The Stingy News Quarterly (Q4/2009)
New @ StingyInvestor
Is Mr. Market off his meds?
"The market often behaves like a deranged manic-depressive and it was clearly off its meds this year. Just last winter it was in a deep funk, and panicky investors couldn't sell fast enough. Then all of a sudden, the gloom vanished, the market reversed course, and it shot skyward. It's all a bit zany. But how should you deal with such massive market swings? Benjamin Graham had the answer. You should help out manic-depressive investors. Buy when they rush to sell. Sell when they line up to buy."
8 Graham Stocks for 2010
"Graham's time-tested strategy for defensive investors beat the market again this year. But that shouldn't come as a big surprise because it's bested the market, often by a wide margin, in eight of the last nine years."
Top 500 U.S. Stocks
"Hints of economic recovery are in the air and the U.S. stock market is starting to sparkle. It's true that a host of worries remain, but that hasn't stopped investors from looking beyond the economy's current troubles to the return to normalcy. As a result, stocks are up smartly from their lows. Even better, our highest-ranked stocks from last year provided some handsome returns. These high-grade U.S. stocks gained 24.1%, not including dividends. That's much better than the S&P 500 (SPY), which only climbed 4.2% over the same period."
Stingy Investor Tip Sheet
A collection of links to help inspire a little Christmas cheer.
Montier on Value Investing
Montier's new book on value investing is one of the best on the topic in recent memory.
Value in the TSX60
Value ratios for stocks in the TSX60
Altman Z-Scores for the S&P/TSX Composite
Downside by Style
Which styles performed the best in the recent crash?
The Best of Stingy Links
Stingy Links: Academia
Information suppression in competitive markets
"Our analysis begins with the observation that consumers sometimes fail to anticipate contingencies. When consumers pick among a set of goods, some consumers do not take full account of shrouded product attributes, including maintenance costs, prices for necessary add-ons, or hidden fees. Bank accounts, for example, have many shrouded attributes like fees and surcharges. A bank may prominently advertise 'free checking,' but the advertising won't highlight the $30 fee for a bounced check, the $15 surcharge for a checkbook, or the $2 penalty per check for writing more than five checks in a month. Many consumers do not know the details of this fee structure until after they open their account."
Stingy Links: Accounting
How to catch a fraud
"One indicator was particularly telling, and it's surprisingly obvious: number of employees. For companies that didn't commit fraud, the change in revenue and the change in employees stayed within about 4% of each other. For fraudulent companies, the difference was 20%."
Goodbye to reforms of 2002
"Sarbanes-Oxley was passed, almost unanimously, by a Republican-controlled House and a Democratic-controlled Senate. Now a Democratic Congress is gutting it with the apparent approval of the Obama administration."
Magic tricks on the corporate books
"Accounting shenanigans bubble to the surface every few years. In the dot-com days the trick was to book virtual revenues. After the tech bust, tinkering with expenses was all the rage. Now forensic auditors and analysts worry that troubled companies are playing fast and loose with asset valuations and cash management."
Chanos condemns 'monstrous idea'
"Famed hedge-fund manager James Chanos in recent speeches has outlined lessons from the financial crisis. A top one: 'Accounting matters a lot.' Chanos, who has flagged numerous accounting frauds over the years including the one that ultimately brought down Enron Corp., is concerned investors will quickly forget this and other warnings from the implosion of the financial system."
Stingy Links: Behaviour
Are liberals smarter than conservatives?
"Who are smarter, liberals or conservatives? This is the kind of question that could spark fierce and endless debates between political opponents, but what if we could know, scientifically, that one side has the edge in brainpower? Should that change how we think about political issues? Though few partisans on either side are likely to admit it, most people at one time or another have suspected that their political opponents are dim bulbs."
Innovation is not rewarded
"We all benefit from the Pasteurs, the Fords, even the Bill Gates. They create things with spillovers. Yet, you average innovator is simply wrong, hearing dog whistles others don't, and like Van Gogh getting his appreciation after dying, most innovators do their bidding for those they do not know. Deviating from the consensus produces all the things that has elevated us from hunter-gatherers, yet, the record for the individual innovators themselves, is decidedly negative."
The importance of checking
"Newman said, 'ah, that's the spinach mistake.' Knowing only that spinach is good for me and unaware of any vegetable transgressions, I asked him to elaborate on his response. The story is that in 1870, a German chemist named Erich von Wolf collected the nutritional value of green vegetables, including spinach. In transposing the figures from his notebook to the final table, von Wolf apparently misplaced a decimal point, hence overstating spinach's iron content by a factor of ten. (Roughly 35 mg per 100 g serving versus 3.5 mg.) Once in print, the perception of spinach's nutritional value took on a life of its own."
Extremists share their opinions
"People with relatively extreme opinions may be more willing to publicly share their views than those with more moderate views, according to a new study. The key is that the extremists have to believe that more people share their views than actually do, the research found."
How nonsense sharpens the intellect
"Still, the new research supports what many experimental artists, habitual travelers and other novel seekers have always insisted: at least some of the time, disorientation begets creative thinking."
Marshmallows and self-control
"Psychology professor Walter Mischel's 1960s experiment involving children, sugary sweets, and self-control has become a classic. The set-up is simple. A researcher lets a child pick a favorite food from a tray of cookies, marshmallows, candies, pretzels, and other sweets. The researcher puts that treat on the table in front of the child and makes an offer. The child can eat it now. Or the child can wait a few minutes while the researcher goes to check on something else, and get two treats when the researcher returns. If the child loses patience, she can ring a bell, the researcher will come right back, and the child can eat the treat right away. She does not get another one, of course." [Be sure to watch the cute video.]
How much choice would you like?
"Benjamin Scheibehenne, a psychologist at the University of Basel, was thinking along these lines when he decided (with Peter Todd and, later, Rainer Greifeneder) to design a range of experiments to figure out when choice demotivates, and when it does not. But a curious thing happened almost immediately. They began by trying to replicate some classic experiments - such as the jam study, and a similar one with luxury chocolates. They couldn't find any sign of the 'choice is bad' effect."
Is there a method in cellphone madness?
"Here's a consolation prize to the millions who recoil in bafflement from cellphone companies' labyrinthine price plans, with their ever more intricate arrays of minutes, messages and megabytes: Economists don't understand them, either."
Bad decisions may be contagious
"Like the flu, a person's emotional state can be contagious. Watch someone cry, and you'll likely feel sad; think about the elderly, and you'll tend to walk slower. Now a study suggests that we can also catch someone else's irrational thought processes."
