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The Rothery Report

2017
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2016
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2015
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2014
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2013
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2012
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2011
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2010
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Stingy News Quarterly
2014: Q1 Discontinued
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2002: Q1 Q2 Q3 Q4
2001: Q1 Q2 Q3 Q4

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The Stingy News Quarterly (Q2/2011)


Stingy Links: Academia

Momentum and credit rating
"This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among low-grade firms, but it is nonexistent among high-grade firms. The momentum payoffs documented in the literature are generated by low-grade firms that account for less than 4% of the overall market capitalization of rated firms. The momentum payoff differential across credit rating groups is unexplained by firm size, firm age, analyst forecast dispersion, leverage, return volatility, and cash flow volatility."

Your so-called education
"While some colleges are starved for resources, for many others it.s not for lack of money. Even at those colleges where for the past several decades tuition has far outpaced the rate of inflation, students are taught by fewer full-time tenured faculty members while being looked after by a greatly expanded number of counselors who serve an array of social and personal needs. At the same time, many schools are investing in deluxe dormitory rooms, elaborate student centers and expensive gyms. Simply put: academic investments are a lower priority. The situation reflects a larger cultural change in the relationship between students and colleges. The authority of educators has diminished, and students are increasingly thought of, by themselves and their colleges, as .clients. or .consumers.. When 18-year-olds are emboldened to see themselves in this manner, many look for ways to attain an educational credential effortlessly and comfortably. And they are catered to accordingly. Th! e customer is always right."

Demographic changes and financial markets
"We find surprisingly powerful results when we apply the same technique for exploring the links between demography and capital markets returns, net of the strong and well-documented effects of valuation and yield levels. Stocks perform best when the roster of people age 35-59 is particularly large, and when the roster of people age 45-64 is fast-growing. Bonds follow a similar pattern, with an age-shift: they.re best when the roster of people age 50-69 is growing quickly. We carry out three different forms of robustness checks, each of which provides statistical significance in different ways: applying different country weights, testing alternative demographic variables, and confirming GDP results on out-of-sample countries."

Bad Education
"If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam."

How to Get a Real Education
"I understand why the top students in America study physics, chemistry, calculus and classic literature. The kids in this brainy group are the future professors, scientists, thinkers and engineers who will propel civilization forward. But why do we make B students sit through these same classes? That's like trying to train your cat to do your taxes.a waste of time and money. Wouldn't it make more sense to teach B students something useful, like entrepreneurship?"

Stingy Links: Accounting

The importance of being audited
"When a company.s auditors resign and disclose that prior financial statements .should no longer be relied upon,. investors should head for the hills because there is a very good chance fraud has been discovered. Unfortunately if that company is a Chinese operation that obtained an American listing through a so-called reverse merger, then it is probably too late to salvage much if anything from the investment."

Stingy Links: Behaviour

Does DALBAR really calculate investor returns?
"To give credit where it.s due, DALBAR deserves kudos for having begun its annual QAIB studies as far back as the mid-1980s. But for nearly a decade, I have suspected that DALBAR.s methodology was flawed. I contacted DALBAR recently in an effort to confirm my understanding of the finer points of their calculations. Their lack of response left me with my original interpretation of DALBAR.s 2001 QAIB report, the only full version I.ve reviewed. And it reveals what may be a questionable methodology. I suspect that DALBAR calculates what it calls investor returns by applying dollar-weighted fund redemption rates to benchmark returns . rather than applying a DWRR calculation directly to the funds. And if they.re doing that, they.re not calculating investor returns."

Reason as a weapon
"For centuries thinkers have assumed that the uniquely human capacity for reasoning has existed to let people reach beyond mere perception and reflex in the search for truth. Rationality allowed a solitary thinker to blaze a path to philosophical, moral and scientific enlightenment. Now some researchers are suggesting that reason evolved for a completely different purpose: to win arguments."

Measurements that mislead
"Mr. Sackett had assumed that these separate measurements would generate similar rankings. Those cashiers who were fastest in the short test should also be the fastest over the long term. But instead he found a surprisingly weak correlation between the rankings, leading him to distinguish between two types of personal assessment. One measures 'maximum performance': People who know they're being tested are highly motivated and focused, just like those cashiers scanning a few items while being timed. The other type measures 'typical performance'.measured over long periods of time, as when Mr. Sackett recorded the speed of cashiers who didn't know they were being watched. In this sort of test, character traits that have nothing to do with maximum performance begin to influence the outcome."

