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Suggested reading from our community of intelligent investors

  03/18   Quest to Track Every NBA ShotScience  
  10/23   The other man who taught BuffettBuffett  
  08/25   Buffett's 1976 GEICO analysisBuffett  
  06/12   Behold the Burrito BondBonds  
  04/30   Greece targets tax-EvadersEconomics  
  01/11   Check if a prospective financial adviser is...Hallett  
  01/09   Professor Damodaran's updated stock dataStocks  
  11/22   Computers have enhanced chess skillIdle  
  11/20   Showing returns a big advice industry...Hallett  
  11/20   The lesson from market extremesHallett  
  10/23   The MoneyBall EconomistEconomics  

All The News
Quest to Track Every NBA Shot
"Goldsberry called his system CourtVision, and it showed differences in players no one had ever quantified. Ray Allen, one of the NBA's best shooters, had several deadly hot zones from three-point range, and he barely attempted any midrange jumpers. Kobe Bryant, the Los Angeles Lakers' dynamic star, took lots of shots from all over the court, but there were places that, if you were playing against him, you'd prefer he shoot from (like the baseline, because he struggled to convert from there). Goldsberry had generated nothing less than an instant visual signature of a player's offensive game, easy to read and understand. This went way beyond what a smart analyst or coach might intuit from courtside. The more you studied the CourtVision maps, the more insights they revealed."
from DanH, 8:37 PM EST, 03/18/15, Science
The other man who taught Buffett
"Disciples of the investing firm Berkshire Hathaway and its legendary leader, Warren Buffett, know that his mentors in investing were Benjamin Graham and Charlie Munger. But when Lawrence Cunningham, author of the recently-published Berkshire Beyond Buffett, asked the Berkshire CEO who should write the foreword, Buffett immediately suggested his friend of more than 40 years - Tom Murphy. 'Most of what I learned about management, I learned from Murph,' Buffett told Cunningham. 'I kick myself, because I should have applied it much earlier.'"
from DanH, 1:58 PM EST, 10/23/14, Buffett
Buffett's 1976 GEICO analysis
"Car insurer Geico Corp. has long been one of the jewels in Warren Buffett's crown, minting billions for his Berkshire Hathaway Inc. in the nearly two decades since Berkshire bought the entire company in 1996. But, as the Journal notes in a story on the front on the Money and Investing section Monday, Mr. Buffett's ties to Geico go back much, much further. He initially invested in the firm in 1951, and then had an opportunity to build a huge stake when the company was struggling in 1976. Mr. Buffett recently gave the Journal a letter he wrote back then to one of Berkshire's top insurance lieutenants. In the note, Mr. Buffett hinted at his attachment to Geico, explained why its business model was attractive, and evaluated why he thought it would ultimately survive."
from DanH, 4:58 PM EST, 08/25/14, Buffett
Behold the Burrito Bond
"Bond bubble? What bond bubble? These bonds give out free burritos! London high street fast food outlet Chilango, favored by City types with elastic waistbands, is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito every week for the lifetime of the debt. All you have to do is cough up £10,000 pounds ($16,800) and trust that it is as good at servicing its debt as it is at serving bankers their lunch. (Chicken burritos cost £5.99. The WSJ's preferred pork option costs £6.99. So that's an extra £363-worth of free pork burritos a year.)"
from DanH, 9:44 PM EST, 06/12/14, Bonds
Greece targets tax-Evaders
"It's Saturday night going on Sunday morning at a club near the gated homes of the Greek elite in northern Athens as two men and a woman in business suits push through the crowd and demand to see the cash register. The manager sighs. It's the tax man. The inspectors are the new face of Greece's fight against an age-old problem of tax evasion. Their mission: to check whether the club has given customers automated receipts that allow officials to track sales. In Greece, clubs, bars and restaurants have often avoided that paper trail to understate their revenue and reduce income- and sales-tax payments."
from DanH, 12:24 PM EST, 04/30/14, Economics
Check if a prospective financial adviser is legit
"The story of Earl Jones, who was convicted serves as a useful example. Jones was neither licensed nor the holder of any recognized credential. Requiring one or both would have prompted discriminating investors to avoid him. While that's no guarantee to steer everyone clear of fraudsters, the following websites should make it easy for Canadians to do lots of important due diligence with just a few clicks."
from DanH, 1:04 PM EST, 01/11/14, Hallett
Professor Damodaran's updated stock data
"In 1992, I had just finished a spreadsheet that contained the average PE ratios for companies in different sectors in the United States. There was little of substance in it, but I decided that since I had it, I might as well share it. I posted that spreadsheet for students in my class to download and made it available to others who visited my website (more hopeful thinking than an actual plan, since there were relatively few people looking for data online). Each year since, I have added to the data collection, initially expanding my list of data items for US companies, and in the last decade, adding to the collection by looking at non-US companies. It is my first task each year and it takes up the first week of the year, and I just uploaded the data today for the 2014 update."
from DanH, 5:45 PM EST, 01/09/14, Stocks
Computers have enhanced chess skill
"In the world chess championship match that ended Friday in India, Norway's Magnus Carlsen, the cool, charismatic 22-year-old challenger and the highest-rated player in chess history, defeated local hero Viswanathan Anand, the 43-year-old champion. Mr. Carlsen's winning score of three wins and seven draws will cement his place among the game's all-time greats. But his success also illustrates a paradoxical development: Chess-playing computers, far from revealing the limits of human ability, have actually pushed it to new heights."
from DanH, 3:42 PM EST, 11/22/13, Idle
Showing returns a big advice industry challenge
"The financial advisory industry has long been challenged to report accurate, personalized performance to its clients. Investment management clients have always wanted good reporting but most retail clients didn't require it because returns seemed healthy. But having survived two bear markets, investors have grown disappointed with their portfolios' growth even without knowing percentage returns. Securities regulators have mandated the reporting of personalized rates of return starting in a couple of years. I believe that this will prove more challenging for the advice industry than any other regulatory initiative - including the much-discussed best interest standard."
from DanH, 3:40 PM EST, 11/20/13, Hallett
The lesson from market extremes
"On November 20, 2008 I spoke to a powerpoint presentation loaded with slides showing the then-current bear market in a historical context - while doing the same with a variety of valuation statistics for North American stocks. A summary of my conclusions: North American stocks were at 20-year lows relative to earnings and book value. On an interest-rate-adjusted basis, U.S. stock yields were at a four-decade high. High yield bonds were sporting the highest spreads and yields in several decades. Stocks and high yield bonds were very attractive and they should be purchased with a focus on their longer-term fundamentals. While it's now clear that it was a good idea to invest five years ago, it's helpful to add some numerical context."
from DanH, 3:37 PM EST, 11/20/13, Hallett
The MoneyBall Economist
"Mr. Zatlin, who started SouthBay in 2009, likens his approach to the one employed by Oakland A's General Manager Billy Beane, whose rigorous use of data mining made famous in 'Moneyball' created a new approach to building a baseball team. 'It's very much a 'Moneyball' kind of thing,' he said. Economics, just as baseball, is steeped in tradition. Economics, to hear Mr. Zatlin tell it, is just as buried in its own past, and missing the great changes taking place in the world. That leads most economists to use outdated methods to measure the wrong things, Mr Zatlin says."
from DanH, 11:44 AM EST, 10/23/13, Economics
Floating rate note funds' risk understated
"Floating rate note (FRN) funds are gaining in popularity because of their marketed 'promise' to protect capital during periods of rising interest rates. In Canada since the mid-2000s, FRN funds invest mainly in corporate loans bearing a fluctuating interest rate. They appeal to investors who fear rising interest rates - which is most - but offer competitive current yields. Investors seduced by this class of funds should be aware that hedging one risk often heightens exposure to other risks. And standard industry risk ratings fail to communicate this trade-off, which risks significantly understating these funds' true risk exposure."
from DanH, 11:05 AM EST, 09/19/13, Hallett
How a 26-year-old analyst rattled Wall Street
"On Sept. 9, Reuters reported that Kevin Kaiser of Hedgeye Risk Management had sent shares of Kinder Morgan, North America's third largest energy company, reeling 6%. Kaiser had emailed clients advising them to short the stock (i.e., bet it would fall). The following day, Kaiser published a full report on the company, arguing that it was overvalued. In the two days since, Kinder Morgan's share price has rallied and then fallen sharply. Analysts at big banks immediately took aim at Kaiser's note, suggesting the 26-year-old was out of his depth. The public spat continues unabated. So what's going on? Is Kaiser a jumped-up ignoramus, or a brilliant whiz-kid - or is it all just a symptom of Wall Street's tribal divisions?"
from DanH, 4:06 PM EST, 09/12/13, Stocks
The case for banning tips
"For over eight years, I was the owner and operator of San Diego's farm-to-table restaurant The Linkery, until we closed it this summer to move to San Francisco. At first, we ran the Linkery like every other restaurant in America, letting tips provide compensation and motivation for our team. In our second year, however, we tired of the tip system, and we eliminated tipping from our restaurant. We instead applied a straight 18% service charge to all dining-in checks, and refused to accept any further payment. We became the first and, for years, the only table-service restaurant in America where you couldn't pay more money than the amount we charged you. You can guess what happened. Our service improved, our revenue went up, and both our business and our employees made more money."
from DanH, 12:34 PM EST, 08/09/13, Management
Hedge Funder challenges Ackman's Herbalife bet
"You make a guess. You calculate the implications of the guess. If those implications do not square with observation then the guess is wrong. Ackman made a guess - the guess is that the 'so called discount buyers are in fact failed distributors'. The guess implies that there is a 50 thousand tonne per annum build up of Formula 1 on shelves and in garages of failed distributors. If that calculation does not conform to reality then Bill Ackman is wrong (and it does not matter who he is, how smart he is or how beautiful the thesis)."
from DanH, 2:42 PM EST, 07/22/13, Stocks
Banks make billions moving metals
"The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman Sachs subsidiary stores customers' aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again. This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country."
from DanH, 2:38 PM EST, 07/22/13, Brokers
Stock pickers' markets a retail investor myth
"Whenever the notion of a volatile sideways market bubbles up among portfolio managers, they claim indexing will fail in comparison to active stock selection. In other words, portfolio managers argue that trendless volatility is ripe for active management skill to shine. They call it a stock pickers' market. I call it a myth for retail investors."
from DanH, 1:57 PM EST, 07/21/13, Hallett
Last Leucadia letter
"Forty-three years ago, the two of us met at Harvard Business School and thirty-five years ago was the beginning of a remarkable partnership - the results of which are tabulated on the opposite page. The end of 2012 marks the end of this partnership and the last letter from the two of us."
from NormR, 11:59 AM EST, 06/25/13, Value Investing
NY cab licence better investment than gold
"Mr. Murstein is president of Medallion Financial Corp., a publicly listed taxi-lending specialist with $1.2-billion in assets under management. Its roots go back to the 1930s, when New York first began issuing taxi medallions - metal plates fastened to the hoods of cabs - to put an end to the chaotic free-for-all on the city's streets. Back then, they sold for $10 apiece. Today, they cost more than $1-million."
from DanH, 8:29 AM EST, 06/04/13, Economics
Investors earn handsome paychecks
"Warren Buffett's decision to hire two investment lieutenants is paying off for Berkshire Hathaway, and it's paying off for the two younger money managers, too."
from RobS, 8:23 PM EST, 04/30/13, Buffett
The underground recovery
"Ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more."
from NormR, 10:09 PM EST, 04/27/13, Economy
Meet the man who retired at 30
"But I didn't start saving and investing particularly early, I just maintained this desire not to waste anything. So I got through my engineering degree debt-free - by working a lot and not owning a car - and worked pretty hard early on to move up a bit in the career, relocating from Canada to the United States, attracted by the higher salaries and lower cost of living. Then my future wife and I moved in together and DIY-renovated a junky house into a nice one, kept old cars while our friends drove fancy ones, biked to work instead of driving, cooked at home and went out to restaurants less, and it all just added up to saving more than half of what we earned. We invested this surplus as we went, never inflating our already-luxurious lives, and eventually the passive income from stock dividends and a rental house was more than enough to pay for our needs"
from NormR, 10:07 PM EST, 04/27/13, Retirement
The retirement gamble
"Retirement is big business in America, but is the system costing workers and retirees more than what they're getting in return?"
from NormR, 8:11 PM EST, 04/27/13, Retirement
The lure of hedge funds
"Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies."
from NormR, 8:44 PM EST, 04/19/13, Funds
Meet the Student Who Shook Austerians
"Herndon became instantly famous in nerdy economics circles this week as the lead author of a recent paper, 'Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,' that took aim at a massively influential study by two Harvard professors named Carmen Reinhart and Kenneth Rogoff. Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it."
from DanH, 3:27 PM EST, 04/19/13, Economics
Why Did Baby Catalogs Arrive at Our House?
"Marketing Genetics is a data company based in Nebraska. They gather up data that companies share with each other about purchasing behavior and sell it to other companies that are looking for certain types of customers. They've got a database of 100 million people and more than a billion transactions (most of those from the last couple of years). As they show in a sample report on their site, Marketing Genetics takes a company's data and creates a statistical profile of their best customers. Then they look for similar people within their own databases, so those companies can send these people catalogs or other direct mail. They call this Data Navigation Analysis (DNA)."
from DanH, 3:23 PM EST, 04/18/13, Tech
History helps to make sense of small cap returns
"Depending on the particular fund or product under examination, you could draw very different conclusions on otherwise similar portfolios and performance levels. When looking at retail mutual funds, for instance, old income trust funds are now in one of three categories - i.e. Canadian Dividend and Income Equity, Canadian Small/Mid Cap Equity or Canadian-Focused Small/Mid Cap Equity. (It's interesting to note that some institutional databases continue to track a Canadian Income Trust class of products.) For those looking at returns over the past five years, all of this background is relevant because two factors are skewing the performance comparison today."
from DanH, 10:20 AM EST, 04/12/13, Hallett
Why Canada can avoid banking crises
"Since 1790, the United States has suffered 16 banking crises. Canada has experienced zero - not even during the Great Depression."
from NormR, 11:01 AM EST, 04/10/13, World
Deposit insurance may increase bank risk
"The argument for deposit insurance is that banks are inherently unstable, by virtue of their economic function they borrow money in the form of deposits (which can be instantly withdrawn) and lend to businesses on a longer-term basis. They are thus vulnerable to destabilising and self-fulfilling bank runs. But the counter-argument is that of moral hazard depositors have no incentive to choose between banks on grounds of riskiness, and bank executives can take risks knowing that they are underwritten by the insurance scheme."
from DanH, 10:24 PM EST, 03/20/13, Economy
Regulators should ban this leveraging strategy
"A while ago, I was asked by a regulator to speak to its enforcement staff about T-series mutual funds, which pay investors generous monthly cash distributions. The regulator wanted an independent view on product mechanics, common uses and risks, and was particularly interested in my thoughts on leveraging. I happily obliged, ending my talk with a firm recommendation: If I were the chief compliance officer of a dealer, I would not allow any T-series fund sales that involved: borrowing to invest in funds that have a policy to pay distributions exceeding pure yield taking the mostly 'return of capital' (RoC) distribution in cash and using that cash to pay down the loan. Here's my reasoning"
from DanH, 5:21 PM EST, 03/06/13, Hallett
How much does that indexed portfolio cost?
"If you need advice on building your portfolio, indexing may not be your best option"
from NormR, 9:19 PM EST, 01/31/13, Indexing
Big Med
"Restaurant chains have managed to combine quality control, cost control, and innovation. Can health care?"
from NormR, 11:14 AM EST, 01/27/13, Health
A new housing boom?
"After the traumatic collapse of the last price bubble, Americans seem less sanguine about owning versus renting. According to the Census Bureau, the homeownership rate has been falling, from 69.0 percent in the third quarter of 2006 to 65.5 percent in the third quarter last year."
from NormR, 11:07 AM EST, 01/27/13, Real Estate
We're number 1
"Canada has a new worthwhile initiative. After years of booming prices, that bastion of politeness north of the border is looking to avoid a catastrophic housing bust for something more, well, boring. Initiatives don't get more worthwhile, and perhaps not more difficult considering Canada just might have the biggest housing bubble in the world right now."
from NormR, 11:13 AM EST, 01/26/13, Real Estate
World is right to worry about US debt
"The world's overwhelming presumption is that Americans will find a path to budget sustainability. Nevertheless, it is hard for many in the US to escape the nagging feeling that just maybe this time we won't. With more than $5tn of US Treasury debt, and memories of the huge inflation of the 1970s and default on gold clauses in the 1930s, foreigners would be right to worry a little."
from NormR, 11:02 AM EST, 01/26/13, Debt
National balance sheets
"But Morgan Stanley reckons the shortfalls are so large (between 800% and 1,000% of GDP in the US and UK) that the situation is hopeless. In effect, the public sector must impose a burden on the private sector but the only question is how."
from NormR, 2:37 PM EST, 01/19/13, World
Aswath Damodaran compiles global stock data
"For the last two decades, I have dedicated the first two weeks of each new year to a ritual. I obtain/collect/download data on all publicly traded companies listed globally, using a variety of data sources, and then analyze and present the data, aggregated at a number of different levels: by country, by region (US, Europe, Emerging Markets, Japan, Australia and Canada) and by industry. I report on measures of operations (profit margins, turnover ratios, working capital), measures of leverage (debt ratios), measures of risk (beta, standard deviation, equity risk premiums, country risk premiums) and pricing measures (earnings multiples, book value multiples, revenue multiples). I just completed my 2013 update and you can find it by clicking here."
from DanH, 9:27 AM EST, 01/16/13, Stocks
Howard Marks on Bonds
"These are unhappy times for bond investors according to Howard Marks."
from NormR, 5:08 PM EST, 01/12/13, Bonds
The future of shopping
"How long can brick-and-mortar retailers afford to operate stores that serve as display cases for someone else? More importantly, will that be long enough to transform themselves into something less vulnerable to Internet competition?"
from RobS, 10:27 AM EST, 01/12/13, Thrift
The uncertainty of market returns
"The dawn of a new year gives birth to a plethora of predictions. Stock market prognostications are entertaining, but they should taken with a big grain of salt."
from NormR, 3:13 PM EST, 01/09/13, Markets
Net-nets not for faint of heart
"Strategy Lab contributor Norman Rothery recently tackled an issue that's important for those investors who rely on screens to identify attractive stocks. Should you buy all of the stocks that pass your screen, or simply view them as prospects, which require additional analysis before you sort out winners from losers?"
from NormR, 3:05 PM EST, 01/09/13, Value Investing
The winners curse
"For investors, Top Dog status - the #1 company, by market capitalization, in each sector or market - is dismayingly unattractive. We find a statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole. In an earlier U.S.-only study, we found that 59% of these Top Dogs underperformed their own sector in the next year, and two-thirds lagged their sector over the next decade. We found a daunting magnitude of average underperformance, averaging between 300 and 400 bps per year, over the next 1 to 10 years."
from NormR, 2:44 PM EST, 01/05/13, Markets
Scary beats safe when it comes to Net Nets
"Cheap and safe are two attributes I look for when picking stocks. But seeking safety doesn't always pay. History suggests that a cheap-and-scary approach may be the better way to go - if you have the stomach for it."
from NormR, 12:52 PM EST, 12/31/12, Value Investing
Low bond yields reveal stark choices on risk
"In the course of attending several client proposals and meetings over the past several weeks, a common thread has emerged. Since bonds are needed to limit total portfolio risk, they also limit potential total returns. And this is causing investors to have to choose whether risk or return is more important."
from DanH, 12:03 PM EST, 12/28/12, Hallett
Gérard Depardieu, the heroic exile
"Over 45 years, Depardieu said, he had paid 145 million euros in tax, and to this day employs 80 people. Last year he paid taxes amounting to 85 per cent of his income. 'I am neither worthy of pity nor admirable, but I shall not be called 'pathetic',' he concluded, saying that he was sending back his French passport."
from NormR, 10:43 AM EST, 12/22/12, Taxes
Manitoba credit union depositors take note
"An experienced accountant with more than two decades of experience in government, Mr. Dalgliesh said he had been relegated to the Manitoba Information Technology Branch after trying to blow the whistle on Crocus, a disastrous labour-sponsored investment fund."
from NormR, 10:40 AM EST, 12/22/12, Government
How to burn $50 billion
"Ottawa has increased by $50-billion the amount of residential mortgages that it is willing to guarantee. But this time the Canada Mortgage and Housing Corp., the biggest provider of mortgage default insurance, is not getting any. Instead, the additional backing is going only to private-sector players such as Genworth Canada, who will see their maximum raised to $300-billion from $250-billion."
from NormR, 10:35 AM EST, 12/22/12, Government
Shaky foundations
"When Dennis Gilmore gathered financial analysts and investors on a conference call last summer, the head of California-based First American Financial Corp. had some troubling news. It was what he referred to bluntly as 'the situation' up in Canada. The Los Angeles-area insurance company was losing tens of millions of dollars due to hidden problems in the Canadian housing market, and there were no assurances that the bleeding was going to stop."
from NormR, 10:34 AM EST, 12/22/12, Real Estate
Ryan Morris, activist value investor
"When an activist investor like Carl Icahn tries to take over a household brand, it plays out on CNBC. Most shareholder struggles occur when little-known investment funds try to take over little-known companies like InfuSystem. Of the more than two dozen activist battles in 2012, most involved companies with a market value under $50 million."
from NormR, 2:04 PM EST, 12/21/12, Value Investing
Bond bears' growl is all noise
"Without failure, for my entire 18+ year career the overriding expectation has been for interest rates and bond yields to rise from their 'historic lows'. My start was in 1994 - notable since that year stands alongside 1979-80 as the worst bond market in North American history. That year, however, was immediately followed by one the best calendar years on record for North American bonds - comfortably recouping 1994 losses and then some. After all this time, the same 'rates must rise' argument continues to proliferate. It's true that the lower that yields fall, the less they can continue falling. That's a mathematical fact. But that alone doesn't mean that yields are bound to rise. And save for one grim scenario, a rise in bond yields is no death sentence for bonds."
from DanH, 9:50 AM EST, 12/18/12, Hallett
Apple's Problem? The Law of Large Numbers
"Apple's brutal downdraft continues, down over $20 on the day as I write this (BR: closed 509.79 off -19.90 or -3.76%). What's the problem? Lack of lines for the iPhone5 in China? Maybe today's catalyst. We think, however, the market is coming to the conclusion the company has a scale problem. That is, it is just too darn large."
from DanH, 11:35 PM EST, 12/16/12, Growth Investing
The Insourcing Boom
"What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn't manufacture much besides a fast-food hamburger in the United States. Now the CEO of America's leading industrial manufacturing company says it's not Appliance Park that's obsolete - it's offshoring that is. Why does it suddenly make irresistible business sense to build not just dishwashers in Appliance Park, but dishwasher racks as well?"
from RobS, 10:12 AM EST, 12/16/12, Markets
Save more, work longer
"AQR Capital co-founder on the fiscal cliff and why he sees challenging times ahead for the U.S. economy."
from NormR, 9:10 PM EST, 12/14/12, Markets
Income malaise complicates tax talks
"If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011."
from NormR, 10:49 PM EST, 12/13/12, Taxes
A compilation of Buffett articles
"If you have an hour or so and are interested in reading some of Mr. Buffett's works check out the following articles available online. And prepare to be amazed by a guy who has made some astonishingly prescient market calls despite claiming to have no idea where the markets are headed short-term."
from NormR, 11:26 PM EST, 12/08/12, Buffett
Deck the halls with macro follies
"Each year, our attention turns to the holidays... and to holiday consumer spending! We're told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth. This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago."
from NormR, 6:21 PM EST, 12/06/12, Economics
Private REITs require careful due diligence
"In the early days of income trusts - the late 1990s - portfolio manager Rick Howson used to talk about whether a trust's 'brains' were inside or outside of the 'body'. (He managed Saxon High Income, now known as Saxon Dividend Income, one of Canada's first income trust mutual funds.) Howson preferred trusts where the management 'brains' resided inside of the trust 'body' - in large part for governance reasons. It's no wonder he preferred this structure. A group of companies provide services to the REIT that I reviewed ranging from property due diligence to day-to-day property management and sales (i.e. attracting investors into the fund). There are two problems with this structure. First, each of the companies are completely outside of the REIT structure. Second, each is owned by the REIT's co-founding general partners. While I didn't not delve into this issue further, this structure has potential conflicts all over it. I could not find a single word even mentioning that a conflict exists, let alone how the REIT deals with this conflict."
from DanH, 2:00 PM EST, 12/06/12, Hallett
Why College May Be Totally Free Within 10 Years
"......there will always be students able and willing to pay for a traditional college experience and for them it will be a worthwhile investment. But for the vast majority, from a financial standpoint that kind of education makes no sense and is fast becoming unnecessary. He believes the higher education revolution is coming soon and will happen fast - perhaps fast enough to keep the next generation from finishing school with debts they may never be able to pay."
from RobS, 8:36 PM EST, 12/05/12, Academia
Acquisitions: Winners and Losers
"The winner in public company acquisitions is easy to spot and it is the target company stockholders, who gain about 18% over the 41 days. On average, bidding company stockholders have little to show in terms of price gains - the stock price for acquiring firms drops about 2% during the announcement period and about 55% of all acquiring firms see their stock prices go down. Note that while the percentage price drop is small (relative to the price increase for the target firm), acquiring firms are typically much larger than target firms and the absolute value that is lost by acquiring firm stockholders from acquisitions can be staggering. A study of 12,023 acquisitions by large market cap firms from 1980 to 2001 estimated that their stockholders lost $218 billion in market value because of these acquisitions. While this number was inflated by some especially bad deals done between 1998 and 2000, they illustrate the potential for massive value losses from acquisitions and the reality that one big, bad deal can undo decades of careful value creation in a company."
from DanH, 4:06 PM EST, 12/02/12, Stocks
The Bad Luck of Winning
"From one point of view - the point of view of lottery officials - you couldn't ask for more ideal winners than the Hills. Mark works for a meatpacking plant. Cindy is a clerical worker who was laid off in June 2010. When they were introduced to the news media on Friday, their adopted daughter in tow, they talked about how the money might allow them to adopt another child. They said they were going to help various relatives pay for college. They insisted that the money wouldn't change them. The only extravagance they mentioned was a red Camaro that Mark wanted. They made winning the lottery seem downright heartwarming. But it's not. On the contrary, lotteries may well be the single most insidious way that state governments raise money."
from DanH, 12:05 PM EST, 12/02/12, Behaviour
Capital preservation and financial repression
"Essentially, Bernanke's first commandment to investors goes something like this: Go forth and speculate. I don't care what you do as long as you do something irresponsible."
from NormR, 12:06 PM EST, 11/30/12, Montier
Taleb mishandles fragility
"Another key to understanding Taleb is that he has a French post-modern tendency to write to impress rather than explain. He provides hundreds of loosely related anecdotes, reminding me of the Talmud quote that 'when a debater's point is not impressive, he brings forth many arguments.'"
from NormR, 1:26 PM EST, 11/28/12, Books
Charlie talks to Warren and Carol
"Warren Buffett and Carol Loomis on the book 'Tap Dancing to Work'"
from NormR, 6:06 PM EST, 11/27/12, Buffett
How Apple Avoids Paying Billions in Taxes
"Thanks to a complex network of offshore accounts and cleverly named subsidiaries, Apple, the world's most valuable company, paid just $713 million on its $36.8 billion in foreign earnings last quarter. That amounts to a rate of just 1.9 percent, a figure that makes Mitt Romney's 14.1 percent effective tax rate look downright generous. And believe it or not, Apple actually reduced its foreign tax rate by nearly 25 percent as the company's market cap soared to new heights this year. According to the Associated Press, it was 2.5 percent at this time in 2011. Did Apple get a tax cut? Nah, it just got better at avoiding the IRS."
from DanH, 8:04 AM EST, 11/05/12, Taxes
The guide to trading candy
"Everything you need to know to get ahead in candy trading."
from NormR, 8:56 AM EST, 10/28/12, Fun
Taxes, inflation, default
"Buffett is uncomfortable with the idea that the Fed can expand its balance sheet indefinitely. He doesn't know why it won't work, but he knows that there are no free lunches, and wonders what might happen as a result."
from NormR, 12:25 PM EST, 10/25/12, Debt
Buffett on CNBC: Summary
"Buffett was on CNBC this morning. Who has time to sit in front of the TV from 7:00 - 9:00 am? Only hardcore Buffett-heads would click through and watch all the videos or read the full transcript. So here are some notes."
from NormR, 11:35 PM EST, 10/24/12, Buffett
Warren Buffett on CNBC
"Warren talks about many topics over multiple segments. Topics include: cancer, housing, QE3, Europe, Asia, etc."
from NormR, 10:55 PM EST, 10/24/12, Buffett
The real deal
"Perhaps none of this would matter if the bad news was already reflected in share prices. The biggest bull markets have started when shares looked cheap. But on two crucial measures - the cyclically adjusted price-earnings ratio (as calculated by Robert Shiller of Yale University) and the dividend yield - the American stockmarket looks more expensive than the historic average. Some people may think that low real rates will ignite an equity bull market. But history does not suggest that will be the case."
from NormR, 11:41 PM EST, 10/19/12, Markets
Should we worry about rising interest rates?
