the 20 cities in the index showed a year-over- year decrease in prices for February, led by a 23 percent slump in Las Vegas and a 22 percent decline in Miami. Charlotte was the only area showing a gain with a 1.5 percent increase. Compared with January, homes in all 20 areas covered dropped in value." | ||
| Economy in a recession, will be worse than feared | ||
| 04/29/08 | Buffett | |
| "'This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think,' Buffett said. 'This will not be short and shallow.' 'I think consumers are feeling gas and food prices,' he added, 'and not feeling they've got a lot of money for other things.'" | ||
| One guy who has seen it all | ||
| 04/28/08 | Markets | |
| "Today's trouble, the 89-year-old Mr. Bernstein says, is worse than he has seen since the Depression and threatens to roil markets into 2009 and beyond -- longer than many people expect." | ||
| Mars agrees to buy Wrigley | ||
| 04/28/08 | Buffett | |
| "The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion stake in the Wrigley unit once the purchase is completed." | ||
| Why today's hedge fund industry may not survive | ||
| 04/27/08 | Funds | |
| "The immediate response may be that so naked a scam is inconceivable. Well, imagine a fund that leverages investors. money by borrowing massively in short-term money markets in order to purchase higher-yielding paper. Assume, again, that the premium gives a correct estimate of the risk. With sufficient leverage, this fund, too, is likely to make profits for years. But it is also very likely to be wiped out, at some point. Does this strategy sound familiar? It certainly should by now." | ||
| Immoral hazard | ||
| 04/27/08 | Markets | |
| "The idea that occasional economic setbacks might benefit the system in the long run was one of the early ideas to disappear. Yet if you prop up weak sisters who would otherwise fail and in failing present their more efficient competitors with extra growth, you must surely weaken the system. Desperation pricing from weak firms who simply should not exist can weaken the profitability of a whole industry, as it has for the airlines. The average efficiency of most industries is reduced with at least some effects on our global competitiveness. With a slightly lower average return on equity, the ability to reinvest drops so that, in this world of moral hazard where recessions are few and mild, GDP growth is a little less than it might have been." | ||
| You can't pay them enough to leave | ||
| 04/24/08 | Real Estate | |
| "When the city of Youngstown, Ohio, proposed incentives to move people out of declining neighborhoods, it sounded like a good idea - in theory. The city hoped to lure holdouts living on nearly empty blocks and relocate them to more lively areas, as part of its plan to remake itself in the wake of the steel industry's departure and the foreclosure crisis. It's already cleared some lots for things like playgrounds. Now Youngstown wants to close entire streets and bulldoze abandoned properties so it can shut down city services like street lighting, police patrols and garbage pick-ups that it can no longer afford to maintain. To do this on a large scale, the city needs to get about 100 residents to relocate. Each is eligible for $50,000 in incentives - plenty, in this town, to buy a new home and move. The hitch: Youngstowners don't seem to want to leave their homes, no matter how blighted or abandoned the neighborhood may be." | ||
| Doubling down in financials | ||
| 04/24/08 | Value Investing | |
| "Do clients ever get upset with you? They read the paper and then see that their money manager is busy buying the financials. The single most common question I get: .Don't you read the newspaper? What is wrong with you?. So does the Pzena client need a strong stomach? Of course. We try and educate the clients before they open an account. We promise them that we will have these bad periods. Every single client, before they sign up, knows how badly we did in the last cycle. In the Internet bubble, the market was going up 30% a year, and we were going down. We were 60 percentage points behind the market, underperforming it for 10 consecutive quarters in '98, '99 and the first couple months of 2000. Now, that was extreme. The Internet bubble was extreme. We don't have such an extreme bubble today. But this is what we do: We buy bargains." | ||
| New-home sales in the U.S. plunge | ||
| 04/24/08 | Real Estate | |
| "Purchases of new homes in the U.S. plunged more than forecast in March to the lowest level in almost 17 years as stricter loan rules and falling prices caused buyers to hold off. Sales dropped 8.5 percent to an annual pace of 526,000, the fewest since October 1991, from a 575,000 rate the prior month, the Commerce Department said today in Washington. The median sales price slumped 13.3 percent from the same time last year, the most in almost four decades." | ||
| Fooling some of the people all of the time | ||
| 04/24/08 | Books | |
| "Now Mr. Einhorn has written a book. But instead of packaging the real or contrived "secrets" to his success - as cliche would have it - he has tried to do something less triumphant and far gutsier. In "Fooling Some of the People All of the Time," he turns the spotlight on a single, stubborn investment play that never made much money for him but created six years of headaches." | ||
| Sequoia fund to reopen | ||
| 04/24/08 | Value Investing | |
| "The Sequoia Fund, after experiencing selling by investors, is reopening its doors May 1 to new investors for the first time since 1982. The $3.5 billion value fund is celebrated for outperforming the broader market during much of its 38-year history. For years, it was run by legendary stock picker William Ruane, who followed the same approach as Benjamin Graham and Warren Buffett." | ||
| Looking up to Warren Buffett | ||
| 04/22/08 | Pabrai | |
| "Our brains are in sync with the speed at which the market is moving and totally out of sync with the speed at which a business is moving. It seems obvious: The market is repricing a company's stock very quickly. I can process very quickly; therefore, I make decisions based on that. You have to learn to dramatically slow your brain, which is very hard for most people. The reality is that you should make decisions based on how that business is changing, and that's a very slow process." | ||
| Hoisington letter | ||
| 04/22/08 | Markets | |
| "Growth recessions, like full scale recessions, produce falling inflation, a margin squeeze on corporate profits, eroding stock prices, and declining interest rates. Thus, the difference is really one of semantics. The point for investors is not what type of recession we are experiencing, but rather how long the downturn will last. Our conclusion is that our present economic difficulties will persist for at least two years." | ||
| Triple-A failure | ||
| 04/22/08 | Derivatives | |
| "Structured finance, of which this deal is typical, is both clever and useful; in the housing industry it has greatly expanded the pool of credit. But in extreme conditions, it can fail. The old-fashioned corner banker used his instincts, as well as his pencil, to apportion credit; modern finance is formulaic. However elegant its models, forecasting the behavior of 2,393 mortgage holders is an uncertain business. 'Everyone assumed the credit agencies knew what they were doing,' says Joseph Mason, a credit expert at Drexel University. 'A structural engineer can predict what load a steel support will bear; in financial engineering we can't predict as well.'" | ||
