The Stingy News Weekly (01/09/2011)
"'If something cannot go on forever, it will stop.' States with a permanent mismatch between taxes and spending will not be able to squeak by on budget gimmicks and backdoor borrowing forever either they'll find a way to bring their budgets into balance, or they'll run out of money and default on their obligations. The path they choose will make a big difference in the future of the states, and of their citizens - and in the life of the nation as a whole."
Government workers of the world unite!
"It would be a mistake to write off the public-sector unions. They are masters of diverting attention from strategic to tactical questions. Undoubtedly the unions will lose some of their privileges over the coming years the scale of the debt crisis makes this inevitable. But will governments have the courage to tackle the root causes of the problem (such as pensions) rather than dealing with secondary problems (such as wages)? And will they dare to tackle questions of power rather than just pay and perks? If they are to claim victory in the coming fight, they need not just to restore the public finances to health. They also need to breathe the spirit of innovation into Leviathan."
Disassembling, Reassembling Hoover Dam
"Systematically tearing down such a massive edifice will create at least 25,000 jobs over the next five years. And then reassembling it, using all the same pieces in the exact same configuration, will employ another 25,000 workers. America is back"
Buffett on Berkshire, Succession and America
"Finally, he talked a little about why he was optimistic about the future of the United States: “We had four million people here in 1790,” he tells Vanity Fair. “We’re not more intelligent than people in China, which then had 290 million people, or Europe, which had 50 million. We didn’t work harder, we didn’t have a better climate, and we didn’t have better resources. But we definitely had a system that unleashes potential. This system works. Since then, we’ve been through at least 15 recessions, a civil war, a Great Depression. … All of these things happen. But this country has optimized human potential, and it’s not over yet."
Financial Crisis Q and A
"The panic in 2007 was not observed by anyone other than those trading or otherwise involved in the capital markets because the repo market does not involve regular people, but firms and institutional investors. So, the panic in 2007 was not like the previous panics in American history (like the Panic of 1907, shown below, or that of 1837, 1857, 1873 and so on) in that it was not a mass run on banks by individual depositors, but instead was a run by firms and institutional investors on financial firms. The fact that the run was not observed by regulators, politicians, the media, or ordinary Americans has made the events particularly hard to understand. It has opened the door to spurious, superficial, and politically expedient “explanations” and demagoguery."
Goldman Pitch vs Nigerian Scam
"Of course, unlike Nigerian email scams, the solicitation came from a Goldman money manager rather than a random stranger. And Goldman isn’t offering a scam but an investment opportunity so hot that the investment bank had to stop taking orders, as our colleagues reported this afternoon. But we couldn’t help note some similar language used by Goldman and purported Nigerian princes. Read and compare"
Penny Stock Risk Premium Has Wrong Sign
"In case you didn't know, penny stocks are lousy investments high risk, negative return."
When States Default
"Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts."
Value Averaging and Automated Bias
"Value averaging is a formula investment strategy which can be shown to achieve a lower average cost and higher IRR than alternative strategies. However, in contrast to previous studies, this paper shows that this does not lead to higher expected profits. Instead an “averaging down” effect systematically biases the IRR up and the average purchase cost down. The same bias applies to a wide class of investment strategies (including dollar cost averaging) where the amount invested in each period is negatively correlated with the return made to date."
Hindsight Bias in Dollar-Weighted Returns
"Dollar-weighted returns have been used as evidence that consistently bad timing drags investor returns significantly below the buy-and-hold market return, and that consequently the equity risk premium is overstated. In this paper we show that this approach is affected by hindsight bias in the dollar-weighted return. We present an alternative method which quantifies and removes this effect. The results show that bad timing has actually had little impact on investor returns from mainstream US equities. We conclude that previous estimates of the equity risk premium remain valid."
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