"But the Fed has only limited power to control interest rates. And sharply higher yields would be far from unusual. For instance, 30-year Treasury bond yields are currently under 3 percent. As recently as last year, they topped 4.5 percent, and in early 2000 they briefly exceeded 6.5 percent. Because of the long maturity, a single percentage point rise in rates would translate into roughly a 20 percent decline in the value of long bonds."
from RobS, 10:57 AM EST, 10/18/12, Economy
Sponging boomers
"The struggle to digest the swollen generation of ageing baby-boomers threatens to strangle economic growth. As the nature and scale of the problem become clear, a showdown between the generations may be inevitable. ... Boomers' sponging may well outstrip that of younger generations as well. A study by the International Monetary Fund in 2011 compared the tax bills of a cohort's members over their lifetime with the value of the benefits that they are forecast to receive. The boomers are leaving a huge bill. Those aged 65 in 2010 may receive $333 billion more in benefits than they pay in taxes (see chart), an obligation 17 times larger than that likely to be left by those aged 25.  Sadly, arithmetic leaves but a few ways out of the mess."
from RobS, 9:19 PM EST, 10/09/12, Taxes
Is college a lousy investment?
"I have certainly benefited greatly from the education my parents sacrificed to give me. On the other hand, that kind of education has gotten a whole lot more expensive since I was in school, and jobs seem to be getting scarcer, not more plentiful. These days an increasing number of commentators are nervously noting the uncomfortable similarities to the housing bubble, which started with parents telling their children that 'renting is throwing your money away,' and ended in mass foreclosures. ... Just as homeowners took out equity loans to buy themselves spa bathrooms and chef's kitchens and told themselves that they were really building value with every borrowed dollar, today's college students can buy themselves a four-year vacation in an increasingly well-upholstered resort, and everyone congratulates them for investing in themselves."
from RobS, 10:03 AM EST, 10/01/12, Academia
The secrets of Buffett's success
"IF INVESTORS had access to a time machine and could take themselves back to 1976, which stock should they buy? For Americans, the answer is clear: the best risk-adjusted return came not from a technology stock, but from Berkshire Hathaway, the conglomerate run by Warren Buffett. Berkshire also has a better record than all the mutual funds that have survived over that long period. Some academics have discounted Mr Buffett as a statistical outlier. Others have simply stood in awe of his stock-picking skills, which they view as unrepeatable. But a new paper from researchers at New York University and AQR Capital Management, an investment manager, seems to have identified the main factors that have driven the extraordinary record of the sage of Omaha."
from RobS, 11:07 AM EST, 09/29/12, Buffett
Walter Schloss 2008 talk
"Get some inspiration from Walter's talk at the Ben Graham Centre for Value Investing"
from NormR, 7:06 PM EST, 09/26/12, Value Investing
The school of patience and pluck
"You don't need special sources of information or cutting-edge analysis to make money in the market. It helps, though, if you have patience and the willingness to buy stocks that other people despise. For proof, look to the career of Walter Schloss."
from NormR, 7:03 PM EST, 09/26/12, Value Investing
ETFs are the new mutual funds
"For years I've been hearing from individual investors and financial advisors who are disappointed with their meagre long-term performance. This jives with calculations I completed four years ago, which showed that Canadian mutual fund investors largely missed out on the available risk premium over nearly 15 years prior to the worst of the last bear market (as illustrated in this chart). As a result, many have cast their mutual funds aside in favour of cheaper exchange-traded funds (ETFs) expecting higher returns. But I'm convinced that in 2022 or 2027, similarly-disappointing performance figures will be printed about ETF investor returns."
from DanH, 6:16 PM EST, 09/25/12, Hallett
65 years on Wall Street
"Walter Schloss talks at Grant's event. An oldie but a goodie."
from NormR, 8:35 PM EST, 09/19/12, Value Investing
Looking for a bargain?
"When I explain the theory of value investing to people, they always love the idea. Everyone is excited by the notion of snapping up a dollar's worth of assets for 60 cents. Then they see an actual value portfolio. And they recoil in horror."
from NormR, 1:22 PM EST, 09/19/12, Value Investing
Why I'm a value investor
"Value investing is all about finding stocks (and other securities) that are both cheap and relatively safe. The two are intimately related because buying at a low price is inherently safer than buying at a high price, everything else being equal."
from NormR, 1:29 PM EST, 09/17/12, Value Investing
New Value Investing Strategy Lab
"Follow my value investing scribblings at the new Globe Investor Strategy Lab."
from NormR, 1:28 PM EST, 09/17/12, Value Investing
False positives
"the lack of an avenue in which to publish failed attempts at replication suggests self-correction can be compromised and people such as Smeesters and Stapel can remain undetected for a long time."
from NormR, 2:10 PM EST, 09/14/12, Science
Fiscal cliff
"'What will happen if we hit the fiscal cliff?' asks Merle Hazard, in an animated surf-style music video."
from NormR, 1:19 PM EST, 09/14/12, Fun
Shiller launches value indexes
"The new indexes look for cheap sectors based on this approach, finding those with low cyclically adjusted price-to-earnings, or CAPE. The numbers are persuasive. Using data going back to 1902, Mr. Shiller found that an investing strategy that focused on sectors with low cyclically adjusted price-to-earnings ratios outperformed by an average of 1.13 per cent a year."
from NormR, 1:17 PM EST, 09/14/12, Indexing
A conversation with Ray Dalio
"Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P., discusses global economics."
from NormR, 1:14 PM EST, 09/14/12, World
Bad policies
"It is common to fix the blame for this on the banking crisis. Economies typically take a long time to recover from 'balance-sheet' recessions, as businesses and households focus on paying down debt and rebuilding savings. But what if the problem of slow growth has deeper roots than that? What if slow growth caused the crisis?"
from NormR, 1:13 PM EST, 09/14/12, Economics
Shiller launches CAPE indexes
"The new indexes look for cheap sectors based on this approach, finding those with low cyclically adjusted price-to-earnings, or CAPE. The numbers are persuasive. Using data going back to 1902, Mr. Shiller found that an investing strategy that focused on sectors with low cyclically adjusted price-to-earnings ratios outperformed by an average of 1.13 per cent a year. It adds up. The lower the CAPE, the better the future performance. The higher the CAPE, the worse the performance - although the strategy gets a little more complicated than that because it compares the current ratio with the ratio in previous years to get a relative measure."
from DanH, 5:23 PM EST, 09/12/12, Value Investing
All time low yields
"According to both the Barclays high-yield index and the CS HY index, yields in high yield have reached an all time low of 6.6%. Further, over the last few weeks, traders and syndicate desks have been whispering of a simply gargantuan amount of high yield and leveraged loans coming this month. Certain desks have been advocating a move to CCC assets as they still yield approximately 100 bps over their all time low seen on...wait for it...May 2007."
from NormR, 2:17 PM EST, 09/11/12, Bonds
Graham's Net Net in London
"In this paper we focus on the early value metric devised and employed by Benjamin Graham - net current asset value to market value (NCAV/MV) - to see if it is still useful in the modern context. Examining stocks listed on the London Stock Exchange for the period 1981 to 2005 we observe that those with an NCAV/MV greater than 1.5 display significantly positive market-adjusted returns (annualized return up to 19.7% per year) over five holding years."
from NormR, 11:15 PM EST, 09/02/12, Graham
Fund offers BRK at a discount - with a catch
"BIF owns a large position in Berkshire Hathaway along with other solid holdings and looks like a pretty good deal given the large discount. A Horejsi family trust owns 8.64 million shares, so management eats its own cooking. So what is the catch? A big issue with BIF is the high expense ratio. In the last semi-annual report, the annualized expense ratio was 2.84% even after management waived some of its fees. The legal and audit expenses were especially high. A shareholder lawsuit was filed in 2010 against BIF related to a 2008 rights offering along with the fund's decision to suspend its level rate distribution policy in November 2008. The lawsuit alleged breach of fiduciary responsibilities and unjust enrichment related to the fund's 2008 rights offering."
from DanH, 11:08 AM EST, 08/30/12, Buffett
Mohnish Pabrai and Guy Spier talk
"Mohnish Pabrai and Guy Spier share their considerable wisdom with UC Davis's MBA Value Investing class on 8/22/12."
from NormR, 6:38 PM EST, 08/23/12, Value Investing
Global Value: 10 Year CAPE
"Over seventy years ago Benjamin Graham and David Dodd proposed valuing securities with earnings smoothed across multiple years. Robert Shiller popularized this method with his version of this cyclically adjusted price-to-earnings ratio (CAPE) in the late 1990s, and issued a timely warning of poor stock returns to follow in the coming years. We apply this valuation metric across over thirty foreign markets and find it both practical and useful, and indeed witness even greater examples of bubbles and busts abroad than in the United States. We then create a trading system to build global stock portfolios based on valuation, and find significant outperformance by selecting markets based on relative and absolute valuation."
from NormR, 6:23 PM EST, 08/22/12, Value Investing
The secrets of See's Candies
"Charles A. See, a salesman from Ontario, opened the first See's shop in 1921 in Los Angeles. With its now iconic black-and-white tiles, it was made to look like the kitchen of his widowed mother, Mary. Today the shops still offer the same experience: walk-in customers can sample any piece."
from NormR, 1:50 PM EST, 08/22/12, Buffett
Tim McElvaine's conference
"Tim talks about his portfolio and the world more generally at his partners' conference."
from NormR, 12:07 PM EST, 08/22/12, Value Investing
Skilled work, without the worker
"The falling costs and growing sophistication of robots have touched off a renewed debate among economists and technologists over how quickly jobs will be lost. ... the advent of low-cost automation foretells changes on the scale of the revolution in agricultural technology over the last century, when farming employment in the United States fell from 40 percent of the work force to about 2 percent today."
from NormR, 8:57 AM EST, 08/19/12, Science
Indian firm accuses Veritas of extortion
"The report, Bilking India, is indeed frank. It focuses on three companies: IndiaBulls Power Limited, IndiaBulls Real Estate Limited and IndiaBulls Financial Services Limited. 'We figured out controlling shareholders of these companies were siphoning significant sums of money into private companies,' Monga says. 'We have all the publicly available financial statements for IndiaBulls. Under Indian corporate law, you have to disclose related-party dealings and parties controlled by the current shareholders and directors. 'So we looked at the financial statements of all those companies and that's how we figured it out. Our research report is pretty comprehensive. Instead of trying to tackle us on an intellectual basis by rebutting our facts, IndiaBulls is trying to arm-twist us into retracting our report.'"
from DanH, 5:02 PM EST, 08/10/12, Markets
Charting a map for investors
"The notion that the prices of stocks and bonds bear a sane relationship to their underlying value is not, at present, in high regard. Wall Street is widely said to be a betting parlor, if not an adjunct of the underworld. Its repute was even worse when Benjamin Graham published 'Security Analysis,' an investment manual that urged investors to calmly dissect securities and then plunge into issues trading at a sizable discount to intrinsic value. Stocks at a discount, Graham wrote, offered a 'margin of safety' - a cushion that would protect the investor from loss and, in time, assure him of a reasonable gain."
from NormR, 5:35 PM EST, 08/09/12, Graham
It's time to strike down the 'Amazon exemption'
"It's the dirty not-so-little secret of online and catalogue shopping: Buy from a retailer that doesn't have a physical presence in your home state, and you avoid state and local taxes on your goods at the time of purchase. Technically, if I buy Mass Effect from Amazon (AMZN), I'm required to send my $4.20 to New Jersey's coffers on my own. Yeah, right. Plenty of people don't even realize they're supposed to be sending that money in -- I didn't before I wrote this column. (Amazon collects taxes in only five of the 50 states.) Ask any tax expert or economist what percentage of these taxes is ever collected from consumers, and he will tell you it's virtually zero."
from DanH, 10:00 AM EST, 08/07/12, Taxes
Buffett Wager on U.S. Housing pays off
"Buffett added to holdings of Wells Fargo and Co. (WFC), the largest U.S. home lender, bought real-estate brokers and bid on mortgage assets of bankrupt Residential Capital LLC as he bets on a rebound in housing in the world's largest economy. Rather than spend his company's cash pile on European companies after a 2008 trip to the region, he made his largest acquisitions in the U.S., including Fort Worth, Texas-based railroad Burlington Northern Santa Fe. 'I don't know if he's lucky, smart or patriotic, but it's worked out for him,' Cliff Gallant, an analyst at KBW Inc., said in a phone interview. He estimates that Berkshire will post an operating profit of $1,750 a share for the second quarter, a 6.7 percent increase from a year earlier."
from DanH, 2:21 PM EST, 08/02/12, Buffett
Just how bad is the economy?
"The second-quarter GDP numbers came out. The newspapers and Republicans pounced on low growth and anemic job growth. The Democrats rebut growth is growth and tell us of the steady job gains. How bad is the economy?"
from NormR, 12:11 PM EST, 08/01/12, Economy
After this, therefore because of this
"Correlation isn't causation. It's a hint or a possibility, but no sure thing. This entire process is so difficult because we have so much trouble isolating causation. It's easy to see that bad traffic can cause one's commute to be longer than normal, but ascertaining causation where there are huge numbers of variables can be astonishingly difficult. Finding a causal chain in the hard sciences can be made easier by creating experiments that limit the variables or even eliminate all other possible variables. That's simply not possible in the markets."
from NormR, 11:05 AM EST, 08/01/12, Behaviour
Shiller-PE in emerging markets
"We test the reliability of the Cyclically Adjusted PE (CAPE) or Shiller PE as a forecasting and valuation tool for 35 countries including emerging markets. We find that the Shiller-PE is a reliable long-term valuation indicator for developed and emerging markets and we use the indicator to predict real returns on local equity markets over the next five to ten years."
from NormR, 8:42 PM EST, 07/27/12, Markets
Covered-call strategy: expectation vs reality
"Investors are snapping up exchange-traded funds (ETFs) that use covered call-writing strategies. The strategy isn't new - covered call writing has been used by portfolio managers for more than two decades - but retail investor interest is growing. Last month alone, covered-call ETFs grabbed a third of the nearly $270-million in net new sales of Canadian-based ETFs. But I suspect that a fundamental misunderstanding of covered call strategies is behind the gap between investor expectations and reality."
from DanH, 9:19 PM EST, 07/26/12, Hallett
Why we're driven to trade
"Most of the folks who say buy and hold is dead don't talk much about their long-term returns. Instead, they stress how they have done recently, a tactic that for many potential clients has the same irresistible appeal as the last couple of pulls on a slot machine."
from NormR, 1:12 PM EST, 07/22/12, Behaviour
Ideologue vs. Estonia
"'What Krugman has not mentioned at all,' says Urmas Varblane, 'is that when economic crisis entered Estonia in 2008, then we had already our own crisis.' For Varblane, who teaches economics at the University of Tartu, the real crisis was what came before the downturn: unsustainable, debt-driven growth that distorted the economy."
from NormR, 1:13 PM EST, 07/21/12, World
Muddled models
"Economists have regularly failed to predict recessions and were completely caught out by the recent financial crisis, as the Queen famously noticed. The shortfalls of the profession are old news. All the way back in 1994, Paul Ormerod wrote a book called The Death of Economics, lamenting the failure to forecast the Japanese recession or the collapse of the Exchange Rate Mechanism, from which Britain was turfed out in 1992. 'The ability of orthodox economics to understand the workings of the economy at the overall level is manifestly weak (some would say it was entirely non-existent)' Ormerod wrote."
from NormR, 12:40 PM EST, 07/21/12, Economics
Enhancing low-volatility
"Frequently the question comes up if low-volatility is 'expensive', measured by multiples such as P/E and P/B ratios. The investors asking this are sometimes worried about the expected performance of low-volatility in such an environment. In this note, we address this question using an extended 82-year sample period for the US stock market. We find that a generic lowvolatility strategy sometimes exhibits value (1990s) and sometimes growth (1930s) characteristics."
from NormR, 11:44 AM EST, 07/20/12, Markets
Third Avenue is buying HK real estate
"Wolf started buying up Centro's distressed debt at less than 60 cents on the dollar late last year, while it was still in bankruptcy. The debt was converted to equity, and now Third Avenue owns more than 13.8 million shares of the new company."
from NormR, 11:13 AM EST, 07/20/12, Funds
Why Berkshire is killing it right now
"The reason why the stock has gotten this burst of momentum is very simple - Berkshire is the single greatest play on the housing market resurgence extant. It's got the safety of a well-diversified business and it hits the housing market from virtually every angle - remodeling, re-mortgaging, recovering prices etc."
from NormR, 2:23 PM EST, 07/18/12, Buffett
Howard Marks interview
"Howard Marks, chairman of Oaktree Capital Group LLC, talks about Europe's debt crisis, the global economy and investment strategy."
from NormR, 8:57 PM EST, 07/16/12, Value Investing
A greater fool trade
"Investing has sunk to this: People are willing to pay a big premium for the privilege of getting their own money back, after fat fees, without interest - apparently because it gives them the illusion of earning a high yield. Desperate people do desperate things. Investors who are starved for yield do desperately stupid things."
from NormR, 8:54 PM EST, 07/16/12, Funds
Buffett speaks with Betty Liu
"Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., talks about JPMorgan Chase and Co.'s $4.4 billion trading loss at its chief investment office and the U.S. banking industry. Buffett also discusses his investment strategy and holdings, the U.S. economy and housing market, and the outlook for the euro."
from NormR, 3:43 PM EST, 07/13/12, Buffett
David and Goliath
"What should the strategy of the weak be when facing the strong? Does being an underdog - whether as a team a country or an individual - help foster creativity?"
from NormR, 12:31 AM EST, 07/10/12, Books
Online ads decline
"The average cost to reach 1,000 people with an online display ad fell to about $11.50 at the end of 2011 from $13.35 in late 2009, according to SQAD Inc., which tracks negotiated ad deals. In July 1998, Yahoo was getting about $25 per thousand, according to The Wall Street Journal."
from NormR, 12:29 AM EST, 07/10/12, Markets
Disrupting the pipeline business
"Perry is quickly discovering the power in cutting out a middleman. In pipelines, heavy oil can only flow if it's diluted. In railcars, it is shipped undiluted - and one shipper observed that undiluted crude is a lot like Bunker C, the sludgy fuel that is used to power ocean-going ships. So now small volumes of heavy crude are being loaded directly into those vessels, skipping refineries altogether. Perry relishes the disruption: 'We don't have to sell this heavy oil to refineries,' he says. Railcars are already 'breaking open the market.'"
from NormR, 2:03 PM EST, 07/01/12, Markets
Big Insurance worries about the future
"Life insurance used to be the quintessential safe and boring business in Canada. No more."
from NormR, 2:00 PM EST, 07/01/12, Stocks
Business out of excuses
"As other economies stumble, the Canadian economy looks golden. But any gold is badly tarnished when it comes to productivity. Output per hour worked in the Canadian business sector has grown less than 1% per annum over the past decade. Productivity from labour and capital combined has not grown at all. This is one of the worst records in Canadian history and one of the worst among developed economies."
from NormR, 1:59 PM EST, 07/01/12, Management
The great gouge
"In Episode One of The Invisible Hand, we'll see gouging at work everywhere from a Canadian hockey arena, to a busy agricultural market in Mali. We'll even introduce you to a man who was arrested for trying to sell generators at twice their normal price after a storm that left thousands of people homeless. And then we'll show you how to see gouging the way economists like Mike Munger see gouging -- as a force that gets much needed goods where they need to go, when they need to get there fastest."
from NormR, 10:21 PM EST, 06/30/12, Economics
10 reasons countries fall apart
"Some countries fail spectacularly, with a total collapse of all state institutions, as in Afghanistan after the Soviet withdrawal and the hanging of President Mohammad Najibullah from a lamppost, or during the decade-long civil war in Sierra Leone, where the government ceased to exist altogether. Most countries that fall apart, however, do so not with a bang but with a whimper. They fail not in an explosion of war and violence but by being utterly unable to take advantage of their society's huge potential for growth, condemning their citizens to a lifetime of poverty. This type of slow, grinding failure leaves many countries in sub-Saharan Africa, Asia, and Latin America with living standards far, far below those in the West."
from NormR, 3:47 PM EST, 06/30/12, World
The psychology of discounting
"Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. In an experiment, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for)."
from NormR, 9:54 PM EST, 06/28/12, Pricing
Tax amnesty offered to Americans in Canada
"The United States has announced details of a long-promised amnesty program for the millions of Americans living in Canada and offshore - many who haven't filed taxes for years."
from NormR, 11:33 AM EST, 06/27/12, Taxes
Sand in the gears
"Cleaning up this mess is what we mean by 'structural reform.' How to achieve it politically seems like a nightmare to me. Fighting each of ten thousand regulations one by one seems hopeless. Each one sounds good, each one taken alone seems minor, each one has an entrenched interest backing it and an army of bureaucrats whose jobs depend on its enforcement. And the economy dies the death of a thousand cuts. Can you really abolish it all in one fell swoop or grand bargain?"
from NormR, 10:59 AM EST, 06/27/12, World
Mortgaging the future
"Uncontrolled public debt threatens to rupture society as the older generation thrives at the expense of the young."
from NormR, 2:22 PM EST, 06/23/12, Debt
Mauboussin on buybacks
"This report looks at buybacks from four distinct points of view: companies, shareholders, prospective shareholders, and the media. Naturally, the issues are intertwined."
from NormR, 12:39 PM EST, 06/23/12, Stocks
Michael J. Burry commencement address
"2012 UCLA Department of Economics Commencement featuring Dr. Michael J. Burry as keynote speaker"
from NormR, 12:31 PM EST, 06/23/12, Markets
Operation Un-Twist
"I don't know who in their right mind is lending the US government money for 10 years at 1.59% and for thirty years at 2.67%. You have to believe inflation will be lower than these values just to get your money back, let alone make any real return. (The best I can do is to opine that these are not long-term investors, and they think they can get out before rates rise. I will admit that understanding such low rates is stretching my rational-investor efficient-market prejudices.) Well, no matter. When offered a screaming good deal, you should take it!"
from NormR, 1:27 PM EST, 06/21/12, Government
Desperately seeking income
"Many retail investors - and their advisors - are desperately seeking higher-income solutions in this ultra-low-rate environment. And institutional investment themes continually draw the retail sector to the trough - but usually only after the easy money has been made. Unlike institutions, however, retail investors must accept trade-offs. In an ideal world, retail exposure to institutional investment themes would boast abundant liquidity and reasonable fees to go along with their high income. But this has proven to be an elusive combination as high fees have squeezed returns and exposure is sacrificed for liquidity."
from DanH, 11:50 AM EST, 06/21/12, Hallett
Why Mutual Fund Boards Are Failing
"But while individual qualifications are rarely an issue, investor advocates say mutual funds allow far too many directors to serve on multiple boards. In the realm of public companies, people can draw criticism for sitting on more than a handful of boards. But YieldPlus's trustees, in 2010, each served on the boards of 72 other Schwab funds -- each with its own lengthy prospectus, regulatory filings and compliance issues to review. And that, it turns out, is nothing compared with Bruce Crockett's responsibilities on behalf of investors in the Invesco family of funds. Crockett, a former CEO of satellite company Comsat, is a shareholder watchdog for 140 stock and bond funds, roles for which he was paid $693,500 in 2011. For many critics, vetting so many funds is hard to fathom and is a prescription for overwhelmed and passive boards. 'Maybe we're just not as smart as they are,' says Steven Melnyk, a former ABC golf commentator-turned-investment banker, who says he has his hands full serving on three fund boards at Longleaf Partners. 'But I can't imagine how, if you're at a large fund complex, you could find the time to really review everything you need to look at.' The required reading alone, says John Bogle, founder of fund giant Vanguard, underscores the challenge. 'Mutual fund directors,' he says, 'are either not being paid nearly enough for what they should be doing -- or far too much for what they actually do.'"
from DanH, 11:46 AM EST, 06/21/12, Funds
A glimmer of hope?
"We've got a bank run. How to stop it? Ah, deposit insurance! But who is going to pay for that? 'Countries' are not credible. The whole problem is that 'countries' used their banks as piggy banks, stuffing them with sovereign debt. So, if the countries default on their sovereign debt, the banks go under, and the same 'countries' obviously don't have the money to guarantee deposits. A cross-national deposit insurance scheme, while banks are already stuffed with sovereign debt, is back to Plan A, run for the exit and stiff Germany with the bill."
from NormR, 7:01 PM EST, 06/18/12, World
The allure of long-term treasuries
"Financial advisers continue to profess that US treasuries should be a large part of a balanced portfolio. With the 10-year treasury yielding around 1.6%, the advice is hardly based on return expectations. It is also not due to expectations of mark to market gains. The up-side case in being long the 10-year treasury would be if the rate were to drop to the level of Japan's - just over half (a fairly unlikely outcome). The mark to market gain would be 7.5%. The downside case on the other hand would be if the 10-year yield rose to what it was just a year ago (or higher) - say around 3%. The mark to market loss would be around 11.5%. So the instrument effectively has an asymmetric payout profile and terrible current yield. What gives?"
from NormR, 6:58 PM EST, 06/18/12, Bonds
Newspaper Work
"Over the years, newspaper owners have built monuments to themselves in the form of giant buildings, statues and plaques commemorating their roles in their communities and the country at large. At the headquarters of The Buffalo News here, a sand-colored office building across the river from a fragrant Cheerios factory, the only visible sign of the owner is a small photograph hanging in the office of the publisher, Stanford Lipsey, signed, 'To the best in the business, Warren.'"
from NormR, 2:50 PM EST, 06/18/12, Buffett
Euro explosion
"I read last week say that payments are simply stopping in Greece. If there's a chance to pay in Drachma next month, why pay in euros now? Shipments are stopping -- if your invoice might get paid in drachma, no point in sending goods today. This is simple implosion."
from NormR, 9:19 PM EST, 06/17/12, World
Saving too much for retirement?
"So you're worried you haven't saved enough for your retirement? What if all the conventional wisdom is wrong and you are actually saving too much?"
from NormR, 4:10 PM EST, 06/17/12, Thrift
How spending declines with age
"Most of us already have a hunch that consumption declines with advanced age. If you had a middle-class upbringing, you might have had a grandmother who regularly gave cash gifts to her grandchildren every so often because she no longer spent the money on herself. She probably hadn't bought a car nor had she travelled anywhere for years. Once people cross over into their 80s, they just seem to be less inclined to spend their money. But we can't rely on anecdotal evidence for something as important as this. Fortunately, some hard data exist."
from NormR, 10:33 PM EST, 06/12/12, Retirement
How to kill a currency
"As the world considers the possible death of the euro, it's worth considering a famous historical example. Ok, it's not that famous. But it's still worth looking at: The break-up of the Austro-Hungarian currency union in 1918."
from NormR, 6:20 PM EST, 06/12/12, History
Europe really is on the brink
"The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history. As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself."
from NormR, 4:07 PM EST, 06/12/12, World
Failure and rescue
"But there continue to be huge differences between hospitals in the outcomes of their care. Some places still have far higher death rates than others. And an interesting line of research has opened up asking why. Researchers at the University of Michigan discovered the answer recently, and it has a twist I didn't expect. I thought that the best places simply did a better job at controlling and minimizing risks - that they did a better job of preventing things from going wrong. But, to my surprise, they didn't. Their complication rates after surgery were almost the same as others. Instead, what they proved to be really great at was rescuing people when they had a complication, preventing failures from becoming a catastrophe."
from NormR, 2:24 PM EST, 06/09/12, Behaviour
Exhausting the Earth's resources?