How David beats Goliath
"Why, then, did weak teams play in a way that made it easy for good teams to do the very things that made them so good?"

Lessons for the irrational investor
"In recent years interest in behavioral finance has steadily grown: It's equally valuable to retirees deciding whether to stick with their dividends or risk their savings in the currency markets, to a fund manager putting a good spin on a bad year, and to a brokerage redesigning its retirement accounts. And recently, of course, the stock market has given behavioral economists all the more to think about, as Main Street and Wall Street investors have pushed stock prices up and down in reaction to crises in Japan and the Middle East."

On being wrong
"Most of us will do anything to avoid being wrong. But what if we're wrong about that? 'Wrongologist' Kathryn Schulz makes a compelling case for not just admitting but embracing our fallibility."

Stingy Links: Bonds

Negative Outlook on U.S. AAA Rating
"Standard and Poor.s put a .negative. outlook on the U.S. AAA credit rating, citing rising budget deficits and debt."

Inevitability of a Default in Greece
"Sooner or later there will be a Greek default, even if it is officially described as a .voluntary restructuring. approved by most bondholders. Europe wants to delay that at least until 2013, when new rules are supposed to kick in that would let official creditors . such as Europe.s bailout fund . do better in a deal than private creditors. But it seems less and less likely that the inevitable can be delayed that long."

Stingy Links: Brokers

A new way to slice the pie
"In theory, fee-based accounts give advisers a transparent, above-board way to answer the question of how much they charge for their services. Instead of paying commissions buried in the cost of investment products, clients pay annual fees equal to a percentage of the value of their account plus any costs associated with the investments they hold."

Stingy Links: Buffett

Berkshire Annual Meeting
"It's time once again for Berkshire Hathaway's annual shareholder meeting, the two-day frenzy of Warren Buffett aficionados who have descended here to listen to his latest musings. This year's meeting promises to be even more interesting than ever, given the controversy over David Sokol, whose resignation has cast a pall over the normally jovial proceedings."

Buffett.s Profit on GE
"In the financial crisis, Warren Buffett loaned out his halo of respectability to prop up sentiment about Goldman Sachs Group, Dow Chemical, General Electric and other blue-chip companies. Those bets came with some heavy costs for the companies, and produced handsome profits for the Oracle of Omaha."

Get back to work Warren
"Steve Carell.s Office character, Michael Scott, left the show this season, and it looks like producers are pulling out all the stops to keep up the show.s ratings. Guest appearances by Jim Carey, Ray Romano, James Spader, Catherine Tate, Ricky Gervais and Will Arnett have already been announced, but the addition of legendary capitalist Warren Buffett may blow them all out of the water."

Stingy Links: Crime

The audacity of Chinese frauds
"Frauds and audit failures can, and do, happen in many countries, including in the United States. But the audacity of these frauds, as well as the efforts to intimidate auditors, stand out. If investors such as Goldman Sachs and Hank Greenberg cannot fend for themselves, something more needs to be done if Chinese companies are to continue to trade in American markets."

A dirty business
"In the language of hedge funds, Galleon.s strategy was to .arbitrage reality. with the consensus on the Street.to find information about a given company that diverged from Wall Street.s view, allowing Galleon to cash in when the company.s stock price rose or fell."

Stingy Links: Debt

The Euro.s PIG-headed masters
"Europe is in constitutional crisis. No one seems to have the power to impose a sensible resolution of its peripheral countries. debt crisis. Instead of restructuring the manifestly unsustainable debt burdens of Portugal, Ireland, and Greece (the PIGs), politicians and policymakers are pushing for ever-larger bailout packages with ever-less realistic austerity conditions. Unfortunately, they are not just .kicking the can down the road,. but pushing a snowball down a mountain."

Capitalists who fear free markets
"Japanese executives were outraged at the prospect of banks taking losses on loans to the company that produced a nuclear catastrophe. This used to be how free markets worked."

Have Canadians reached their limits?
"If household debt was to be evenly spread across all Canadians, each individual would hold some $44,115 in outstanding debt in March 2011 while a family with two children would, relying on similar logic, be burdened with $176,461 in total outstanding household debt."

You want fries with that degree?
"What's more, governments might be doing some students a big favour by not encouraging them to get into debt to secure degrees and diplomas that qualify students to be little more than baristas and wait staff. You want fries with that English BA?"