| Leucadia's 2007 letter | ||
| 04/21/08 | Value Investing | |
| "One of us has been mumbling about Credit Armageddon for years and it seemed earlier this year that his fears were to be realized. At least for the time being, this nightmare has been avoided by strong government intervention. Unfortunately, we suspect that the wizards of Wall Street have not only made mischief in the mortgage market, but in all other loan markets as well and that the full effect of this is not yet visible. It seems that almost all financial institutions and investors have mispriced risk, and many financial institutions have found themselves carrying assets on their balance sheets at amounts considerably higher than market or their intrinsic worth. Recently, and often at the behest of regulators, financial institutions have been forced to sell these assets or to recognize the mark to market losses, all of which erodes net worth, forcing them to raise new equity capital and/or to reduce leverage, a process that has come to be known as deleveraging. It may take quite a while for the scrubbing of balance sheets and the unwinding of leverage to come to an end, and we suspect that not all will survive." | ||
| Older and heavier need not apply | ||
| 04/21/08 | Health | |
| "General Mills has a model employer wellness program, according to the article. It issued a wellness mission statement that was distributed to all employees, saying: 'We would like every General Mills employee to have an active lifestyle, a healthy weight, a normal cholesterol level, normal blood pressure and to be a nonsmoker.' These are mostly euphemisms for thin and young. Evidence-based research to date has shown these health indices are primarily measures of genetics, aging and social stresses, and 'normal' levels have been redefined so low as to exclude most older, heavier or genetically predisposed people. The only way for most of these workers to meet these arbitrary benchmarks are to take controversial prescription drugs or engage in equally controversial and ineffective weight loss measures. It is exactly these discriminatory aspects of employer wellness programs, which reward and penalize workers based on arbitrary health indices, that caught the attention of the Department of Labor and lawyers earlier this year." | ||
| The wonder fish | ||
| 04/21/08 | World | |
| "Our oceans are being drained of food. Doctors tell us to eat more fish; it's good for the brain and good for the heart. We yearn for our weekly sushi fix. And increasingly so do our friends in China, India, and elsewhere in the developing world. To meet this growing appetite, commercial fishermen are scooping up everything that's edible (and a lot of what's not). Couple that trend with the effects of global warming, and the situation has become so dire that some scientists think seafood stocks will totally collapse by 2048." | ||
| The economic skies might be falling | ||
| 04/19/08 | Watsa | |
| "Investors around world saw sunny skies yesterday, but Prem Watsa is still prepared for a hard rain. The chair of Fairfax Financial Holdings Ltd. boasts that Canada's top-performing financial-services company of the past year is sitting on a billion-dollar life raft of cash and marketable securities - in case North America has the perfect economic storm." | ||
| Here comes the next mortgage crisis | ||
| 04/17/08 | Real Estate | |
| "California should be the poster child for a mortgage-loan bailout. In few other places have so many taken on such onerous debts with so little equity. Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages." | ||
| Looking beyond the bailout | ||
| 04/17/08 | Dreman | |
| "The government rescue of overleveraged financiers and underwater homeowners is still only beginning, and the signs that it will get bigger are manifold. The Federal Housing Administration has spent $21 billion since September staving off foreclosures. The House Financial Services Committee has proposed letting the FHA underwrite up to $300 billion in loans to borrowers. The last time the federal government stepped so directly into the mortgage business was at the bottom of the Great Depression. Congressmen from both parties are working on legislation to provide tax breaks and other help to much of the stressed homeowner population. The Administration has been reluctant to get involved in anything it would consider a bailout, but the rapidly darkening credit situation may leave it with no choice." | ||
| How your taxes turn into manure | ||
| 04/16/08 | Fun | |
| "But it's also time to file your federal tax return. Yes, this is a pesky chore, but remember that paying taxes is not a ''one-way street.'' When you send your money to the government, the government, in return, provides you with vital services, such as not putting you in prison. The government also uses your money to pay for programs that benefit all Americans, such as the Catfish Genome Project." | ||
| Find the right broker for you | ||
| 04/14/08 | Brokers | |
| "Your next stop is the Stingy Investor website. (Go to www.ndir.com and search for Canadian discount brokers). It's run by Norm Rothery, chief investment strategist at Dan Hallett & Associates Inc. Here you can find up-to-date comparisons of the fees and commissions charged by 15 Canadian online brokerages (as well as phone numbers and email addresses). What you pay usually depends on how many trades you make per quarter or year, how many shares you buy at a time and how many dollars you have in assets at the firm." | ||
| What Warren thinks... | ||
| 04/14/08 | Buffett | |
| "You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that's too much to expect. Of course, you shouldn't get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that." | ||
| You thought you had an equity line | ||
| 04/14/08 | Debt | |
| "Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure. In the last 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen" | ||
| The meritocracy paradox | ||
| 04/13/08 | Behaviour | |
| "In business, merit supposedly determines pay. But in fact, it's often the other way around, with pay determining merit. In controlled studies in which people were assigned random tasks with random pay, psychologists discovered people behave as if the higher-paid individuals have superior ability. And they do so even if they know that the pay scale was arbitrary. Outside of the laboratory the calculation of someone's ability is even more tricky." | ||
| A blunt former Fed chairman takes on Bernanke | ||
| 04/12/08 | Markets | |
| "A few days ago an unusual event took place: Paul Volcker, the mythical U.S. Federal Reserve Board chairman from the Reagan years, criticized the policy of the current Fed chairman, Ben Bernanke, in a speech to the Economic Club of New York. Just so you grasp how extraordinary this was, you should first understand that normally a past Fed chairman scrupulously avoids saying anything at all about current Fed policy - for the simple reason that the current Fed chairman's words are one of his most important tools: They can sway markets. This ability does not fade entirely when a Fed chairman leaves. So when a past Fed chairman speaks, his words can clash with those of the present one and make that one's job difficult. Out of professional courtesy, past Fed chairmen therefore keep quiet; Mr. Volcker especially - the man who hiked interest rates to 20 per cent to kill inflation, at the cost of a deep recession. But last week Mr. Volcker spoke his mind bluntly. He said, in effect, that the current Fed is not doing its job." | ||