"But firms that make their money mining this planet say the Earth is one big, practically inexhaustible mine, with just as many unexplored corners as outer space. 'We think there are 10,000 more years of minerals left for civilization,' said Andrew McKenzie, a geologist and BHP Billiton PLC's chief executive for nonferrous metals. 'Civilization will change, of course, and there will be different minerals involved, but 10,000 more years.'"
from NormR, 2:12 PM EST, 06/09/12, World
Q ratios and stock market crashes
"At current valuations - and if this 110-year relationship continues - there is an expected (median) drawdown of 20%, and a 20% chance of a larger than 40% correction in the S&P500 within the next few years these probabilities continually reset as valuations remain elevated, making an eventual deep drawdown from current levels highly likely."
from NormR, 2:57 PM EST, 06/04/12, Markets
The austrians and the swan
"Over the past century-plus there have clearly been sizeable annual losses (of let's say 20% or more) in the aggregate U.S. stock market, and they have occurred with exceedingly low frequency (in fact only a couple of times). So, by definition, we should be able to call such extreme stock market losses 'tail events.' But can we say this, just because of their visible depiction in an unconditional historical return distribution?"
from NormR, 2:49 PM EST, 06/04/12, Markets
Equity Q ratio
"Tobin's Q ratio is the ratio between the market value of the stock market and against the aggregate net worth of the constituent stocks measured at replacement cost. It can be defined to include or exclude debt. We exclude debt for ease of calculation, and refer to it in this form as 'Equity Q'."
from NormR, 2:47 PM EST, 06/04/12, Markets
Spain on the brink
"'Spain has engaged in a policy of delay and pray,' Echavarren said in an interview. 'The problem hasn't been quantified by anyone because there is huge pressure not to tell the truth.'"
from NormR, 10:05 PM EST, 05/28/12, World
Predictability of the simple trading rules
"In a true out of sample test we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test is free of the sample selection bias, data mining, hindsight bias, or any of the other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient - instantaneously or gradually over time - but probably a result of bias."
from NormR, 6:05 PM EST, 05/28/12, Markets
Making no cents
"Inflation killed the farthing just as it has killed the Canadian cent. Small coins are living on borrowed time once they become useless for buying individual items. A single penny could buy the first British postage stamp, the Penny Black, in 1840 and was still sufficient to buy a small ice cream for a short-trousered Buttonwood in the late 1960s. Nowadays you would struggle to find a humble ice lolly selling for less than a pound."
from RobS, 3:48 PM EST, 05/28/12, Economics
Equity cult still dying
"Since then, two 50% bear markets have taken their toll. On our measures, the equity cult is now dead in continental Europe and Japan. It is looking decidedly unhealthy elsewhere. A bond cult has risen in its place."
from NormR, 3:45 PM EST, 05/28/12, Markets
A run they cannot stop
"It's been a week since shares in Bankia plummeted on reports, later denied, that customers were pulling deposits out of the Spanish lender. Fears of a full-scale bank run in Greece have not yet materialised. But the possibility of a deposit run in Europe's peripheral states is still very much alive. It is also the thing that policymakers are least prepared for."
from NormR, 3:41 PM EST, 05/28/12, World
Information suppression in competitive markets
"Following Becker (1957) we ask whether competition eliminates the effects of behavioral biases. We study products with add-ons. In competitive markets with costless communication, Bayesian consumers infer that hidden prices are likely to be high prices. Hence, firms choose not to shroud information. However, information shrouding may occur in an economy with some myopic consumers. Such shrouding creates an inefficiency. Sometimes firms have an incentive to eliminate this inefficiency by educating their competitors' myopic consumers. However, if add-ons have close substitutes, a"
from NormR, 2:41 PM EST, 05/28/12, Pricing
'Fair and square' pricing? That'll never work
"Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love. Shoppers hated it."
from NormR, 2:32 PM EST, 05/28/12, Pricing
Why value stocks lag
"Wherein it is observed that value stocks have performed poorly of late. If the pattern holds, value portfolio managers will start to be fired and people will chase after expensive stocks like Facebook. It should all set up some rather good times for patient value investors."
from NormR, 11:08 AM EST, 05/26/12, Value Investing
Dividend stocks for bargain hunters
"Fortunately, there is good news even during a rough patch like this. Lower prices can be an opportunity for bargain hunters. In fact, a bear market can be an excellent time to track down a few juicy dividend stocks while they're on sale."
from NormR, 10:37 PM EST, 05/25/12, Dividends
Buffett's idiot challenge seized by Jain
"Ajit Jain, who helped build Berkshire Hathaway Inc. into a $200 billion firm by underwriting risks that others shunned, is hunting for insurance-premium growth that his boss Warren Buffett says may be a thing of the past."
from NormR, 5:48 PM EST, 05/23/12, Buffett
Buffett deal secrecy
"They hammered out the deal in a 20-minute telephone call on Sept. 23 in which Trott said he wanted Buffett to be the "cornerstone" of the transaction. After they reached a tentative agreement, Buffett told Trott not to telephone until later that afternoon because he had an important appointment. "He told me he promised his grandkids to take them to Dairy Queen, and he was not to be interrupted," Trott said."
from NormR, 4:07 PM EST, 05/23/12, Buffett
The Future is More Than Facebook
"The debate about whether America will own the global economy in the 21st century or else become a dude ranch for rich Chinese and Brazilians hinges on whether innovation can break out of the box. Can it go mainstream and transform the really big things: transportation, energy, electricity, food production, water delivery, health care and education? If it can't do that - or if it is thwarted by high taxes and complex regulation - then welcome to the new normal of 2% annual growth. Our future will become sadly familiar. Just follow Spain, France and Great Britain down history's sinkhole of lost status and influence. But America can do better than that, and it will. In fact, the seeds are being planted now."
from RobS, 3:40 PM EST, 05/23/12, Economy
Dissecting shareholder yield
"We study a variety of previously examined payout yields over time: dividends, share repurchases cash flow, and equity issuance. We confirm on a newer dataset what other research has found dividend yield no longer works, but more complete measures of shareholder yield hold promise. We contribute to the literature by examining an additional variable to payout yield, net debt pay down. The addition of net debt pay down helps performance, but is not a panacea. We find that regardless of the yield metric chosen, the predictive power of separating stocks into high and low yield portfolios has lost considerable power in the last twenty years. We also explore the concept of separating yield metrics by payout percentage as a way to salvage the predictability of yield metrics. We find no evidence that using payout percentage within a yield category can systematically improve portfolio performance."
from NormR, 12:47 PM EST, 05/23/12, Dividends
Creative destruction hits university
"Without diminishing learning outcomes, automated teaching software can reduce the amount of time professors spend with students and could substantially reduce the cost of instruction, according to new research."
from NormR, 9:48 AM EST, 05/23/12, Academia
Norway's day traders take on the algos
"Yet despite the prevalence of these supposedly smart machines, some traders are making a tidy profit getting the better of these systems, which can make costly mistakes if they are not set up correctly or if their trading patterns can be understood."
from NormR, 12:20 PM EST, 05/17/12, Markets
Leaving the Euro
"Some two decades ago, when Europe's leaders worked out the details of their grand vision to connect the European Union with a single currency, virtually every economist on this side of the Atlantic - and most of those on the other - figured out that the euro would be fatally flawed."
from NormR, 5:31 PM EST, 05/16/12, World
The crazy way Europe measures inflation
"There's a long list of things that could kill the euro zone. But the most deadly might also be the most overlooked. It's the crazy way that Europe measures inflation."
from NormR, 4:45 PM EST, 05/16/12, World
What price a slowing population?
"Nomura has taken a shot at calculating just how significantly population changes can hit GDP ..."
from NormR, 4:13 PM EST, 05/16/12, World
Buy Low, Sell High
""Buy low, sell high" is often quoted in finance. While its wisdom is hard to question, its application is hardly extensive. To understand why this is so, it is helpful to put ourselves in the shoes of a typical investor."
from NormR, 9:21 AM EST, 05/13/12, Value Investing
When Julia tried to start a business
"Last week, the Obama Administration released a campaign piece about the life of Julia, showing how Julia benefited from taxpayer largess and oversight by the state at many points in her life. But the campaign piece was incomplete, and missed the part where Julia attempted to start her own business. Long before she started a web business out of her home, she tried to start a retail business."
from NormR, 7:27 PM EST, 05/11/12, Funds
The devil in HML's details
"This paper challenges the standard method for measuring "value" used in academic work on factor pricing and behavioral finance. The standard method calculates book-to-price (B/P) at portfolio formation using lagged book data, aligns price data using the same lag (ignoring recent price movements), and hold these values constant until the next rebalance. We propose two simple alternatives that use timely price data while retaining the necessary lag for measuring book. We construct portfolios based on the different measures for a US sample (1950-2011) and an International sample (1983-2011). We show that B/P ratios based on timely prices better forecast true (unobservable) B/P ratios at fiscal yearend. Value portfolios based on the most timely measures earn statistically significant alphas ranging between 305 and 378 basis point per year against a 5-factor model itself containing the standard measure of value, as well as market, size, momentum and a short term reversal factor."
from NormR, 9:44 AM EST, 05/11/12, Value Investing
The flaws of finance
"James Montier discusses how bad models, bad behavior, bad incentives, and bad policies interact to create perfect storms for markets"
from NormR, 10:50 PM EST, 05/09/12, Montier
Red tape keeps poor people out of jobs
"One way to help improve the lives of low income people is to focus on how the government can give them more. Sometimes this can be very effective, and even desirable. But a far less common way is to look at how the government can stop doing stuff that is making them worse off. Occupational licensing is a great example of this."
from NormR, 10:57 PM EST, 05/08/12, Government
Can Fairfax's bear market strategy work for you?
"Prem Watsa is worried about the stock market. In fact, the famed value investor and CEO of Fairfax Financial has hedged his company's stock portfolio against a market downturn. When an investor as successful as Mr. Watsa adopts such cautious measures, should ordinary investors follow his lead?"
from NormR, 2:03 PM EST, 05/05/12, Value Investing
Another Warren Buffett?
"Buffett is a man of character, unequaled in the investment business. He folded his private partnership in 1969 because he didn't want his investors to be rocked by the bear market he saw coming."
from NormR, 11:02 AM EST, 05/05/12, Buffett
We're spent
"This is why pleas for 'Stimulus now, austerity later' in the U.S. and Europe have the ring of chalkboard economics: Looks great in (someone's) theory, but out in the real world the market and the citizens see right through it. The biggest economic problems are political: And the biggest political problem is commitment."
from NormR, 11:47 PM EST, 05/04/12, Government
Berkshire's Charlie Munger speaks
"Vice-chairman of Berkshire Hathaway Corporation Charlie Munger talks to CNBC's Becky Quick about the consistency of Berkshire, Warren Buffett's health, the company's succession plan and his feelings on the future of the company."
from NormR, 4:25 PM EST, 05/04/12, Munger
Lessons of the recession
"In fact, today's economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable. Rather than attempting to return to their artificially inflated gdp numbers from before the crisis, governments need to address the underlying flaws in their economies."
from NormR, 12:56 PM EST, 05/03/12, World
What was the very first hedge fund?
"The legendary economist and investor Benjamin Graham is widely known as the father of value investing. He may also be the father of the hedge-fund industry. While most historians and industry professionals credit Alfred Winslow Jones with launching the first hedge fund in 1949, some people, including Graham's protege, Warren Buffett, disagree."
from NormR, 3:13 PM EST, 05/01/12, Graham
Which price ratio outperforms the EM?
"Having just anointed the enterprise multiple as king yesterday, I'm prepared to bury it in a shallow grave today if I can get a little more performance. Fickle."
from NormR, 3:09 PM EST, 05/01/12, Value Investing
Which price ratio best identifies value stocks?
"Which price ratio best identifies undervalued stocks? It's a fraught question, dependent on various factors including the time period tested, and the market capitalization and industries under consideration"
from NormR, 3:05 PM EST, 05/01/12, Value Investing
Seattle office tower sells for 4x 2009 sale price
"Investors priced out of trophy office properties in New York and Washington, D.C. are now often looking for top-tier buildings in cities like Seattle and Houston. One recent deal that drove home that point: the sale of the Russell Investments Center in Seattle by Northwestern Mutual Life Insurance Co. for $480 million. That's more than four times the $115 million that the 42-story property fetched in 2009. The yield was under 5%, according to people familiar with the deal."
from DanH, 9:14 AM EST, 05/01/12, Real Estate
Price controls in action
"Similar problems have played out with other agricultural products under price controls, like lags in production and rising imports for beef, milk and corn. Waiting in line to buy chicken and other staples, Jenny Montero, 30, recalled how she could not find cooking oil last fall and had to switch from the fried food she prefers to soups and stews. "It was good for me," she said drily, pushing her 14-month-old daughter in a stroller. "I lost several pounds.""
from NormR, 10:45 AM EST, 04/30/12, World
Cutting back on bonds
"The strongest consensus I could find relates to interest rates. There are few managers who aren't running light on bonds and/or keeping their maturities short (including holding cash) to protect against rising rates. Carl Hoyt at Seymour Investment Management used Warren Buffett's words to make the point. "Current rates ... do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.""
from NormR, 5:53 PM EST, 04/28/12, Bonds
Mawer Q1
"In Fairfax Financial's Annual Letter to Shareholders, Prem Watsa observes, "there are more condos in construction in Toronto than in the 12 major cities in the U.S. combined, including New York and Los Angeles." According to the Toronto Real Estate Board, the average condominium in the City of Toronto went for $361,488 in the fourth quarter of 2011, up 7% year-over-year. Condo sales were up 10.5% year-over-year. The average sales price to list price registered 98%, which is well above the historical long-term average. The Toronto condo market is hot. Looking at the situation from a national perspective, the Canadian Real Estate Association reported that the average house price in Canada was $372,763 in February 2012. This compares to the $203,100 average price reported by the National Association of Realtors in the United States. Our question is simple: why should the average house in Canada sell for 84% more than the average house in the United States over the long run?"
from NormR, 5:47 PM EST, 04/28/12, Real Estate
Real house prices
"The Shiller graph has suggested to many observers that house prices track inflation (i.e. that house prices adjusted for inflation are stable - except for bubbles). Last year I pointed out the slope depends on the data series used, and that if Professor Shiller had used either Corelogic or the Freddie Mac house prices series, before Case-Shiller was available, there would a greater upward slope to his graph."
from NormR, 5:44 PM EST, 04/28/12, Real Estate
Corruption Law
"Increasingly, the FCPA has become a tool for American prosecutors to police the world's large multinationals. Corporations whose shares trade on American exchanges are considered fair targets. So are corrupt transactions that pass through American banks. Using that theory, the Justice Department brought a case against against Japan's JPC, a company that, as the Shearman and Sterling report put it, had 'no apparent commercial connection with the United States whatsoever.' Rather than test the government's arguments in court, and risk criminal convictions for their executives, most companies have chosen to settle using deferred prosecution agreements."
from NormR, 5:30 PM EST, 04/28/12, Law
McGuinty's high-income tax
"The new, higher marginal tax rate proposed comes dangerously close to the psychological threshold of 50 per cent where individuals become extremely frustrated with the prospect of paying more to the government than they keep for themselves. Mr. McGuinty is only fooling himself if he thinks that wealthy Ontarians will do nothing about it."
from NormR, 10:53 PM EST, 04/24/12, Taxes
Origins of the indebted homeowner
"Not long after the economic crisis began, the president's landmark Conference on Homeownership reported that 'down payments of 10 percent, 5 percent, and even nothing down' had become common practice in the home-mortgage market. Reliance on second mortgages and novel financing terms, the report noted, were also widespread. Although these developments sound all too familiar, this Conference on Homeownership was held in 1931 and the president sponsoring it was Herbert Hoover, not George W. Bush or Barack Obama. We often think of the expansion of easy mortgage financing as a relatively recent development, but the growth of indebted homeownership has older and more complicated origins."
from NormR, 11:13 PM EST, 04/22/12, History
Exercise to a better brain
"The value of mental-training games may be speculative, as Dan Hurley writes in his article on the quest to make ourselves smarter, but there is another, easy-to-achieve, scientifically proven way to make yourself smarter. Go for a walk or a swim. For more than a decade, neuroscientists and physiologists have been gathering evidence of the beneficial relationship between exercise and brainpower."
from NormR, 1:10 PM EST, 04/21/12, Health
Modern portfolio theory is bunk
"A basic tenet of modern portfolio theory is that investors who are willing to take on greater risk can expect a greater reward. But a new study released this week turns that belief on its head, claiming that less risky stocks, as measured by volatility, actually outperform more risky, or more volatile, stocks."
from NormR, 1:02 AM EST, 04/21/12, Markets
Owning too much real estate
"In the past, young families first purchased a starter home, lived in it for a few years and then sold it and upgraded to a bigger home to accommodate a growing family. These days, many families appear to opt to rent out their starter home when upgrading to a larger property."
from NormR, 12:56 AM EST, 04/21/12, Real Estate
Dividend stocks aren't fail-safe
"Dividend investing has many sterling qualities but protection against downturns is not one of them. With few exceptions, dividend stocks fall just as hard as other stocks when the market crashes."
from NormR, 12:50 AM EST, 04/21/12, Dividends
Bias in government forecasts
"Clearly, part of the blame lies with voters who don't want to hear that budget discipline means cutting programs that matter to them, and with politicians who tell voters only what they want to hear. But another factor has attracted insufficient notice: systematically over-optimistic official forecasts."
from NormR, 12:49 AM EST, 04/21/12, Government
Doctored papers
"Dr. Fang became curious how far the rot extended. To find out, he teamed up with a fellow editor at the journal, Dr. Arturo Casadevall of the Albert Einstein College of Medicine in New York. And before long they reached a troubling conclusion: not only that retractions were rising at an alarming rate, but that retractions were just a manifestation of a much more profound problem - "a symptom of a dysfunctional scientific climate," as Dr. Fang put it. Dr. Casadevall, now editor in chief of the journal mBio, said he feared that science had turned into a winner-take-all game with perverse incentives that lead scientists to cut corners and, in some cases, commit acts of misconduct."
from NormR, 7:36 PM EST, 04/20/12, Behaviour
Buffett battles cancer
"This is to let you know that I have been diagnosed with stage I prostate cancer. The good news is that I've been told by my doctors that my condition is not remotely lifethreatening or even debilitating in any meaningful way. I received my diagnosis last Wednesday. I then had a CAT scan and a bone scan on Thursday, followed by an MRI today. These tests showed no incidence of cancer elsewhere in my body."
from NormR, 6:30 PM EST, 04/17/12, Buffett
Howard Marks at NYSSA
"Howard Marks, legendary investor and Chairman of Oaktree Capital Management, spoke at New York Society of Securities Analysts. He is also the author of the book, "The Most Important Thing: Uncommon Sense for the Thoughtful Investor." Distressed Debt Investing was in attendance as he presented his views on the topic of "Human Side of Investing.""
from NormR, 5:02 PM EST, 04/14/12, Value Investing
Lessons learned in the wealth management
"The investment industry has the attention span of a 4-year-old. Two of its key drivers - compensation (fees and commissions) and past performance (what's done well recently) - lead to changing strategies and a steady stream of new products. Unfortunately, this hyperactivity kindles clients' psychological need to take action (especially males). It makes a "stay the course" strategy, which is often the best option, difficult to maintain."
from NormR, 4:55 PM EST, 04/14/12, Funds
Richard Koo presentation
"His new presentation looks at the current state of the global economy, what's been tried to jump start things, what's worked, and what hasn't."
from NormR, 4:52 PM EST, 04/14/12, World
New funds, old flaws
"But you shouldn't confuse ETFs with a newer mutation called 'exchange-traded notes,' or ETNs. These instruments, 284 at last count, have gathered $133 billion in assets, nearly all in the past three years by comparison, 1,154 ETFs hold $1.1 trillion in total assets. The ETNs often track currencies, commodities and other assets rarely held by traditional ETFs - and can surprise unwary investors with high costs, quirky taxation and prices that may wander far from their asset value."
from NormR, 2:33 PM EST, 04/14/12, Indexing
Leucadia Letter
"A world-wide recovery in the near future is not a foregone conclusion. Europe and the future of the Euro are far from settled. Growth in China is slowing and the risk of a "Chinese Spring" cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a dysfunctional government, we believe that less financial leverage is better. We expect many other companies and investors share this view. We emphasize that we are not pessimistic, just cautious."
from NormR, 4:52 PM EST, 04/13/12, Value Investing
'Fortune 500' of 1812
"Fortune magazine began publishing annual rankings of U.S. corporations by revenue in 1955. Ever since, scholars and forecasters have analyzed changes in the Fortune 500 to help inform their judgments about industry concentration and the relative importance of different sectors of the economy. Historians would love to have snapshots of the nation's largest corporations at earlier dates. Unfortunately data are scarce, especially before the Civil War. Based on our research, however, it is now possible to create a sort of historical 'Fortune 500' ranked by corporate capitalization -- the total sum stockholders were supposed to pay for their shares."
from NormR, 6:02 PM EST, 04/11/12, History
The dividend-fund dilemma
"Sooner or later, the markets always punish investors who do the right thing for the wrong reason. Some investors in dividend-oriented stock funds might end up learning that lesson the hard way."
from NormR, 12:51 PM EST, 04/08/12, Dividends
Dollars, gold, or Tide?
"A laundry soap has developed as much legitimacy as the dollar to serve as currency. What's going on?"
from NormR, 12:18 AM EST, 04/07/12, Crime
High-speed trading hurts ETFs
"Maybe someone can explain to me how a trading system where virtually all the orders are canceled helps capital markets or investors. Key liquidity measures like bid/ask spreads and depth of book depend on order information. With high-speed trading, almost all of that information is false. In short, it seems to me that high-speed trading promises liquidity, but delivers something else entirely: market manipulation."
from NormR, 2:32 PM EST, 04/06/12, Indexing
No normal recovery
"With the U.S. economy yielding firmer data, some researchers are beginning to argue that recoveries from financial crises might not be as different from the aftermath of conventional recessions as our analysis suggests. Their case is unconvincing."
from NormR, 11:52 PM EST, 04/03/12, History
Many discoveries don't hold up
"During a decade as head of global cancer research at Amgen, C. Glenn Begley identified 53 'landmark' publications -- papers in top journals, from reputable labs -- for his team to reproduce. Begley sought to double-check the findings before trying to build on them for drug development. Result: 47 of the 53 could not be replicated."
from NormR, 8:27 PM EST, 04/02/12, Health
The unintended lifetime commitment
"When entering a marriage, it's a bad sign if you start planning your exit before vows are ever exchanged. While many of life's lessons extend to the world of investing, the exit strategy is a notable exception. Unlike in marriage, investors should spend more time contemplating their exit strategy to help avoid the unexpected liquidity trap."
from DanH, 2:08 PM EST, 04/01/12, Hallett
Saved from tsunami by one man
"'Corporate ethics and compliance may be similar, but their cores are different,' says Oshima from his home in Sendai. 'From the perspective of corporate social responsibility, we cannot say that there is no need to question a company's actions just because they are not a crime under the law.'"
from NormR, 11:05 PM EST, 03/31/12, Behaviour
Bain/Romney facilitated staff's swelling IRAs
"In one particularly successful deal, Bain increased the equity value of a company it had acquired by 36-fold in 20 months. But some Bain employees saw a 583-fold increase over the same period on IRA money they invested in the special share class of that company. Being in an IRA, the gain could then be rolled over, without initially subtracting taxes, into fresh Bain deals, for years of compounding. Bain's co-investment arrangements, not previously reported in detail, offer a possible explanation of the large size of Mr. Romney's IRA: between $20.7 million and $101.6 million, according to his finance disclosures. It is unusual for such an account, a vehicle devised to help workers save for retirement and one to which contributions are limited, to grow so large."
from DanH, 6:22 PM EST, 03/29/12, Taxes
Chou Annual
"Here is a funny story of a French tourist visiting Canada. Pierre, an expensively attired middle-aged French tourist on his first trip to Toronto strolls into the bar of his 5-star hotel. The elegant hostess smiles, leads him to a table and beckons her prettiest server to take care of him. They talk, flirt a little and she giggles a bit. When he draws her closer and whispers in her ear, she gasps and ..."
from NormR, 8:18 PM EST, 03/27/12, Value Investing
Stocks are a little pricey: Schiller
"'Technology has a's part of our sense of the future,' he says. 'We've got an exciting thing going. All the new gadgets are just so breathtaking, there's going to be huge fortunes made. That kind of excitement I do feel in the air.' Having said that, Shiller is not predicting another tech bubble, far from it. He says predicting bubbles is impossible: 'It's like predicting an epidemic. It depends on the contagion of emotions and of ideas.' Furthermore, the author of Irrational Exuberance, which presaged the bursting of the tech bubble, and Animal Spirits believes there's a lot to be worried about."
from DanH, 2:51 PM EST, 03/27/12, Value Investing
Why we must end too big to fail
"TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy. As a nation, we face a distinct choice. We can perpetuate TBTF, with its inequities and dangers, or we can end it. Eliminating TBTF won't be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance."
from NormR, 9:40 PM EST, 03/22/12, Government
What goes up must come down
"Today I find myself once again digging through this toolkit, searching for a way to understand the development of profit margins. Currently, U.S. profit margins are at record highs according to the NIPA data. More freakish still is that these record high profit margins are coming during the weakest economic recovery in post-war history."
from NormR, 6:26 PM EST, 03/21/12, Montier
Let them not eat cake
"Richter has been collecting food from places like the Ohav Zedek synagogue and bringing it to homeless shelters for more than 20 years, but recently his donation, including a "cholent" or carrot stew, was turned away because the Bloomberg administration wants to monitor the salt, fat and fiber eaten by the homeless. Richter said he was stunned. He said his family has eaten the same food forever and flourished."
from NormR, 6:55 PM EST, 03/20/12, Government
What would Graham say about Goldman?
"We were reminded, since the Greg Smith/Goldman Sachs brouhaha has still not died down, that Benjamin Graham had quite a bit to say about conflicts of interest in Chapter 21 of the 1940 edition of his great book Security Analysis."
from NormR, 6:50 PM EST, 03/20/12, Graham
Unnecessary complexity
"Keep it simple - it sounds so easy and yet very few people on Wall Street are capable of it. Complexity negatively infiltrates the investment process in a number of ways. One way is analysis paralysis. Undoubtedly, we've all worked with analysts that are guilty of this crime. The guilty analyst will have a 75-page spreadsheet analyzing a company down to the return on capital of the administrative assistant to the head janitor, but won't be able to make a call on whether the stock is going up or down. The analyst knows so much, he or she is in fact paralyzed and unable to make a decision."
from NormR, 6:45 PM EST, 03/20/12, Markets
Financial Repression
"As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of "taxation" that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt. Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers."
from NormR, 6:47 PM EST, 03/18/12, Government
Greece: same old high yields
"Yields on the Greek government's brand new bonds are already trading at distressed debt levels - suggesting that despite February's bailout package investors still see a strong chance that Greece will not be able to sustain even its much-reduced debt burden. As the first week of trading closed, yields on the benchmark 10-years were at 18.24 percent - down from Tuesday's closing high, but still the highest in the euro zone."
from NormR, 7:58 PM EST, 03/17/12, World
The end of Asia's demographic dividend
"Demographics is not destiny, though it does set the parameters of possibility. Asia has grown used to a demographic tail wind. For many of its economies, that wind is about to start blowing the other way."
from NormR, 9:06 PM EST, 03/15/12, World
Hubble, bubble, index trouble
"There's one final hypothesis we can derive from the index bubble effect. If this theory is correct it would mean that active fund managers have been faced with an almost impossible task over the past twenty years, because they've been battling the wall of money cascading into index trackers. In such an environment it would mean that the average quality of active managers has declined because it's impossible to discern who's good and who's not and would also suggest that all of the careful and clever studies designed to show how active management is hopeless are so much wastepaper. How ironic would that be: genuinely good active fund managers driven to the margins by index trackers, researchers wasting their time proving a general theory of active management failure undermined by an environment biased by flow of funds to index trackers while passive funds themselves are the subject of a behaviorally induced bubble, caused by investors seeking to escape the underperformance of said active managers. It's reflexivity writ large. Hubble bubble: modern finance is a witches' brew indeed."
from NormR, 10:58 PM EST, 03/14/12, Indexing
Meredith Whitney was right
"The more general point that Meredith Whitney was trying to make about public debt -- that municipal finances in this country were a mess that was only going to get messier -- was dead on."
from NormR, 10:39 PM EST, 03/12/12, Debt
Concrete Equities fraud
"Viewers of the early seasons of CBC's Dragons' Den will remember the oft-repeated ad wherein an improbably young, somewhat swarthy company president touted the safe, superior returns of an investment company called Concrete Equities. Between static promo shots of office buildings, Vincenzo De Palma extolled the security of investing in income-producing real assets in lazy diction, as if an up-and-comer like him lacked the time to pronounce every consonant. But Concrete Equities was the entrepreneurial reality show's lead sponsor, and that lent it a sheen of respectability. Had the producers at the CBC put the company's management in front of the Dragons, they likely would have discovered De Palma and Co. were neither licensed nor qualified to market and manage a portfolio of real estate investments. Following a two-year investigation, he and three other principals in Calgary-based Concrete Equities were disciplined in January by the Alberta Securities Commission - including the largest fine ever imposed on an individual in the province - for having sold investments without being registered, and lying to investors. But their comeuppance didn't occur before they had raised $118 million from 3,700 people and come close to losing it all."
from NormR, 4:41 PM EST, 03/08/12, Crime
Pity about your retirement
"Buying a house can wreck your retirement. Did your real estate agent or bank not tell you that? Of course not. All they worry about is whether you're making enough money to carry your debts. The question of whether there's enough money left over to save for retirement is of zero interest to them."
from NormR, 4:38 PM EST, 03/08/12, Real Estate
A monopoly a day
"As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an 'agency model,' under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price."
from NormR, 4:28 PM EST, 03/08/12, Pricing
2600 years of history in one object
"A clay cylinder covered in Akkadian cuneiform script, damaged and broken, the Cyrus Cylinder is a powerful symbol of religious tolerance and multi-culturalism. In this talk Neil MacGregor, Director of the British Museum, traces 2600 years of Middle Eastern history through this single object."
from NormR, 4:11 PM EST, 03/08/12, History
The myth of American health care
"There are a lot of misconceptions about how America's health-care system compares to those of the other developed countries, including France. Both liberals and conservatives believe that the American system is a 'free-market' or 'capitalistic' one, and that European systems providing universal coverage are 'socialized.' In this article, I'll explain where both of these conceptions go wrong."
from NormR, 3:27 PM EST, 03/08/12, Health
Why are lawyers so expensive?