Blame it on the brain
"Willpower, like a bicep, can only exert itself so long before it gives out; it's an extremely limited mental resource. Given its limitations, New Year's resolutions are exactly the wrong way to change our behavior. It makes no sense to try to quit smoking and lose weight at the same time, or to clean the apartment and give up wine in the same month. Instead, we should respect the feebleness of self-control, and spread our resolutions out over the entire year."
Menu mind games
"William Poundstone dissects the marketing tricks built into menus - for example, how something as simple as typography can drive you toward or away from that $39 steak."
Buying green makes you do bad things
"While mere exposure to green products may 'prime' us to think about social consciousness and perhaps improve our behavior, if we actually buy a green product, we appear to take it as license to act like jerks."
Stingy Links: Bonds
Yield hogs out-stampede stock bulls
"In 1993, there was a headlong rush into bond funds as investors fled what then was unimaginably low money-market rates of 3%. In 1994, they learned an expensive lesson in bond-market math: when yields go up, prices go down. When the Federal Reserve hiked short-term rates that year, there was a frightful bear market, which featured the first rout in exotic mortgage-backed securities."
Bondholders extract revenge
"Companies in dire straits often roll the dice in a bid to stave off bankruptcy. The problem is that last-ditch efforts to raise new funds or restructure often come at the expense of bondholders."
Stingy Links: Books
What matters now
"Here are more than seventy big thinkers, each sharing an idea for you to think about as we head into the new year. From bestselling author Elizabeth Gilbert to brilliant tech thinker Kevin Kelly, from publisher Tim O'Reilly to radio host Dave Ramsey, there are some important people riffing about important ideas here. The ebook includes Tom Peters, Jackie Huba and Jason Fried, along with Gina Trapani, Bill Taylor and Alan Webber. Here's the deal: it's free."
Where SuperFreakonomics falls down
"Almost everybody has had the experience of wondering if the problem with one's car is really as serious as the auto mechanic says - or if the mechanic is blowing it up to charge more. In our dealings with the body shop, as in many other situations, we are at what the experts would call a humongous informational disadvantage. We are always conscious of the possibility of getting charged way too much. And we sometimes are - but rarely do we run into the perfectly unscrupulous tradesman who rips us off as badly as we fear he can. Car repair isn't one of the professions that Steven D. Levitt and Stephen Dubner look at in their best-selling Freakonomics or their new SuperFreakonomics. But it's an example that's familiar to everyone and useful in thinking about questions like 'How do we know when we're getting a fair deal?' or 'How likely are we to be misled in our dealings?' or (for those who are, like me, clueless about cars), 'Why don't we get ripped off all the time?'"
Malcolm Gladwell, eclectic detective
"Readers have much to learn from Gladwell the journalist and essayist. But when it comes to Gladwell the social scientist, they should watch out for those igon values."
Stingy Links: Buffett
What would Warren do?
"There is no shortage of motives assigned to Buffett’s motivations for the deal. They include: anxiety about sitting on cash, a general economic play, a bet on another stimulus, a bet on coal, a bet on a turn in the rail economy, a desire to make Berkshire easier to run for a successor, or a desire to be a member of the S&P 500. Then ag! ain it might be as simple as the fact that Buffett thinks Burlington Northern is undervalued."
Berkshire buys Burlington
"Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in the company's biggest takeover under Warren Buffett."
Buffett selling means you shouldn't be buying
"It's not often that Warren Buffett gives the investing public a reason to believe he's not on their side. Then again, it's not every day that Buffett's Berkshire Hathaway Inc. shows up on the list of selling shareholders in another company's initial public offering."
Doing a Buffett, on the cheap
"These Buffett-esque companies, identified in a recent report by Credit Suisse quants, have a minimum return on equity of 15%. Not one has a long-term debt/equity ratio of more than 50%, and all have gross and net profit margins that have improved over the past two years."
A look inside Buffett's battery bet
"When MidAmerican bought its BYD stake, the media jumped to the conclusion that Mr. Buffett was placing a bet on electric cars. Cannily, Mr. Buffett and MidAmerican executives made no effort to dispel this impression. But all evidence suggests their interests lay elsewhere. MidAmerican Energy Holdings runs power grids that generate more energy from renewable sources than any major American utility. MidAmerican's subsidiary in Oregon, PacifiCorp, recently erected a building the size of ten 40-foot storage containers that houses BYD batteries. Those batteries are being tested for the storage of wind-generated energy. BYD's real contribution to Mr. Buffett's portfolio will probably be low-cost, relatively low-tech batteries that store wind and solar power for use on days that are breezeless and cloudy."
Keeping America great
"We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. But it's not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially."
Stingy Links: Christmas
"A collection of links to help inspire a little Christmas cheer."
Stingy Links: Crime
Bond, Fake Bond
"It sounds like something out of a summer caper flick: Two men carrying Japanese passports were apprehended trying to enter Switzerland from Italy via commuter rail in June. The men looked out of place on the train, which tends to carry low-income manual laborers. That was enough to raise the suspicions of the Italian authorities, who detained the passengers and rifled through one of their briefcases. Inside was what appeared to be $134 billion in U.S. Treasury bonds labeled with denominations of $500 million and $1 billion. (This despite the fact that the Treasury has never produced bonds in denominations greater than $100,000.) Later this summer, history seemed to repeat itself when Italian authorities intercepted another cache of false T-bills from the Philippines destined for the United States worth an alleged $116 billion. Why on earth would anybody create fake Treasury bonds - in such eye-popping denominations?"
Is 'honest services fraud' a bogus charge?
"Critics of the law say it unfairly gives prosecutors a way to bring vague charges when they can't build a case for more conventional crimes like bribery. "It's been very, very broadly applied," says Patricia Pileggi, a former U.S. prosecutor who is now an attorney with the firm Schiff Hardin in New York. "It's useful to prosecutors because they are not required to prove that somebody got a tangible, monetary benefit" from their actions."
Galleon case ushers in wiretaps
"U.S. prosecutors who used wiretaps to make their insider trading case against billionaire Raj Rajaratnam, founder of hedge fund firm Galleon Group, said they will use similar tactics to fight future crimes on Wall Street."
Institute for Financial Learning Ponzi Scheme
"Predictably, mostly elderly people seem to have been the biggest victims of this scam and it is outrageous that crimes such as this that are so devastating on so many people does not seem to result in punishment that fits the severity of the crime."