Credit lines worst trend
".People cannot resist lines of credit. And the worst combination in the country is a line of credit and a home renovation . once they renovate one room, the other rooms pale by comparison, so they go on to the next room and it.s a never-ending cycle of renovation as they get deeper and deeper and deeper in debt. The four most expensive words in the English language are .while we.re at it.. And the four most expensive letters are .HGTV.. .We go through a credit crisis brought on by too much private debt in the developed world, particularly in the States, and our response . the Home Renovation Tax Credit. That.s like starting an alcoholic.s rehab by taking him on a pub crawl. The problem with governments is they want to get re-elected.."

Stingy Links: Dividends

Unlocking cash hoards
"There is a cash crisis in corporate America.although it comes not from a shortage of the stuff, but from a surplus."

Dividend growth stars
"Using data going back to 1992, CPMS created annual portfolios of all TSX-listed stocks that increased their dividend over the previous year. The annualized return through 2010 was 13.9 per cent, compared to 9.7 per cent for the S&P/TSX composite total return index."

Stingy Links: Economics

Keynes vs. Hayek Round Two
"In 'Fight of the Century', Keynes and Hayek weigh in on these central questions. Do we need more government spending or less? What's the evidence that government spending promotes prosperity in troubled times? Can war or natural disasters paradoxically be good for an economy in a slump? Should more spending come from the top down or from the bottom up? What are the ultimate sources of prosperity?"

Stingy Links: Economy

Dead Suit Walking
"In New York City, men in the 35-to-54 kill zone have lost jobs faster than any other group, including teenage girls, according to new data from the Fiscal Policy Institute."

Stingy Links: Fun

Irish Setter Dad
"Whose children are going to succeed in life, Amy Chua.s or mine? Her Lulu has that violin going for her . there.s hardly a Silicon Valley billionaire, Wall Street plutocrat, senator, four-star general, or pope who isn.t a violin virtuoso. And Sophia, who tickles the ivories, can always say, .Don.t tell Mom I work for Goldman Sachs, she thinks I play piano in a house of ill repute.. But my kids practice too, hour after hour every day. They practice being jerks. And since almost every boss I.ve ever had was a jerk, this gives them a leg up. Plus there.s the cat in the microwave. That shows an inquisitive, experimental turn of mind. You can see how electronic cat-zapping could lead directly to the invention of something like Facebook."

What bourbon street taught me
"I can.t believe it . the goldbugs/silverbugs were right . The Dollar is dead. .Kid Dynamite,. you ask, .WTF are you talking about? You.ve been saying that the Metal Heads are being a bit irrational in their declaration of the New Monetary Regime . what changed?. Indeed, I HAD been saying that, but then I did some empirical research . some feet-to-the-ground old fashioned channel checks in the most primal of places, one of the hardest hit cities in the country: Bourbon Street on New Orleans. What I found was shocking . The Dollar is NOT the currency of choice. Alas, the silverbugs weren.t entirely correct, as silver was not the money of the future in New Orleans. Rather: beads were. I kid you not. Plastic beads."

Stingy Links: Funds

Closet indexing, fees, and performance
"Mutual fund investors face a basic choice between actively-managed funds and index funds with lower expenses. However, the prevalence of indexing is rare in most countries. Rather, actively managed funds in many countries engage in .closet indexing,. choosing portfolios that closely match their declared benchmark. The degree of explicit indexing in a country is negatively related to fees, while .closet indexing. is positively associated with fees and negatively with performance. The most actively managed funds charge higher fees but outperform their benchmarks after expenses. The degree of indexing and the ability of active managers to outperform are both associated with competition and fees."

Income funds' payout sustainability 2
"Earlier this year, I wrote about how to gauge the sustainability of monthly income funds. fat distributions so that investors and advisors could make better decisions and set realistic expectations. Since then, I.ve received a steady stream of phone calls and emails, mostly expressing concern over many funds. However, one fund in particular keeps popping up in such inquiries, so I thought it was deserving of its own blog post. Perhaps I shouldn.t be surprised by the continued interest in such funds but I am. Individual investors, financial advisors and industry regulators have contacted me to solicit my views on T-series or monthly income funds . both in general and for specific funds. Over the past five months, the one fund that has been most frequently mentioned is the RBC Managed Payout Solution . Enhanced Plus. So, let.s take this through our test for distribution sustainability."

Stingy Links: Government

The Ryan Journey
"The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs."