"I've addressed the question of why (large, top-tier) law firm billing rates are so high: Enormous overhead, sticky billing rates and salaries, and a general institutional insensitivity to costs until clients kick and scream about them. But what about that bimodal distribution and all of those out-of-work lawyers?"
from NormR, 3:17 PM EST, 03/08/12, Pricing
Retailers don't recover from bankruptcy
"A&P, which at its peak owned almost 16,000 grocery stores in the U.S. and Canada, is the latest in a very long line of retailers that have turned to the bankruptcy courts to fix their problems. A few have been successful."
from NormR, 2:57 PM EST, 03/08/12, History
QE is eating your pension
"Gilt yields are often used as a proxy for both investors' future earnings and inflation, exacerbating shortfall estimates. Ms Segars argued that, as a result, companies whose pension schemes already had large shortfalls could be forced to make even bigger contributions. "That diverts money away from jobs and investment and will lead to further closures of final salary pensions in the private sector," she said."
from NormR, 2:49 PM EST, 03/08/12, Pensions
The Warren Buffett of....
"Our article on Paul Desmarais called him "The Warren Buffett of Canada," which made us start wondering how many "Warren Buffett ofs" there are. We decided to do a deep Google search to try and put together a comprehensive list ..."
from NormR, 2:44 PM EST, 03/08/12, Buffett
Mohnish Pabrai lecture
"Mohnish Pabrai, Managing Partner, Pabrai Investment Funds talks to Ivey students"
from NormR, 3:36 PM EST, 03/07/12, Value Investing
Behavioral Biases of Mutual Fund Investors
"We examine the effect of behavioral biases on the mutual fund choices of a large sample of U.S. discount brokerage investors using new measures of attention to news, tax awareness, and fund-level familiarity bias, in addition to behavioral and demographic characteristics of earlier studies. Behaviorally-biased investors typically make poor decisions about fund style and expenses, trading frequency, and timing, resulting in poor performance. Furthermore, trend-chasing appears related to behavioral biases, rather than to rationally inferring managerial skill from past performance. Factor analysis suggests that biased investors often conform to stereotypes that can be characterized as "gambler", "smart", "overconfident", "narrow-framer", and "mature"."
from DanH, 10:19 AM EST, 03/07/12, Behaviour
High-yield default rates remain low
"For the 10-year period ended Dec. 31, 2011, the average trailing 12 month default rate on high-yield U.S. bonds was 5.1%, with a median of 2.3%. The current rate remains below the historical average and median, but moved up slightly at the end of January to 1.7%."
from DanH, 10:04 AM EST, 03/07/12, Bonds
4 things to remember with today's low rates
"For those seeking a safe and dependable income source, today's painfully low interest rates pose a real challenge. Bank of Canada Governor Mark Carney regularly reminds us that persistent low rates can be dangerous because they incent excessive borrowing. But low rates also pose some risk to the asset side of investors' balance sheets. It looks like low rates will be here for a while so here are a few things to keep in mind when structuring investment portfolios."
from DanH, 6:33 PM EST, 03/02/12, Hallett
Time to panic
"More worrisome is where consumers have been getting their spending money. As wages stagnate and credit card use levels off, Canadian consumers have increasingly turned to their homes as a source of cash. As of last year, Canadians had pulled roughly $220 billion from their houses in revolving home equity lines of credit, a per capita amount three times larger than the U.S. at its peak."
from NormR, 1:09 AM EST, 03/01/12, Real Estate
Choking Greece's economy
"Greece has more economic problems than just excessive government debt and a 21% unemployment rate, it's got an excessive government bureaucracy that is choking off private enterprise and small businesses."
from NormR, 10:45 PM EST, 02/29/12, World
Raiding the coffers
"The New York Times has an excellent piece today on how state pension plans are borrowing from their pension plans to fund their own pension contributions. This Alice-in-wonderland approach is a salutary reminder of the dangers of funded pension plans they create a pot of money that politicians are tempted to use for their own devices."
from NormR, 5:49 PM EST, 02/28/12, Pensions
Warren Buffett Interview
"If anybody is thinking about buying a home - five years ago they couldn't buy them fast enough because they thought they were going to go up, and now they don't buy them because they think they're going to go down. And interest are far lower. It's a way, in effect, to short the dollar because you can - you can take a 30-year mortgage and if it turns out your interest rate's too high, next week you refinance lower. And if it turns out it's too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class now."
from NormR, 7:59 PM EST, 02/27/12, Buffett
Another look at the performance of active funds
"In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds. We find that the return spread between the best performing actively managed funds and a factor-mimicking portfolio of passive funds is positive and as large as 3 to 5 percent per annum. Our findings are inconsistent with the view that active funds have little or no incremental economic value over low-cost index funds."
from NormR, 4:18 PM EST, 02/27/12, Funds
Wildcatters, speculators and carried-interest
"Many analysts have questioned the tax policies governing an important component of Romney's income, a form of compensation known as 'carried interest.' Portrayed in the press and academic writing as a modern product of hedge funds and private equity, carried-interest arrangements and the tax issues surrounding them actually have a long history, linked to oil speculation and wildcatting at the turn of the 20th century."
from NormR, 8:50 PM EST, 02/26/12, History
Why are Harvard graduates in the mailroom?
"Hollywood is, in some ways, the model lottery industry. For most companies in the business, it doesn't make economic sense to, as Google does, put promising young applicants through a series of tests and then hire only the small number who pass. Instead, it's cheaper for talent agencies and studios to hire a lot of young workers and run them through a few years of low-paying drudgery. (Actors are another story altogether. Many never get steady jobs in the first place.) This occupational centrifuge allows workers to effectively sort themselves out based on skill and drive. Over time, some will lose their commitment others will realize that they don't have the right talent set others will find that they're better at something else. When it's time to choose who gets the top job or becomes partner, managers subsequently have a lot more information to work with. In the meantime, companies also get the benefit of several years of hard work from determined young people at below-market pay."
from NormR, 2:32 PM EST, 02/25/12, Economy
Berkshire Hathaway 2011
"At our limit price of 110% of book value, repurchases clearly increase Berkshire's per-share intrinsic value. And the more and the cheaper we buy, the greater the gain for continuing shareholders. Therefore, if given the opportunity, we will likely repurchase stock aggressively at our price limit or lower. You should know, however, that we have no interest in supporting the stock and that our bids will fade in particularly weak markets. Nor will we buy shares if our cash-equivalent holdings are below $20 billion. At Berkshire, financial strength that is unquestionable takes precedence over all else."
from NormR, 10:51 AM EST, 02/25/12, Buffett
Is 'derisking' even riskier?
"When you 'derisk,' be sure you understand whether you are eradicating risk - or just replacing old risks with new ones."
from NormR, 12:50 AM EST, 02/25/12, Markets
Investing theory collides with new facts
"It makes one wonder just how long the long-term should be when studying stocks. Even the 5 decades from 1951 to 2003 weren't sufficient to suss out the weakness in the lowest decile of P/B stocks. Might more trouble might be revealed if the numbers are tracked back another 25 years - or followed forward for another 25?"
from NormR, 6:39 PM EST, 02/24/12, Stingy Investing
Canadian audits of China firms
"Canada's audit regulator has demanded accounting firms fix deficiencies in their audits of 12 China-based companies whose shares trade on Canadian stock exchanges, saying their work has been a "disappointment.""
from NormR, 11:11 PM EST, 02/21/12, Accounting
Negative real rates of return
"If it's just you on a desert island and you have to bury food in the ground for safe keeping chances are you will dig up less food than you bury. In general investing only makes sense when there is seasonality, which is why tropical animals don't do it. And, animals that do invest always take a loss even if they invest in the form of fat stores. However, because the marginal product of labor is vastly different between the spring and the winter it is worth it in utility terms even if the material return is negative. That humans don't always take a loss is why the world we live in is so vastly different. Our world changes over time because we can use our brains to think of ways to get more out than we put in. However, this is a special case and should not be taken as some basic property of the world. Its just not."
from NormR, 12:59 PM EST, 02/20/12, Thrift
RIP: Walter Schloss
"Walter Schloss, the money manager who earned accolades from Warren Buffett for the steady returns he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95."
from NormR, 12:32 PM EST, 02/20/12, Value Investing
Goodnight Sunshine
"Germany once prided itself on being the "photovoltaic world champion", doling out generous subsidies - totaling more than $130 billion, according to research from Germany's Ruhr University - to citizens to invest in solar energy. But now the German government is vowing to cut the subsidies sooner than planned and to phase out support over the next five years. What went wrong?"
from NormR, 7:05 PM EST, 02/19/12, World
Apple not as cheap as it looks?
"Thanks to an accounting- rule change for which it lobbied, Apple gets to book revenue from sales of bundled products such as iPhones -- which include hardware, software, services and upgrade rights -- more quickly than it used to. In short, one reason Apple's earnings have been so high is accounting inflation, and the market realizes this."
from NormR, 12:51 AM EST, 02/19/12, Accounting
Watsa sticks to his guns
"Mr. Watsa has been increasingly vocal about his prediction of a lengthy period of deflation. The ongoing debt crisis in Europe, weakness in the United States and housing problems in China are poised to send markets down sharply for a prolonged period, he says."
from NormR, 11:11 PM EST, 02/16/12, Value Investing
Over-regulated America
"Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America's share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It's a wonder the jobless rate isn't even higher than it is."
from NormR, 6:09 PM EST, 02/16/12, Government
Sports Illustrated Swimsuit Issue Indicator
"It's that time of year again! On last night's Late Show with David Letterman, the cover model of this year's Sports Illustrated Swimsuit Issue was revealed to be America's own Kate Upton. While we're all familiar with the Super Bowl Indicator, have you ever heard of the Sports Illustrated Swimsuit Issue Indicator? The Swimsuit Issue Indicator says that the US equity markets perform better in years where an American appears on the cover of Sports Illustrated's annual issue as opposed to years when a non-American appears on the cover."
from DanH, 12:19 PM EST, 02/14/12, Fun
CPI retooling
"If Statscan is successful in reducing overestimation of consumer price inflation, then annual increases in public or private wages and pensions indexed to the CPI will end up smaller than they would have been. This could mean companies have to pay out less in annual wage increases, but it will also offer some cost savings for Ottawa"
from NormR, 7:21 PM EST, 02/13/12, Government
Toronto condo bubble
"A record 27,504 condo units in the City of Toronto were under construction at the end of last year, according to Canadian Mortgage and Housing annual data, adding to the city's total of 199,000 units. "If builders stopped building today, there's five years worth of supply that is about to be delivered, relative to what normal population growth is," Bank of America's King said."
from NormR, 6:19 PM EST, 02/13/12, Real Estate
Be careful when delving too deep
"Value investors should be careful when delving too deep for outsized returns. It turns out that the cheapest stocks by one widely used measure are not always the best. This will come as a surprise to investors who like to rely upon price to book value as a key yardstick when making decisions."
from NormR, 6:39 PM EST, 02/10/12, Value Investing
A guide to private placement due diligence
"Because I'm in the business of helping people, I thought I'd offer up my own 3-step guide for stockbrokers when conducting due diligence on private placements: Step 1: Make sure you have a copy of the Private Placement Memorandum (also referred to as the PPM). You're going to want to light this PPM on fire and drop it into a Hazmat dumpster at least five miles from your office. Step 2: Tell the banker/firm owner/branch manager or whoever brought it to you to go f' himself. Step 3: Head over to Dunkin Donuts, get yourself a Coffee Coolatta. Yes, I know they've got hundreds of calories - but you're worth it. You've done some good this day."
from NormR, 2:01 PM EST, 02/10/12, Brokers
Why stocks beat gold and bonds
"Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date."
from NormR, 10:45 AM EST, 02/09/12, Buffett
Why stocks beat gold and bonds
"The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk. Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field."
from DanH, 10:41 AM EST, 02/09/12, Buffett
Warren Buffett Interview
"Ted Williams described in his book, 'The Science of Hitting,' that the most important thing -- for a hitter -- is to wait for the right pitch. And that's -- exactly the philosophy I have about investing...Wait for the right pitch, yeah, and... wait for the right deal. And it will come... It's the key to investing."
from NormR, 10:39 AM EST, 02/09/12, Buffett
Look past emerging markets debt sales pitch
"The sales pitch for emerging markets debt - like this one from RBC - might have us think that debt levels alone can be used to assess sovereign default risk. But judging by the 'spreads' of emerging markets bond yields above developed world sovereign debt, the global bond market is saying that other important factors determine default risk. Otherwise, emerging markets bonds would yield less than developed country debt. In This Time is Different - Eight Centuries of Financial Folly, Carmen Reinhart and Kenneth Rogoff examined - among other things - a history of default among developing countries. While high debt levels were universally linked to default episodes, the authors found that emerging markets defaults have generally occurred at debt levels that are generally considered 'safe' for more mature economies. They found that nearly half of the three-dozen emerging country defaults between 1970 and 2008 occurred at debt-to-GNP ratios below 35 percent."
from DanH, 9:01 AM EST, 02/09/12, Hallett
A fairness quiz for the president
"President Obama has frequently justified his policies - and judged their outcomes - in terms of equity, justice and fairness. That raises an obvious question: How does our existing system - and his own policy record - stack up according to those criteria?"
from NormR, 12:27 AM EST, 02/08/12, Taxes
Credit Suisse 2012 Yearbook
"112 years of market data for 19 countries."
from NormR, 12:25 AM EST, 02/08/12, Markets
The benefits of competition
"That's a nice example of how universal the concept of competition, and incentives in general. We are nicer, better, less short-sighted, when we have to compete. Insulate yourself from the market, and you can easily rationalize biting your customers."
from NormR, 12:22 AM EST, 02/08/12, Behaviour
The moral underpinnings of culture
"Bill Moyers talks with social psychologist Jonathan Haidt about the moral underpinnings of our contentious culture."
from NormR, 11:02 AM EST, 02/06/12, Behaviour
For savers in Canada, a sinking feeling
"Bank of Canada Governor Mark Carney, among other central bankers, has kept interest rates near historic lows since the onset of the global economic crisis in an attempt to stimulate the flagging economy, and there's no sign of a rate hike any time soon. But some critics say the playing field is now tipped too far in favour of borrowers rather than savers. Canadians in droves have piled on debt to buy new homes and make other purchases, prompting warnings from Mr. Carney of the dangers of carrying too much debt - even as his policies encourage borrowing and provide little ability for savers to generate substantial low-risk income. "It's one thing for Carney to say this is a problem and warn people," says William Robson, president of the C.D. Howe Institute in Toronto. But "actions speak a lot louder than words." Inflation, while low at an annual rate of 2.3 per cent, compares with one-year guaranteed investment certificates (GICs) paying roughly 1 per cent a year. Simply put: A dollar saved today will be worth less a year from now."
from NormR, 6:06 PM EST, 02/04/12, Thrift
United States then, Europe now
"Under the Articles of Confederation, the central government of the United States had limited power to tax. Therefore, large debts accumulated during the U.S. War of Independence traded at deep discounts. That situation framed a U.S. fiscal crisis in the 1780s. A political revolution - for that was what scuttling the Articles of Confederation in favor of the Constitution of the United States of America was - solved the fiscal crisis by transferring authority to levy tariffs from the states to the federal government. The Constitution and Acts of the First Congress of the United States in August 1790 gave Congress authority to raise enough revenues to service a big government debt. In 1790, the Congress carried out a comprehensive bailout of state governments' debts, part of a grand bargain that made creditors of the states become advocates of ample federal taxes. That bailout created expectations about future federal bailouts that a costly episode in the early 1840s proved to be unwarranted."
from NormR, 7:04 PM EST, 02/03/12, History
Look out below
"When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. "Canada was not a part of the problem," Stephen Harper, the prime minister, boasted in 2010. Today the consensus is growing on Bay Street, Toronto's answer to Wall Street, that Mr Harper may have to eat his words."
from NormR, 12:26 PM EST, 02/03/12, Real Estate
Pension forecasts are way too sunny
"Consider a corporate plan projecting a long-term average annual rate of return of 8% and holding 50% stocks and 50% bonds. With the Barclays Capital U.S. Aggregate bond index yielding around 2.2%, a 50% allocation to bonds contributes 1.1% annually to the portfolio's overall return. Stocks have to make up the remaining 6.9% for the entire portfolio to hit the 8% target. If stocks gain 10% annually, a 50% allocation to them will provide 5% of return, not the 6.9% needed. For this hypothetical portfolio to return 8%, stocks need to gain an average of 13.8%. That would be nice - and unlikely. Over the past 10 and 20 years, respectively, the Dow Jones U.S. Total Stock Market Index has returned 3.9% and 8% annually."
from NormR, 9:36 AM EST, 02/03/12, Pensions
Negative stimulus, 1946
"It's fun to go back and see how really smart people understood things at the time. Maybe it should give us some humility -- so much policy debate seems based on the idea that we know everything so well. If we understood things as well as we now see Klein understood things, would we still want to spend trillions on our best guesses?"
from NormR, 9:29 AM EST, 02/03/12, Economics
Mass hysteria in upstate New York
"Until more is known about mass hysteria, the treatment of a 1789 case in Northern England might point the way to a cure both effective and enjoyable. The outbreak at a textile factory started when one woman teased another by putting a mouse in her dress the skittish prank victim fell into convulsions. Soon, however, a rumor spread that an open bag of imported cotton had somehow caused the reaction, and others quickly began falling ill. The factory had to temporarily shut down when 24 people (21 women, two young girls, and one man) experienced violent convulsions so severe they had to be restrained. The plague ended when authorities convinced the patients that symptoms were "merely nervous." To further tamp down anxieties, sufferers were encouraged to "take a cheerful glass and join in a dance." The day after the dance, almost all the victims went back to work, their convulsions having disappeared for good."
from NormR, 9:22 AM EST, 02/03/12, Behaviour
Why the clean tech boom went bust
"In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr's speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom. Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors - including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China's ascendant solar industry, and certain technological realities - the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector - wind, biofuels, electric cars, and fuel cells - but none more dramatically than solar."
from NormR, 9:20 AM EST, 02/03/12, Economics
TSA's war on innocent travelers
"Contemplating 'mission creep' in Obama's TSA suggests a different martial metaphor than those employed by our newly militaristic president last Tuesday. In his book Wartime, Paul Fussell, a veteran of the Pacific theater in World War II, devotes a whole chapter to 'petty harassment' by those in power - which soldiers summed up with a salty term: 'chickens--t.' 'Frequent, unnecessary inspections,' 'insistence on the letter rather than the spirit of ordinances' - it 'can be recognized instantly,' Fussell writes, because it never has anything to do with winning the war."
from NormR, 12:11 AM EST, 02/01/12, Government
Have wages stagnated?
"Prof. Don Boudreaux responds to 'The Truth About the Economy', a recent video featuring former Labor Secretary Robert Reich. In the video, one of Reich's key points is that most people's wages have barely increased since 1980. However, when Reich's numbers are examined in greater detail, his claim does not hold up."
from NormR, 12:02 AM EST, 02/01/12, Economy
3 villains can steal your retirement dreams
"Building a strong financial castle to fund your retirement is hard. If you're not careful, you may discover a hole in your vault and three villains sneaking off with the family jewels."
from NormR, 10:42 AM EST, 01/28/12, Thrift
How well do ETFs mirror their indexes?
"What we're looking at The performance over the past two years of exchange-traded funds that track the broad bond market and real-return bonds (they offer inflation protection), as well as a trio of alternative investment categories: emerging markets, real estate investment trusts and commodities."
from NormR, 10:32 AM EST, 01/27/12, Indexing
Bernanke does not understand savings
"Twice in his press conference yesterday, Bernanke showed that he was out of touch with average Americans. He argued that average people could keep up with a 2% increase in the price level by investing in stocks and (presumably short-term) bonds."
from NormR, 5:56 PM EST, 01/26/12, Thrift
Is the Value Effect Seasonal?
"This paper extends the research on value premium by examining patterns of seasonality exhibited in the book-to-market effect in major global equity markets. The results provide evidence supporting the January effect in the value premium phenomenon. Using stock market indices for Asia Pacific Europe, Australasia, and Far East (EAFE) and Europe, with and without the U.K., Scandinavian countries, the U.K., U.S., and Japan form 1975 through 2007, the paper provides out-of-sample evidence from twenty-one countries that comprise different index portfolios. As a robustness measures, we use regression analysis, paired means tests, and non-parametric tests to examine whether the persistence of the anomalous January value premium is real and significant. The annualized excess January value premium ranges from 42.96 percent for Scandinavian countries to 9.24 percent for EAFE markets with 20.28 percent for U.S. Even though such a predictable pattern exists, our analysis suggests that large standard deviations would not allow a viable investment strategy."
from NormR, 5:38 PM EST, 01/26/12, Value Investing
Invest like a legend: David Dreman
"How I'd invest $100,000 right now: I'd put it in good-quality stocks in a portfolio large enough to diversify, or, for the average investor, an index fund. Stocks have traditionally gone up if we see inflation coming. We're not seeing much inflation yet, but we've been printing an awful lot of money in the United States, they've printed $7 trillion since 2008. I've never seen the two not meet."
from DanH, 4:59 PM EST, 01/26/12, Value Investing
How to buy a company for no money down
"At the beginning of 2012, for example, there was a grand total of 12 TSX-listed stocks which met the Ben Graham test. They had a median market capitalization of $100-million and a float of perhaps half that - barely sufficient to create a portfolio for a small investor. More important, the net-net valuation assumes that all of the current assets can be liquidated at 100 cents on the dollar. This is a reasonable assumption for cash and short-term investments, generous for accounts receivable and heroic for inventory. In addition, the decision to ignore all long term assets may be prudent with regard to intangibles, but many established companies hold undervalued fixed assets on their balance sheet. This is not a new problem, of course, and twenty five years ago I received screens from the New York-based brokerage firm Oppenheimer that addressed these issues. The official name was the collateral value screen, but Norm Weinger of Oppenheimer referred to it as his "Buy a company, no money down" list."
from DanH, 2:51 PM EST, 01/25/12, Value Investing
Active or passive? Process should drive choice
"Too many view passive and active investment as mutually-exclusive strategies decided upon via some quasi-political debate. On the contrary, I view active and passive as two strategies on the same continuum. Indeed, the ETF industry - once synonymous with passive investing - has created a blurring of the lines between active and passive strategies. The likes of Fundamental Indexing, equal-weighted indexes and other quant-driven indexes are pushing so-called 'passive' approaches closer to the active management side of the spectrum. That notwithstanding, as highlighted in my most recent Investment Executive article I am indifferent between passive and active investing - a view shared by my HighView partners and, accordingly, written into our firm's investment philosophy."
from DanH, 12:02 PM EST, 01/24/12, Hallett
The constancy of safe asset demand
"The findings are preliminary, but the authors calculate that the safe asset share - the percentage of safe assets to total assets in the US economy - has been roughly the same since 1952, at about 33 per cent."
from NormR, 7:55 PM EST, 01/23/12, Bonds
China housing set for hard landing
"The numbers are grim: China's property bubble is heading for a spectacular burst, and its effect on the country's economy will be widespread."
from NormR, 7:54 PM EST, 01/23/12, Real Estate
Watsa no stranger to value
"For someone who built an empire while dodging the media's spotlight, Prem Watsa is taking an unusually public role by positioning himself at the heart of Research In Motion's attempted revival."
from NormR, 9:34 PM EST, 01/22/12, Value Investing
The secret that transformed China
"In 1978, the farmers in a small Chinese village called Xiaogang gathered in a mud hut to sign a secret contract. They thought it might get them executed. Instead, it wound up transforming China's economy in ways that are still reverberating today."
from NormR, 9:54 PM EST, 01/21/12, Economics
Useless government requirements
"Minnesota is forcing Verlin to waste $30,000 to protect the big, full-amenity funeral-home businesses from competition. Verlin's basic services fee is only $250, which is about 90 percent lower than the $2,500 charged on average by many Twin Cities' funeral homes. Verlin's business model is built on minimizing fixed costs, which is why he does not have a hearse or chapel and this law - to the advantage of his competitors - stands in the way of him expanding his low-cost, high-quality approach."
from NormR, 4:28 PM EST, 01/21/12, Law
Keep it simple
"Unlike many in the banking industry, Petrou is not ideologically opposed to regulation. For instance, she was a critic of the lack of regulation that allowed so many sleazy subprime mortgage originators to emerge from the precrisis ooze. Yet, now, she's worried about something different: that the hundreds of new mandates required by the Dodd-Frank law are creating a new kind of risk. She calls it "complexity risk." As she put it in a speech she delivered last week in New York: "If we don't understand the cross-cutting effects and inherent contradictions in all of the stringent standards now being written into final form, we risk doing real damage to the sound, stable and - yes - profitable financial industry regulators say they support and the economies sorely need.""
from NormR, 4:24 PM EST, 01/21/12, Law
222 years of long-term interest rates
"Giant chart of long term US interest rates - the 30 year bond where available."
from NormR, 1:04 PM EST, 01/19/12, Bonds
Super fracking
"As regulators and environmentalists study whether hydraulic fracturing can damage the environment, industry scientists are studying ways to create longer, deeper cracks in the earth to release more oil and natural gas."
from NormR, 4:40 PM EST, 01/18/12, Science
Lower prices via new tech
"Due to the record levels of natural gas production and the unseasonably warm weather this winter, prices keep falling. The price for U.S. natural gas futures contracts dropped to a ten-year low of $2.47 per million BTUs in trading on the NYMEX yesterday"
from NormR, 4:34 PM EST, 01/18/12, Markets
"Many of the webs most important and integral websites are protesting seriously flawed legislation called SOPA. It would greatly damage the linking structure of the internet, allowing companies to close down websites on flimsiest of premises. It would criminalize even pointing to any site that itself points to a site where there is a Copyright violation. Over the years, the copyright cartel - this includes Disney and other major content companies - have bought themselves a Congress. They prevented works that were scheduled to enter the public domain, as envisioned in the US Constitution, from doing so. SOPA is the latest attempt to censor the public's access to independent information and manipulate copyright laws. The new law works to their own benefit and the public's detriment."
from NormR, 9:55 AM EST, 01/18/12, Law
"John 'TotalBiscuit' Bain - a UK Law graduate, professional gaming commentator and journalist - talks SOPA."
from NormR, 9:52 AM EST, 01/18/12, Law
How sneaky governments steal your money
"Many nations in the developed world are in deep do-do with their debt levels. On one hand they need growth to earn their way out of their problems, while on the other they're being forced into anti-growth austerity measures by markets, concerned about their spiralling interest obligations. It's a grim position for those of us brought up to expect an unrelentingly rosy economic outlook. This isn't a new situation, though. We've been here many, many times before and governments have, by design and evolutionary accident, developed many, many ways of dealing with these problems. The cunning thing is that many of these involve stealthily thieving from their own citizens, but done so surreptitiously that, if we're not careful, we won't even notice it."
from NormR, 11:11 PM EST, 01/17/12, Government
The rally that wouldn't die
"Last year's surge came in the 30th year of a historic rally. Since 1981, long-term Treasury bonds have returned 11.03% annually, 0.05 percentage point better than the Standard and Poor's 500-stock index."
from NormR, 12:09 PM EST, 01/17/12, Bonds
Mutual funds vs ETFs
"The market share lost by mutual funds is not surprisingly shifting to ETFs. ETF fees tend to be lower, yet they provide better liquidity and the ability to time the market, including intraday trading. That makes ETFs appealing not just to retail investors, but to institutions as well."
from NormR, 11:07 PM EST, 01/16/12, Funds
This relatively inegalitarian isle
"Of course, it's important to put charts like this in perspective, which is why we should also consult Miles Corak, the University of Ottawa professor whose work has been used here by Krueger (and Krugman). Here's Corak's unabridged Great Gatsby Curve. ... A rather different picture, innit?"
from NormR, 10:49 PM EST, 01/16/12, Economics
The rise of the new groupthink
"Our companies, our schools and our culture are in thrall to an idea I call the New Groupthink, which holds that creativity and achievement come from an oddly gregarious place. Most of us now work in teams, in offices without walls, for managers who prize people skills above all. Lone geniuses are out. Collaboration is in. But there's a problem with this view. Research strongly suggests that people are more creative when they enjoy privacy and freedom from interruption. And the most spectacularly creative people in many fields are often introverted"
from NormR, 3:00 PM EST, 01/14/12, Behaviour
Gary Taubes on dieting
"Sticking to your new year's resolutions? Still digesting Christmas lunch? Ignore the conventional advice on losing weight, says the science writer - what constitutes a healthy diet needs to be drastically re-evaluated"
from NormR, 1:34 PM EST, 01/14/12, Health
The scourge of inflation
"Inflation is the silent killer of retirement dreams. It sneaks in over the years and nibbles away at nest eggs, leaving people poorer than they once thought. How does it do the dastardly deed? By reducing the purchasing power of money over time."
from NormR, 11:24 AM EST, 01/14/12, Markets
What zero bound?