Stingy Links: Debt
Up against a wall of debt
"The idea that the government of a major advanced country would default on its debt - that is, tell lenders that it won't repay them all they're owed - was, until recently, a preposterous proposition. Argentina or Russia might stiff their creditors, but surely not the likes of the United States, Japan, or Great Britain. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse."
Wave of debt payments facing U.S.
"The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.'s on terms that seem too good to be true."
The debt economy
"John Kenneth Galbraith wrote that all financial crises are the result of 'debt that, in one fashion or another, has become dangerously out of scale.' The recent financial crisis was no exception, with everyone - homeowners, private-equity investors, our biggest banks - taking on enormous amounts of debt. If it's frustrating that the government is footing the bill to clean up the mess, it's even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn't get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked."
Stingy Links: Derivatives
""We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?""
Stingy Links: Dividends
Select dividend club
"Canada's most exclusive dividend club just got a whole lot smaller. After a year in which some high-profile companies slashed their dividends and many others failed to increase their payments as they dug in for the recession, the S&P/TSX Canadian Dividend Aristocrats index is losing 15 members - including most of the banks - and gaining just one."
Dividend growth lives
"Still need convincing that dividend growth stocks, and utilities in particular, deserve a place in a well-diversified portfolio? In his December investment outlook, Pacific Investment Management Co.'s Bill Gross - manager of the world's biggest bond fund - urged investors to move money out of ultra-low-yielding savings accounts and money market funds and into utilities stocks. Utilities are reasonably priced, and "their growth in earnings should mimic the U.S. economy as they always have, and most importantly, they yield 5 to 6 per cent, not .01 per cent," he wrote."
Stingy Links: Dorfman
Ten growth stocks
"A tool that has come in handy for me over the years is a stock screen that looks for growth at a low price. In more frivolous days, I used to call this paradigm the Bunny Portfolio."
Ride the recovery
"In the early stages of economic recoveries, three stock-market sectors usually do well: energy, materials and industrials. In this column, I recommend a few stocks in these key groups."
"Dividends are as old-fashioned as corsets, if you listen to most investors. How wrong they are."
Enjoy the January rebound
"You wouldn't kick a man while he was down, would you? But the stock market would. Most years, investors put selling pressure in November and early December on stocks that have declined from January through October. Why? Blame the tax man."
Stingy Links: Economics
An economist's invisible hand
"At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today. The favored candidates include John Maynard Keynes, the patron saint of stimulus programs; Hyman Minsky, an American disciple of Mr. Keynes who warned about the dangers of financial deregulation; and Milton Friedman, the late Chicago economist. (Mr. Friedman's free market principles are out of vogue, but Federal Reserve Chairman Ben Bernanke recently took his advice on how to prevent depressions by pumping money into the economy.) The winner's name, however, turns out to be much less familiar: Arthur Cecil Pigou"
Stingy Links: Economy
Recession is over
"The worldwide recession appears to have ended, with surveys showing manufacturing activity is on the rise nearly everywhere."
Job losses mount, enduring and deep
"The overall unemployment rate, which reached 10.2 percent on a seasonally adjusted basis last month, remains below the post-World War II peak of 10.8 percent, reached in late 1982. But the proportion of workers who have been out of work for a long time is higher now than it has ever been since the Great Depression."
Stingy Links: Fun
Capitalist pigs and global warming
"Dear Secretary of State, My friend, who is in farming at the moment, recently received a check for 3,000 from the Rural Payments Agency for not rearing pigs. I would now like to join the 'not rearing pigs' business. In your opinion, what is the best kind of farm not to rear pigs on, and which is the best breed of pigs not to rear?"
The economist's guide to happiness
"Spend less time with your children. Don.t underestimate the benefits of a divorce. Never serve dog food at a dinner party. These are some of the unexpected revelations to have emerged from an unlikely combination: happiness, and economists."
What bacon intake says about the economy
"Enough with the op-eds on the stimulus package. Stop with the hand-wringing over Wall Street compensation. Will Detroit exist in 10 years? Who cares? Bacon!"
"A once-endangered species is staging a robust comeback: the deficit hawk. Hunted nearly to death during the Bush years, many varieties not seen in Washington in a decade are now perching on branches and dropping their wisdom. Look, there's the puff-chested congressional peacock hawk, frequently seen strutting about Sunday-morning-TV-show sets complaining about pork while emitting loud honks on the receipt of stimulus funds. The furrowed-brow warbler hawk (natural habitat: the op-ed pages) loathes deficit spending for the purpose of eliminating social injustice but loves it when the spending is used to finance military actions abroad. The blue-bellied partisan hawk nests in think tanks; it goes mute when members of its own party run the show but squawks loudly when opponents run up debt. On Nov. 3, birders sighted the rare skinny parrot hawk, which repeats back calls about fiscal probity. Said President Barack Obama on that date: 'The government is going to have to get serio! us about reducing our debt levels.'"
Investors will buy anything
"If you thought those double and triple leveraged ETFs were pushing the envelope, how about an ETF that provides a 100-times leveraged play on the technology-heavy Nasdaq exchange? Let me warn you upfront that the following concerns an Onion-style parody, but it's nevertheless swept through the blogosphere. The scary part is that not only did many people actually believe this product was launched last Friday (the 13th, fittingly) but some even indicated an interest in buying such a product."
Obama fails to win Nobel prize in economics
"While few observers think Obama has done anything for world peace in the nearly nine months he's been in office, the same clearly can't be said for economics. The president has worked tirelessly since even before his inauguration to wrest control of the U.S. economy from failed free markets, and the evil CEOs who profit from them, and to turn it over to wise, fair and benevolent bureaucrats."
Against apple picking
"Apple picking is a cherished rite of fall, a wholesome and fun family outing, a throwback to a simpler time when people weren't so disconnected from the production of their sustenance. I look forward to it every year. It's also a wasteful scam."
The economics of pinball
"Video games competed by adding levels of play with increasing difficulty. Any new player could quickly get chops on a new game because the low levels were easy. This ensured that new players were drawn in easily, but still they were continually challenged because the higher levels got harder and harder. By contrast, the physical nature of pinball, its main attraction to hardcore players, meant that there was no way to have it both ways. Eventually, to keep the pinballers playing, the games became so advanced that entry-level players faced an impossible barrier. High-schoolers in 1986 were either dropouts or professionals in 1992 and without inflow of new players that year essentially marked the end of pinball."
