The Stingy News Weekly (04/11/2010)
Measuring investor sentiment
"We investigate a proxy for monthly shifts between bond funds and equity funds in the USA: aggregate net exchanges of equity funds. This measure (which is negatively related to changes in VIX) is positively contemporaneously correlated with aggregate stock market excess returns: One standard deviation of net exchanges is related to 1.95% of market excess return. Our main new finding is that 85% (all) of the contemporaneous relation is reversed within four (ten) months. The effect is stronger in smaller stocks and in growth stocks. These findings support the notion of "noise" in aggregate market prices induced by investor sentiment."
Don't bet the farm on the housing
"The question now is whether a strong case has been built for a new bull market since the home-price turning point in May 2009. Though there is no way to be precise, I don.t believe it has."
Short First Solar
"A technology, to be a really great investment, must do two things. It must change part of the world in a useful way - a big part of the world is better of course - but you can be surprisingly profitable in small niches. And it must keep the competition out. "
Leucadia's 2009 annual
"2008 was an infamous year, not unlike 1929. A group of financial engineers almost brought down the U.S. economy and subsequently a significant portion of the world's as well, resulting in a deluge of red ink. Happily, 2009, was much different. There is increasing evidence that the financial carnage brought on by excessive risk taking is beginning to repair itself."
Why house value won't rise
"Like any other well-functioning industry, the construction industry experiences technological improvements and increased efficiency. In the computer industry, technology has meant that affordable laptops have computing power that would have been exorbitantly expensive in 1980. As a result, no one ever buys a computer thinking that it will rise in value. The real cost of building a home declined by about 3 percent in both the 1980s and the 1990s. In principle, declining construction costs could also lead homes to become more affordable year after year."
Creativity: a crime of passion
"Creativity seems to be the "buzz word" of the 2000s. Society values it, companies need it, and employers want it. Or do they? What society claims to want and what is actually rewarded in practice are two different things. We claim to want innovation, but are innovation and creativity actually encouraged, or even allowed in most environments? What types of creative behaviors are rewarded by society, and what types are punished?"
Capital can't be measured
"Bank capital cannot be measured. Think about that until you really get it. 'Large complex financial institutions' report leverage ratios and 'tier one' capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15x, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish 'well capitalized' from insolvent banks, even in good times, and regardless of their formal statements."
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