"Negative interest rates are a big puzzle. Easy stories miss the point: 'flight to quality,' 'need for collateral,' etc. Those stories don't explain why bonds are worth more than money."
from NormR, 12:46 PM EST, 01/13/12, Bonds
Banks discriminate against half their customers
"Justice says that out of 4.4 million loans approved between 2004 and 2008, 525,000 went to African-American or Hispanic borrowers, of which some 210,000 paid higher fees or rates than the average paid by similarly situated 'non-Hispanic White Borrowers.' It goes without saying large numbers of white borrowers also paid higher than the average of all whites. It also goes without saying large numbers of minorities didn't pay higher rates, though Justice isn't interested in the average of what minorities paid, only that some minorities paid higher than the average of whites. If this sounds like statistical malpractice, it's apparently habitual."
from NormR, 12:58 AM EST, 01/12/12, Law
The economist zone
"Screen shifts to a sharp man with a cigarette. He begins to speak. "Picture a world, where people only eat apples. A man consults alleged experts on government deficits, and is taken on a journey that ultimately shatters his mind - a journey that ends, in the Economist Zone.""
from NormR, 12:47 AM EST, 01/12/12, Economics
Warren Buffett's Bizarre Non-Sequitur
"In other words, the entire Republican point is "We don't want to pay any more in taxes, if you think you aren't taxed enough, then you are free to pay more in taxes." Thus, calling out Mitch McConnell like this, while sure to grab headlines, and result in high fives and "Oh no you di'ints" amongst liberals, makes no sense"
from NormR, 12:43 AM EST, 01/12/12, Buffett
Buffett Takes Republicans' Tax Challenge
"Warren Buffett is ready to call Republicans' tax bluff. Last fall, Senator Mitch McConnell said that if Buffett were feeling "guilty" about paying too little in taxes, he should "send in a check." The jab was in response to Buffett's August 2011 New York Times op-ed, which made hay of the fact that our tax system is so unbalanced, Buffett (worth about $45 billion) pays a lower tax rate than his secretary. Senator John Thune promptly introduced the "Buffett Rule Act," an option on tax forms that would allow the rich to donate more in taxes to help pay down the national debt. It was, as Buffett told me for this week's TIME cover story, "a tax policy only a Republican could come up with.""
from DanH, 8:51 PM EST, 01/11/12, Buffett
Should you hold bonds in taxable accounts?
"Investors fortunate enough to have money to save and invest over and above their RRSP and TFSA contributions need both asset allocation and asset location strategies. The standard advice is to stuff all of the bonds in RRSP, TFSA and similar accounts to defer or shelter tax on interest income (otherwise 100% taxable). Similarly, stocks usually dominate non-registered accounts because they generate more lightly-taxed capital gains and (in the case of Canadian stocks) dividends. But with bond yields having fallen (i.e. bond prices having risen) in the face of weak stock prices, this traditional asset location advice may not hold for everyone."
from DanH, 4:12 PM EST, 01/09/12, Hallett
Open letter to Apple shareholders
"You see, one day a competitor will come along and cut our core product line out from underneath us. We will need all the cash we can muster to fend them off. When that cash is done, we will mortgage the company. The first several times we may be successful. However, as is always the case, eventually time will get the best of us and we will be unable to meet our creditors demands. We will go bankrupt. Our creditors will seize the equity and the shareholders will be left with nothing and having made zero return on their investment. To our original investors, who are truly dear to us, we can only hope that you have long since sold out to some greater fool. If not, please do so at your earliest convenience."
from NormR, 2:19 PM EST, 01/06/12, Fun
Why you can't find heritage poultry
"But here's what hasn't been said about supply management: It is the enemy of deliciousness."
from NormR, 5:15 PM EST, 01/05/12, Government
No-give, No-take in Israel
"In Entrepreneurial Economics I argued for a "no give, no take" system for organ donation - people who signed their organ donor cards would be given priority over non-signers should they one day need an organ. The idea has an element of justice to it but the primary goal is to increase the incentive to sign one's organ donor card."
from NormR, 5:37 PM EST, 01/04/12, Health
Everything is amazing and nobody is happy
"Louis C.K. points out how much better things are ..."
from NormR, 5:33 PM EST, 01/04/12, Fun
Newspapers, Paywalls, and Core Users
"This may be the year where newspapers finally drop the idea of treating all news as a product, and all readers as customers."
from NormR, 5:23 PM EST, 01/04/12, Pricing
What do we really know about losing weight?
"This is not to criticize Parker-Pope--it was a great article! And a sorely needed corrective to the vast amount of 'That fatty should put the Cheetos down' sniggering that fat people are subjected to. But it's maddening that so many people found this so surprising. Almost all popular writing about obesity seems to be based on introspection about the writer's experience losing an unwanted 10-30 pounds, augmented by statistics grabbed from other newspaper articles, or the executive summaries of studies they haven't read. There's almost zero awareness that almost no one loses more than 15-30 pounds and keeps it off long term--and that the reason this is so hard is that it requires constant mental and physical effort to maintain that weight loss that is, for most people, incompatible with anything approaching a normal life."
from NormR, 11:25 AM EST, 01/04/12, Health
Scouring the market's bargain bin
"As a long time value investor, one of my favourite research tools is the famous Ben Graham "net-net working capital" screen. This analysis begins with current assets - typically dominated by cash, accounts receivable and inventories - and then deducts all liabilities, not just current liabilities, to arrive at a net working capital per share value. No value is given to fixed assets such as plant, machinery and real estate, nor to intangibles such as goodwill, patents, licenses or other intellectual property."
from NormR, 8:22 PM EST, 01/03/12, Value Investing
Give your love to unloved stocks
"The New Year brings with it soon-to-be-forgotten resolutions, but here's one resolution that investors should strive to keep: Take analyst rankings with a large dose of caution."
from NormR, 6:00 PM EST, 01/02/12, Value Investing
The omens
"The global economy made it through 2011 despite Europe's debt problems, high unemployment in the United States and growing worries about China's red-hot housing market. But will 2012 be as forgiving?"
from NormR, 5:59 PM EST, 01/02/12, Economy
Natural gas bear market
"U.S. natural gas prices fell to their lowest point in more than two years, underscoring how the nation's booming energy business is becoming a victim of its own success."
from NormR, 12:51 PM EST, 01/01/12, Markets
The fat trap
"The research shows that the changes that occur after weight loss translate to a huge caloric disadvantage of about 250 to 400 calories. For instance, one woman who entered the Columbia studies at 230 pounds was eating about 3,000 calories to maintain that weight. Once she dropped to 190 pounds, losing 17 percent of her body weight, metabolic studies determined that she needed about 2,300 daily calories to maintain the new lower weight. That may sound like plenty, but the typical 30-year-old 190-pound woman can consume about 2,600 calories to maintain her weight - 300 more calories than the woman who dieted to get there."
from NormR, 12:29 PM EST, 12/31/11, Health
A year without fear
"My danger-avoidance lifestyle worked, and I enjoyed a long string of injury-free years. But I always had a nagging feeling that I was missing out. How can you know if the chance you didn't take was the one that would have enriched your life versus, for example, something that would have ended up with you chewing your own arm off to escape? Enrichment and arm-gnawing look roughly the same when viewed from the start."
from NormR, 12:26 PM EST, 12/31/11, Fun
Value stock scarcity
"Over the past several decades, the value breakpoint has averaged 0.72 - stocks that have a P/B below 0.72 have fallen into the value group those with a P/B above this level have not. As it happens, that's quite close to an old value investing rule of thumb that suggests investors buy stocks only when they trade below 66 per cent of their book value. Unfortunately, there aren't many stocks that pass such a stringent test this year. Indeed, the value breakpoint now sits at a P/B of 1. That's not the highest it's been in recent times but it is well above average, which suggests that value investors should be cautious."
from NormR, 11:23 AM EST, 12/31/11, Value Investing
A market that even a skeptic can like
"One of Canada's pickiest and most careful money managers has been on a buying spree lately. Early in July, Vito Maida had the maximum 25-per-cent cash he's permitted to hold in running the Horizons North American Value ETF. Today, while many individual investors are paralyzed with indecision about where to put their money, he's fully invested. 'I would say that this is the first time in a long time that we've been able to construct a portfolio of high-quality companies at very attractive valuations,' Mr. Maida said. Translation for non-hardcore investors: There are some good companies available right now at attractively low prices."
from NormR, 11:17 AM EST, 12/31/11, Value Investing
Sears Holdings liquidation sale
"My view: owning Sears as a property play is a demonstration of the arrogance and breathtaking naivete of much that passes on Wall Street. Sears Holdings has over 300 thousand employees. I don't know how you successfully liquidate a business integrated with that many lives. I don't know of anyone who has ever successfully liquidated a business with that many employees. I am not sure it can be done and it certainly can't be done by someone with my skill-set (highly analytical, ability to spy value or value traps but no people management skill and not much tact). The idea that Sears was going to be managed/liquidated by a bunch of hedge fund guys (people like me) well - that was comical."
from NormR, 4:18 PM EST, 12/29/11, Management
Third Avenue's Q4 2011 letter
"In the main body of this letter I discuss, after re-reading Graham and Dodd's writings on Value Investing, how the various Third Avenue Fund managers are followers of Graham and Dodd, and how these managers are different. Before doing that, there is one macro point in which I believe strongly, and of which you should be aware. There is no way that I can see that those countries involved with the Euro can be made credit-worthy unless all European Sovereign Debt is assumed, or guaranteed, by each member country including, especially, Germany. Such an amalgamation would make Euro Sovereign Debt more comparable to U.S. Treasuries than is now the case. I do not know how the forthcoming European upheavals will work out. But cash rich economies with a plethora of investable funds ought to do okay, provided they are opportunistic. It is comforting to know that so much of Third Avenue Management's common stock investments are in companies operating in Hong Kong, mainland China, South Korea, Canada, Brazil, Australia and Sweden."
from NormR, 4:13 PM EST, 12/29/11, Whitman
When reinforcement fails
"In many situations, such reinforcement learning is an essential strategy, allowing people to optimize behavior to fit a constantly changing situation. However, the Israeli scientists discovered that it was a terrible approach in basketball, as learning and performance are "anticorrelated." In other words, players who have just made a three-point shot are much more likely to take another one, but much less likely to make it"
from NormR, 4:09 PM EST, 12/29/11, Behaviour
Job creation is price for health law
"The complexity of this legislation makes it hard to anticipate costs in the future. Our investments pay off -- when they are successful -- over the long term. Because we don't know what our health-care expenses will be in two or three years, we are unable to determine with any certainty how much our investments will have to return for us to be profitable. All of that counsels in favor of holding off on new investments and saving our funds. We want to grow. But we are unable to do so knowing that large and undetermined liabilities will absorb funds we otherwise would invest for expansion."
from NormR, 3:57 PM EST, 12/29/11, Government
How to make a fortune after 50
"At an age when others might ready for pre-retirement, some folks pass age 50 determined to start a new life in the business world - and succeed beyond their rosiest business plan projections."
from NormR, 3:55 PM EST, 12/29/11, Management
Cutting buffett helps sequoia fund
"Ruane ran an unconventional fund, closing Sequoia to new investors in 1982 because he didn't want its size to limit what the fund could buy. It opened again in 2008, three years after Ruane's death. Ruane also held a concentrated portfolio. In 2003, Sequoia had 75 percent of its money in its top six holdings, according to a regulatory filing."
from NormR, 3:30 PM EST, 12/29/11, Value Investing
106-year-old stockbroker talks shop
"Irving Kahn has been following the swings of the market since before the Great Depression...and he still does."
from NormR, 10:43 AM EST, 12/26/11, Value Investing
A Christmas Carol
"Marley was dead: to begin with. There is no doubt whatever about that. The register of his burial was signed by the clergyman, the clerk, the undertaker, and the chief mourner. Scrooge signed it: and Scrooge's name was good upon 'Change, for anything he chose to put his hand to. Old Marley was as dead as a door-nail. Mind! I don't mean to say that I know, of my own knowledge, what there is particularly dead about a door-nail. I might have been inclined, myself, to regard a coffin-nail as the deadest piece of ironmongery in the trade. But the wisdom of our ancestors is in the simile and my unhallowed hands shall not disturb it, or the Country's done for. You will therefore permit me to repeat, emphatically, that Marley was as dead as a door-nail."
from NormR, 4:25 PM EST, 12/24/11, Christmas
An economist's Christmas Carol
""Gifts! Especially, gift certificates!" sneered Ebenezer Scrooge. "A finer piece of humbug the world has never seen. Why, for no charge at all, they will convert my hard-earned cash to a card that can be redeemed at one store only. No doubt the store hopes the recipient will lose it. How generous!""
from NormR, 5:21 PM EST, 12/23/11, Christmas
The Scot who inspired Scrooge
"In life, Scroggie was apparently a rambunctious, generous and licentious man who gave wild parties, impregnated the odd serving wench and once wonderfully interrupted the General Assembly of the Church of Scotland by grabbing the buttocks of a hapless countess."
from NormR, 5:11 PM EST, 12/23/11, Christmas
What I Like About Scrooge
"In this whole world, there is nobody more generous than the miser - the man who could deplete the world's resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide."
from NormR, 5:06 PM EST, 12/23/11, Christmas
Thoughts on Ebenezer Scrooge
"The story goes that Charles Dickens was visiting Edinburgh to give a public reading of his work in 1842, and spent some time looking around the Canongate church graveyard. He saw one grave that made him shudder. The name on the grave was Ebenezer Lennox Scroggie--mean man.' According to Peter Clark, a British political economist who seems the starting point for this story, Dickens misread the inscription. It actually said 'Meal man,' because Scroggie was a corn merchant."
from NormR, 5:02 PM EST, 12/23/11, Christmas
Tom Lehrer: A Christmas Carol
"A respected Harvard mathematics professor by day, song satirist by night, sings a Christmas carol."
from NormR, 4:57 PM EST, 12/23/11, Christmas
Escaping the well-lit prison
"The focus on gifts is something we're all supposed to feel vaguely guilty about, according to certain grim people with very strong views about the Evils of our Commercialized, Materialist Society. In lieu of presents these people give things like certified carbon offsets and donations in your name to International A.N.S.W.E.R. Their kids get seaweed gummy kits and "Peace in Our Time" cooperative board games from the Catalog of Socially Responsible Gifts, and exact revenge by growing up to become arbitrageurs. On the other end of the spectrum are the market ideologues. These are the folks who write earnest monographs on how everybody has the wrong idea about Ebeneezer Scrooge, who was really a thrifty capitalist hero. Their idea of a neat Christmas present is something like a "Who Is John Galt?" doormat - except there isn't one, because John Galt was nobody's doormat, dammit, so instead you get a book on Basel bank-capital requirements and a bookmark in the shape of Ludwig von Mises. Which is not to say that either group is wrong, mind you - merely that, like the madman in Chesterton's "Orthodoxy," they are "trapped in the well-lit prison of one idea...sharpened to one painful point." You want to say to them, look: If British and German soldiers could sing carols together at Ypres in WWI, then the rest of us are entitled to give politics a break for one lousy day. Here, have some peppermint bark."
from NormR, 1:04 PM EST, 12/23/11, Christmas
Smoke Screening
"As you stand in endless lines this holiday season, here's a comforting thought: all those security measures accomplish nothing, at enormous cost. That's the conclusion of Charles C. Mann, who put the T.S.A. to the test with the help of one of America's top security experts."
from NormR, 12:55 PM EST, 12/23/11, Government
RIM should act its age
"I have a sixteen-year old daughter who calls me 'old man' and while I know she is using the term lovingly (of course.. I believe the best about my kids), the moniker still strikes home as a reminder that I am older and that age brings limits that I can choose to ignore at my own peril. I know that I can no longer go to bed late and get up early, that I have to watch what I eat and that I need my reading glasses to read restaurant menus. As I watched Research in Motion (RIM) go through painful contortions in the financial markets yesterday, I was reminded that companies also go through an aging process, and how they deal with the limits that come with age determines their value to investors. RIM has had a pretty good run as a company, but they have a problem. Their core technology which powers the Blackberry is a cash cow but it is one that faces corrosion in market share, as smart phone users turn to Androids and iPhones, with their more open operating systems and extensive app libraries. As the CEO of RIM, you have two choices."
from DanH, 4:40 PM EST, 12/22/11, Stocks
Stories make me nervous
"I was told to come here and tell you all stories, but what I'd like to do is instead tell you why I'm suspicious of stories, why stories make me nervous. In fact, the more inspired a story makes me feel, very often the more nervous I get. So the best stories are often the trickiest ones."
from NormR, 10:53 AM EST, 12/22/11, Behaviour
More 2011 charts
"What is it about graphs and economics? In a discipline where facts are murky and certainty is elusive, graphs offer a bright light of information and a small confidence that the world can be summed up between two axes."
from NormR, 6:41 PM EST, 12/21/11, Economy
The word you're looking for is envy
"The lesson I would take is as follows. Profit or consumption maximizing incentives are just incredibly weak. We think we see consumption incentives in the general populace but we are really seeing status seeking. Folks earn or consume more in an effort to raise their status relative to others."
from NormR, 4:42 PM EST, 12/21/11, Behaviour
Do not buy dad a tie
"Christmas is not the most wonderful time of the year for economists. The holiday spirit is puzzlingly difficult to model: It plays havoc with the notion of rational utility-maximization. There's so much waste! Price-insensitive travelers pack airports beyond capacity on Dec. 24 only to leave planes empty on Christmas Day. Even worse are the gifts, which represent an abandonment of our efficient system of monetary exchange in favor of a semi-barbaric form of bartering. Still, even the most rational and Scroogey of economists must concede that gift-giving is clearly here to stay. What's needed is a bit of advice: What can economics tell us about efficient gifting so that your loved ones get the most bang for your buck?"
from NormR, 4:36 PM EST, 12/21/11, Christmas
2011 in charts
"We asked economists, economic policymakers and investors for their favorite charts of 2011. Here's what they gave us."
from NormR, 4:31 PM EST, 12/21/11, Economy
China local debts dwarf official data
""The real problem is the real estate market cannot fall, the price can't go down," he said. "If the property market really falls, the local government financing vehicle problems will really come out. Not only will they have problems, but the banks will have problems." There are signs the market is already declining, with residential property prices falling in November from the previous month in 49 cities of the 70 measured, the worst performance this year. The cities of Guangzhou in the south and Wuhan in central China canceled land sales in the last three months. Tianjin, which isn't among the cities piloting municipal bonds, was reliant on land sales for 41 percent of its income in 2009, according to China Index Academy, a Beijing real-estate research firm. That doesn't bother Xu Hongzhi, the chief accountant for Tianjin Binhai Construction, which is building Yujiapu's transport hub. He said that the company can pay its debts because the area's economy is growing at 10 percent a year. "There is no risk," he said."
from NormR, 12:49 AM EST, 12/19/11, World
The truth about wealth
"A study by Jonathan A. Parker and Annette Vissing-Jorgensen of Northwestern University found that the beta of the top 1% nearly quadrupled between 1982 and 2007 to 2.39. The top 0.01% had a beta of 3.96, making even the riskiest tech stocks look safe by comparison. Economists and wealth managers say the betas of the rich have likely soared even higher in recent months as markets gyrated sharply."
from NormR, 12:53 AM EST, 12/18/11, Thrift
Wodehouse's lead pipe
"Recent real side indicators and financial market movements indicate a striking dichotomy between improving economic indicators here at home and signs that financial markets and economies continue to sour on the other side of the Atlantic. Thus, just as we had come to see the light of an evolving domestic recovery, one senses Europe, and possibly the emerging economies, sneaking up behind us, Wodehousean-pipe in hand, poised to knock us off course."
from NormR, 12:15 AM EST, 12/18/11, World
E-book readers face sticker shock
"Under the old book arrangement, major publishers charged the same wholesale price for e-books as they received for hardcovers. For a new novel priced at $25, for example, they received $12.50 for the e-book and $12.50 for the hardcover. When discounted the e-book at $9.99, Amazon took the loss. But under the new pricing model, a $25 hardcover is often priced at $12.99 for the e-book. And because publishers receive 70% of the e-book retail price - while retailers retain 30% - that means publishers receive only $9.09. Publishers were willing to accept the lower profits because they felt the new arrangement preserved the value of books and encouraged other retailers to enter the e-book market."
from NormR, 10:15 PM EST, 12/17/11, Pricing
Chavez rolls back seizures
"Venezuela's President Hugo Chavez is enlisting Mexico's Gruma SAB, French retailer Casino and other international companies to boost supplies of milk, corn flour and cement as shortages threaten to dent his bid for re-election in 2012."
from NormR, 10:05 PM EST, 12/17/11, World
It's all in the index you choose
"Canadian and U.S. stock markets get equal treatment on the evening news but it's easy to forget just how different they really are. Investors, though, have had the distinction pressed upon them this year, as the S&P/TSX 60 has slid 14.5 per cent, while the Dow Jones industrial average (DJIA) has risen 6.8 per cent in Canadian dollar terms. To see what's going on, you have to look under the hood. Once you do, the gaps between the two indexes loom large."
from NormR, 6:42 PM EST, 12/17/11, Markets
Advice and Investor Portfolio Performance
"This paper investigates whether financial advisers add value to individual investors' portfolio decisions by comparing portfolios of advised and self-directed (execution-only) Dutch individual investors. The results indicate significant differences in characteristics and portfolios between these investor groups, but no evidence of differences in risk-adjusted performance. The findings indicate that portfolios of advised investors are better diversified and carry significantly less idiosyncratic risk. In addition, evidence from an analysis of investors who switch to advice taking indicates that these findings (at least in part) reflect the effect of advisory intervention."
from DanH, 1:50 PM EST, 12/16/11, Academia
Curbing short sales
"The New York Fed did a quick study this fall after markets plunged in August when Standard and Poor's decided to downgrade the credit of the United States government. That study, by Hamid Mehran, a Fed economist, and two finance professors from Notre Dame, Robert Battalio and Paul Schultz, also looked at the impact of the 2008 bans on short sales of financial stocks, which were imposed in many countries at the height of the financial crisis. They concluded that there was no evidence that stocks then being sold by short-sellers did worse in August than did shares of other companies, and in fact a little evidence that they did better. That would seem to indicate that short-selling did not play a major role in the market turmoil."
from NormR, 9:38 AM EST, 12/16/11, Markets
Peak credit
"We've heard about "peak oil." We've heard about other resources, and how production will decline over time. But what of credit?"
from NormR, 10:52 AM EST, 12/15/11, Debt
Growth in the age of deleveraging
"Accumulating the mountain of debt now weighing on advanced economies has been the work of a generation. Across G-7 countries, total non-financial debt has doubled since 1980 to 300 per cent of GDP. Global public debt to global GDP is almost at 80 per cent, equivalent to levels that have historically been associated with widespread sovereign defaults."
from NormR, 9:30 PM EST, 12/14/11, Debt
Art donation scheme raises questions
"The biggest and longest-running financial fiascos in Canada have been 'donate low, deduct high' charitable donation tax-credit schemes. These schemes are all variations on the same theme: The donor purchases something for 'x' dollars and then donates it for 'x plus y' dollars, generating a tax credit that exceeds the original out-of-pocket costs. One of the most outrageous was the art-donation scheme. The participant would, for example, buy a piece of art for $10,000, get it appraised for $30,000, and then donate it to a university or hospital. The donor would receive a tax credit equal to 43.7 per cent of the appraised value, or $13,110, which was $3,110 more than his original cost. Problem is, Canada Revenue Agency has consistently rejected such schemes. To date, it has disallowed a stunning $4.5 billion in donations claimed by more than 130,000 Canadian taxpayers on account of these dodgy deals."
from DanH, 11:05 PM EST, 12/13/11, Taxes
Mutual fund critics missing the big picture
"Every time markets bleed red, mutual fund investors and the media become much more price-sensitive. So it's no surprise that print media have featured a barrage of anti-fee articles. Interestingly, Canada's two national papers have united in a recent Investors Group bash-fest. I agree with the broad message, which is to keep an eye on fees. Since fees are pretty transparent and easy to understand, they get most of the attention when trying to explain poor investor performance. But the media and the industry would do investors more good by identifying and trying to remove the handful of barriers to satisfying long-term performance."
from DanH, 3:11 PM EST, 12/13/11, Hallett
Bill Miller had a great run. But did his investors?
"The fund made 16.44% a year in gains and reinvested dividends during that period, but the average investor made only 11.34%. Miller's average investor actually underperformed the S&P (which returned 11.51% annually during his streak), even though his fund way outperformed the index. ... Interestingly, the presumably non-starstruck investors in Vanguard's plain-vanilla S&P 500 index fund (VFINX), which I also asked Morningstar to analyze, fell into the same trap. During Miller's 15-year hot streak, the index fund returned 11.41% -- but its average investor made only 7.96%."
from NormR, 10:12 PM EST, 12/07/11, Behaviour
The Long Shadow of German Hyperinflation
"The Germans' strict opposition to the monetary financing of governments isn't just petty legalism -- it's a bedrock principle, based in history, which was purposefully built into EU treaties and Bundesbank policies. It's worth revisiting why the memory of hyperinflation has seared itself into the minds of many Germans, and how it's shaping their thinking and the future of the euro itself."
from NormR, 10:08 PM EST, 12/07/11, History
Mandelbrot beats economics on markets
"Over the past 15 years or so, physicists have demonstrated this in mathematical studies of market volatility. Inspired by work of the mathematician Benoit Mandelbrot in the 1960s, these scientists have used enormous sets of historical data -- hundreds of millions of minute-by-minute prices stretching over more than a decade, and daily and monthly prices over half a century -- to show that large market movements, up or down, follow a single mathematical pattern. Larger movements of, say, 10 percent to 15 percent, are less likely than movements of 3 percent to 5 percent. And the probability of a movement decreases in simple inverse proportion to the cube of its size: If moves of 5 percent or more have a certain likelihood, then moves of 10 percent or more are 8 (2 cubed) times less likely, and moves of 20 percent or more are in turn 8 times even less likely. But they still occur with some regularity. This pattern, it turns out, can be seen in markets for stocks, foreign exchange and futures around the world."
from NormR, 1:27 PM EST, 12/06/11, Markets
How doctors die
"Years ago, Charlie, a highly respected orthopedist and a mentor of mine, found a lump in his stomach. He had a surgeon explore the area, and the diagnosis was pancreatic cancer. This surgeon was one of the best in the country. He had even invented a new procedure for this exact cancer that could triple a patient's five-year-survival odds - from 5 percent to 15 percent - albeit with a poor quality of life. Charlie was uninterested. He went home the next day, closed his practice, and never set foot in a hospital again. He focused on spending time with family and feeling as good as possible. Several months later, he died at home. He got no chemotherapy, radiation, or surgical treatment. Medicare didn't spend much on him. It's not a frequent topic of discussion, but doctors die, too. And they don't die like the rest of us. What's unusual about them is not how much treatment they get compared to most Americans, but how little. For all the time they spend fending off the deaths of others, they tend to be fairly serene when faced with death themselves. They know exactly what is going to happen, they know the choices, and they generally have access to any sort of medical care they could want. But they go gently."
from NormR, 12:23 AM EST, 12/06/11, Health
China's hard landing
"Property construction became 'the most important sector in the universe,' in the words of UBS economist Jonathan Anderson. It directly accounts for about 13% of the economy, 20% if one includes related industries like concrete and steel. It also provided 40% of local government revenues through land sales. Worsening inflation forced the government to put on the brakes this year. As with most property busts, transactions dried up, followed by a free fall in prices. Land prices were down 60% year on year in September. Property developers are slashing prices of new homes to stave off bankruptcy."
from NormR, 12:12 AM EST, 12/04/11, World
What Bay Street doesn't want you to hear
"A substantial number of do-it-yourself investors are paying for financial advice they are not getting and never will. That's what can happen when you buy mutual funds from an online broker. While you typically pay nothing to buy and sell your funds, the cost of owning them can be identical to what is paid by investors who have advisers. There's almost a conspiracy of silence on this matter in the investment industry and it results from the fact that the status quo serves brokers and fund companies quite well."
from NormR, 4:04 PM EST, 12/03/11, Brokers
U.S. taxman to go easy
"Americans living in Canada who've neglected to pay their U.S. taxes are getting a big break from Uncle Sam. The U.S. Internal Revenue Service is poised to waive potentially massive penalties for Americans who agree to come clean and don't owe any taxes, The Globe and Mail has learned."
from NormR, 4:02 PM EST, 12/03/11, Taxes
Buying a dollar for fifty cents
"What makes the stock of particular interest to a value investor is the fact that management reports the value of the investment portfolio every quarter and, as of Oct. 31, the investments and cash were valued at $1.15 a share. So, you are effectively buying an actively managed resource portfolio at 50 cents on the dollar."
from NormR, 4:01 PM EST, 12/03/11, Value Investing
Teaching the professors how to pick good funds
"Imagine standing at a podium in a lecture hall and being questioned by 100 professors for two hours. It's the stuff of student nightmares. But that's exactly where I found myself when I recently addressed a bevy of professors from the University of Toronto on financial matters."
from NormR, 7:30 PM EST, 12/02/11, Fees
Unintended consequences: nanny state edition
"Today and tomorrow mark the last days that put-upon parents can satiate their youngsters by simply throwing down $2.18 for a Happy Meal toy. But, thanks to the new law taking effect on Dec. 1, this is no longer permitted. Now, in order to have the privilege of making a 10-cent charitable donation in exchange for the toy, you must buy the Happy Meal. Hilariously, it appears Mar et al., in their desire to keep McDonald's from selling grease and fat to kids with the lure of a toy have now actually incentivized the purchase of that grease and fat -- when, beforehand, a put-upon parent could get out cheaper and healthier with just the damn toy."
from NormR, 8:55 PM EST, 11/30/11, Government
We don't face any good options
"Nobel Prize - winning economist Vernon Smith on the financial crisis, Adam Smith's underrated insights, and his journey from socialist to libertarian"
from NormR, 12:32 PM EST, 11/29/11, Economics
How to kill an economy
"Venezuelan President Hugo Chavez's move to expand price controls this week sparked panic purchases by consumers, leading to shortages of everything from coffee to toilet paper."
from NormR, 9:58 PM EST, 11/26/11, Government
Is this really the end?
