The Stingy News Weekly (07/04/2010)
Negative idiosyncratic risk premium
"The average gross return of an equally weighted portfolio that is long (short) the fifth of stocks with the lowest (highest) idiosyncratic volatilities, reformed monthly, is 0.79% per month or about 9% per year. Results are similar for sorting on total rather than idiosyncratic volatility. In other words, low-volatility stocks tend to outperform high-volatility stocks."
The Andy Grove essay
"The former Intel chief says 'job-centric' leadership and incentives are needed to expand U.S. domestic employment again"
In a hole
"Stagnate, default, inflate - they all seem equally grim. The best solution for rich countries is to work off their debts through economic growth. That may be harder for some than for others, given that many countries' workforces are set to level out or shrink as their populations age. It will be all the more important for such countries to pursue structural reforms that will increase productivity. But outgrowing debt is not easy: the McKinsey study found that, out of 32 cases of deleveraging following a financial crisis that it examined, only one was driven by growth."
Illinois stops paying its bills
"For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state's bills and refuses to take the painful steps - cuts and tax increases - to close a deficit of at least $12 billion, equal to nearly half the state's budget."
The next crisis
"States really have no choice but to further cut spending and raise taxes. They also need to cut pension benefits. About half have made modest trims, but only for future workers. Reforming pensions is painfully slow, because pensions of existing workers are legally protected. There is, of course, no argument for canceling a pension already earned. But public employees benefit from a unique notion that, once they have worked a single day, their pension arrangement going forward can never be altered. No other Americans enjoy such protections. Private companies often negotiate (or force upon their workers) pension adjustments. But in the world of public employment, even discussion of cuts is taboo. Recently, states have begun to test the legal boundary."
"In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year."
Physics envy can kill you
"Andrew Lo of MIT doing his riff on how physics envy can kill you - especially if you're in finance/economics"
What's on my shoe? EBITDAPO
"Instead GM's advisors are plumping for enterprise value as a multiple of something called EBITDAPO. That's the same as regular old earnings before interest, taxes, depreciation and amortization, but with pension costs and other post-retirement employee benefits (OPEB) - healthcare, basically - also stripped out."
College: paltry return
"Over the past 30 years, the S&P 500 Index averaged about 11 percent a year. Only 88 schools out of the 554 in the study had a better return than the S&P. Everywhere else, students would have been better off - financially, at least - if they invested the money they spent on their college educations and never set foot in a classroom. 'For almost every school on the list,' writes Lee in an e-mail, 'prospective students paying full price would probably have been better off investing in the stock market 30 years ago rather than spending their money on a college education.'"
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