| Paul Volcker speaks in New York | ||
| 04/12/08 | Markets | |
| "Former U.S. Federal Reserve Chairman Paul Volcker speaks in New York about practices leading to the current financial market crisis, the role of the Federal Reserve in preventing and dealing with such crises and the need for changes in market regulation." | ||
| And behind door no. 1, a fatal flaw | ||
| 04/10/08 | Behaviour | |
| "The Monty Hall Problem has struck again, and this time it's not merely embarrassing mathematicians. If the calculations of a Yale economist are correct, there's a sneaky logical fallacy in some of the most famous experiments in psychology." | ||
| Behind Monty Hall's doors | ||
| 04/10/08 | Behaviour | |
| "Mr. Hall continued: "Now do you see what happened there? The higher I got, the more you thought the car was behind Door 2. I wanted to con you into switching there, because I knew the car was behind 1. That's the kind of thing I can do when I'm in control of the game. You may think you have probability going for you when you follow the answer in her column, but there's the pyschological factor to consider." He proceeded to prove his case by winning the next eight rounds. Whenever the contestant began with the wrong door, Mr. Hall promptly opened it and awarded the goat; whenever the contestant started out with the right door, Mr. Hall allowed him to switch doors and get another goat. The only way to win a car would have been to disregard Ms. vos Savant's advice and stick with the original door. Was Mr. Hall cheating? Not according to the rules of the show, because he did have the option of not offering the switch, and he usually did not offer it." | ||
| Sell in May and go away | ||
| 04/09/08 | Academia | |
| "We document the existence of a strong seasonal effect in stock returns based on the popular market saying 'Sell in May and go away', also known as the 'Halloween indicator'. According to these words of market wisdom, stock market returns should be higher in the November-April period than those in the May-October period. Surprisingly, we find this inherited wisdom to be true in 36 of the 37 developed and emerging markets studied in our sample. The 'Sell in May' effect tends to be particularly strong in European countries and is robust over time. Sample evidence, for instance, shows that in the UK the effect has been noticeable since 1694. While we have examined a number of possible explanations, none of these appears to convincingly explain the puzzle." | ||
| Value investing is supposed to get ugly | ||
| 04/09/08 | Hallett | |
| "One of the tenets of value investing is there will be times when it's going to get ugly. Problem is, for a lot of established value firms, things have never looked uglier - leading some advisors to question the wisdom of the strategy. But fund analysts say there is merit to what value firms are doing right now and investors should wait before they write off their value holdings." | ||
| Whither Black-Scholes? | ||
| 04/08/08 | Derivatives | |
| "In fact, Black-Scholes may not be used that much in the markets to begin with. New research by veteran traders and best-selling authors Nassim Taleb and Espen Haug points in that direction. Clearly, a formula that isn't used can't have much of an effect on markets, let alone cause the massacre that began last summer." | ||
| Asleep at the wheel | ||
| 04/08/08 | Montier | |
| "However, more importantly once earnings have peaked they often return to the low edge of the growth bands. This represents a 45%- 50% decline in earnings. This number holds for the US, Europe and the UK. So if you want to have a worse case scenario then a figure like this should be used." | ||
| Number twisting continues with fees | ||
| 04/08/08 | Hallett | |
| "It was almost two years ago when a draft research paper - Mutual Fund Fees Around the World - made waves by proclaiming that 'total shareholder costs' for mutual funds sold in Canada were the highest among the 18 developed countries studied. Industry critics and investor advocates ran with the paper's figures, without scrutiny, to pad their case that the fund industry regularly sticks it to investors." | ||
| Bye bye AAA | ||
| 04/07/08 | Bonds | |
| "The six remaining borrowers with the highest rating from both S&P and Moody's are: Automatic Data Processing Inc., Berkshire Hathaway Inc., Exxon Mobil Corp., General Electric Co., Johnson & Johnson and Toyota Motor Corp., according to data compiled by Bloomberg." | ||
| Hijacking the Hermitage Fund | ||
| 04/07/08 | World | |
| "Corruption, intimidation, robbery, violent assault, forgery, large-scale fraud. No, not the subject of the latest John Grisham novel, but sensational allegations, made public Apr. 4 by Hermitage Capital Management.until recently the largest foreign portfolio investor in Russia. In a detailed and damning report, titled Criminal Justice.Russian-Style, Hermitage alleges the fund's Russian subsidiaries have fallen victim to an elaborate con designed to defraud the fund of hundreds of millions of dollars. The most sensational part of Hermitage's allegations is that the attempted larceny was carried out with the direct connivance of officials in the Russian police. Hermitage alleges the police seized documents and equipment that were instrumental to the attempted fraud, which involved bogus court cases based on forged documents, the aim of which was to sue Hermitage subsidiaries for hundreds of millions of dollars. "The most shocking thing is not that there are corporate raiders in Russia who attempt to steal your shares," says Jamison Firestone, managing partner of Firestone Duncan, Hermitage's law firm. "The shocking thing is that the police worked hand-in-hand with them, and actually performed the theft of the documents so that the corporate raiders could then do their work."" | ||
| Feast with the vultures | ||
| 04/05/08 | Value Investing | |
| "A more rewarding approach may be to invest in companies such as Leucadia. Like Berkshire Hathaway, these are publicly traded holding companies run by managers with histories of sniffing out value. Yes, the risks are more concentrated. But returns, on average, exceed those of the typical value fund over the past decade. Patience is crucial, since returns can fluctuate unpredictably, rising in years when managers sell profitable investments and stagnating when they hold a lot of cash. Because of the stock market sell-off, share prices of many of these players are cheap vs. historic norms. And after largely sitting on the sidelines during the bull market, many of the companies are flush with cash. They are positioned to take advantage of lower stock prices as well as a projected spike in the default rate for U.S. speculative grade bonds." | ||
| Crossing the rubicon | ||
| 04/04/08 | Value Investing | |