Chinese chocolate mystery
"Last week, at the end of one of my dispatches from China, I asked readers to help me understand why I couldn't find a chocolate bar in the world's most populous country. I wasn't implying there was no chocolate in China, but I was surprised that after five days in offices, factories, hotels, restaurants, transit hubs, roadside rest stops, ferry terminals, and street markets I had yet to come across a Hershey's bar or the Chinese equivalent."
Picking (up) winners without placing a bet
"For the past 10 years, Jesus Leonardo has been cleaning up at an OTB parlor in Midtown Manhattan, cashing in, by his own count, nearly half a million dollars' worth of winning tickets from wagers on thoroughbred races across the country. During his glorious run, Mr. Leonardo, 57, has not placed a single bet."
Bad investment ideas for 2010
"I always did like the Grinch a lot better before those meddling Whoville residents swelled up his heart. In tribute to that (ig)noble creature, I offer Bad Investment Ideas for 2010. Unlike all those sappy happy Best Investment Ideas pieces from my fellow Morningstar analysts that congest your inbox and befoul your spirits, this article delivers recommendations that would warm the Grinch's soul, if he had one. Ideas that, if implemented, would lead to wonderfully empty space under next year's Christmas trees."
Stingy Links: Funds
Excess cash and mutual fund performance
"I document a positive relationship between excess cash holdings of actively managed equity mutual funds and future fund performance. The difference in returns of portfolios of high and of low excess cash funds amounts to over 2% annually, or approximately 3% after standard risk adjustment. I study whether this difference in performance can be explained by the differences in managerial stock selection skills, market-timing abilities, fund liquidity needs, and operating costs. I show that managers of high excess cash funds make more profitable stock purchasing decisions, while low excess cash fund managers make better sell decisions. Neither high nor low excess cash groups exhibit significant market-timing skills; however, funds with volatile excess cash holdings are successful market timers. The difference in returns between high and low excess cash groups is particularly pronounced during periods of low fund flows, suggesting that high excess cash funds are better able to a! nticipate fund outflows. Finally, I show that high excess cash funds incur significantly lower operating expenses than do their low excess cash peers. I additionally document new important determinants of mutual fund cash balances, showing that funds with riskier or less liquid shareholdings, as well as those with higher return gap measures hold more cash. The determinants I consider jointly explain three times more cross-sectional variation in cash positions than variables studied in prior literature."
Take off the blinders
"In the mad dash to buy bond funds -- about $200 billion so far this year -- investors are overlooking fees. Most of the new bond money is going not into dirt-cheap index funds, but into far more expensive, actively managed portfolios. The average annual cost of owning a taxable bond fund, according to Morningstar, is 1.03% of invested assets, with a maximum of 2.98%. In a world of 3% to 4% Treasury yields, with the risk of losses if interest rates rise, those fees loom large."
Investor timing ability
"We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991-2004 equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns. In particular, the magnitude of investor underperformance due to poor timing largely offsets the risk-adjusted alpha gains offered by good-performing funds. Investors in both actively managed funds and index funds exhibit poor investment timing. We demonstrate that our empirical results are consistent with investor return-chasing behavior."
Stingy Links: Government
Public pensions face ugly choices
"States and municipalities are in deep financial trouble. Pension performance has faltered. Over a trillion dollars worth of municipal pension fund assets have been erased in the recent market meltdown. The average public pension plan is 35% under-funded, and things are getting worse. A wave of municipal bankruptcies could well follow."
How big a problem is moral hazard?
"Do I think that we have a moral hazard problem in our system? Indisputably. The continued existance of Citibank defies belief, unless you factor in implied guarantees."
California's in trouble
"Without wishing to be overly dramatic, it is this sort of legislative impasse that has enabled many dictators in the past to come to power"
Kill these job-killers
"Here's a thought: Instead of trying to "create" jobs by tweaking this tax break or increasing that spending program, why not stop doing things that destroy jobs?"
CMHC's growth fuels worries over new risks
"The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight." [CMHC, helping to make Canadian real estate more expensive since 1946.]
Thinking about politics
"Bruce Yandle uses bootleggers and Baptists to explain what happens when a good cause collides with special interests. When the city council bans liquor sales on Sundays, the Baptists rejoice - it's wrong to drink on the Lord's day. The bootleggers, rejoice, too. It increases the demand for their services. The Baptists give the politicians cover for doing what the bootleggers want. No politicians says we should ban liquor sales on Sunday in order to enrich the bootleggers who support his campaign. The politician holds up one hand to heaven and talk about his devotion to morality. With the other hand, he collects campaign contributions (or bribes) from the bootleggers."
The worst-run big city in the U.S.
"It's time to face facts: San Francisco is spectacularly mismanaged and arguably the worst-run big city in America. This year's city budget is an astonishing $6.6 billion - more than twice the budget for the entire state of Idaho - for roughly 800,000 residents. Yet despite that stratospheric amount, San Francisco can't point to progress on many of the social issues it spends liberally to tackle - and no one is made to answer when the city comes up short."
The government that stole Christmas
"The science of trans-fats is not settled, but even if it were, surely a rational and humane exception must be made where it's a choice between imperfect foods and going hungry."
We're governed by callous children
"We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists - they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice."
Michigan forces owners into unions
"It's telling that in several states that have gone down this road, state and federal subsidies are the source of the union dues. In Michigan, the scheme is essentially throwing a cash lifeline to unions like the UAW, which are hemorrhaging members."
Foxes guard the financial henhouse
"Now imagine the uproar if Obama actually allowed Goldman, rather than its ex-employees, to regulate risk in the financial markets. And yet the administration and its allies in Congress are poised to do just that."
A drop in the wrong bucket
"The president has proposed sending a $250 check to every Social Security recipient, which sounds pretty good at first. The checks would be part of his admirable efforts to stimulate the economy, and older Americans are clearly a sympathetic group. Next year, they are scheduled to receive no cost-of-living increase in their Social Security benefits. Yet that is largely because they received an artificially high 5.8 percent increase this year. For this reason and others, economists are generally recoiling at the proposal."
A growing disaster
"Allowing a higher percentage of ethanol in gasoline will not make us less dependent on such foreign energy sources. It will not help the environment. It will not lower consumer prices. And it will result in the poor of the world having less to eat. Instead of raising federal mandates on ethanol, Congress and the Obama administration should end them entirely."