Supersize our pension plan
"The overconcentration of financial power isn.t even the biggest flaw with the proposed Mega CPP. Even worse, it will take money away from many of those who need it, and give it to those who don.t. Advocates of a fat CPP insist that it is needed to keep the elderly out of food banks. In fact, poverty among seniors is remarkably low. Fewer than 5% of those over 65 are below Statistics Canada.s low-income cutoff. Thanks to Ottawa.s Old Age Security and Guaranteed Income Supplement programs, many seniors actually see their disposable income go up when they retire, says Vettese. Poverty is a far bigger problem among working-age adults.nearly 10% of them fall below the Statscan line. Yet most of them would have to pay extra taxes to fund the Mega CPP. That.s Layton.s anti-Robin Hood scheme in a nutshell: removing money from the pockets of younger workers, business owners and the working poor to give better pensions to everybody, including those who already have a sweet deal at re! tirement. I can understand why union leaders like this approach. I just can.t understand why anyone else thinks it.s fair."

Rules for Fools
"Some occupations clearly need to be licensed. Nobody wants to unleash amateur doctors and dentists on the public, or untrained tattoo artists for that matter. But, as the Wall Street Journal has doggedly pointed out, America.s Licence Raj has extended its tentacles into occupations that pose no plausible threat to health or safety.occupations, moreover, that are governed by considerations of taste rather than anything that can be objectively measured by licensing authorities. The list of jobs that require licences in some states already sounds like something from Monty Python.florists, handymen, wrestlers, tour guides, frozen-dessert sellers, firework operatives, second-hand booksellers and, of course, interior designers.but it will become sillier still if ambitious cat-groomers and dog-walkers get their way."

GM's profits a huge net loss for taxpayers
"No, the question was not whether GM could make a profit after a bankruptcy that stiffed most of its creditors and shed the most grotesque burdens of its legacy costs, nor whether giving companies money will make them more profitable. The question is whether it was worth it to the taxpayer to burn $10-20 billion in order to give the company another shot at life. To put that in perspective, GM had about 75,000 hourly workers before the bankruptcy. We could have given each of them a cool $250,000 and still come out well ahead compared to the ultimate cost of the bailout including the tax breaks--and over $100,000 a piece if we just wanted to break even against our losses on the common stock."

State finances are worse than estimated
"Fixed interest expenses are absorbing a bigger and bigger share of state budgets, leaving a shrinking portion for everything else. Today, debt service absorbs half of Nevada's budget, and 40% of Michigan's. In Arizona, California, Connecticut, Ohio and Illinois, the share now exceeds 20%."

The U.S. Postal Service Nears Collapse
"The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms. On Mar. 2, Postmaster General Patrick R. Donahoe warned Congress that his agency would default on $5.5 billion of health-care costs set aside for its future retirees scheduled for payment on Sept. 30 unless the government comes to the rescue. 'At the end of the year, we are out of cash,' Donahoe said. He noted that the unusual requirement was enacted five years ago by Congress before mail started to disappear."

Botox and beancounting
"Take public-sector debt. The definition used in Washington, DC, is .federal government debt held by the public., which stood at 62% of GDP at the end of 2010. But if you instead use Europe.s preferred measure.general government gross debt, which also includes the borrowing of state and local governments and Treasury securities held by other government bodies, such as the Social Security Trust Fund.it jumps to 92% of GDP (see left-hand chart). That is on a par with Portugal.s level of public debt."

Economic stagnation explained, at 30,000 feet
"The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won.t hire. .Why not?. .Because I don.t know how much it will cost,. he explains. .How can I hire new workers today, when I don.t know how much they will cost me tomorrow?. He.s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can.t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he.s hiring nobody until he has some certainty about cost."

Losing 84 Cents on Dollar
"Stephen Street, the state inspector general who led the investigation with U.S. authorities, says that criminal law fell short of addressing all of the police pension system.s shortcomings. .Randy Zinna is a symptom of a larger problem over there, which is a lack of oversight, a lack of accountability,. Street says. .You can.t conclude anything other than that.."

The War on Drugs Turns 40
"Almost every year the DEA budget and staff are expanded, never mind if the organization is succeeding or failing at its mission. This isn't the DEA's fault. The illicit trade in narcotics is a black market that cannot be eliminated in a free society. But why do legislators continue to increase its size?"

Beware of the yogurt
"Ms Dashtaki is pondering whether to move to another state, one whose rules allow for artisanal products. She would not be the first entrepreneur to flee the Golden State. Or she might just give up. After all, one has to make a living. It looks like California.s regulators have triumphantly saved their population from the threat of mass poisoning once again."