| "In light of the above comments, the partners of FPA came to a unanimous conclusion that the recent Federal Reserve actions and the potential new Congressional policies under consideration are likely to lead to a significantly higher level of long-term inflation in the U.S. We are more than disappointed in the substandard decision making that has taken place within the Federal Reserve and other governmental entities these last several years. The misguided monetary policies of the former Chairman of the Federal Reserve, Alan Greenspan, created an era of 'too big to fail' that has led to two major asset bubbles. With each successive bubble, the policy actions available to the Federal Reserve to reduce financial system risk have been systematically reduced. The extraordinary actions taken by the Bernanke Federal Reserve reflect acts of desperation rather than long-term policy solutions. The rapidly changing events within the capital markets are forcing the Fed to adopt policies that have the potential of long-term negative consequences." | ||
| Lenders swamped by foreclosures | ||
| 04/04/08 | Real Estate | |
| "Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages. The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on." | ||
| Spanish property auction flop | ||
| 04/04/08 | World | |
| "House prices began their surge in 1998 spurred by falling interest rates as Spain prepared for euro membership. Spain has built about 5 million new homes since then, attracting immigrant labor from Eastern Europe and Latin America to fuel a boom that peaked in 2006. Now the turmoil in global credit markets is cutting demand. The world's biggest financial companies have reported about $232 billion in credit losses and writedowns since the start of 2007 and the credit shortage is filtering through to Spain." | ||
| Student lenders stifled | ||
| 04/04/08 | Bonds | |
| "The collapse of the $330 billion auction-rate securities market has brought debt sales by U.S. public student-loan agencies to a halt. No municipal bonds backed by student loans were sold in the first quarter, the first time that happened in almost 40 years, according to Thomson Financial. The inability to obtain financing differs from states, cities, schools and hospitals, which sold $82 billion of bonds to fund public works and replace failed auction debt that stuck them with penalty rates as high as 20 percent." | ||
| Graham's metrics still apply | ||
| 04/04/08 | Graham | |
| "Benjamin Graham, the father of modern security analysis, was a professor at Columbia University, taught Warren Buffett and wrote the most famous -- and arguably the best -- book on investing, The Intelligent Investor, first published in 1949. In a chapter on stock selection for defensive investors, he said they should look for large, dividend-paying companies with little debt and a consistent record of profitability, whose shares trade at low multiples to earnings and book value. We applied Graham's criteria to the Canadian market, using the FP Corporate Analyzer program to identify companies Graham would likely find attractive." | ||
| How fund manager didn't lose a bundle | ||
| 04/03/08 | Value Investing | |
| "As for where Mr. Rodriguez is betting now? He's still bearish. He's on a "buyer's strike." But he is considering his next moves. He views the recent partial bailout of Bear Stearns as "a short term positive but a long term negative . for the dollar and for inflation." The reason? Once again those who behaved irresponsibly or worse are sticking everyone else with the tab. "This has expedited the socialization of risk and moral hazard, exponentially," he says. Stay tuned." | ||
| Dan on BNN | ||
| 04/02/08 | Hallett | |
| Dan cautions against Ticker Temptation. Read his articles over here. | ||
| Beware: A 'safety net' full of holes | ||
| 04/02/08 | Brokers | |
| "Regardless of what they're called or the advantages they claim to offer, these products have two things in common: very high commissions for your adviser and, thanks to fees averaging about 2% to 3% a year, very low returns for you. And you often have to pay a surrender charge, or exit fee, of 6% or more if you want to withdraw the money in the first six to eight years. Another feature you'll commonly find with these safety nets is confounding complexity. I've had plenty of clients who signed disclosure forms stating that they had read and understood the 473-page policy, yet they still had no idea what they were buying." | ||
| When I'm sixty-four | ||
| 04/02/08 | Gross | |
| Mr. Gross advocates government measures that attempt to stop the slide in housing prices. Oh, and he's turning 64. | ||
| Revised CPR method helps save Arizonans | ||
| 03/31/08 | Health | |
| "This is the worst-case scenario. If a person's heart stops pumping blood through the body, and they aren't in a hospital, they have only about a 2 percent chance of surviving without serious disability. But Arizona cities including Glendale are starting to find that a few simple steps can radically improve the odds." | ||
| The clean energy scam | ||
| 03/30/08 | World | |
| "But several new studies show the biofuel boom is doing exactly the opposite of what its proponents intended: it's dramatically accelerating global warming, imperiling the planet in the name of saving it. Corn ethanol, always environmentally suspect, turns out to be environmentally disastrous. Even cellulosic ethanol made from switchgrass, which has been promoted by eco-activists and eco-investors as well as by President Bush as the fuel of the future, looks less green than oil-derived gasoline." | ||
| Out of print | ||
| 03/30/08 | World | |
| "Few believe that newspapers in their current printed form will survive. Newspaper companies are losing advertisers, readers, market value, and, in some cases, their sense of mission at a pace that would have been barely imaginable just four years ago. Bill Keller, the executive editor of the Times, said recently in a speech in London, 'At places where editors and publishers gather, the mood these days is funereal' Editors ask one another, 'How are you?,' in that sober tone one employs with friends who have just emerged from rehab or a messy divorce.' Keller's speech appeared on the Web site of its sponsor, the Guardian, under the headline 'NOT DEAD YET.'" | ||
| Taleb outsells Greenspan | ||
| 03/30/08 | Books | |
| "On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley's Manhattan offices on 47th Street and Broadway to address a group of the firm's risk managers. His message: Your models don't work. Using a whiteboard to scribble out his calculations, Taleb, now 48, began one of his rants, this time against stress tests -- Wall Street lingo for examining how a market rout will play out. Stress tests are inherently risky because they ignore rare but potentially devastating events, Taleb said. 'Past shortfall doesn't predict future shortfall,' the options trader turned best-selling author recalls telling the assembled group of about 40. The risk managers, part of a tribe of mathematical model makers known in the finance world as quants, stared back at him blankly, and a debate ensued, according to people who were there. Only six months later, Morgan Stanley experienced its own rout. The world's second-biggest mergers adviser announced in December that it had written down its subprime-related holdings by $9.4 billion after the firm's traders misjudged how fast and far prices of the debt would fall. Their risk management had failed." | ||
| Canadian Discount Broker Commissions | ||
| 03/29/08 | Stingy Investing | |
| "Our discount broker study referred to in Saturday's Financial Post" | ||
| Do-it-yourself broker | ||
| 03/28/08 | Brokers | |