Confronting high risk and banks
"Of course, banks also engaged in regulatory arbitrage, by moving from one regulator to another to seek more lenient treatment. Their route to regulatory success - at least in terms of building an empire - was to spike the punch bowl. The banks now want to stop FASB from forcing them to mark assets to market, or reveal their current market value. And they have some sympathy from bank regulators, which fear that marking to market can make banks look too healthy in good times and too unhealthy in bad times. That appalls investors."
Obama's big sellout
"What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different." [Looks like the honeymoon is over...]
How little we know
"We are what we repeatedly do. Not what we say we are. Not what we.d like to be. But what we do. What we do as a body politic is rescue rich people from the consequences of their decisions. That is bad for democracy and bad for capitalism. Until we fix that, we as citizens are playing a game of 'heads - Wall Street executives win a ridiculously enormous amount, tails - they just win a ridiculous amount, paid for by the rest of us.' Until we fix that, little else matters."
Stingy Links: Graham
Stocks Ben Graham might buy
"What I call Graham stocks have a share price that's less than book value (corporate net worth) and less than 12 times earnings, as well as debt less than 50 percent of stockholders' equity."
Stingy Links: Grant
Requiem for the dollar
"Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head. I wonder, though, just how far we have really come in the past 200-odd years."
Stingy Links: Hallett
Market-timing losses in dispute
"Despite mutual fund companies' insistence that the scandal over illegal market-timing that erupted five years ago is an old and dead issue, there's never been a full industry-wide accounting of all investor losses."
Stingy Links: Health
How different are dogfighting and football?
"In a fighting dog, the quality that is prized above all others is the willingness to persevere, even in the face of injury and pain. A dog that will not do that is labelled a 'cur,' and abandoned. A dog that keeps charging at its opponent is said to possess 'gameness,' and game dogs are revered. In one way or another, plenty of organizations select for gameness. The Marine Corps does so, and so does medicine, when it puts young doctors through the exhausting rigors of residency. But those who select for gameness have a responsibility not to abuse that trust"
Stingy Links: Indexing
Free for a fee
"I present and test a rational expectations model consistent with the finding that active funds underperform index funds by an amount roughly equal to their fees. Investors receive privately observed wealth shocks that cause them to rebalance. These shocks also induce noise in stock prices through a wealth effect. As a result, investors tend to buy in and out of index funds at the wrong time, failing to attain the buy-and-hold return of the index fund. Empirically, looking at individual as well as aggregate fund returns, I find that taking into account the timing of investment can account for most of the buy-and-hold advantage of index funds."
Stingy Links: Law
Learning to love insider trading
>From the what could possibly go wrong file, "Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell"
Stingy Links: Management
Golden pay for CEOs sinks stocks
"Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years. Companies at the top of the pay pile, Prof. Rau concluded, award their CEOs an annual average of $23 million - but leave their shareholders poorer (relative to other companies in the same industry) by an average of $2.4 billion per year. Each dollar that goes into the CEO's pocket takes $100 out of shareholders' pockets."
From the 'do a little evil' file
"Thanks to an extremely fortuitously timed stock-option repricing (exchange), Googlers have made a killing in the past eight months at shareholder expense."
Sardar Biglari's 2009 letter
"Because metrics are proxies for performance, managing by a single metric causes the tail to wag the dog. Using just one metric is akin to taking a picture of a two-ton elephant: No single angle can capture the 'big picture.' Analysts who evaluate same-store sales trends almost to the exclusion of other metrics, and the CEOs - who either primarily weigh that one piece of data or (shudder) listen to the pundits - do their best to deliver on that one statistic, but usually cost their shareholders dearly."
Not so fast
"He is the 'Father of Scientific Management' (it says so on his tombstone), and, by any rational calculation, the grandfather of management consulting. Whether he was also a shameless fraud is a matter of some debate, but not, it must be said, much: it's difficult to stage a debate when the preponderance of evidence falls to one side."
"One of the themes that came up while I was profiling White House manufacturing czar Ron Bloom earlier this fall was managerial talent. A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them? It's not obvious that you would."
Stingy Links: Markets
What is expert advice worth?
"In the sixth century B.C.E., the Chinese philosopher and poet Lao Tzu made a timeless statement: "Those who have knowledge don't predict. Those who predict don't have knowledge." Well over 2,000 years later, it has yet to be better said. Yet the business press never tires of printing predictions by economists and other market animals. At what pace will the economy grow next year? In two years and in three? Whence stocks, up, down or nowhere special? These are common questions and the analysts generally stand tall and answer them with remarkable authority and confidence. How seriously should you take their forecasts?"
Hot stocks for a new decade?
"Much of the stock-market community is still just a marketing machine that happens to sell investments, the way, say, a drugstore like CVS sells pills. (Unfair? Just a little: CVS, after all, won't deliberately sell you bad pills.)"
The view from inside a depression
"In January 1931, a lawyer named Benjamin Roth, 38 years old, solidly Republican, a solo practitioner in Youngstown, Ohio, decided to start a diary. Realizing that he was 'living through an historic thing that will long be remembered' - as he put it in one early entry - he wanted to keep a record for posterity."
Why social beats search
"That's a controversial post headline and I don't mean that social will always beat search, but there's a rising chorus out there about "content farms" and search optimized content creation that is worth touching on."
Gold can make you poor
"Problem is, Winkler also reproduces a chart that shows seven-and-a-half centuries of real gold prices. At least to my eyeballs, it appears that if you had bought gold between 1415 and 1765 or so, you would have to wait until around the mid-1960s to be back to even in terms of purchasing power. Call me crazy, but I like my investments to pay off in a century or less."
Barbarians at the discount retailer
"Discount retailer Dollar General returns to the public markets on Friday, two years after it was taken private by a team of private equity firms. Its debut will be closely watched, mainly because a retailer whose sales and profits have soared while the economy has struggled is expected to prove popular. But it's also a test of whether investors will let Kohlberg Kravis Roberts and other private equity giants get away with their old tricks in this recovering economy."
US bank charge-off rates exceed depression
"Bank charge-offs - loans written off as uncollectable - have reached $116 billion year to date, or 2.9 percent of outstanding loans on an annualized basis, Moody's said in a report. By comparison, bank charge-offs were about 2.25 percent in 1932, the third year of the Great Depression, Moody's said."