State of war
"The funding crisis in public-sector pensions is, in large part, the result of post-dated cheques written by politicians in the past. As Roger Lowenstein, a journalist, recounts in his book .While America Aged., there has been a .devil.s pact. in which politicians granted benefits to unions without funding those promises properly. A classic illustration comes from San Diego, California. In 2002 the funding ratio (the proportion of pension liabilities covered by assets) of the city.s pension scheme dropped close to 82.3%, a level that should have triggered a rise in the contribution to make up the shortfall. That would have required a tax increase. To avoid this, the city did a deal with the unions whereby it would raise future benefits in return for not having to lift contributions. In other words, faced with a hole in the fund, the authorities dug deeper."

Pick a number, any number
"Unfunded schemes cannot use the assumed rate of return on their assets because they do not have any. One possible measure would be the growth rate of the economy, since tax revenues (which will fund the pensions) should rise in line with GDP. The problem lies in estimating the future growth rate. In 1990 the Japanese government would have forecast a much higher growth rate than it actually achieved. The financial economists say that the discount rate should be based on the inflation-linked government bond yield, because British public-sector pensions are inflation-protected. As index-linked yields are currently very low (below 1% in real terms), that makes the British shortfall on public-sector pension funding look very large, at around 1 trillion, or 81% of GDP."

Private-public wage disparities
"When I negotiate collective agreements, I find a distinct difference between the instructions I receive from entrepreneurs -large or small -who are spending their own money compared to professional managers. The former are almost invariably more parsimonious and do not succumb to collective agreement 'creep' wherein, in each round of bargaining, more and more is given, until the collective agreement can be weighed in pounds, each clause providing another impediment or cost."

Stingy Links: Growth Investing

Groupon has no competitive advantage
"Groupon, a service that keeps half the proceeds from discounts that connect consumers to local merchants . has no competitive advantage and can.t get one."

Stingy Links: Indexing

Systemic risks of ETFs
"Crisis experience has shown that as the financial intermediation chain lengthens, it becomes complicated to assess the risks of financial products due to a lack of transparency as to how risks are managed at different levels of the intermediation chain. Exchange-traded funds, which have become popular among investors seeking exposure to a diversified portfolio of assets, share this characteristic, especially when their returns are replicated using derivative products. As the volume of such products grows, such replication strategies can lead to a build-up of systemic risks in the financial system. This article examines the operational frameworks of exchange-traded funds and identifies potential channels through which risks to financial stability can materialise."

Stingy Links: Law

A license to lie, backdated
"if you are considering an investment in a mutual fund or ETF, you should understand that you will have little recourse if information provided in the prospectus turns out to be misleading or incomplete, even outright fraudulent"

Stingy Links: Management

When two-thirds isn't enough
"It's one of the great anomalies of our ownership society: shareholders own companies, but executives can easily slap them down. The hired help, in other words, holds the cards. The owners of Cedar Fair L.P., a leisure and entertainment company in Sandusky, Ohio, have learned this the hard way."

The golden age of drive-thru
"Operational innovations at restaurants like Taco Bell rival those at any factory in the world. A view from the drive-thru window at how they do it"

Can Progressives Fix the U.S. Postal Service?
"But a desire to maximize profits and an aversion to losing money leads to certain efficiencies that ought to be exploited in less fraught enterprises. At UPS and FedEx, management has a powerful incentive to hold down overall labor costs, and to preserve the flexibility and adaptability of the respective companies. When USPS negotiates with the any of the four unions that represent its employees, the dynamic is completely different: management has fewer incentives to hold down costs, even as labor exercises substantially more clout due to is political influence.The results are ludicrous"

Stingy Links: Markets

In defence of the Shiller p/e
"It wasn't actually a new idea on Shiller's part. Ben Graham, the value investor who was Warren Buffett's guru, had suggested a similar measure, involving the averaging of profits over an extended period to smooth out the effects of the economic cycle. Investors were paying little attention in the late 1990s. As the chart shows, the US market in the late 1990s was even more overvalued than it was before the crash of 1929. This was not a welcome message at the time when analysts talked of a 'new era' and even speculated that the cycle had been abolished. But even though the Shiller p/e accurately predicted that the market was overdue for a fall, there are still many critics who today refuse to accept its message."

Burned by Chinese shares
"The epidemic fraud affecting dozens of U.S.-listed China stocks is one of this year's big newspaper stories.after being one of last year's big stories in your favorite stock-market weekly. But the scams that have disgraced many Chinese listings on Nasdaq and the NYSE weren't unmasked by the exchanges, auditors, investment bankers or market regulators. The detective work was done by research-oriented hedge funds, who found the lies behind these multibillion dollar stock promotions, shorted the shares, and then blew the whistle. And for that public service, the shorts have been punished in an unexpected way."