"The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast."
from NormR, 2:23 PM EST, 11/26/11, World
Dogs bite back
"The Dogs of the Dow are running strong this year. The decades-old strategy, which calls for buying the 10 highest-yielding shares among the 30 Dow Jones Industrial Average members at the end of each year, has returned 5.5% this year through Wednesday, versus a 0.4% decline for the broader Dow."
from NormR, 2:02 PM EST, 11/26/11, Dividends
Charlie Rose interviews Seth Klarman
"Award-winning journalist Charlie Rose interviews Seth Klarman, co-chair of the Facing History and Ourselves Board of Trustees, about his deep commitment to the work of Facing History and his thoughts on philanthropic and financial investment."
from NormR, 1:58 PM EST, 11/26/11, Value Investing
As simple as ...
"Game show legend Chuck Woolery discusses his thoughts on how to cut government spending. (Now with extra monkeys and squirrels.)"
from NormR, 11:41 AM EST, 11/26/11, Fun
House of horrors
"Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble."
from RobS, 2:17 PM EST, 11/25/11, Real Estate
Friday's deals may not be the best
"Professor Etzioni, who teaches computer science at the University of Washington, has directed his considerable intellect at the American ritual of shopping for bargains on Black Friday. After examining billions of prices of consumer electronics, he has decided to spend the busiest shopping day of the year scuba-diving in Bali."
from NormR, 10:07 AM EST, 11/25/11, Pricing
Handy euro bond yield lookup
"Below is a table for several European bond yields (links to Bloomberg). The Italian 10 year bond yield is at 6.97% the Italian 2 year yield is up to 7.12%! The Spanish 10 year bond yield has increased to 6.65% the Spanish 2 year yield is up to 5.86%. The Belgian 10 year yield is up sharply to 5.48% the Belgian 2 year yield is 4.94%. The Irish 10 year yield is at 8.21%. The Portuguese 10 year yield is at 11.3%. The French 10 year bond yield is at 3.69%."
from NormR, 7:21 PM EST, 11/23/11, Bonds
No money for sauerkraut
"Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region's debt crisis is driving away investors."
from NormR, 7:09 PM EST, 11/23/11, Bonds
Why taxing the rich won't help
"It's tempting to look to our millionaires and demand they pay more in taxes, but the same inconvenient truth applies. When you add up all the money made by all the people who earn more than $1 million a year, it amounts to around $700 billion. But since the millionaires already pay close to $200 billion in taxes, the government would have to increase rates to nearly 100 percent - which is about the worst idea ever - for it to have any real impact."
from NormR, 12:36 AM EST, 11/23/11, Taxes
More corporate tax won't help
"A tax rate is one thing. Tax collected is another. Indeed, in Canada progressives like to point out that there's no need for corporate income tax cuts, since the rates in the U.S. are much higher. But no one pays the posted rate in the U.S."
from NormR, 12:35 AM EST, 11/23/11, Taxes
On the shoulders of giants
"Most scientific or engineering discoveries would never become successful products without contributions from other scientists or engineers. Every major invention is the child of far-flung parents who may never meet. These contributions may be just as important as the original insight, but they will not attract public adulation. They will not be celebrated by media, and they will not be rewarded with Nobel prizes. We insist on celebrating lone heroic path-finders but even the most admired, and the most successful inventors are part of a more remarkable supply chain innovators who are largely ignored for the simpler mythology of one man or one eureka moment."
from NormR, 11:48 PM EST, 11/22/11, Tech
Lessons from Canada's 'basket case' moment
"Finance officials bit their nails and nervously watched the clock. There were 30 minutes left in a bond auction aimed at funding the deficit and there was not a single bid. Sounds like today's Italy or Greece? No, this was Canada in 1994."
from RobS, 11:51 AM EST, 11/21/11, Debt
Niall Ferguson peers into Europe's future
"Niall Ferguson peers into Europe's future and sees Greek gardeners, German sunbathers - and a new fiscal union. Welcome to the other United States."
from NormR, 5:56 PM EST, 11/19/11, World
Bill Miller steps down as Legg Mason CIO
"Miller, a value investor known for his bullish views of the economy and stock markets, became mired in the worst slump of his career as he wagered heavily on financial stocks during the 2008 credit crisis. Value Trust lost 55 percent that year as the S&P 500 dropped 37 percent, including dividends, prompting a wave of withdrawals. The fund's assets have plunged from a peak of $21 billion in 2007 to $2.8 billion. "April 2012 is the right time for Sam to take over," Miller said in the statement. "Over the past year, Sam and I made important adjustments to the fund's portfolio construction and characteristics, and we're both very pleased with how it is positioned.""
from DanH, 11:22 AM EST, 11/17/11, Funds
A model for Ontario
"California has long been among America's most extensive taxers and regulators of business. But at the same time, the state had assets that seemed to offset its economic disincentives: a famously sunny climate, a world-class public university system that produced a talented local workforce, sturdy infrastructure that often made doing business easier, and a history of innovative companies. No more. As California has transformed into a relentlessly antibusiness state, those redeeming characteristics haven't been enough to keep firms from leaving. Relocation experts say that the number of companies exiting the state for greener pastures has exploded. In surveys, executives regularly call California one of the country's most toxic business environments and one of the least likely places to open or expand a new company. Many firms still headquartered in California have forsaken expansion there."
from NormR, 11:07 AM EST, 11/17/11, Government
What Graham thought of IBM
"The word that Warren Buffett has bought 5.4% of International Business Machines came as a surprise to most of his followers, as Buffett has long scorned investments in technology. Buffett's mentor, the great value investor Benjamin Graham, had a long history with IBM."
from NormR, 11:36 PM EST, 11/14/11, Graham
Congress: Trading stock on inside information?
"The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year. Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them. When Nancy Pelosi, John Boehner, and other lawmakers wouldn't answer Steve Kroft's questions, he headed to Washington to get some answers about their stock trades. Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation."
from DanH, 9:57 PM EST, 11/14/11, Government
I was wrong, and so are you
"The new results invalidated our original result: under the right circumstances, conservatives and libertarians were as likely as anyone on the left to give wrong answers to economic questions. The proper inference from our work is not that one group is more enlightened, or less. It's that "myside bias" - the tendency to judge a statement according to how conveniently it fits with one's settled position - is pervasive among all of America's political groups. The bias is seen in the data, and in my actions."
from NormR, 11:04 AM EST, 11/13/11, Behaviour
Tax burdens tilt coastal
"The wealthy have been the subject of much discussion lately, from the protesters on Wall Street to lawmakers in Washington. President Obama has even provided a definition of who's wealthy in arguing that taxes should be raised for those households with incomes of at least $250,000 a year.But is that really the marker of wealth? After all, earning $250,000 a year in New York does not buy as much as it does in, say, Iowa or Alabama."
from NormR, 10:43 AM EST, 11/13/11, Taxes
Taking measure of Canada's provinces
"Statistics Canada released new data this week about how the economies of Canadian provinces grew and shrank in 2010. The National Post's graphics team takes a look."
from NormR, 6:06 PM EST, 11/12/11, Economy
The real genius of Steve Jobs
"One of the great puzzles of the industrial revolution is why it began in England. Why not France, or Germany? Many reasons have been offered. Britain had plentiful supplies of coal, for instance. It had a good patent system in place. It had relatively high labor costs, which encouraged the search for labor-saving innovations. In an article published earlier this year, however, the economists Ralf Meisenzahl and Joel Mokyr focus on a different explanation: the role of Britain's human-capital advantage - in particular, on a group they call "tweakers." They believe that Britain dominated the industrial revolution because it had a far larger population of skilled engineers and artisans than its competitors: resourceful and creative men who took the signature inventions of the industrial age and tweaked them - refined and perfected them, and made them work."
from NormR, 3:00 PM EST, 11/12/11, Books
How a Financial Pro Lost His House
"Everywhere I looked, people were being rewarded for buying as much house as they could possibly afford, and then some. There was this excitement in the air, almost like static. I started to think that if I didn't buy a house right then, I would never be able to afford one. At moments during our house hunt, I felt in my gut that something wasn't right. We'd go to open houses for $400,000 homes and see lines of couples in their late 20s - younger than we were - waiting to get inside. I kept wondering where all the money was coming from. How did all these people make so much? But prices just kept rising, and when people kept buying, that made it seem safer. I knew from my work as a financial adviser that following the crowd could be costly. But like everyone else, I felt safer in a crowd."
from RobS, 9:02 AM EST, 11/11/11, Behaviour
Jefferson County files bankruptcy
"Jefferson County, Alabama, filed the biggest U.S. municipal bankruptcy after an agreement among elected officials and investors to refinance $3.1 billion in sewer bonds fell apart."
from NormR, 11:42 PM EST, 11/09/11, Government
What happened to momentum?
"The total return to Momentum was impressive for many decades. It's a simple strategy, basically going long past winners and short the losers, hoping they continue to win and lose. Interestingly, the past returns should go only up to the prior month, because there's slight mean-reversion at the one-month horizon, so most people use the returns from months t-12 through t-1. This highlights the non-fractal nature of stock returns, in that there's momentum in the data from 3-18 months, but mean-reversion at the shorter and longer frequencies."
from NormR, 8:23 PM EST, 11/09/11, Momentum
Italian toast
"Italian government bonds burst through 7%. It's time for too big to rescue toast slathered with crunchy Nutella."
from NormR, 10:01 AM EST, 11/09/11, Bonds
The king of human error
"When you wander into the work of Kahneman and Tversky far enough, you come to find their fingerprints in places you never imagined even existed. It's alive in the work of the psychologist Philip Tetlock, who famously studied the predictions of putative political experts and found they were less accurate than predictions made by simple algorithms. It's present in the writing of Atul Gawande (Better, The Checklist Manifesto), who has shown the dangers of doctors who place too much faith in their intuition. It inspired the work of Terry Odean, a finance professor at U.C. Berkeley, who examined 10,000 individual brokerage accounts to see if stocks the brokers bought outperformed stocks they sold and found that the reverse was true. Recently, The New York Times ran an interesting article about a doctor and medical researcher in Toronto named Donald Redelmeier, whose quirky research projects upended all sorts of assumptions you might not know you even had. He'd shown that changing lanes in traffic is pointless, for instance, and that an applicant was less likely to be admitted to a medical school if he was interviewed on a rainy day. More generally he had demonstrated the power of illusions on the human mind. The person who had sent him down this road in life, he told the Times reporter, was his old professor Amos Tversky."
from NormR, 3:33 PM EST, 11/08/11, Behaviour
Rising from the ruins
"The economic landscape is unquestionably littered with the wreckage of the crash. Home prices languish near post-bubble lows, over 30% below peak. The plunge in prices has left nearly a quarter of all mortgage borrowers owing more than the value of their homes nearly 10m are seriously delinquent on their loans or in foreclosure. The hardest-hit markets are ghost neighbourhoods, filled with dilapidated properties. Housing markets are far from healthy. Yet current pessimism seems overdone. A turnaround in sales, prices and construction may be closer than many imagine."
from NormR, 10:40 PM EST, 11/07/11, Real Estate
Leveraging + High Payout Funds = Unhappy Ending
"The final chapter to the series of articles I've written this year on high-payout investments funds features leveraging. Over the past few years, I have been contacted by several individual investors and financial advisors about strategies they've been proposed or have seen in use involving borrowing to invest in funds that pay out fat monthly distributions. Every inquiry I received described a troubling and strikingly similar plan. Each case involved an investor setting up a line of credit secured by available home equity. The proceeds from the line of credit would be used to invest in one or more T-series or other funds paying out large monthly distributions. Then, the investor would take the distributions in cash - mostly made up of return of capital - either for personal spending or to put toward the investment loan. After some undefined period of time, the expectation is that the remaining investments (i.e. net of cash distributions) would be sufficient to wipe out the loan balance, with hopefully something extra to add some jingle to the investor's jeans."
from DanH, 1:17 PM EST, 11/07/11, Hallett
Buffett's buying spree biggest in 15 years
"Warren Buffett's Berkshire Hathaway Inc. invested US$23.9 billion in the third-quarter, the most in at least 15 years, as he accelerated stock purchases and broadened the portfolio beyond consumer and financial-company holdings. Berkshire bought almost US$7 billion of equity securities in the three months ended Sept. 30, compared with US$3.62 billion in the second quarter and US$834 million in the first, the Omaha, Nebraska-based company said Nov. 4 in a filing. Stockholdings labelled "commercial, industrial and other" soared 62% in the three months to US$17.4 billion on a cost basis, surpassing equity investments in financial and consumer-product firms."
from DanH, 1:09 PM EST, 11/07/11, Buffett
China's vanishing factory bosses
"The reckoning began in June, when three factory bosses, confronted with debts they couldn't pay, disappeared without a trace. Spooked, the 'shadow banks' that had become the lenders of last resort - pawn shops, credit companies, in some cases loan sharks who pooled the wealth of individual investors - started calling in more debts. More than more 100 other laoban, as bosses are known in Chinese, fled or went into hiding. Some say the number on the run is twice that, and at least two Wenzhou laoban have jumped off tall buildings to their deaths."
from NormR, 10:28 AM EST, 11/05/11, World
Bill Gates changes the world again
"The results have been equally massive: 3.4 million lives saved from hepatitis B, which causes liver cancer, 1.2 million lives from measles, 560,000 from the Hib bacteria, 474,000 from whooping cough, 140,000 from yellow fever and 30,000 from polio. In the past year the new initiatives have prevented another 8,000 deaths from pneumonia and 1,000 from diarrhea."
from NormR, 11:02 AM EST, 11/03/11, World
A new page at Canadian MoneySaver
"Mr. Hodson said he likes the current roster of MoneySaver writers, a mix of self-taught experts and advisers and other investment industry people who contribute free of charge. Something else he likes is the longstanding MoneySaver policy of not taking advertising from the financial industry. That kind of independence can be costly in terms of forgone revenue, but Mr. Hodson's Sprott years have left him financially secure enough not to worry about it."
from NormR, 7:15 PM EST, 11/02/11, Thrift
RIM's stock falls below book value
"Research In Motion's stock fell below its book value for the first time in nine years, a signal investors consider the BlackBerry maker to be worth less than the net value of its property, patents and other assets."
from NormR, 2:01 PM EST, 11/02/11, Stocks
The way we teach is wrong
"I learned far more from 3 months with the Assimil self-study course than from 5 years of school French. The absurdity of that comparison only grows upon comparing the hours spent. The Assimil method took 0.5 hours per day for about 90 days: That's 45 hours. The 5 years of school French happened every school day for roughly 50 minutes. A school year has roughly 180 days, for a total of 750 hours over the 5 years. Including homework, the total is probably 900 hours. That's a time-invested ratio of 20 to 1. Thus, despite spending 5 percent of the hours that I spent in school, with the self-study method I became far more competent in the language."
from NormR, 1:41 PM EST, 11/02/11, Academia
Bias, blindness and how we think
"In the market, of course, belief in one's superiority has significant consequences. Leaders of large businesses sometimes make huge bets in expensive mergers and acquisitions, acting on the mistaken belief that they can manage the assets of another company better than its current owners do. The stock market commonly responds by downgrading the value of the acquiring firm, because experience has shown that such efforts fail more often than they succeed."
from NormR, 11:52 PM EST, 11/01/11, Behaviour
Scientific heresy
"My topic today is scientific heresy. When are scientific heretics right and when are they mad? How do you tell the difference between science and pseudoscience?"
from NormR, 8:44 PM EST, 11/01/11, Behaviour
Real estate never goes down ...
"In real terms, the National index is back to Q3 1999 levels, the Composite 20 index is back to July 2000, and the CoreLogic index back to June 2000. In real terms, all appreciation in the last decade is gone."
from NormR, 8:27 PM EST, 10/29/11, Real Estate
Building the 3-D shelter
"Unlike "the market," we believe inflation will be a factor in the next decade or two because of the game-changing effects of deficits, debts, and demographics. Combined these three "Ds" could produce hurricane force headwinds to developed world growth and tailwinds to bursts of rising prices as debt levels are manipulated down to more manageable levels."
from NormR, 3:35 PM EST, 10/28/11, Markets
Irish see opportunity
""There's a political problem for the government," said Gavin Blessing, a bond analyst at Collins Stewart Plc in Dublin. "The Greeks, who are seen to be behaving badly, get rewarded, whereas the Irish, the top boys in the class, get nothing.""
from NormR, 4:15 PM EST, 10/27/11, World
The euro deal
"Even if the euro zone succeeds in avoiding CDS payouts, this could prove a Pyrrhic victory. If losing half the face value of a bond does not amount to a default, what does? Undermining the value of CDS insurance could deeply distort the market. If banks or other investors lose faith in their ability to hedge risks, they will be tempted to cut back on risk or demand higher yields. So, perversely, sparing a CDS payout on Greece could push up the borrowing costs of other countries."
from NormR, 11:17 AM EST, 10/27/11, World
Control rights and wrongs
"Banks are special. That has long been recognised in the design of their ownership, governance and regulation. This special status can have strange consequences. The historical distribution of risks and returns in banking is one. For a century, both risks and returns have been high. But while the risks have typically been borne by wider society, the returns have been harvested by bank shareholders and managers. The experience of the past two decades illustrates well this imbalance. In 1989, the CEOs of the seven largest banks in the United States earned on average $2.8 million. That was almost 100 times the median US household income. By 2007, at the height of the boom, CEO compensation among the largest US banks had risen almost tenfold to $26 million. That was over 500 times the median US household income. Those are high returns by any measure. But so, subsequently, have been the risks. The fall in the share prices of global banks means they are scarcely different in real terms today than in the early 1990s. And it is not just investors licking their wounds. So too is the global economy."
from NormR, 2:48 PM EST, 10/26/11, History
Scammers no match for sense of humour
"Rob received a call from "Jim" in India. Jim launched into his spiel: Rob's Windows operating system was infected. Rob told Jim he has no windows. Jim insisted that he did. Rob deadpanned that his computer had no windows...nor doors."
from NormR, 8:23 PM EST, 10/24/11, Crime
The Little State With The Big Mess
"In most places, as in Rhode Island, the big issue is pensions. By conventional measures, state and local pensions nationwide now face a combined shortfall of about $3 trillion. Officials argue that, by their accounting, the total is far less. But with pensions, hope often triumphs over experience. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent the real number for the last decade is about 2.4 percent."
from RobS, 3:51 PM EST, 10/23/11, Pensions
Michael Pettis talks China
"A talk by China skeptic Michael Pettis"
from NormR, 2:24 PM EST, 10/23/11, World
BMO set Monthly Income distribution bar too high
"With nearly 1/3 of distributions having been taken in cash since 2008, sustainability is a legitimate concern generally and a big concern for any investor relying on this fund's fat payout to pay living expenses. BMO insists the payout is sustainable, an assertion they base on the fund's net inflows. Indeed, while the fund has spent its last two full fiscal years in net redemptions, reinvested distributions have generally kept more money flowing into the fund than leaving. The only exception so far was 2008, when the fund saw net redemptions of $436 million including reinvested distributions. But this speaks only to the mechanics of where the money comes from. When I mention "sustainability" in this context, I'm speaking to the fund's potential to support the payout with a sufficiently high total return. And on that basis, there are good reasons to continue questioning its sustainability."
from DanH, 2:28 PM EST, 10/20/11, Hallett
Tax math
"Let's consider two key areas of the tax code, where "first-stage thinking" allows Buffett to conclude that he's paying a lower tax rate than his secretary. Once we view the picture from the proper perspective and engage in "second-stage thinking," you'll see that Buffett's effective tax rate is much higher than it seems."
from NormR, 8:06 PM EST, 10/19/11, Taxes
The science of irrationality
"Here's a simple arithmetic question: 'A bat and ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?' The vast majority of people respond quickly and confidently, insisting the ball costs 10 cents. This answer is both incredibly obvious and utterly wrong. (The correct answer is five cents for the ball and $1.05 for the bat.) What's most impressive is that education doesn't really help more than 50% of students at Harvard, Princeton and the Massachusetts Institute of Technology routinely give the incorrect answer."
from NormR, 2:36 PM EST, 10/16/11, Behaviour
Economics has met the enemy it's economics
"What is today known as economics arose out of two larger intellectual traditions that have since been largely abandoned. One is political economy, which is based on the simple idea that economic outcomes are often determined largely by political factors (as well as vice versa). But when political-economy courses first started appearing in Canadian universities in the 1870s, it was still viewed as a small offshoot of a far more important topic: moral philosophy. In The Wealth of Nations (1776), Adam Smith famously argued that the pursuit of enlightened self-interest by individuals and companies could benefit society as a whole. His notion of the market's "invisible hand" laid the groundwork for much of modern neoclassical and neo-liberal, laissez-faire economics. But unlike today's free marketers, Smith didn't believe that the morality of the market was appropriate for society at large. Honesty, discipline, thrift and co-operation, not consumption and unbridled self-interest, were the keys to happiness and social cohesion. Smith's vision was a capitalist economy in a society governed by non-capitalist morality."
from DanH, 11:50 PM EST, 10/15/11, Economics
Capitol gains
"It's also possible that congressional insiders could have simply stopped reporting potentially dubious transactions once they knew people were paying attention. According to Ziobrowski, the forms still aren't audited, and they're woefully inadequate - for example, Eggers and Hainmueller say there's no clear method for reporting short-selling, one of the major ways to profit from inside information."
from NormR, 5:54 PM EST, 10/15/11, Government
Longleaf Q3
"I think the future of equities will be roughly the same as their past in particular, common-stock purchases will prove satisfactory when made at appropriate price levels. It may be objected that it is far too cursory and superficial a conclusion that it fails to take into account the new factors and problems that have entered the economic picture in recent years - especially those of ... the movement towards less consumption and zero growth. Perhaps I should add to my list the widespread public mistrust of Wall Street as a whole, engendered by its well-nigh scandalous behavior during recent years in the areas of ethics, financial practices of all sorts, and plain business sense."
from NormR, 11:44 PM EST, 10/14/11, Value Investing
A trillion here, $500 billion there
"In 2009 Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx, then at the University of Chicago's Booth School of Business, estimated that the deficit of American state and local-government pension plans was $3.1 trillion. Mr Rauh reckons that the deficit is now $4.4 trillion. In other words, a cool $1.3 trillion has been added in two years."
from RobS, 8:46 PM EST, 10/13/11, Pensions
A City Forced to Turn Out the Lights
"Highland Park, a community of about 11,000 that's almost completely surrounded by the city of Detroit, has been unable to come up with the money to keep its streetlights running. After years of unpaid bills totaling more than $4 million, the local utility, DTE Energy, decided to pluck the bulbs."
from RobS, 9:06 PM EST, 10/12/11, Government
Pennsylvania capital files for bankruptcy
"The bankruptcy has the potential to stoke political passions as it will likely pit firefighters and police against municipal bond investors, who are often perceived to be wealthy retirees"
from RobS, 5:54 PM EST, 10/12/11, Debt
Why China won't conquer the world
"Its young are incapable, its old are exhausted, and box-ticking bureaucrats make life hell. China, a superpower? First it needs to grow up"
from NormR, 9:19 PM EST, 10/09/11, World
King of the mountain
"What about the future? In the next six months, the deflation from late 2008 will shortly drop out of our three-year rates. CPI is up by 7% over the past 30 months, which works out to 2.3% per year. If we add our 2% adjustment to create more of an applesto- apples comparison with history, "true" inflation is above 4% and the "true" real interest rate is very low, around - 2%. At these levels, the normal Shiller P/E ratio would be 13 times our 10-year average earnings, which takes us below 800 on the S&P 500 Index."
from NormR, 12:43 PM EST, 10/08/11, Markets
Onion and The Economist Agree on Steve Jobs
"The Economist has this take, grimly headlined 'Steve Jobs and America's decline':............The Onion gave us satire that kind of reached the same conclusion"
from RobS, 3:20 PM EST, 10/08/11, Fun
The half-a-trillion hole
"However US local government funds continue to use the assumed rate of return to discount their liabilities, even as 8% looks more and more chimerical. I have struggled to convince readers of the madness of this approach, so I will try to channel Warren Buffett (in spite of having one-tenth of his brains and one-thousandth of his intellectual credibility). If a promise to make a series of future payments isn't a debt, what is it? If a debt shouldn't be recorded on the balance sheet at cost, how should it be recorded?"
from RobS, 4:51 PM EST, 10/08/11, Pensions
A Short History of the Income Tax
"The other pernicious consequence of the separate corporate and personal income taxes has been a field day for demagogues and the misguided to claim that the rich are not paying their 'fair share.' Warren Buffett recently claimed that he had paid only $6.9 million in taxes last year. But Berkshire Hathaway, of which Mr. Buffett owns 30%, paid $5.6 billion in corporate income taxes. Were Berkshire Hathaway a Subchapter S corporation and exempt from corporate income taxes, Mr. Buffett's personal tax bill would have been 231 times higher, at $1.6 billion. Just as in the late 19th century, the tax code is now hopelessly arbitrary and unfair. It requires a complete overhaul."
from RobS, 8:01 PM EST, 10/06/11, Taxes
Grandparents scam
"Last week my 83-year old mother almost became a victim of the "grandparent scam." She picked up the phone and the caller said he was her grandson. When she asked if it was Charles, my son, the caller said yes. Mom sometimes has trouble hearing on the telephone, but she said it sounded just like him. As we later found out, he gave her the classic story. He said he had an accident with a rental car in Montreal and was in jail. He said needed $4,000 wired via Western Union to his court-appointed lawyer to be released and provided a name. The caller asked my mother not to call either my husband or I as we would be too upset. ..."
from NormR, 2:47 PM EST, 10/06/11, Crime
Why envy dominates greed
"Economists agree that no reasonable risk metric predicts returns within or between any asset class, but always suggest that just implies risk, like fine wine, is very subtle. This is because we know there is a risk premium, because given our conception of utility (increasing at a decreasing rate), there must be a risk premium. Like telling the Journal of Marxist Studies that 'class' is not the best lens to view behavior, telling economists that self interest is primarily envy, not consumption, is simply too dismissive of the foundations they find so compelling to their calling all that human capital is tied to mastery of work that may not work, but at least currently there's hope that another tweak might turn these highly rigorous models into seminal, important work."
from NormR, 2:45 PM EST, 10/03/11, Behaviour
Want lower fund fees? Vote with your wallet.