Paying a price for the thrill of the hunt
"The dollar auction game was invented by a pioneer of game theory, Martin Shubik of Yale, and it illustrates the concept of 'escalation of commitment.' Once people are trapped into playing, they have a hard time stopping. (Consider Vietnam.) The higher the bidding goes, and the more each bidder has invested, the harder it is to say 'uncle.' The best advice you can give anyone invited to play this particular game is to decline. Some games and battles are like that: even when you win, you lose. When you see at the start that such a dynamic is likely, you're better off just walking away."
Exit, pursued by a bear
"Private equity firms like to talk about creating value over the long term. But like all good investors, they're opportunistic. They jump at opportunities to acquire companies when owners are desperate, and they leap at opportunities to cash out when the public debt and stock markets are in a credulous phase. In the go-go credit years, private equity firms minted money by having companies they controlled issue bonds and use the proceeds to pay the owners a special dividend. The credit crisis put an end to that strategy. So they're back to extracting value by selling stock. And they can do so only when markets are comparatively forgiving and complacent, when investors have let down their guard. (There were very few IPOs and private equity exits in March and April, when tolerance for risk was extremely low.) If a slew of private-equity-backed cash-out IPOs find a rapturous reception in coming months, it could be a warning that investors are become as irrationally exuberant as ! they were when the Dow first crossed 10,000 in the spring of 1999."
Subprime mortgages: Myths and reality
"Subprime is just another boom and bust story; just another example of the manner in which easy money will find an outlet. Usually, of course, easy money will express itself in terms of inflation; since there was not much inflation in the period 2001-07, the Fed missed the underlying problem."
The greatest trade ever
"How hedge fund manager John Paulson bet against the real estate bubble and made $15 billion in a single year."
Don't let a market crash hit you
"Benjamin Graham -- Mr. Buffett's mentor -- advised splitting your money equally between stocks and bonds. Graham added that your stock proportion should never go below 25% (when you think stocks are expensive and bonds are cheap) or above 75% (when stocks seem cheap). Graham's rule remains a good starting point even today. If time turns out to be your enemy instead of your friend, you will be very glad to have some of your money elsewhere."
American austerity is about to begin
"While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path."
Gold is still a lousy investment
"Gold, like other commodities, is a notoriously volatile and fickle investment. It has enjoyed periods of very high interest from investors, followed by long bouts of absolute indifference. Today, it is having one of the former, shining brightly in an otherwise tumultuous investment environment. The question for investors: Will gold remain bright or not? More long term, what role should gold play in an investor's portfolio? The answer to both questions might disappoint the growing golden horde."
There's no such thing as too big to fail
"The collapse of a financial institution is not necessarily a disaster. If free markets are to thrive, we must not allow giant, state-supported banks to believe that they are indestructible, Niall Ferguson warns"
Galleon and the trouble with insider trading
"It happened almost every earnings season. My hedge fund would own a million shares in some company and two weeks before it was to report quarterly earnings, its stock would start dropping. There was no news to explain it. We were in the dark, even though it was my job to know. Inevitably, the company would report a disappointing quarter, missing Wall Street's earnings expectations by a penny or two. Someone knew. A salesman's brother-in-law heard a few deals didn't close. Or maybe an insider was singing. The recent arrest of Galleon Group hedge fund's Raj Rajaratnam on insider trading charges puts a spotlight on this game. Is trading on industry knowledge widespread? Absolutely. That's how many hedge funds and mutual funds get an edge. Is insider trading also widespread? Only the Securities and Exchange Committee's wire-tappers know for sure."
Investment forecasts: known unknowns
"The uselessness of these predictions was carefully explained by the Ancient Greek philosopher Socrates, two and half thousand years ago. Not letting death, the lack of Ancient Greek stockmarkets or the fact he lived in an economy based on slavery get in the way of a good analogy, Socrates noted that he, at least, knew what he didn't know. Which in investment analysis terms is about as close to an epiphany as you're likely to get."
The lost decade
"we've already had our lost decade. When 2010 dawns in several weeks, it will bring down the curtain on a decade - the oughts - in which a great deal and not much at all happened, economically and financially speaking. In fact, a startling number of contemporary indicators are at or below the levels at which they stood 10 years ago."
Stingy Links: Montier
Montier on Value Investing
"I've been thoroughly enjoying James Montier's new book Value Investing: Tools and Techniques for Intelligent Investment. I heartily recommend it to value investors. "
Graham's net-nets: outdated or outstanding?
"One of Ben Graham's favoured valuation signals was a stock selling at a price below net current assets (that is selling for less than its 'net working capital, after deducting all prior obligations'). Graham's methods are often dismissed as anachronistic. However, rather than dismissing Graham's approach as outdated, our evidence shows that buying net-nets is still a viable and profitable strategy. Buying a basket of global net-nets would have generated a return of over 35% p.a. on average from 1985 to 2007."
Cyclicals, value traps and margins of safety
"We have tested Graham's suggestion by constructing PE's based on average earnings rather than just one-year earnings. The results show that this simple adjustment has significant merit. For instance, a simple PE strategy based on one-year trailing earnings has beaten the market by around 2-3% p.a. since 1985. However, a strategy using a 10-year Graham and Dodd PE shows a 5% p.a. outperformance on average."
Stingy Links: Munger
Charlie Munger: Boom and bust is normal
"Today, Munger says he may only speak to Buffett once a week, but his key influence on the success of Buffett's enterprise over many decades is undisputed."
Stingy Links: Real Estate
"Following the cash-for-clunkers idiocy, the federal government may extend its subsidy for homebuyers. The $8,000 tax credit for first-time homebuyers is due to expire Nov. 30, but our solons in the Senate are looking to push back that deadline and possibly expand the credit to $15,000 to most homebuyers, not just newbies. As with the clunker cash, Uncle Sam is giving money to folks to do what they would have done anyway."
Why loan modifications fail
"Why are so few temporary mortgage modifications turning permanent? One reason may be the same one that a lot of bad loans were made in the first place. Borrowers can declare their income, and the banks are willing to grant temporary modifications based on those figures, without any evidence to confirm them. But to make a modification permanent, the banks have to see proof of income, and the borrower has to make three monthly payments of the new lower amount. In most cases, those requirements are not being met."
Put option: default, then rent
"Thanks to a rare confluence of factors -- mortgages that far exceed home values and bargain-basement rents -- a growing number of families are concluding that the new American dream home is a rental. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out."