Rebalance to control risk not boost returns
"The question of portfolio rebalancing presents a significant challenge. A momentum effect has persisted in many financial markets for decades. In other words, when a financial asset rises in price in the short-term, that asset has tended to continue rising for a period of time. (The same effect has persisted on the downside.) This is called the momentum effect and it has persisted for generations. Since stock and bond markets tend to spend more time going up than falling, this momentum effect can be a significant benefit over time. Rebalance too frequently and you risk cutting off the benefits of this momentum effect. Failing to rebalance enough could result in overexposure to certain asset classes or sub-classes. The challenge, then, when faced with developing a rebalancing method is to capture as much of this momentum effect while keeping risk within a range that is suitable and reasonable."

The biggest urban legend in finance
"Stocks ought to produce higher returns than bonds in order for the capital markets to .work.. Otherwise, stockholders would not be paid for the additional risk they take for being lower down the capital structure. It comes as no surprise, therefore, that stockholders have enjoyed outsized returns for their efforts for most . but not all . long time periods."

Who killed the internet auction?
"Then there was A. T. Stewart.s most important innovation: His products came with price tags. At that time, in most stores, prices were set by haggling. The result was a frustrating dance between customer and salesperson, who parried back and forth until they managed to arrive at (in the words of one retail historian) .a price which neither party to the transaction considered robbery.. Stewart saw that this experience left buyers feeling taken advantage of, and it encouraged salespeople to squeeze the most from every transaction rather than build long-term relationships with customers. So he marked each product with a fixed price. Customers embraced the new .no haggling. policy, and the Marble Palace became an enormous success."

End of Month Anomaly
"Calendar effects in stock returns have been prominent in the finance literature since the 1970s. It's easy to pull in a time series and look at things like January, Monday, or beginning of month. Josef Lakonishok and Robert Haugen wrote a book, The Incredible January Effect, in 1988. Alas, most of this effect was in smaller stocks that were hard to trade, and while it may have existed, it no longer does."

Stingy Links: Real Estate

Owning Loses Appeal
"The median U.S. home price tumbled 32 percent from a 2006 peak to a nine-year low in February, data from the Realtors show. The retreat surpassed the 27 percent drop seen in the first five years of the Great Depression, according to Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company."

T.O.'s unquenchable thirst for condos
"The still-buoyant real estate market hasn.t just kept house and condo prices high it.s held rents aloft as well. Developers in Toronto and other major Canadian cities stopped building large new rental high-rises in the 1970s. That was partly due to rent controls in Ontario and other provinces, but also because condominiums offered a faster, more certain payoff to a developer.once the building is completed and you.ve sold the units, you.re out. You don.t have to manage and maintain it for years, even decades. As for owners, they could either occupy the units or make a pretty penny renting them out. .Condos have become the de facto new rental supply,. says consultant Barry Lyon. That supply is much more expensive than old rental high-rises. Lyon and other analysts say that renters typically pay 50% more for a new condo unit than they would on rent for a comparable apartment in an aged building."

Double Dip
"National home prices are officially on the hunt for a new bottom. After beginning to decline again this summer, once the home buyer credit expired, home prices hit a new post-bubble low in April, according to housing industry consulting firm Clear Capital. It reports that national home prices now sit 0.7% below their March 2009 low. Over the past nine months, they're down 11.5%."

Stingy Links: Stocks

Partner casts doubt on Sino-Forest
"Embattled Sino-Forest Corp. , once Canada's biggest publicly-traded timber company, appears to have substantially overstated the size and value of its forestry holdings in China's Yunnan province, according to figures provided by senior forestry officials and a key business partner there."

Swinging for the fence not a sustainable strategy
"There are many investors who roll the dice on just a one or two stocks. Some people choose well and hit the jackpot . again through varying proportions of luck and skill. These are the investors that often visit firms like ours for advice. We just don.t see the other investors that saw their concentrated bets work against them. In other words, while hearing many of the strike-it-rich stories can give the impression that this is the path to prosperity, believe me when I tell you that far greater numbers of investors have permanently destroyed wealth using this approach. This is not a high probability way of building wealth."

Why Groupon not as rosy as it appears
"It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in."