| "Individual investors continue to flock to online investing as a low-cost alternative to full-service brokerage accounts. As of December, 2007, Canadians had $179-billion invested in online or discount brokerage accounts, according to Investor Economics Inc. That's no trivial amount, although it's still dwarfed by the $720-billion stashed in full-service accounts, says senior consultant Guy Armstrong. "We're still predominantly an advice-oriented society."" | ||
| Buyers' revenge | ||
| 03/28/08 | Real Estate | |
| "Analysts predict that as many as two million homeowners could enter foreclosure this year, caught by a slowing economy, falling house prices and, in many cases, adjustable mortgages with rates rising from high to higher. In Las Vegas, 1.9% of homes in the Las Vegas area were in the foreclosure process in January, almost triple the rate of a year earlier, according to First American CoreLogic Inc., a Santa Ana, Calif., real-estate and mortgage data company." | ||
| Small stocks, big profits | ||
| 03/27/08 | Stingy Investing | |
| "Each December I grade the largest stocks in Canada for the MoneySense Top 200 ranking. But, as a personal project, I've also been grading Canada's smaller stocks at the same time, using the same methodology. The result? Over the past three years the top small stocks have actually done better than their larger counterparts in the Top 200. In 2004 the top small stocks gained 54.8%. In 2005 the tiny superstars climbed 44.6%. In 2006 the pint-sized overachievers advanced a further 18.3%. If you had bought the top-rated top small stocks in 2004 and rolled your gains into the new bunch each subsequent year, you would now be up 170%, not including dividends. That compares to a gain of about 152% for the top-rated stocks in the Top 200." | ||
| The fool's gold of wholesale funding | ||
| 03/27/08 | Markets | |
| "Scan the laundry list of financial woe above, and a few common features stand out: First, the companies that have come acropper, almost without exception, let themselves get way, way too levered. Second, none of these firms has a deep well of core deposit funding to fall back on when times get unsettled. Finally, just about all the companies relied on short wholesale funding much too much. In the end, all the firms fell victim to one form or another of a modern-day run on the bank. The one thing they all lacked, we now know, is a true unique business proposition that could endure when the environment became uncertain." | ||
| Grim realty | ||
| 03/26/08 | Real Estate | |
| "According to the newly published S&P/Case-Shiller index, house prices in ten metropolitan areas fell by 11.7% in January compared with the year before, the biggest fall since the index was created in 1987. The larger 20-city index tumbled by 10.7%. Sunbelt cities which earlier saw the most dramatic price rises are now enduring the hardest falls." | ||
| Berkshire's free money beats LBO model | ||
| 03/26/08 | Buffett | |
| "Credit-market gridlock has trapped Stephen Schwarzman, who relies on lenders to fund acquisitions, while leaving Warren Buffett free to pursue the debt-free deals that have helped make him the world's richest person. Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., has $59 billion in cost-free money from insurance premiums to invest. Schwarzman's New York-based Blackstone Group LP, manager of the biggest private-equity fund, is being forced to bypass Wall Street banks after they stopped financing most leveraged buyouts. Buffett and Schwarzman each takes a different approach to the same goal: finding companies they consider undervalued. Investors are betting Buffett's model will prevail, at least for now." | ||
| New Bear Stearns bid | ||
| 03/24/08 | Stocks | |
| "JPMorgan and Bear were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several 'mistakes' were included in the original, hastily written contract, according to people involved in the talks. One sentence was 'inadvertently included,' according to a person briefed on the talks, which requires JPMorgan to guarantee Bear's trades even if shareholders voted down the deal. That provision could allow Bear's shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said. When the error was discovered, James Dimon, JPMorgan's chief executive, who was described by one participant as 'apoplectic,' began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa. As it began to look more possible late last week that the deal might be struck down, JPMorgan approached Bear in earnest on Friday about renegotiating the sale price to guarantee its completion and brought the Federal Reserve into the talks as well, people involved in the negotiations said." | ||
| Partying like it's 1929 | ||
| 03/24/08 | Markets | |
| "Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank's care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises. But sometimes - often based on nothing more than a rumor - banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false. Worse yet, bank runs can be contagious. If depositors at one bank lose their money, depositors at other banks are likely to get nervous, too, setting off a chain reaction. And there can be wider economic effects: as the surviving banks try to raise cash by calling in loans, there can be a vicious circle in which bank runs cause a credit crunch, which leads to more business failures, which leads to more financial troubles at banks, and so on. That, in brief, is what happened in 1930-1931, making the Great Depression the disaster it was." | ||
| Too dumb to fail | ||
| 03/24/08 | Markets | |
| "In 1984, Continental Illinois, then one of the country's largest banks, found itself on the verge of collapse, after billions of dollars. worth of its loans went bad. To avert a crisis, the government stepped in, purchasing $3.5 billion of the soured loans and effectively taking over the bank. Later that year, at a congressional subcommittee hearing, Representative Stewart McKinney summed up the lesson of the rescue effort: 'Let us not bandy words. We have a new kind of bank. It is called too big to fail. T.B.T.F., and it is a wonderful bank.'" | ||
| 10 ways to curb sleazy debt collectors | ||
| 03/24/08 | Debt | |
| "It's tough conditions like these that tempt collectors to get rough with consumers. Given that the debt-collection industry has trouble restraining itself during good times, you can imagine how bad this could get." | ||
| My big fat IRS case | ||
| 03/24/08 | Law | |
| "The young couple hauled in $40,000 in cash at their Greek wedding. They knew if they deposited $10,000 or more at once, the bank would have to file a "currency transaction report" and they'd have to wait in line to provide information. So they deposited their loot in smaller lumps. Soon, they were being investigated by Internal Revenue Service criminal agents and paying Chicago attorney Robert E. McKenzie $500-plus an hour to help them avoid seizure of their cash or worse. Carving up deposits to avoid a currency report is "structuring." Structuring is a felony. "It's scary. If you know of the $10,000 requirement and attempt to avoid it, you've committed a crime," says McKenzie, who convinced the irs to let the newlyweds go. You don't have to be dealing drugs, cheating on your taxes or paying prostitutes to run afoul of the structuring law. Even if the money is from a legal source and used legally, the government can charge you with a crime and/or demand you forfeit cash. By contrast, with money laundering, the cash has to be related to an underlying crime." | ||