"Finance Minister Jim Flaherty has asked the Senate National Finance Committee to examine why prices of many retail goods continue to be higher than in the U.S. while the Canadian dollar has been at (or near) par with the U.S. dollar for a year or more. Just over a week ago, FAIR Canada called on Flaherty to add mutual fund management expense ratios to that list of retail goods. I have a great deal of respect for FAIR. Given that investor advocacy isn't a high-paying job - it pays nothing, sometimes less - FAIR is a much-needed organization. But I think their request and fee comparison miss the mark."
from DanH, 10:13 AM EST, 10/03/11, Hallett
Buffett on taxes
"Warren Buffett, the billionaire who runs Berkshire Hathaway Inc., talks about the need for the ultra-rich, who 'make money with money' to pay more in taxes."
from NormR, 1:17 PM EST, 09/30/11, Taxes
California and Bust
"The smart money says the U.S. economy will splinter, with some states thriving, some states not, and all eyes are on California as the nightmare scenario. After a hair-raising visit with former governor Arnold Schwarzenegger, who explains why the Golden State has cratered, Michael Lewis goes where the buck literally stops - the local level, where the likes of San Jose mayor Chuck Reed and Vallejo and fire chief Paige Meyer are trying to avert even worse catastrophes and rethink what it means to be a society."
from NormR, 11:55 AM EST, 09/30/11, World
A National Debt Of $14 Trillion? Try $211 Trillion
"'We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 - you're talking about more than $3 trillion a year just to give to a portion of the population,' he says. 'That's an enormous bill that's overhanging our heads, and Congress isn't focused on it. ... To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what's being negotiated right now in Washington. 'What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever."
from RobS, 5:44 PM EST, 09/30/11, Government
What's the use of saving money?
"Ritchie Hok, an actuary living in Ottawa, is convinced savers will ultimately wind up paying the price for others' imprudence. At the peak of the U.S. housing bubble, Hok lived in Minneapolis and saw the excesses first-hand. While there he resisted those who urged him to get into the market a wise move given prices are down 40 per cent there. Now that he's in Ottawa, though, he's hearing all the same arguments for why he should take advantage of low rates and buy a house before prices rise even further. He's convinced Canada's housing market is a bubble that will eventually burst, and when it does, policy-makers will rush to people's rescue. "My fear is that most people in Canada are now debtors and not savers, and so governments will enact policies to help them because they make up most of the population," he says. "Savers may get screwed on the way down, too." If Hok is right, the frugal few could be in for even more pain ahead. Why is it again that it pays to save?"
from NormR, 2:27 PM EST, 09/29/11, Thrift
NewPage pensioners could take 30% hit
"NewPage's Point Tupper operation has a $75-million unfunded pension liability and the pension funds for two of the four unions representing mill workers are 30 per cent underfunded.............. .................. If the case of fully funded pension plans, the plan administrator would purchase annuities to pay the pensions. But plans such as NewPage's that are not fully funded lack the money to buy the full amount of annuities required to cover the pensions. 'Reduced annuities means reduced pensions,'"
from RobS, 1:31 PM EST, 09/28/11, Pensions
Most S&P 500 stocks yield more than bonds
"With the 10-year US Treasury yield now down to a record low level of 1.77% and equities getting crushed, the number of stocks yielding more than Treasuries continues to expand. As of this morning, 52.6% of stocks in the S&P 500 have a higher yield than the 10-year US Treasury. While equity dividends are by no means guaranteed, it seems that with each week that passes more companies are raising dividends than cutting them. This week, Microsoft (MSFT) became the latest mega-cap company to raise its dividend with a 25% hike in its annual payout bringing the yield above 3%."
from DanH, 3:47 PM EST, 09/27/11, Stocks
Bringing down the house
"In simple terms, the young and middle-aged save for old age by buying assets, often with borrowed money the old sell them to pay for retirement. As the working-age population rises - as it did, for instance, after the baby boom - asset prices rocket because of increased demand. As baby-boomers reach retirement, the reverse may happen."
from NormR, 12:04 AM EST, 09/27/11, Markets
Chicago economics on trial
"By now, the Krugmanites are having aneurysms. Our stunted recovery, they insist, is due to government's failure to borrow and spend enough to soak up idle capacity as households and businesses 'deleverage.' In a Keynesian world, when government gooses demand with a burst of deficit spending, the stick figures are supposed to get busy. Businesses are supposed to hire more and invest more. Consumers are supposed to consume more. But what if the stick figures don't respond as the model prescribes? What if businesses react to what they see as a temporary and artificial burst in demand by working their existing workers and equipment harder - or by raising prices? What if businesses and consumers respond to a public-sector borrowing binge by becoming fearful about the financial stability of government itself? What if they run out and join the tea party - the tea party being a real-world manifestation of consumers and employers not behaving in the presence of stimulus the way the Keynesian model says they should?"
from NormR, 5:02 PM EST, 09/25/11, Economics
Buffett tax plan sanctimonious and hypocritical
"At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the 'Buffett' tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What constitutes a average taxpayer (I guess it is a good thing that it is not the median taxpayer since that would comprise an income tax cut for millionaires, not a tax increase) and how high this 'alternative' tax rate should be has been left to Congress to specify. This plan has the right moniker, since it's qualities are reflective of the man after whom it is named"
from DanH, 2:32 PM EST, 09/25/11, Buffett
Law gives huge pension perks to union leaders
"•Liberato 'Al' Naimoli, president of the Cement Workers Union Local 76. He retired last year from a $15,000-a-year city job that he last held a quarter-century ago. Today, Naimoli receives more than $13,000 a month from the city laborers' pension fund even as he continues to earn nearly $300,000 annually as president of Local 76. His city laborers' pension will pay him about $4 million during his lifetime, according to a Tribune/WGN-TV analysis based on the funds' actuarial assumptions. •James McNally, vice president of the International Union of Operating Engineers Local 150. He receives nearly $115,000 a year even though at the time he retired, in 2008, he had not worked for the city in more than 13 years. He was only 51 when he started collecting a city pension. By the time he turns 78, he will have received roughly $4 million from the city laborers' fund. •Dennis Gannon, former president of the Chicago Federation of Labor. In 2004, he began receiving more than $150,000 a year after retiring at age 50 from a $56,000-a-year city job that he had left nearly 13 years earlier. He received his city pension while collecting a salary of about $200,000 from the federation. During his lifetime, the city municipal pension fund will pay him approximately $5 million. Gannon told the Tribune that he was only following the law in filing for a city pension."
from RobS, 12:16 PM EST, 09/24/11, Pensions
The great debt scare
"It might not seem that Europe's sovereign-debt crisis and growing concern about the United States' debt position should shake basic economic confidence. But they apparently have. And loss of confidence, by discouraging consumption and investment, can be a self-fulfilling prophecy, causing the economic weakness that is feared. Significant drops in consumer-confidence indices in Europe and North America already reflect this perverse dynamic."
from NormR, 7:01 PM EST, 09/23/11, Debt
The ultimate asset bubble
"Gold bought for investment accounted for 38 percent of total demand in 2010, compared with about 4 percent a decade before, the World Gold Council estimates. Holdings in gold- backed ETPs are equal to more than nine years of U.S. mine production. The SPDR Gold Trust, the biggest bullion ETP, exceeded the market capitalization of the SPDR S&P 500 ETF Trust in August, beating what had been the industry's largest exchange-traded fund since 1993."
from NormR, 11:53 PM EST, 09/20/11, Markets
Trust issues
"Hartwick College didn't really mean to annihilate the U.S. economy. A small liberal-arts school in the Catskills, Hartwick is the kind of sleepy institution that local worthies were in the habit of founding back in the 1790s it counts a former ambassador to Belize among its more prominent alumni, and placidly reclines in its berth as the number-174-ranked liberal-arts college in the country. But along with charming buildings and a spring-fed lake, the college once possessed a rather more unusual feature: a slumbering giant of compound interest."
from NormR, 12:23 PM EST, 09/20/11, History
Ireland recovers as Greece sinks
"The country is meeting targets set for it by the EU, IMF and European Central Bank as Kenny's government pushes austerity measures through parliament by controlling 113 seats in the 166- seat legislature. By contrast, Papandreou's four-seat majority imperils the implementation of Greece's bailout package. Chatzis, the plastic surgeon, said he moved to Ireland in 2000 in part because the Irish were similar to Greeks in that "they both like to talk and have fun." The difference is "in Greece, the black economy thrives, many people avoid taxes, and you can get one price with a receipt and once price without," he said. "Here, there is respect for the system. People will do what it takes.""
from NormR, 12:42 AM EST, 09/20/11, World
McGuinty doubles down on money pit
"As we all know, Ontario is struggling to find new jobs for displaced industrial workers. I propose we put those people to work in the promising new market for tropical fruits and vegetables: pineapple, mangoes, hearts of palm, things like that. You may object: Ontario is not especially well-suited to growing such products. I answer: Yes, that's true today. But not necessarily tomorrow. I will sign a $7-billion dollar contract with the Dole pineapple company if they will open a pineapple field in Ontario. I will promise to buy their pineapples at a premium over the current market price for pineapples: 300%, 400%, whatever it takes. Who says no to money like that? And in exchange, they'll hire some people. Admittedly, they may not hire very many people: 200 at this facility, 150 at that. But you have to tally the indirect jobs too! Or better yet, let me and my ingenious accountants tally the jobs for you. Mmm. 200 plus 150 plus this number I'm pulling out of my ... OK, that makes 20,000. May I count on your vote? No? But Dalton McGuinty apparently expects that a slight variant on the plan will work for him."
from NormR, 10:26 AM EST, 09/18/11, Government
A Ponzi scheme that should be fixed
"You can force young people into Social Security, but if there just aren't enough young people in existence to support current beneficiaries, the system will collapse anyway. When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5 today, three in 20 years, there will be but two. Now, the average senior receives in Social Security about a third of what the average worker makes. Applying that ratio retroactively, this means that in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time in 1950, 2 percent today, 11 percent in 20 years, 17 percent. This is a staggering sum, considering that it is in addition to all the other taxes he pays to sustain other functions of government, such as Medicare, whose costs are exploding."
from RobS, 8:31 PM EST, 09/17/11, Government
Coining a thought
"So let me explain why I believe printing money to be a fundamentally dishonest endeavour. Think about how it works. When the central bank, at zero cost, increases the monetary base by 1%, where does that money go? Answer into the market for government bonds. Since printing the money to buy government bonds costs nothing, government revenues are obtained ostensibly for free. Of course, it buys those bonds in the secondary market rather than from the government directly, and the pretense of an arm's length transaction between government and central bank is thus maintained, with all parties claiming a separation of monetary and fiscal policy. But it's only a pretence.By issuing bonds to itself, the government seems to have miraculously raised revenue without burdening anyone else. This is probably why the mechanism is universally adopted throughout the world's financial system. Yet free money does not, and cannot, exist. Since there can be no such thing as a government, or anyone else for that matter, raising revenue at no cost, simple logic tells us that someone, somewhere has to pay.But who? This is where the subtle dishonesty resides, because the answer is that no-one knows. If the money printing creates inflation in the product market, consumers in that product market will pay. If the money printing creates inflation in asset markets, the purchase of the more elevated asset price pays. Of course, if the printed money ends up in asset markets even less is known about who ultimately pays for the government's free lunch. Thus the government has raised revenues without even knowing upon whom the burden falls, let alone telling them."
from RobS, 7:25 PM EST, 09/17/11, Debt
Invest like a minimalist
"A 'minimalist' lifestyle usually refers to living only with the basics. The less 'stuff' you have, the less you have to worry about day-to-day and the happier you will be, say proponents. Perhaps you can't part with your new smart phone, your second car or the notion of home ownership. But I am convinced that adopting minimalist-like investing style would set most investors on the path of greater happiness and prosperity."
from DanH, 3:31 PM EST, 09/16/11, Hallett
New generation of cross-border income trusts
"In December 2010, Eagle Energy Trust closed its initial public offering (IPO) of trust units in Canada, resulting in the first of a new generation of cross-border income trusts to access the Canadian capital markets. Since then, Parallel Energy Trust completed its IPO in April 2011 and Argent Energy Trust has recently filed a preliminary prospectus for a proposed IPO. Each of these new trusts owns or will acquire an underlying energy business carried on in the U.S. However, and as discussed in further detail below, there is generally no restriction on other types of U.S. businesses being owned by these income trusts. The suitability of a particular business for these trusts will largely turn on the results of economic modelling based on anticipated deductions in computing U.S. income (i.e., deductions for interest, depreciation, depletion, etc.)"
from DanH, 3:30 PM EST, 09/16/11, Law
A milestone in low-cost investing
"The golden investing rule of controlling fees to generate bigger returns never makes more sense than it does at challenging times like these for financial markets. So, cost-conscious investors, take note of the introduction of commission-free ETF trading at online brokerage Scotia iTrade. There may not be a cheaper way to invest anywhere."
from NormR, 1:26 PM EST, 09/15/11, Brokers
Buy, hold, regret
"Over the last 50 years, the real returns from equities have been lower than those from bonds in Germany, Japan and Italy. In the Italian case, the gap is almost three percentage points, and that is despite the recent bond sell-off"
from NormR, 11:12 AM EST, 09/15/11, Markets
Stock returns by debt rating
"It appears there's a reasonable story one could tell about returns from AAA to BB: higher returns, and higher intuitive measures of risk: beta, volatility. But for B and C rated stocks, the returns make no sense to standard asset pricing theory, because these are obviously risky stocks."
from NormR, 4:42 PM EST, 09/14/11, Debt
Opportunity cost
"And if you drive a typical car more than a mile out of your way for each penny you save on the per-gallon price, it doesn't matter how worthless your time is to you - the gas to get there and back costs more than you save."
from NormR, 2:55 PM EST, 09/14/11, Economics
Banning market orders goes mainstream
"Traders Magazing writes about how more brokers are talking about altering market orders so that they automatically get converted to a limit order (with a price a few % away from the inside market) by the receiving broker. As the article notes, this results in some risk to the broker: if they put a price cap on an order that then doesn't get filled. It's also noted that this risk is small and well worth the protection from large errors."
from NormR, 2:34 PM EST, 09/14/11, Markets
Whitman's Q3 2011 letter
"Based, as always, upon a bottom-up, value oriented, approach to analysis, my view of what is happening in the U.S. economy seems to be quite different from the views held by politicians and academics. Third Avenue shareholders, hopefully, might gain insight from understanding my views about the economy and various economic entities, particularly with regard to the U.S. economy, the global economy and, most important to Third Avenue Management, the companies that must contend with both."
from NormR, 2:28 PM EST, 09/14/11, Whitman
Dividends: Collect, Reinvest, Repeat
"The market storm of the past few months has produced a bright side: dividend yields are on the rise."
from NormR, 2:07 PM EST, 09/11/11, Dividends
There's no free lunch
"It's widely known in tax circles that only 50% of the cost of meals and entertainment, when incurred as a legitimate business expense, is tax-deductible. What's not as well-known, however, is the rationale for this rule. A recent Tax Court decision deals with this rule and delves into the fascinating yet underappreciated world of statutory interpretation."
from NormR, 1:57 PM EST, 09/11/11, Taxes
Is Social Security a Ponzi Scheme?
"Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in)."
from NormR, 5:43 PM EST, 09/10/11, Government
The forgotten man
"With equities down sharply, many people are wondering if Uncle Ben and Uncle Sam will once again intervene and turn on the money spigot to prop up equities. Well, before the possible onset of QE3, it's time to consider who's paying for QE2 and all the other intervention strategies to date."
from NormR, 11:55 AM EST, 09/10/11, Government
No need for silly gold valuations
"Peter Munk, chairman of Barrick Gold and one of the prime movers behind GLD, points out that large gold miners such as Barrick, the largest, and Newmont, the second biggest, always used to trade at a premium to base metals miners. No longer. "Today copper producers laugh at me," he said on Wednesday. By making it easy to buy gold the miners removed a big reason for buying their shares."
from NormR, 2:42 PM EST, 09/08/11, Indexing
The Indian who bailed out Bank of Ireland
"When Bank of Ireland faced an imminent nationalization earlier this summer, a group of North American investors pumped in $1.6 billion to keep it out of the hands of the Irish government, in return for up to a 35% stake in the iconic commercial bank, whose roots date back to 1783. The lead investor in the deal was the Toronto-based Fairfax Financial Holdings Limited, led by Hyderabad-born Prem Watsa, who may be a virtual unknown in the country of his birth, but is fast building a reputation as an investment wizard in his adopted land and also within the global value investing community."
from NormR, 2:03 PM EST, 09/08/11, Value Investing
Mega Brands merits attention
"To its great credit, management somehow kept the company going while negotiating a recapitalization in 2010, issuing an enormous amount of stock to get rid of most of its debt. Fairfax, Invesco Trimark and the founding Bertrand family participated in the new financing, as did other strong hands, who now own about half the stock."
from NormR, 2:01 PM EST, 09/08/11, Stocks
Hedge-fund performance and liquidity risk
"This paper demonstrates that liquidity risk as measured by the covariation of fund returns with unexpected changes in aggregate liquidity is an important predictor of hedge-fund performance. The results show that funds that significantly load on liquidity risk subsequently outperform low-loading funds by about 6.5% annually, on average, over the period 1994-2009, while negative performance is observed during liquidity crises. The returns are independent of share restriction, pointing to a possible imbalance between the liquidity a fund offers its investors and the liquidity of its underlying positions. Liquidity risk seems to account for a substantial part of hedge-fund performance. The results suggest several practical implications for risk management and manager selection."
from NormR, 1:55 PM EST, 09/08/11, Funds
India Says No to $80 Toilet Paper
"Ordinary conversations over chai in India are now about markets and focus on the contrast between private success and public failure. While the private sector provides cutting-edge services and products to the world, the roads outside are potholed, electricity is patchy and water supply erratic. The difference between the two worlds is accountability: In private life, if you don't work, you don't eat in public life, jobs are effectively for life. Indians believe that they are rising despite the state and are often heard to say that 'India grows at night, when the government sleeps.'"
from RobS, 10:04 AM EST, 09/05/11, Government
Toronto's library gambit
"Dangerous question: "Can we save money by contracting with private companies to collect garbage?" Comfortable question: "Is cleanliness good?" Dangerous question: "Why do TTC drivers earn much more than people doing comparable work in the private sector?" Comfortable question: "Do you want more cars on the road?" Dangerous question: "How can government in the digital age most effectively make necessary information available to all the people?" Comfortable question: "Don't you love the library?""
from RobS, 9:11 PM EST, 09/03/11, Government
The case against summer
"The logical argument contra summertime should be four words long: middle-age men in shorts. Q.E.D. Alas, shorts are being worn year-round by us graying porkers with legs as ugly as stump fences - if stump fences had hairy varicose veins. But there are plenty of other things wrong with summer, starting with the fact that it comes at the wrong time of year."
from NormR, 1:44 PM EST, 09/03/11, Fun
Asking the right and wrong questions
"From a behavioral economics point of view, the field of financial advice is quite strange and not very useful. For the most part, professional financial services rely on clients' answers to two questions: How much of your current salary will you need in retirement? What is your risk attitude on a seven-point scale? From my perspective, these are remarkably useless questions"
from NormR, 1:18 PM EST, 09/03/11, Brokers
The roots of the Sino-Forest mystery
"Part of what is so astonishing is that Sino-Forest and its business activities failed to arouse serious suspicions or concerns with most investors until June of this year when a short seller named Carson Block and his firm, Muddy Waters LLC, first levelled accusations of fraud against the company."
from NormR, 1:11 PM EST, 09/03/11, Crime
Risk management and sounding crazy
"All this leads me to wondering about Warren Buffett - the greatest fund manager of them all. He is an unusual individual with strange personal predilections. But he sounds so rational. And he is amazingly self-controlled. Indeed his ability to sit on billions of dollars excess cash for years and years at a time waiting for the time to pounce is legendary and extraordinarily hard to duplicate. Buffett says that temperament is more important than brains in investing and I think this is what he means. But it is often Buffett against the world. Buffett is thought of as a has-been by many people. It doesn't matter whether he was avoiding tech stocks in 1998, 1999 and 2000. It does not matter whether he was buying Bank of America now. He is - of course - just mad. The madness is an important part of how Buffett made all that money. But the self control is - I think - more important."
from NormR, 12:41 PM EST, 09/02/11, Behaviour
Get ready to pay billions for hydro pensions
"Defenders of these very generous pensions always claim that these employees contribute their fair share into the pension plans, and so deserve them. As taxpayers, we would normally think a 50-50 split of contributions would be fair, with employees contributing 50% and taxpayers matching it. But over the past five years alone, taxpayers have pumped $1.3-billion into the plan, while employees have contributed only $368-million. Not so fair and sure to create serious pension tensions when taxpayers find out what is really happening in these pension Ponzi schemes."
from RobS, 3:47 PM EST, 09/01/11, Pensions
The halo effect
"As management professor Phil Rosenzweig points out in his book 'The Halo Effect,' a soaring stock price can lead investors to regard the company's managers as focused, disciplined and passionate - while, in the negative halo of a falling stock price, the same executives will now seem stubborn, unimaginative and resistant to change. Investors think, at either time, that they are evaluating the stock and the managers independently, but one opinion inevitably colors the other, often leading investors to be too bullish on the upside and too bearish on the downside. The managers haven't changed our perceptions of them have."
from NormR, 2:56 PM EST, 09/01/11, Behaviour
A value investor's best friend in China
"My experience with statistically cheap China-based investments has not always been positive. It dates back 20 years or more to the TSX-listed Noble China, which had the Chinese licence for Pabst Blue Ribbon, a particularly tasteless American beer. The whole episode ended in tears for the shareholders. So, I am not about to invest my life savings in American Lorain, but I think that Ben Graham would approve a modest exposure."
from NormR, 12:10 PM EST, 09/01/11, Value Investing
Great courses, great profits
"A teaching company gives the public what the academy no longer supplies: a curriculum in the monuments of human thought."
from NormR, 2:51 PM EST, 08/31/11, Academia
Betting against flimsy Chinese firms
""Historically, stock scams are promoters promoting stories. The actual numbers will tell a more truthful story," he said. "If it's a mining company and there is nothing in ground .and#8201.and#8201. the numbers don't lie. The people do. The trick here is that the numbers are made up.""
from NormR, 4:43 PM EST, 08/28/11, Crime
The merry-go-round beats the roller coaster
"I have fond summer memories of rushing through the gates of my local amusement park and riding the roller coasters all day long. Up and down, round and round. It was grand fun. Alas, advancing decrepitude makes riding the metal monsters an exercise in nausea these days. They're almost as bad as the stock markets which are currently providing a wild enough ride of their own. If you're also turning a little green, I've some good news. You can hold placid lower-risk stocks and still achieve market-topping returns."
from NormR, 9:54 PM EST, 08/27/11, Markets
Cartoon for The New Yorker?
"I wanted more spontaneity in my creative life. So in March I decided to fill a sketchbook, 90 pages, with New Yorker-style cartoons - one cartoon a day for three months. No excuses. If making graphic novels felt like a staid long-term relationship, then doing gag comics is like playing the field. One day I could draw a fortuneteller the next, an astronaut. I went from sultans to superheroes, robots to rabbits. I felt liberated. I refused to get bogged down or fuss over the drawings. I spent no more than an hour with any one cartoon, and many took far less time than that. For the first two weeks I was feeling my oats. I already had a half-dozen keepers and was confident there were plenty more winners on the way. It was at this point that I started dreaming of actually selling a cartoon to The New Yorker."
from NormR, 12:37 PM EST, 08/27/11, Fun
Why McDonald's wins
"Employees and analysts say he's guided by a zeal for satisfying customers, even if it comes at the expense of his own ideas and preferences. A few years ago the company did extensive testing on new coffee-cup lids and rolled out a version that consumers liked -- and that Skinner, who happens to drink a lot of coffee, really didn't. Rather than overrule the masses, Skinner came up with his own solution: He keeps a stash of the old lids on hand."
from NormR, 12:00 PM EST, 08/27/11, Management
Tales of when legends leave
"The founder of a successful corporation steps down. Then what? At Ford Motor Co. and Walt Disney Co., long periods of stagnation or decline, followed by renewal. At Wal-Mart Stores Inc., continued success for a time, then new challenges. Now it is Apple Inc.'s turn, following Steve Jobs's resignation as CEO on Wednesday."
from NormR, 2:20 PM EST, 08/26/11, Management
Too hefty to handle
"Three years ago, just one out of every nine mortgage-holders borrowed more than 80% of the value of their homes. Today, it's one in six. These are verifiable facts whether they add up to a bubble, I can't say. But given the data and the terrible consequences of real estate bubbles, the Harper government could - at the very least - stop pumping air into the property market. And that means reining in the Canada Mortgage and Housing Corp., the vehicle through which you, dear taxpayer, have assumed the risks for these urban bidding wars and the jumbo mortgages they create."
from NormR, 1:27 PM EST, 08/26/11, Real Estate
Buffett's BofA Stake
"Warren Buffett may have earned $1.3 billion in one day on his $5 billion investment in Bank of America Corp. (BAC)"
from NormR, 11:08 PM EST, 08/25/11, Buffett
Bank of America
"Still I am bullish on BofA at these prices. Very bullish. I think the politically driven finance bloggers (Yves Smith at Naked Capitalism) should be seen for their (I think justified) anti-bank agenda. Most of the rest are fitting their analysis around the stock price. There is an awful lot of stock-price doing the analysis here."
from NormR, 11:05 PM EST, 08/25/11, Stocks
Trapped Cash
"Not all of cash balances are equally benign. In fact, a significant portion of the cash balance, at some companies, may be 'trapped' and thus not easily accessible, either for investments or paying dividends. Trapped cash refers to the portion of a company's cash that is held in fully-owned foreign subsidiaries or units of the company. Note that there is nothing illegal or even unusual about this phenomenon. All multinationals generate revenue, earnings and cash flows in foreign markets, and those cash flows are held (at least temporarily) in those markets. As US companies generate larger proportions of their revenues overseas, the cash flows they generate from foreign markets has also increased."
from DanH, 1:49 PM EST, 08/24/11, Accounting
Value investors snap up stocks
"Mr. Chou, who recently pared the cash in his U.S.-focused Chou Associates Fund to 20 per cent from 30 per cent, has been buying U.S. financial stocks and retailers. While he would not discuss specific purchases, his fund's holdings at March 31 included warrants on Bank of America Corp. and Wells Fargo and Co. Warrants are options to buy a stock at a preset price. Mr. Chou once avoided many U.S. banks because of their opaque financials and alarming use of derivatives, but he believes that the U.S. government is unlikely to let major financial institutions fail, while surviving banks will benefit from any economic recovery."
from NormR, 9:57 PM EST, 08/23/11, Value Investing
Google Street View in the Amazon
"Google is sending its street view camera around the Amazon River basin by boat and bike. It announced on its blog: 'We'll pedal the Street View trike along the narrow dirt paths of the Amazon villages and maneuver it up close to where civilization meets the rainforest. We'll also mount it onto a boat to take photographs as the boat floats down the river. The tripod -- which is the same system we use to capture imagery of business interiors -- will also be used to give you a sense of what it's like to live and work in places such as an Amazonian community center and school.'"
from DanH, 12:05 PM EST, 08/23/11, Fun
Vanguard to enter Canadian ETF market
"U.S. investment fund goliath Vanguard Group Inc. has filed a preliminary prospectus to launch six exchange-traded funds (ETFs) in Canada. The stock ETFs include Vanguard MSCI Canada and the Vanguard MSCI Emerging Markets, as well as the Vanguard MSCI U.S. Broad Market and Vanguard MSCI EAFE, which will both be hedged to Canadian dollars. The bond category includes Vanguard Canadian Aggregate Bond and Vanguard Canadian Short-Term Bond ETFs."
from DanH, 11:59 AM EST, 08/23/11, Indexing
Bond market signaling recession? Should we care?