All revenue is not created equal
"With the IPO market now blown wide-open, and the media completely infatuated with frothy trades in the bubbly late stage private market, it is common to see articles that reference both .valuation. and .revenue. and suggest that there is a correlation between the two. Calculating or qualifying potential valuation using the simplistic and crude tool of a revenue multiple (also known as the price/revenue or price/sales ratio) was quite trendy back during the Internet bubble of the late 1990s. Perhaps it is not peculiar that our good friend the price/revenue ratio is back in vogue. But investors and analysts beware this is a remarkably dangerous technique, because all revenues are not created equal."

Stingy Links: Taxes

The Price of Taxing the Rich
"Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes.their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them."

Top Marginal Tax Rates 1916-2010
"Over the years, changing the amount of taxes people pay was accomplished not just by changing rates but by changing the income limits of the tax brackets. Just looking at the top rates does not give the whole picture about who is paying taxes. Before the 1986 tax reform, the income tax had 15 brackets. In the 1930s, there were more than 50. The Wealth Tax Act of 1935, applied the top rate to income over $5 million and had only a single taxpayer: John D. Rockefeller, Jr. As the number of tax brackets decrease, the the top rate was applied to more people over the decades. Since 1987 the income tax brackets were combined so now more than a million people .qualify. for the top marginal rate."

Death by a thousand credits
"...a tax-credit announcement allows a party to look pro-family, or pro-green, or whatever the cause du jour may be. They're mainly symbolic gestures parties use to make sure they have something for every interest group - symbolic gestures that add up to a big price we all pay."

U.S. taxman reaches north
"Janet Selby never imagined she was anything other than a Canadian. After all, she has lived in Canada for all of her 47 years. She went to school here, voted in elections, travelled on a Canadian passport and built a successful career as an accountant and corporate recruiter. But a recent call from her online broker forced her to confront a long-forgotten past. Ms. Selby spent the first four days of her life in the United States, born in 1963 to two Canadians pursuing graduate work at the University of Illinois in Champaign, Ill. That makes Ms. Selby an accidental American - a reality that comes with sweeping tax and reporting obligations that could now cost her thousands of dollars and a monster headache."

A Tax Code for the Digital Age
"Anyone who wants a Nintendo Wii console or the latest John Grisham novel can pick it up at the nearest Target (TGT) store or log on to Amazon.com (AMZN) and have it delivered. The similarities between the two retailers aren't as apparent when it comes to taxes. Amazon's effective rate.the total it pays in federal, state, local, and international income taxes after deductions, along with its sales and property levies.has been more than 10 percentage points lower than Target's for the past four years. Target's effective tax rate in 2010 was 35.1 percent, compared with Amazon's 23.5 percent. Amazon in 2010 owed $352 million in income taxes worldwide on income of $1.5 billion, according to its SEC filings, while Target owed $1.58 billion on income of $4.5 billion."

Scraping by on $250k a year?
"As educated professionals, they buy books, newspapers and magazines they own computers and pay for Internet access. But the Joneses don.t take lavish vacations, don.t belong to a country club, don.t play golf, don.t drive luxury cars, don.t have a swimming pool, don.t buy designer clothes, don.t own or rent a second home, and don.t send their kids to private school. They don.t even shop for groceries at high-end markets. (They spend what the United States Department of Agriculture defines as a .moderate. amount on food for the average family of four.) In short, they.re not .wealthy,. even if they.re in the top 5 percent of earners. ..."

Lessons from Ronaldinho and Beckham
"How high can you tax the rich before they decide to pack up and move somewhere cheaper? For states teetering on the edge of bankruptcy, this is no theoretical question. Set taxes too low, and you miss out on valuable revenue . set them too high, and your powerhouse workers might move away.Now, by looking at the mobility of soccer stars in Europe, three economists say they are closer to understanding an ideal tax rate for the super-wealthy."

Stingy Links: Value Investing

Is value compensation for distress risk?
"This study provides a comprehensive investigation of the relation between the value anomaly and distress risk. Using risk measures based on accounting models, structural models, credit spreads and credit ratings, we find no relation between the value premium and distress risk. Our findings are inconsistent with the notion that the value effect is a compensation for distress risk."

Bob Rodriguez's perspective
"Since coming back to work on Jan. 1, he has found himself galled once again by what he sees. Fund managers, emboldened by their mammoth gains, clamor for risk. Junk bonds remain wildly popular. Even more stunning, says Rodriguez, is the government's failure to address its debt. 'I know one thing from business,' he says, his voice quavering as he tries, mostly successfully, not to yell. 'Unless you correct the problems that are already occurring, you don't add on new leverage and new, other responsibilities until you correct the old! All you're going to do is capsize the ship!'"