| Panic of 1907 or not, trading stops on good friday | ||
| 03/21/08 | Markets | |
| "The New York Stock Exchange is closed today, as it has been every Good Friday for almost 150 years, except 1898, 1906 and 1907. That last one was the same year as the infamous Panic of 1907, when the aggregate value of all U.S. stocks plunged by more than a third. Hence, a legend that persists 101 years later: Traders get to stay home the Friday before Easter not just because it's a Christian holy day but because of its association with one of history's great bear markets." | ||
| What makes a tightwad | ||
| 03/20/08 | Behaviour | |
| "The researchers were surprised to find that despite perceptions that people always overspend, chronic underspending was far more widespread than thought, with tightwads outnumbering spendthrifts by 3 to 2. But researcher Scott Rick from the University of Pennsylvania said they found it wasn't the cost of an item or someone's income level that had an impact on their spending. Tightwads reported feeling an emotional pain when handing over their money. Spendthrifts, on the other hand, felt pleasure making a purchase." | ||
| When OSC goes green, lawyers see red | ||
| 03/19/08 | Law | |
| "The regulator says financial estimates must be provided to investors where quantitative information is "reasonably available," and the company should explain that the estimate is highly uncertain. It should also consider providing the upper and lower ranges of financial exposure, as well as an analysis of the likelihood the event will actually occur. Almost overnight, environmental liability has been escalated to a major governance issue. Public companies are being asked to come clean or risk a big legal mess. But at least one of the country's senior environmental lawyers says the OSC is asking for trouble." | ||
| Chou's annual report for 2007 | ||
| 03/17/08 | Chou | |
| "We are long term investors and, in general, our bias has been to concentrate on stock selections and not worry about currency fluctuations. With years like 2007, the question arises as to whether there have been major disparities in annualized returns over the long term between a hedged portfolio and an unhedged portfolio; in other words, does one offer more advantageous performance results during currency fluctuations? Two studies, one covering the period from 1975 through 1988 and the other from 1988 through 2003, confirm that with respect to the long term there have been no material differences in returns." | ||
| JPMorgan buys Bear Stearns for $2 a share | ||
| 03/16/08 | Stocks | |
| "JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $2 a share after a run on the company ended 85 years of independence for Wall Street's fifth- largest securities firm and prompted a bailout by the Federal Reserve." | ||
| How value investor Chou wins with bonds | ||
| 03/15/08 | Chou | |
| "When you read about investment stars, portfolio managers who score high double digit and even triple digit annual gains, managers of bond portfolios usually aren't there. The reason - bonds are a different game, one where risk is less courted than avoided. But when the dust settles after big market busts, it's often the bond managers who are still standing. Francis Chou, 52, of Chou Associates Management Inc., is one of those survivors. His $90-million Chou Bond Fund (US$), established in the fall of 2005, soared to the No. 1 spot among 65 funds in the high yield sector with an average annual compound gain of 10.4 per cent for the two years ended Feb. 29, 2008, far above the 1.5 per cent average annual compound gain of peers in the period." | ||
| The next shoe to drop in housing | ||
| 03/15/08 | Real Estate | |
| "The credit crunch has finally hit the traditional mortgage market. Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart. Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan." | ||
| What Citigroup says isn't what it does | ||
| 03/15/08 | Stocks | |
| "Real estate developer John Wimmer paid Citigroup Global Markets Realty Corp. almost $1 million last year to lock in a 5.6 percent mortgage rate on the refinancing of six commercial properties. At the November closings, Citigroup, citing plummeting demand for mortgage bonds, boosted the rate to 7.123 percent." | ||
| F.D.R.'s safety net gets a big stretch | ||
| 03/15/08 | Stocks | |
| "It was an old-fashioned bank run that forced Bear Stearns to turn to the government for salvation on Friday. The difference is that Bear Stearns is not a commercial bank, and is therefore not eligible for the protections those banks received 75 years ago when Franklin D. Roosevelt halted bank runs with government guarantees. Bear was, instead, emblematic of a financial system that grew up over the last two decades, one that largely marginalized traditional banking and that enabled lenders to evade much of the regulatory framework that had also begun during the Roosevelt administration." | ||
| Bear Stearns gets emergency funds | ||
| 03/14/08 | Stocks | |
| "Bear Stearns Cos., teetering on the brink of collapse from a lack of cash, got emergency funding from the Federal Reserve and JPMorgan Chase & Co. in the largest government bailout of a U.S. securities firm. After denying earlier this week that access to capital was at risk, Bear Stearns Chief Executive Officer Alan Schwartz said today that the 85-year-old company's cash position had 'significantly deteriorated' in the past 24 hours. The central bank agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today." | ||
| Lenders face still more misery | ||
| 03/13/08 | Accounting | |
| "A closer look at the books of big lenders reveals several weak spots that haven't yet shown up in the financial results. At many banks, bad loans are piling up faster than the amount of money they're setting aside to cover them. Meanwhile, housing lenders booked income on vulnerable exotic loans and mortgage securities before they collected the money - paper gains that may be reversed through writedowns. Plus the values of some troubled loans, which have been trimmed modestly so far and shown up in previous losses, could still be overstated. Why haven't these items hit lenders' bottom lines? Largely because of the ambiguity and complexities of the accounting rules. Banks have a lot of wiggle room when it comes to reporting the profits and values of complex loans and securities. For one thing, their earnings can far exceed the amount of cash coming in the door. At the same time, their losses aren't always based on hard numbers but rather on debatable judgment calls. With the housing market showing no signs of recovery anytime soon, it's becoming clear that some of their assumptions have been overly optimistic." | ||
| Wall Street fears a big US bank is in trouble | ||
| 03/12/08 | Markets | |
| "Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion into global markets was seen as a sure sign that at least one financial institution was struggling to survive." | ||
| Just think, the fees you could charge Buffett | ||
| 03/12/08 | Buffett | |
| "The news that Warren Buffett is now the world's richest man led to the predictable round of stories about his frugal habits - the cherry Coke, the well-done steaks and the bungalow in Omaha that has been home for 50 years. There is a point here. Like Bill Gates, whom he has toppled from the top spot, Mr Buffett is primarily interested in the business rather than the wealth that results. Money is a means of keeping score rather than an objective in its own right: the fun, Mr Buffett has said, is watching it grow." | ||