Acorn and the housing bubble
"Fannie and Freddie also acquired $2.2 trillion in subprime loans and private securities backed by subprime loans from 1997 to 2007. Acorn and the other advocacy groups succeeded at getting Congress to mandate "innovative and flexible" lending practices such as higher debt ratios and creative definitions of income. And the serious delinquency rate on Fannie and Freddie's $1.5 trillion in high-risk loans was 10.3% as of Sept. 30, 2009. This is about seven times the delinquency rate on the GSEs' traditional loans. Fifty percent of the high-risk loans are estimated to be CRA loans, with much of the remainder useful to the GSEs in meeting their affordable-housing goals."
CMHC needs to review policies
"Another characteristic similar to the U.S. meltdown is the fact AVMs, RATs, no physical inspections and speedy credit approvals enhanced a form of mortgage fraud known as "boost and flip.""
What are these home owners thinking?
"Those who fail to study history are condemned to repeat it. Those who ignore very recent experience are just being stupid."
The dog ate your mortgage
"But some judges are starting to scrutinize the rules-don't-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit. One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn't proved its claim to a delinquent borrower's home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That's right: the mortgage debt disappeared, via a court order."
Why didn't Canada's housing market go bust?
"Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust."
A Bounce? Indeed. A Boom? Not Yet.
"At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs - including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 - in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility."
Stingy Links: Retirement
RRSPs and the GIS don't mix well
"Canadian seniors with low incomes receive a Guaranteed Income Supplement (GIS) from the government. Within a certain income range, each additional dollar of income reduces the GIS payments by 50 cents. This amounts to a 50% tax on this income. Combining this with the regular income taxes, the effective tax rate on RRSP withdrawals can be over 70%."
Stingy Links: Schloss
"Price is the most important factor to use in relation to value."
Stingy Links: Stocks
Murdoch to Google: search this
"As unlikely as it sounds, Rupert Murdoch may end up being our last best hope for a peaceful solution to the Internet's war on professional journalism. A man who many blame for commodifying, globalizing, sensationalizing, and cheapening news is considering taking a stand against a force even bigger than himself: the Web link."
When an annual report speaks volumes
"Want to find a great long-term investment? Look for an annual report that treats you like a human being. Most don't. The standard-issue annual report features heroic photos of the CEO, staged snapshots of maniacally grinning workers, and vague assurances that, despite enormous challenges being faced by the stalwart management team, the future looks just fine. Only a handful of annual reports talk to you like a partner. These reports don't spend a fortune on glamour shots of smokestacks basking in the sunset. They avoid canned promises to "respect all our stakeholders." Instead, they deliver a blunt assessment of both the firm's successes and its failures. In a high proportion of cases, these exceptionally honest reports come from companies that are also exceptionally good at making you money."
Why banks stay big
"Maybe megabanks are what we need. Certainly most developed nations have banking systems even more concentrated than ours. The trouble is that the 'market' for banking is so distorted - by switching costs, by government subsidies and guarantees, and by the banks' market power - that it's hard to know whether big banks are adding value or are simply exploiting their oligopolistic positions."
The pyramid principle
"Right now America.s banking system resembles a pyramid. At the top, two or three firms are doing well. But beneath them are a handful of giant conglomerates that are struggling towards profits, a tier of middling banks with overexposure to risky assets, and a vast base of small banks in deep, deep trouble."
Ten years after
"I've been working on a year-end piece - this is my last day at the office in 2009 - and I came across an article from Feb. 20, 2000, in which 10 money managers each chose one stock to buy then and hold until 2010. It's almost 2010, so I checked to see how they had done. For most, not well." and yet "Here is more good news. Thanks largely to Henry Schlein, an investor who bought $1,000 of each of those 10 companies, and held on, would now have more than $13,000, even with losses on eight of the holdings. That performance is much better than that of the overall market."
The return of the Why-P.O.
"What in tarnation is a Why-P.O. you ask? It's an IPO so pointless for investors to be involved with that you can only scratch your head after reading the prospectus and ask 'Why?'."
Stingy Links: Taxes
Congress throws estate plans into disarray
"Barring a last-minute political deal, the federal estate tax is set to disappear as of Jan. 1, 2010--for just one year. Democratic leaders of Congress are vowing to resurrect the tax retroactively sometime next year, but the impending lapse has estate planners in a tizzy. They worry the lapse could turn into a nightmare for some families."
2009 year-end financial deadlines
"With the end of this year just around the corner, here are some personal finance deadlines to note"
Stingy Links: Tweedy
Christopher H. Browne dies
"His firm, where he had worked since 1969 and which his father co-founded, occupied a special niche in Wall Street lore due its relationships with two legendary clients: Ben Graham, author of two seminal books on the subject of how to value stocks, and Mr. Graham's most famous pupil, Warren Buffett. Tweedy Browne brokered trades for Mr. Graham from the 1930s through the .50s and from that experience developed an extensive business relationship with Mr. Buffett."
A career spent finding value
"'He was something of a collector,' said analyst A. Michael Lipper of Lipper Advisory Services. 'It took a lot of disappointment for him to get rid of an underperforming stock. Could somebody else have produced better results by getting rid of the losers? One might think so, but it wasn't [Tweedy, Browne's] style.'"
Stingy Links: Value Investing
Kahn's top picks
"Another Kahn favourite is pork processor Seaboard, which has managed to remain profitable even as larger competitors have stumbled. "I don't eat pork, but a lot of people do," he says."
Cheap and ugly can be beautiful
"Bruce Greenwald talks value investing in 2 parts."
Think like Buffett
"Buy-and-hold investing has its share of fans. If you admire Warren Buffett, Benjamin Graham, David Dodd, Charlie Munger, John Templeton, Joel Greenblatt or Seth Klarman, you're one of them."
Rodriguez flouts 'small mind' investor rules
"Robert Rodriguez ignores most rules of the mutual-fund industry, an approach that's helped him beat all rival managers over the past 25 years."
Has market got ahead of itself?
"It's common to hear investing pros marvel at what they see as the passivity and fearfulness of the individual investor. But with the stock markets up from their bear market lows by about 50 per cent in just eight months, there are those in the financial world who think stocks have gotten ahead of themselves. Mr. Maida is one of them."
Patient Capital Q3
"Perhaps most worrisome is that the appetite for excessive risk has returned. Some market observers have commented that hedge funds and speculators are borrowing US dollars at close to zero interest rates and investing the proceeds in the financial markets. In Canada, we have witnessed a renewed interest in speculative resource investments. In the past this behaviour has not bode well for future equity returns."