Seven takeover targets
"Picking takeover candidates for fun and profit is a perennial investment sport. How can it not be? When one company takes over another, it typically pays a 20 percent to 70 percent premium over the target.s prevailing stock price. Takeovers can enrich investors instantly."

Think big and go broke
"Alcoa, with its two AA.s, is the first symbol alphabetically in the Standard and Poors 500 Index. It is also traditionally the first S&P company to report quarterly earnings. Why? With results like these over the last 17 years one would think that the SEC would have to drag the results out of them. Or maybe Alcoa executives would hide .til midnight Friday and put out a press release when no one would be likely to report it. But no, this capitalistic catastrophe is Johnny on the spot every quarter, and neatly illustrates an investing nugget my partner Edwin Levy and I stumbled upon nearly twenty years ago. After faithfully perusing the Value Line Survey every weekend for many years, we noticed that over half of the companies portrayed didn.t actually make any money. Value Line follows almost 2000 stocks in its main survey, so this is quite a mouthful, but so many of them look like Alcoa here. They report earnings, to be sure, and we all understand the denotation of .earnings! .. We mean GAAP, or in some technology companies we mean near GAAP, but only after we fudge some of the expenses. We generally get the hang of Generally Accepted Accounting Practices. But when we say .profits., it has a connotation very different. We know intuitively what a profit is at a local bakery. Profit, in every day speech, means money that we can take out of a business and spend on completely different things--- schools fees, new cars, diamond rings---and when we come back on the Monday morning, we still have an asset to come back to. You can see for yourself that that in no way describes Alcoa."

Stingy Links: World

Shale boom in oil
"The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas."

Beware China.s political bubble
"Although China has been churning out its share of unpleasant news, many onlookers don't consider its problems as serious as those of other big economies. They should think again. China.s biggest economic challenges are political in nature and daunting, and will almost certainly get worse. That is because its autocratic system, for all the stability it has provided, will struggle to handle the sustained economic slowdown the country is likely to confront during this decade."

Fantastic pieces of journalism
"Awards season in journalism is almost over: David Brooks has long since handed out the Sidneys, the Pulitzer Prizes have been issued, and the National Magazine Award finalists find out who won next week. Throughout 2010, I kept my own running list of exceptional nonfiction for the Best of Journalism newsletter I publish. The result is my third annual Best Of Journalism Awards - America's only nonfiction writing prize judged entirely by me. I couldn't read every worthy piece published last year. But everything that follows is worthy of wider attention."

Is Sino-Forest a Sino-Fraud?
"It is exceedingly difficult to build a private business in the state-dominated Chinese economy without committing high crimes and misdemeanors. Entrepreneurs, as a practical matter, have to lie, cheat, and steal every day just to keep their businesses going. In these circumstances, do you really think they tell the truth to auditors, underwriters, and regulators?"

Three cheers for the cheapeners
"A feature of innovation is that the greatest impact of a new idea comes not when the light bulb goes on over the geek's head, but when the resulting technology eventually becomes cheap enough for many people to use . perhaps decades later. The first plane at Kitty Hawk had zero impact on the world economy, but budget airlines have a huge impact the first computer was a curiosity, but cheap laptops changed the world."

Property bubble hits the grave
"In Beijing and Guangzhou, where the average per sq m price of a burial plot now exceeds that of houses, some Chinese call themselves fen nu (grave slaves). This label is derived from fang nu (housing slaves) - those burdened with huge housing mortgages."

Will Canada be going Dutch?
"Once the current commodity boom ends the loonie will plunge, the economy will stumble badly, wages will fall and complacent policy makers will find out what happens when there isn.t enough growth to compensate for a lack of fiscal prudence."

More denial
"Muddling through and hoping for the best is the strategy but it ain't going to work. The Greeks won't wear it (there's another national strike today) the markets won't wear it (three year Greek bond yields are nearly 25%) and German voters won't wear it either."

Fair-trade coffee fix
"Today, on World Fair Trade Day, we have something else to feel guilty about. That fair-trade cup of coffee we savour may not only fail to ease the lot of poor farmers, it may actually help to impoverish them, according to a study out recently from Germany's University of Hohenheim."

Stepping on the Gas
"In the early 1980s, George P. Mitchell, a Houston-based independent energy producer, could see that his company was going to run out of natural gas. Almost three decades later, the results of his effort to do something about the problem are transforming America's energy prospects and the calculations of analysts around the world."

 
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