| The Fed can't fix home prices | ||
| 03/12/08 | Government | |
| "Where are the speculators, vultures and hedge funds? Where are the big money players willing to buy the exotic but still substantial mortgage-backed securities for which markets have ceased? The Fed's liquidity rush seems only to have convinced them the time is ripe for staying on the sidelines. To get to a real solution, speculators and investors need to believe that home prices are hitting bottom, that any mortgage debt they might buy today for 80 cents on the dollar today won't be worth 30 cents tomorrow. Then the vultures will pile in: The transfer of wealth from the overleveraged banks and hedge funds to those who kept cash handy will be shocking, ugly and cathartic -- but it will also be relatively quick. Credit markets will begin to function again. The economy will grow." | ||
| Loophole lets bank rewrite the calendar | ||
| 03/11/08 | Accounting | |
| "In its financial statements for 2007, the French bank takes the loss in that year, offsetting it against 1.5 billion euros in profit that it says was earned by a trader, Jerome Kerviel, who concealed from management the fact he was making huge bets in financial futures markets." | ||
| Moody's, S&P defer cuts on AAA subprime | ||
| 03/11/08 | Bonds | |
| "Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments. None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg." | ||
| Try, try again | ||
| 03/11/08 | Markets | |
| "The U.S. Federal Reserve has come up with yet another way to kick-start the credit markets, if only its innovations would start working already. On Tuesday, the central bank said it is expanding its securities lending operations, allowing big Wall Street firms to borrow for longer periods and, for the first time, exchange triple-A mortgages not backed by Fannie Mae or Freddie Mac for Treasury bonds. That is to say, the Fed will let the big brokerages offload their hard-to-sell mortgage holdings for easy-to-sell Treasury bonds." | ||
| Hedge Funds reel from margin calls on treasuries | ||
| 03/10/08 | Markets | |
| "The hedge-fund industry is reeling from its worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States." | ||
| Morgan Stanley, Lone Star stick taxpayers on defaults | ||
| 03/09/08 | Real Estate | |
| "The public's bill for maintaining foreclosed properties abandoned by lenders and investors may reach as much as $50 billion this year, according to Peter Sepp, vice president of the National Taxpayers Union in Alexandria, Virginia. The U.S. Congress is considering various bills to help cover some of the costs to towns and cities for securing and policing the empty homes, Sepp said." | ||
| Investing is about stacking the odds in your favour | ||
| 03/09/08 | Funds | |
| "I go to the office in search of one thing. An asymmetric bet. In other words, an investment or business strategy where, in my judgment, there is limited downside if it doesn't work, and big upside if it does. That is an investment manager's Holy Grail. In searching for such a situation, you won't see an investment professional buying a 'risk-free' investment, other than a government bond. That's because 'risk-free' or principal protected securities, are an asymmetric bet in the wrong direction. The odds are stacked against the purchaser." | ||
| Same price, but fewer tax returns | ||
| 03/09/08 | Taxes | |
| "QuickTax Standard for 2007 includes two returns for Canadians with more than $25,000 in income, compared with five returns in previous years." [Consider UFile instead] | ||
| Curve balls raise red flags for CRA | ||
| 03/09/08 | Taxes | |
| "When filing your tax return this year, be aware that your past tax filings may have an impact on whether the CRA will accept this year's filing position. Consistency can be a good thing." | ||
| Preparing for a 'real estate apocalypse' | ||
| 03/09/08 | Real Estate | |
| "The year has not been off to a great start. In figures released last week, a blustery February knocked existing home sales down by 11 per cent for the month, while residential building permits were down by a significant 47 per cent in January. Growing uncertainty over the U.S. economy, where housing values have plummeted in some states, has also cast a long shadow over the Toronto market." | ||
| TFSAs could spawn untaxed pensioners | ||
| 03/05/08 | Taxes | |
| "The Tax-Free Savings Accounts (TFSAs) announced in last week's federal budget could become so popular that within 30 years they could supplant RRSPs and create a generation of senior citizens that pay no income tax at all, says actuary Malcolm Hamilton, worldwide partner with Mercer's, the pension consultants." | ||
| Third Avenue Funds Q1 | ||
| 03/05/08 | Whitman | |
| "Obviously, I feel good about TAVF's investment in MBIA. The Fund ought to do well under almost any scenario. By any objective standard, the MBIA investments are attractive ones with the insurance subsidiaries deserving of an AAA-Stable rating. Yet, there exists a sense of discomfort due to the dangers of Rating Agency subjective considerations and capricious regulators." | ||
| Gates no longer world's richest man | ||
| 03/05/08 | Buffett | |
| "Warren Buffett is the richest man on the planet. Riding the surging price of Berkshire Hathaway stock, America's most beloved investor has seen his fortune swell to an estimated $62 billion, up $10 billion from a year ago. That massive pile of scratch puts him ahead of Microsoft co-founder Bill Gates, who was the richest man in the world for 13 straight years." | ||
| Home economics | ||
| 03/04/08 | Real Estate | |
| "Even without lending and borrowing excesses, though, our high rate of homeownership would likely create problems as the economy slows. To recover from recession, economies need prices to fall until they reflect genuine supply and demand. With certain kinds of assets, like stocks, these adjustments take place quickly, sometimes viciously so. Buying and selling houses, though, is a far slower process. The good thing about this is that housing prices never suffer crashes on the scale that you sometimes see in the stock market. The bad thing is that it can take a long time for housing prices to reflect reality. Homeowners, as economists have shown, tend to remain unreasonably optimistic about the value of their homes, and they hate to drop their asking price. As a result, existing-home sales in the U.S. are now at a nine-year low." | ||
| Warren Buffett on Squawk Box part 1 | ||
| 03/03/08 | Buffett | |
| "Buffett says there's been a lot of de-leveraging, and there's still more to come. In many cases, the de-leveraging is happening at crazy prices. People who were out on a limb are having the limb cut off." | ||
| Warren Buffett on Squawk Box part 2 | ||
| 03/03/08 | Buffett | |
| "Becky asks why he thinks U.S. now in a recession. He replies he sees lots of indicators, including sales at his businesses and the reduction in people's net worth. He's sure there is a recession, not sure how far it will go." | ||
| Warren Buffett on Squawk Box part 3 | ||
| 03/03/08 | Buffett | |