Solid investor Howson hands off reins
"Rick Howson, who excelled in managing the same value-style Canadian equity fund for two full decades until stepping down this week, was never what you would call a high-profile "star" manager."
Stingy Links: World
Dangers of an overheated China
"China has had a 30-year run of stellar economic growth. But it's only human nature for such expansion to breed too much optimism, overextending an entire economy. Americans have found this out the hard way in their own financial crisis. History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern?"
U.S. is destroying manufacturing
"'What do you think I am going to do?' Farr asked. 'I'm not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs.'"
A stock trade a day keeps stress away
"Traders seeking a break from volatile global markets may want to head to Bhutan's bourse, where stocks are traded on just four computers -- when they have not crashed -- only twice a week."
A six thousand year-old bubble
"In a world with multiple fiat moneys, the zero value of money equilibrium lurks for each of the fiat currencies, including gold. Admittedly, as regards gold, so far so good. Gold has positive value. It has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history."
An energy answer in the shale below?
"Just a few years ago, the industry didn't have the technology to unlock these reserves. But thanks to advances in horizontal drilling and methods of fracturing rock with high-pressure blasts of water, sand and chemicals, vast gas reserves in the United States are suddenly within reach."
Big-spending, high-taxing, lousy-services paradigm
"It's true that many people are less sensitive to taxes and more concerned about public goods, and these consumer-voters will congregate in places with extensive services. But it's also true, all things being equal, that everyone would rather pay lower than higher taxes. The high-benefit, high-tax model can work, but only if the high taxes actually purchase high benefits - that is, public goods that far surpass the quality of those available to people who pay low taxes. And here, California is decidedly lacking."
"It might even be motivating. Because unless we get serious about using the remaining oil to fund the 25 year construction phase for a new class of power generation, the world will become ever more energy impoverished. And when you.re impoverished, you don.t burn expensive oil. And you certainly don.t build out vast wind power and solar capacity. When you.re impoverished you burn coal."
"The young black doctors who earned the same salary as we whites could not achieve the same standard of living for a very simple reason: they had an immense number of social obligations to fulfill. They were expected to provide for an ever expanding circle of family members (some of whom may have invested in their education) and people from their village, tribe, and province. An income that allowed a white to live like a lord because of a lack of such obligations scarcely raised a black above the level of his family. Mere equality of salary, therefore, was quite insufficient to procure for them the standard of living that they saw the whites had and that it was only human nature for them to desire - and believe themselves entitled to, on account of the superior talent that had allowed them to raise themselves above their fellows. In fact, a salary a thousand times as great would hardly have been sufficient to procure it: for their social obligations increased pari passu with! their incomes."
Hu versus Sarkozy
"There is no more reliable rule than the 95% rule: 95% of what you read about economics and finance is either wrong or irrelevant."
Detroit: Urban Laboratory
"As the focus on agriculture and even hunting show, in Detroit people are almost literally hearkening back to the formative days of the Midwest frontier, when pioneer settlers faced horrible conditions, tough odds, and often severe deprivation, but nevertheless built the foundation of the Midwest we know, and the culture that powered the industrial age. No doubt in the 19th century many of those sitting secure in their eastern citadels thought these homesteaders, hustlers, and fortune seekers crazy for leaving the comforts of civilization to head to places like Iowa and Chicago. But some saw the possibilities of what could be and heeded the call to 'Go West, young man.' We've come full circle."
What's killing California?
"The real problem could be much more simple and yet much more terrifying in its implications. California has simply now outgrown its youth and is now well into its middle age. Like the Rust Belt before it, California is now old. As with people as they age, .chronic lifestyle diseases. hit places too. These are: unfunded liabilities, the end of growth economics, and institutional rigidity, each of which builds on the one before it."
The quiet death of the Kyoto protocol
"Reading the climate-change news in recent weeks, one might wonder who won the last election. The Obama administration has rejected the Kyoto Protocol (ensuring it will expire), adopted some of former President George W. Bush's key positions in international climate negotiations, and demurred when asked about reports that the president has decided to skip the December climate summit in Copenhagen. United Nations climate negotiator Yvo de Boer has concluded that it is 'unrealistic' to expect the conference to produce a new, comprehensive climate treaty - which also describes the once-fond hopes for passage of domestic climate legislation this year - or even in Obama's first term. This is not how it was supposed to be."
Stingy Links: Zweig
Will fees stop bugging investors?
"Don Phillips, managing director at Morningstar Inc., the fund researcher, argues that 12b-1 fees "are a farce, because they don't capture all the distribution costs." Some fund managers pay for marketing out of their management fees, for example. Mr. Phillips suggests that funds should overhaul their financial statements by sorting all expenses into three main buckets: "investment management," or what it costs to research and run the portfolio; "sales and marketing," or what it costs to distribute the fund; and "operations," or overhead like accounting and legal expenses."
Staying calm in a world of dark pools
"In 1976, the great financial analyst Benjamin Graham declared that "the stock market resembles a huge laundry in which institutions take in large blocks of each other's washing ... without rhyme or reason." Mr. Graham died that year, but today he would laugh at the speed of the spin cycle. He would then ignore the momentary vibrations in a company's stock price and go right back to analyzing the value of its business. As an investor, you are free to choose your own time horizon. If other people want to try earning a few fractions of a penny a few thousand times a day, you should wish them well -- and refuse to join them."
The CEO may not change the company
"How much of a difference should investors expect when General Motors - or any company - brings in a new chief executive? Not much."
More stocks may not make a portfolio safer
"As many studies have shown, at least 40% of the variability in returns can be reduced by moving from a single company to 20. Once a portfolio contains 20 or 30 stocks, adding more does little to damp the fluctuations in wealth over time. But this research on diversification was based on the average results of a large number of portfolios randomly generated by computer. Something entirely different happens when flesh-and-blood humans try to pile up stocks one at a time."
Too late for the junk-bond party?
"Baylor University finance professor William Reichenstein says that junk-bond returns mirror what you would get if you put two-thirds of the money in investment-grade bonds and one-sixth each in large-company stocks and small-company stocks - all of which you probably own already."
Using the lottery effect to make people save
"Based on recent headlines, you might think that Americans are finally saving again. Want to bet? In 2007, the latest year for which final numbers are available, Americans spent $92.3 billion on legalized gambling, according to Christiansen Capital Advisors; that same year, says the U.S. Bureau of Economic Analysis, Americans saved only $57.4 billion."
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