| "Joe Kernen asks about recent purchases of Glaxo and Sanofi? Why? Buffett says he made the decision to buy those stocks and that with drug companies he knows less specifically about those companies than, say, a candy company. Hard to make a bet on a specific drug company based on a drug that might be in the pipeline. "If you have a group" of drug companies, you'll "probably do OK." Would he buy a domestic drug company? Yes, but he does like earnings coming from abraod than earnings coming from the United States. Most big drug companies in the U.S. do get a lot of their profits from overseas." | ||
| How a bubble stayed under the radar | ||
| 03/01/08 | Markets | |
| "The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks. Were all these people stupid? It can't be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behavior." | ||
| Berkshire Hathaway 2007 Letter | ||
| 02/29/08 | Buffett | |
| "Some major financial institutions have, however, experienced staggering problems because they engaged in the "weakened lending practices" I described in last year's letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: "It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine." You may recall a 2003 Silicon Valley bumper sticker that implored, "Please, God, Just One More Bubble." Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower's income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA - house price appreciation - would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight." | ||
| Money for old hope | ||
| 02/28/08 | Funds | |
| "Under the normal rules of capitalism, any industry that can produce double-digit annual growth should soon be swamped by eager competitors until returns are driven down. But in fund management that does not seem to be happening. The average profit margin of the fund managers that took part in a survey by Boston Consulting Group was a staggering 42%. In part, this is because most fund managers do not compete on price. Instead, they persuade their clients to select their funds on the basis of past performance, even though there is little evidence to show that this is a good predictor of future success. Nor can investors be sure that the intermediaries who sell the funds - brokers, advisers and bankers - will steer them in the right direction. These middlemen often get a cut of the fund managers' fees, so they have little interest in recommending low-cost alternatives." | ||
| Canada's total government fiscal performance | ||
| 02/28/08 | Government | |
| "To enable international comparisons, the OECD publishes National Accounts data for the total government sector. For Canada, the figures include the federal, provincial-territorial and local government sectors, as well as the Canada Pension Plan and the Qu bec Pension Plan. Based on OECD data, Canada's fiscal position is stronger than that of the other G7 countries (United States, United Kingdom, France, Germany, Japan and Italy). *The OECD expects Canada to record the largest budgetary surplus as a share of GDP in the G7 in 2007, 2008 and 2009. *It projects that Canada's total government net debt-to-GDP ratio, which has been the lowest in the G7 since 2004, will continue to decline in future years. *Canada is on track to eliminate its total government net debt by 2021. By doing so, it will be able to count itself among the few OECD countries that are in a net asset position." | ||
| Asset growth and stock returns | ||
| 02/28/08 | Academia | |
| "Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns." | ||
| Dividend tax slides below budget radar | ||
| 02/28/08 | Taxes | |
| "The status quo will hold in dividend taxation until 2010, when a three-year phased adjustment begins. Myron Knodel, manager of tax and estate planning at Investors Group in Winnipeg, illustrated how this will work with an example involving $100 in dividends paid by a bank. The current federal tax rate on dividends means you'd net $85.46, assuming you were in the top tax bracket. By 2012, your net take on the same $100 would be $80.68, a decline of $4.78, or 5.6 per cent." | ||
| Walter J. Schloss Q&A 2008 | ||
| 02/28/08 | Schloss | |
| "Mr. Schloss started his limited partnership in the middle of 1955. In 1963, he earned the Chartered Financial Analyst designation. Waller's son Edwin joined the partnership in 1973 and the fund changed its name to Walter & Edwin Schloss Associates. Over the period 1956 to 2000, Mr. Schloss and his son Edwin provided investors a compounded return of 15.3% compared with the S&P 500.s annual compounded return on 11.5%." | ||
| Dividend growth beyond the TSX 60 | ||
| 02/27/08 | Dividends | |
| "The best dividend growth for stocks beyond the TSX 60 can be found in the financial sector - similar to the blue chips of the TSX 60. From 1995 to last July, however, mid-cap financial dividend stocks posted annualized gains of 20.2 per cent, compared with 17.9 per cent for their large-cap financial peers, and 10.8 per cent for the TSX Completion Index. Those figures do not include dividends." | ||
| Advice gets interesting | ||
| 02/27/08 | Government | |
| "In the United States, with its plethora of tax-assisted vehicles, from 401 (k) to Individual Retirement Accounts to Roth IRAs, the calculation of where to put what asset to get the best after-tax yield has elicited some debate and a lot of actuarially inclined mathematics. Now it comes to Canada. A few years ago, when the capital gains inclusion rate was reduced the question became pointed: Why put assets that would yield capital gains in an account whose withdrawals would be taxed as interest? Still, it was a two-option universe, subject to asset allocation decisions: bonds inside and stocks outside. TFSAs change that simple calculation. Why not put interest and dividend-paying assets in the TFSA? There's no tax on withdrawals. What about stocks? As with an RSP, there's no potential for deducting capital losses. So the emphasis will be on finding steady performers with low volatility. This is where advice gets interesting is in determining the balance and types assets among all three accounts: open, registered and tax-free." | ||
| Canadian budget in brief | ||
| 02/27/08 | Government | |
| "Maintaining strong fiscal management and continuing to reduce debt. Planned debt reduction for 2007.08 is $10.2 billion, and a total of $13.8 billion over the budget-planning period (2007.08 to 2009.10)." | ||
| Global investment returns yearbook 2008 | ||
| 02/25/08 | Markets | |
| "This year's thematic studies are about momentum, a subject of importance to all investors, whether their investment style favours it or not. We show that momentum profits in equities have been large and pervasive across time and markets, and present findings from the longest momentum study ever undertaken. We also discuss how supply and demand as well as financing mechanisms can work as important multipliers of momentum for real estate and for commodity prices. Our focus throughout is on the practical implications for investors." | ||
| Dark days for hedge fund king | ||
| 02/25/08 | Funds | |
| "The steep losses have dealt a major blow to Asness, a University of Chicago-trained mathematician whose investing prowess catapulted him into the ranks of the super-rich, and his firm. Founded a decade ago with fellow Goldman Sachs alumni, AQR now faces the daunting prospect of employee defections, falling management fees, and credit problems." | ||
| Dividends: A world of smart yield plays | ||
| 02/23/08 | ||