"It's certainly possible that the current decline will tip over into official bear market territory. But that shouldn't be surprising since bear markets have historically been clustered. More importantly, a bad economic environment does not equate to a bad investment environment. An economy that looks to be in its darkest days often gives birth to terrific investment opportunities. While we haven't seen widespread indiscriminate selling of stocks - as in 2008 - many great opportunities have emerged. When hunting for investment opportunities, portfolio manager Geoff MacDonald is happy to invest in businesses even if their growth prospects are low or moderate. The key, he says, is not paying for the growth. And there are many quality businesses today that are growing - and should continue to grow - but are priced for zero or negative growth."
from DanH, 11:56 AM EST, 08/23/11, Hallett
Advice from Irving Kahn
"At Columbia Business School, Kahn served as an assistant to economist Benjamin Graham, the value-investing guru whose principles of caution and defensive investing inspired a cadre of disciples that includes Warren Buffett. It's an investment strategy born of the beating Graham had taken in '29, and Kahn adopted it as his own. "I stopped wasting time on what people claimed a stock was worth and started looking at the numbers," he says. "This may surprise you, but there were a large number of valuable buys during the Depression.""
from NormR, 11:25 AM EST, 08/23/11, Value Investing
The ugly truth
"Based on past behavior of fiscal policy makers, businesses understandably regard the debt ceiling agreement and the political outcome of negotiations between Congress and the president with the suspicion akin to how the British humorist P.G. Wodehouse regarded his aunts: "It is no use telling me there are bad aunts and good aunts," he wrote. "At the core they are all alike. Sooner or later, out pops the cloven hoof." It will be devilishly difficult for businesses to commit to adding significantly to their head count or to meaningful capital expansion in the United States until clarity is achieved on the particulars of how Congress will bend the curve of deficit and debt expansion and the "cloven hooves" are revealed. No amount of monetary accommodation can substitute for that needed clarity. In fact, it can only make it worse if business comes to suspect that the central bank is laying the groundwork for eventually inflating our way out of our fiscal predicament rather than staying above the political fray - thus creating another tranche of uncertainty."
from NormR, 12:51 AM EST, 08/23/11, Government
My Response To Buffett And Obama
"Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers? Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all? Here's my message: Before you 'ask' for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money."
from RobS, 10:26 PM EST, 08/22/11, Taxes
Headwinds for U.S. equity markets
"Despite theoretical ambiguities, U.S. equity values have been closely related to demographic trends in the past half century. There has been a tight correlation between population dependency ratios, such as the M/O ratio, and the P/E ratio of the U.S. stock market. In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values. Moreover, the demographic changes related to the retirement of the baby boom generation are well known. This suggests that market participants may anticipate that equities will perform poorly in the future, an expectation that can potentially depress current stock prices."
from NormR, 8:07 PM EST, 08/22/11, Markets
"At that rate, according to some back-of-the-envelope calculations by The Economist, it would take about 25 generations for Hong Kong's female population to shrink from 3.75m to just one. Given that Hong Kong's average age of childbearing is 31.4 years, it could expect to give birth to its last woman in the year 2798. (That is some time after its neighbour, Macau, which has a higher reproduction rate, but a much smaller population.) By the same unflinching logic, Japan, Germany,Russia, Italy and Spain will not see out the next millennium. Even China, which has a recorded history stretching back at least 3,700 years, has only about 1,500 years left - if present trends continued unbroken."
from NormR, 6:53 PM EST, 08/22/11, World
How long can home prices keep rising?
"I can't tell you when the housing correction will come. But I can tell you that when it arrives it will be correlated with other bad news. And it's the second correlation that worries me."
from NormR, 8:35 PM EST, 08/20/11, Real Estate
Why Americans hate economics
"Christina Romer, the University of California at Berkeley economics professor and President Obama's first chief economist, once relayed the old joke that 'there are two kinds of students: those who hate economics and those who really hate economics.' She doesn't believe that, but it's true. I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven't boosted the profession's reputation."
from NormR, 1:26 AM EST, 08/19/11, Economics
American idiots
"What the hell is going on? Standard and Poor's, the bond-rating agency, downgrades the U.S., and the world trembles. The markets here go nuts on the first trading day after the downgrade, losing $1 trillion in value. European Union finance chiefs are playing Whac-a-Mole with members' debt problems. And England ... England was literally burning."
from NormR, 11:23 PM EST, 08/18/11, Government
An hour with Warren Buffett
"Warren Buffett discusses his New York Times Op-Ed piece 'Stop Coddling the Super-Rich' which calls on Congress to increase taxes on the Super-Rich like himself"
from NormR, 10:55 PM EST, 08/18/11, Buffett
Debt crisis at colleges
"With mortgage defaults, banks seize and resell the home. But if a degree can't be sold, that doesn't deter the banks. They essentially wrote the student loan law, in which the fine-print says they aren't 'dischargable.' So even if you file for bankruptcy, the payments continue due. Hence these stern word from Barmak Nassirian of the American Association of College Registrars and Admissions Officers. 'You will be hounded for life,' he warns. 'They will garnish your wages. They will intercept your tax refunds. You become ineligible for federal employment.' He adds that any professional license can be revoked and Social Security checks docked when you retire. We can't think of any other statute with such sadistic provisions."
from NormR, 10:46 PM EST, 08/18/11, Academia
A second great depression, or worse?
"According to the National Bureau of Economic Research, falling from peak to trough in each cycle took 11 months between 1945 and 2009 but twice that length of time between 1854 and 1919. The longest decline on record, according to this methodology, was not during the 1930s but rather from October 1873 to March 1879, more than five years of economic decline."
from NormR, 10:33 PM EST, 08/18/11, History
Buffett misses mark
"The United States needs to get out of its box of low growth. Current proposals for tax increases are the wrong medicine. Instead, a rate-reducing cum base-broadening tax reform would be more powerful by reducing the economic cost of taxation. Buffett pays too little tax, not because he's so rich but because the U.S. tax system is so poor."
from NormR, 10:05 PM EST, 08/18/11, Taxes
The $25,000 Cow
"What I have in mind is some sort of scheme whereby the government would restrict the supply of opinion in magazines and newspapers to some fixed number of column inches per year, with a view to propping up - er, stabilizing - salaries at a target rate. Naturally I am sensitive to the concerns of magazine readers, not to mention magazine owners, but I don't imagine it would raise the cover price of magazines by more than about 200 per cent or so. No? Foolish? Extortionary? Outrageous? Then allow me to introduce you to the world of supply management: an actual policy pursued by the governments of Canada and the provinces for the past 40 years. Only I'm not talking about comparative fripperies like magazines (we have our own indefensible support programs, though not, ahem, on the same scale). I'm talking about basic foodstuffs, the kind the typical Canadian family eats every day: dairy products (milk, cheese and butter), eggs, and poultry (chicken and turkey), whose prices are maintained, by means of a strict regime of production quotas, at two and three times their market levels."
from RobS, 12:07 PM EST, 08/18/11, Markets
Stop coddling the super-rich
"Last year my federal tax bill - the income tax I paid, as well as payroll taxes paid by me and on my behalf - was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine - most likely by a lot."
from NormR, 11:29 AM EST, 08/15/11, Buffett
Generation Fd
"The UN's first ever report on the state of childhood in the industrialized West made unpleasant reading for many of the world's richest nations. But none found it quite so hard to swallow as the Brits, who, old jokes about English cooking aside, discovered that they were eating their own young."
from NormR, 4:15 PM EST, 08/13/11, World
Debt, downgrades, and inflation
"Whether we are watching rioting in Greece, the US debt-ceiling showdown, or even the City of Toronto simply trying to reduce the number of libraries they offer, the issues in each case are exactly the same ..."
from NormR, 4:14 PM EST, 08/13/11, Government
The Nixon Shock
"Burns was replaced by Jimmy Carter in 1978. The following year, with inflation rocketing toward 15 percent, Burns delivered a keynote speech, "The Anguish of Central Banking," in which he argued that central bankers around the world were failing because elected leaders were unwilling to risk displeasing constituents. The new Fed chief, Volcker, did tame inflation unlike Burns, he had the fortitude to subject the country to a brutal recession. But the dilemma faced by Burns - how to withstand the demands of the public for limitless monetary expansion - did not go away. We see it now in the troubles of nations from Greece to Ireland to the U.S. And the anguish that Burns felt is Ben Bernanke's unfortunate inheritance."
from RobS, -4:15 PM EST, 08/12/11, History
"If you are not a critic of neoclassical economics, particularly after the 2008 crash, you aren't thinking. The models did not consider the the effects of a big buildup in debt across the economy. They were debt-neutral, which was a big mistake."
from NormR, 9:54 PM EST, 08/11/11, Economics
Idiots at work: high prices only edition
"France, Spain, Italy and Belgium will impose bans on short-selling from today to stabilize markets after European banks including Societe Generale SA hit their lowest level since the credit crisis."
from NormR, 9:37 PM EST, 08/11/11, Markets
The lower stocks go, the more I buy
"U.S. Treasuries are still triple-A in that there is no question that we will repay the interest and the principal. Every contract will be repaid. So our bonds are triple-A. Our currency, the dollar, is not triple-A. Our bonds are."
from NormR, 8:32 PM EST, 08/11/11, Buffett
The Downgrading of a Debtor Nation
"Countries borrow for many purposes: canals and railroads in the 19th century, factories and highways in the 20th, and in the last decade, a housing and financial boom in Europe and America. When the projects don't pan out and the debtor country falls into crisis, what happens to the accumulated debts? Who pays? Creditors or debtors? Workers or investors? Rich or poor? The European Union is tearing itself apart over this question, which divides creditor nations from debtor nations and which divides groups within nations. The American variant of this conflict is just beginning."
from RobS, 5:53 PM EST, 08/11/11, Debt
Watsa sees dirty thirties pain ahead
"The U.S. economy appears to be heading toward a lengthy period of deflation such as the one that struck Japan, and there is little policy-makers can do to prevent it, says one of Canada's most accomplished investors. But it isn't just the United States and Europe that Prem Watsa is worried about. The potential bursting of a property bubble in China has him even more concerned. And if Chinese demand for commodities dries up at the same time as U.S. consumers are shutting their wallets, then the global economy is in for a lengthy period of pain."
from NormR, 11:02 PM EST, 08/10/11, Value Investing
Debt Junkies
"The world is led by debt junkies who think that debt doesn't matter. They are leading us to a greater crisis where the only thing that does matter is debt, and for political reasons, some governments will not be willing to pay in full."
from NormR, 6:13 PM EST, 08/10/11, Debt
It's the Economy, Dummkopf!
"With Greece and Ireland in economic shreds, while Portugal, Spain, and perhaps even Italy head south, only one nation can save Europe from financial Armageddon: a highly reluctant Germany. The ironies - like the fact that bankers from Düsseldorf were the ultimate patsies in Wall Street's con game - pile up quickly as Michael Lewis investigates German attitudes toward money, excrement, and the country's Nazi past, all of which help explain its peculiar new status."
from NormR, 1:07 PM EST, 08/10/11, World
The difference between AAA and AA+
"We simply don't have enough AAA and AA rated data to be statistically confident in these distinctions ex ante, which is why AA+ and AAA rated securities differ very little in their yields, usually by only 10 basis points (0.1%) on average. Here's the data from Moody's, that excludes Munis and ABS"
from NormR, 5:30 PM EST, 08/08/11, Bonds
Who got the margin call?
"The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds. So lets play the game: guess who got the margin call!"
from NormR, 5:27 PM EST, 08/08/11, Funds
How would you run a rating agency?
"Rating agencies grew up rating corporate credit risk. The nice thing about corporate credit risk is the failures happen at least every seven years. There was a sideline on municipal credit risk, but since munis rarely defaulted, it was not very relevant. Guess what? Moody's, S&P, and Fitch are very good at predicting corporate default. Some new players are better still, but their ratings change more rapidly, which has pluses and minuses. They are faster to identify failing entities, but they also have more "false positives" where they signal failure, and it does not happen."
from NormR, -3:54 PM EST, 08/07/11, Bonds
How debt has defined human history
"Since 1971, when the U.S. abandoned the gold standard, and the world has been moving to a system of virtual credit money, we have been entering a new period of history. But it's not entirely unprecedented. In fact, contrary to popular belief, credit has been the predominant form of money in world history."
from NormR, -3:52 PM EST, 08/07/11, History
The Heady Thrill of Having Nothing to Do
"My period of greatest creative output was during my corporate years, when every meeting felt like a play date with coma patients. I would sit in long meetings, pretending to pay attention while writing computer code in my mind and imagining the anatomically inspired nicknames I would assign to my boss after I won the lottery. Years later, when 'Dilbert' was in thousands of newspapers, people often asked me if I ever imagined being so lucky. I usually said no, because that's the answer people expected. The truth is that I imagined every bit of good fortune that has come my way. But in my imagination I also invented a belt that would allow me to fly and had special permission from Congress to urinate like a bird wherever I wanted. I wake up every morning disappointed that I have to wear pants and walk."
from NormR, 12:39 PM EST, 08/06/11, Fun
S&P cuts U.S. rating
"The U.S. had its AAA credit rating downgraded for the first time by Standard and Poor's, which slammed the nation's political process and said lawmakers failed to cut spending enough to reduce record deficits."
from NormR, 12:04 AM EST, 08/06/11, Bonds
Hunt for dividend stocks
"The beach is sparkling in the sun, the water looks inviting, and I'm sitting in front of a computer screen because Mr. Market is once again sliding into depression. But a little panic is invigorating because there are bargains to be had, and I'm on the hunt for a few good dividend stocks."
from NormR, 7:21 PM EST, 08/05/11, Dividends
Moody's Sounds the Alarm on Student Borrowing
"A growing chorus of economists and educators think that the higher education industry will be America's next bubble. Easy credit, high tuition, and poor job prospects have resulted in growing delinquency and default rates on nearly $1 trillion worth of private and federally subsidized loans. Now the ratings agency Moody's has weighed in with a chilling diagnosis: 'Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.'"
from NormR, 7:19 PM EST, 08/05/11, Academia
Negative nominal interest rates
"Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash."
from NormR, 10:18 PM EST, 08/04/11, Bonds
It's the elderly
"If leadership is the capacity to take people where they need to go - whether or not they realize it or want it - then we've had almost no leadership in these weeks of frustrating and maddening debate over the budget and debt ceiling. There's been an unspoken consensus among President Obama, congressional Democrats and Republicans not to discuss the central issue underlying the standoff. We've heard lots about "compromise" or its absence. We've had dueling budgets with differing mixes of spending cuts and tax increases. But we've heard almost nothing of the main problem that makes the budget so intractable. It's the elderly, stupid."
from NormR, 7:11 PM EST, 08/04/11, Government
Why chasing success makes us happy
"As he researched his subject, exploring economics, neuroscience and evolutionary biology, Buchholtz became convinced that much of the modern happiness project was a crock - not just unhelpful economically, but unhealthy and unnatural."
from NormR, 12:13 AM EST, 08/04/11, Books
Need a light bulb?
"If you want to know why so many Americans feel alienated from their government, you need only go to Target and check out the light bulb aisle."
from NormR, 11:20 PM EST, 08/03/11, Government
AAA rating is a rarity
"But the truth is, even as the government maintained its AAA grade, the markets suggested long ago that the United States was no longer deserving of such a high rating. The credit-default swap market provided one clue. During the financial crisis in early 2009, the price of insurance that would pay off if the United States government defaulted on its debt was similar to that offered for companies ranked just above junk. Even today, the price of insurance on a government default has been higher than that for Colgate Palmolive, the global toothpaste giant, which has a rating two notches below AAA."
from NormR, 10:52 PM EST, 08/03/11, Bonds
A better buyback strategy
"It appears that stocks that had low returns following their previous buyback, but a high completion rate, see amazing returns following their next buyback."
from NormR, 10:29 PM EST, 08/03/11, Markets
P/E drops to 21-year low
"The P/E Ratio reached a peak of 30.4 on January 4, 2002. This means that valuations have dropped by 55% in nearly a decade."
from NormR, 10:14 PM EST, 08/03/11, Markets
I've got all the clarity I need
"And then when you have a company like Boeing, you're talking about one of the iconic US companies gets sued by the federal government. If that doesn't get your attention, nothing will. They get sued for investing $2 billion in South Carolina. Last time I saw South Carolina was a part of the United States of America and you get sued for that."
from NormR, 10:12 PM EST, 08/03/11, Government
Stiffen audit rules
"Normally, repos are accounted for as borrowings, which is what they are. The borrower retains all the upside and downside of the securities in question. The lender gets an interest rate. But Lehman found a loophole in an accounting rule, and concluded that if it put up $105 in collateral for every $100 borrowed, it could claim it really was a sale. At the end of each quarter, the company would decide just how much it needed to beautify its balance sheet, and would do repos to produce the desired result. They would be reversed a few days later."
from NormR, 10:49 PM EST, 08/02/11, Accounting
A little yellow
"I will also note that eMails such as the one I received are how the retail perspective transmits to institutional portfolios: I can assure you that in this kind of situation, with dramatic market movements and heavy media coverage, a lot of Portfolio Managers sell (sometimes against their better judgement, if they have any) simply so they won't have to explain their holdings to their clients. The business is, in general, not about performance it's about story telling."
from NormR, 10:18 PM EST, 08/02/11, Stocks
The second great contraction
"Why is everyone still referring to the recent financial crisis as the "Great Recession"? The term, after all, is predicated on a dangerous misdiagnosis of the problems that confront the United States and other countries, leading to bad forecasts and bad policy."
from NormR, 10:10 PM EST, 08/02/11, Economy
Madoff of the Midwest
"The indictment charges that from 2005 to 2009, Durham masterminded a Ponzi scheme that defrauded 5,000 investors in Fair Finance out of some $207,246,329, of which only a fraction may be reclaimed. If convicted, Durham and his alleged conspirators could each face 45 years in prison and $3 million in fines. The case is due to go to trial next year, and the court has registered not-guilty pleas for the three defendants, all of whom declined or did not respond to interview requests. But from interviews with numerous associates, a profile of Durham, who Indianapolis has taken to calling the "Midwest Madoff," has emerged. In retrospect, Durham's alleged fraud is almost as impressive for its size as for how obvious it should have been."
from NormR, 7:01 PM EST, 07/30/11, Crime
Think garage sale
"Fling open your closets and clear out your basement because it's garage sale time. If all goes well you might be able to shift the contents down the street. In my neighbourhood, you also get the chance to buy sugary pools in flaky cups from the friendly butter-tart lady. But the humble garage sale yields more than sugar-rush-inducing treats. It can offer lessons for stock investors."
from NormR, 5:27 PM EST, 07/30/11, Value Investing
What is the value of time?
"The important point, Geanakoplos and Farmer emphasize, is that everything about discounting depends on what assumptions you make about how variables fluctuate with time. A fixed interest rate doesn't work. And neither does the strong exponential discounting to which it leads -- even though most economists continue to use it. This is a prime example of what John Maynard Keynes meant when he said the ideas of economists "are more powerful than is commonly understood." Economists calculating the value of the future to perform cost-benefit analyses that influence how we take care of our world have been making some astronomically large mistakes."
from NormR, 12:52 AM EST, 07/29/11, Economics
Debt crisis is worse than you think
"An honest assessment of the country's projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse."
from NormR, 7:19 PM EST, 07/28/11, Debt
Rental complex
"The belief that we're not responsible adults until we own our home, whether or not we can afford it, has distorted and stigmatized the cheaper and safer alternative: renting."
from NormR, 9:07 PM EST, 07/26/11, Real Estate
How to tax the rich
"Whenever I feel as if I'm on a path toward certain doom, which happens every time I pay attention to the news, I like to imagine that some lonely genius will come up with a clever solution to save the world. Imagination is a wonderful thing. I don't have much control over the big realities, such as the economy, but I'm an expert at programming my own delusions. I make no apology for that. A well-crafted delusion can be a delicious guilty pleasure. And best of all, it's totally free. As a public service, today I will teach you how to wrap yourself in a warm blanket of imagined solutions for the government's fiscal dilemma."
from NormR, 9:06 PM EST, 07/26/11, Fun
The Clash of Generations
"Anyone who thinks that this economic crisis, if prolonged, won't also hasten a global power shift has never heard of the Golden Rule: He who has the gold, sets the rules. "We are so used to the Americans providing the solutions for Europe and leading," said Vassilis T. Karatzas, a Greek money manager. "But what happens when we are both in the same boat?" What happens is that both the American and European dreams hang in the balance. Either we both put our nations on more sustainable growth paths - which requires cutting, taxing and investing for the future - or we're looking at a world in which democracies are going to turn on themselves and fight over shrinking pies, with China having a growing say over how big the slices will be."
from RobS, 10:29 AM EST, 07/26/11, Debt
A railway crash
"This company is one of the most advanced manufacturers in the world - and as far as I can see it does this almost without machines."
from NormR, 11:28 AM EST, 07/25/11, Stocks
A handbag away from our debt ceiling
"Perhaps he should be more nervous that you don't have a job and that you and Dad are spending far more than you earn, than about some entirely arbitrary debt ceiling that the two of you can agree to waive at any moment?"
from NormR, 11:42 AM EST, 07/24/11, Debt
A contrarian case for following the herd
"Price momentum has succeeded in the face of a couple of intuitive objections. One is that buying winners inherently conflicts with a contrarian philosophy that is deeply ingrained within many successful investors. The second is that the simplicity of analysis needed to build a portfolio is troubling to adherents of the belief that markets are at least reasonably efficient. While the skeptics may lurk in the shadows when the strategy is successful, they are eager to speak up when momentum fails. And it is hard for the practitioners of a momentum strategy to launch a vigorous defense while looking foolish for having recently lost money with a portfolio of stocks bought simply on the basis of having recently gone up."
from NormR, 8:50 PM EST, 07/23/11, Momentum
Mining the portfolio
"Mining the portfolio, in essence, is taking information and news from current portfolio holdings, and using it, and the second order effects stemming from that information, to allocate capital in other investments."
from NormR, 6:52 PM EST, 07/22/11, Stocks
Is he economically rational?
"I think of it as training to understand managements - see if they act like owners maximizing long-term profits, or as workers aiming to maximize their pay packets. You will earn more with companies that think like owners."
from NormR, 6:46 PM EST, 07/22/11, Management
Catch and release
"Spencer Lanthier, who serves on a variety of boards, recently asserted during a speech in Toronto that, despite recent advances in regulation and enforcement, large frauds still unfold in Canada largely with impunity. He claimed this country has "the weakest standards of enforcement in the G8." Other critics routinely call for speedier investigations, more charges and more serious punishments. Even IMET superintendent Dean Buzza concedes that his units haven't lived up to expectations. "We overpromised and underachieved," he says."
from NormR, 4:16 PM EST, 07/22/11, Crime
Nothing for money
"While the major stock exchanges, securities regulators and police have made significant progress in the past dozen years purging the old-style boiler rooms and pump-and-dump schemes from the public markets, the marketing of suspect securities continues to thrive in the private domain. Typically, a company advertises or otherwise promotes a particular venture to investors, usually at a fixed price and for a fixed term. At the end of the term, the asset (usually real estate) is meant to be sold, and investors get their money. Sometimes, it begins producing an income stream for the investors. At least, that's how it works in theory."
from NormR, 4:15 PM EST, 07/22/11, Crime
Minimum wage's uneven toll
"During the deepest trough of the 'Great Recession' - when a weak economy helped push the teen unemployment rate as high as 27.1% - the unemployment rate for black teens was almost 50% and more than 55% for males in this group. A simplistic explanation for these unusually high unemployment rates is that they are simply a byproduct of the recession. This would, however, miss an important part of the story."
from NormR, 12:44 AM EST, 07/20/11, Government
"Among the index-beaters, Mawer Canadian Equity, which is run by Jim Hall of Mawer Investment Management Inc., led the way with a 7.1-per-cent gain. Mr. Hall has been cautious on commodity stocks, a stance that helped his fund gain 8.5 per cent for the first six months of this year. A common thread among many of the outperformers was low fees, with most charging well below 2 per cent."
from NormR, 1:01 PM EST, 07/18/11, Funds
The AAA bubble
"The AAA bubble re-inflates and suddenly sovereign debt becomes the major force driving the world's triple-A supply. The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it's true. But you also had a plethora of incoming bank regulation to purposefully herd investors towards holding more government bonds, plus a glut of central bank liquidity facilities accepting government IOUs as collateral. Where ABS dissipated, sovereign debt stood in to fill the gap. And more. It's one reason why the sovereign crisis is well and truly painful."
from NormR, 10:58 PM EST, 07/15/11, Bonds
Revitalizing the U.S. economy
"I am the drug testing coordinator for our company, so I am responsible for scheduling drug tests and surprising employees when it is their turn to be tested. As it happens, I'm also the only "safety-sensitive employee" subject to drug testing, so basically I'm responsible for periodically surprising myself with a random drug test. As a supervisor, I need to take training so that I can recognize when an employee is on drugs. But I'm also the only employee, so really this is training so that I can figure out if I myself am on drugs. As an employee, I need to take a second training course so that I learn about all of the ways that my employer might surprise me with a random drug test and find out about drug use. But I'm also the employer so really I'm learning about how I might trap myself."
from NormR, 8:17 PM EST, 07/14/11, Government
Misvalued Chinese land
"In the little-known Chinese city of Loudi - which is home to 4m people - there is a 1.2bn yuan ($185m) leisure project currently being developed, money for which was raised through bonds guaranteed by land valued at $1.5m an acre. Those prices, says Bloomberg, are comparable to acreage values in one of Chicago's plushest suburban neighbourhoods."
from NormR, 7:09 PM EST, 07/14/11, Real Estate
Debt endangers growth
"Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP."
from NormR, 6:58 PM EST, 07/14/11, Debt
Fund Facts risk and suitability get thumbs-down
"A new regulatory initiative - i.e. Mutual Fund Point of Sale - was launched this year in an attempt to better inform investors about the investment funds in which they invest. The key feature of this Point of Sale initiative was to provide an investor-friendly 2-4 page document called Fund Facts summarizing each fund's most important information. The idea was based on the observation that only a tiny minority of investors ever read a fund's simplified prospectus (i.e. the document that lays out all of a fund's details). There was no shortage of opinions on this Point of Sale initiative - a collaboration of various financial regulators - while it was in the planning stages. (Including one from yours truly.) But now the first stream of Fund Facts documents have been rolled out and a central repository has been set up at to house some documents. Unfortunately, Fund Facts continues to suffer weaknesses in the two most important areas for investors and their financial advisors."
from DanH, 4:26 PM EST, 07/13/11, Funds
Depleted Pension Fund Rattles Rhode Island
"The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled. Just over one square mile, Central Falls has a tightly packed population, filled mostly with immigrant families, that struggles on a median household income of less than $33,520 a year, according to the Census Bureau's 2005-9 American Community Survey. The typical single-family house, after a recent revaluation, is worth about $130,000. It is hard to see how anyone thought such an impoverished tax base could come up with an additional $80 million for retirement benefits. If the city were contributing the recommended amount to the plan each year, it would take 57 percent of local property tax revenue."
from RobS, -4:35 PM EST, 07/13/11, Pensions
A Keynesian concession?
"Everybody knows that President Obama tried to stimulate the economy with a huge increase in government spending, and that it didn't work. But what everyone knows is wrong. Think about it: Where are the big public works projects? Where are the armies of government workers? . . . So, not only has the stimulus spent $800B without any more stuff, it doesn't even hire more people"
from NormR, 12:44 AM EST, 07/13/11, Government
58.2% of American adults are employed
"Prior to this recession, the unemployment-population ratio hasn't been this low since 1983."
from NormR, 12:41 AM EST, 07/13/11, Economy
Not taking other people's money
"The problem with socialists, according to Margaret Thatcher, is that "they always run out of other people's money." We haven't hit that point just yet, but we have hit our nation's legal credit limit of $14.3 trillion. To avoid defaulting on our loans, policymakers must raise that limit. For many Americans, this is absurd and humiliating: The richest country in the history of the world is teetering on bankruptcy because our government can't stop itself from spending, like a loathsome celebrity blaming bad behavior on some dubious new addiction."
from NormR, 12:39 AM EST, 07/13/11, Government
Housing WTF
"Listen, during the recent boom, we built a tremendous amount of housing and racked up a tremendous amount of mortgage debt. Home prices are not rebounding because they are too high - not because they are too low."
from NormR, 12:36 AM EST, 07/13/11, Real Estate
How to make college cheaper
"Derek Bok, a former president of Harvard, once observed that "universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires." This is a bit hard on compulsive gamblers and exiled royals. America's universities have raised their fees five times as fast as inflation over the past 30 years. Student debt in America exceeds credit-card debt. Yet still the universities keep sending begging letters to alumni and philanthropists. This insatiable appetite for money was bad enough during the boom years. It is truly irritating now that middle-class incomes are stagnant and students are struggling to find good jobs. Hence a flurry of new thinking about higher education. Are universities inevitably expensive? Vance Fried, of Oklahoma State University, recently conducted a fascinating thought experiment, backed up by detailed calculations. Is it possible to provide a first-class undergraduate education for $6,700 a year rather than the $25,900 charged by public research universities or the $51,500 charged by their private peers? He concluded that it is."
from NormR, 12:32 AM EST, 07/13/11, Academia
Legend aims to strike pay dirt in Ontario
"Seth Klarman is considered one of the world's money managing impresarios, a superb value investor whose record of outsized returns has given him cult status on Wall Street. What interests him now might be a surprise: rocks and spuds in a rural Ontario backwater."
from NormR, 11:29 PM EST, 07/11/11, Value Investing
If you pay peanuts for ETFs ...
"Having crunched the numbers, Chris Flood over at FTfm points out that ETF providers may be generating profit margins that are more than four times higher than the traditional mutual funds industry - even despite the products being marketed as "low cost"."
from NormR, 9:59 PM EST, 07/11/11, Indexing
Everyone else is biased
"Yet he forgets the most profound behavioral bias in this literature that is delightfully recursive: We think we are better than average at not being biased in thinking that we're better than average."
from NormR, 8:46 PM EST, 07/10/11, Behaviour
Law suppresses saving for retirement
"A 2006 law designed to boost employees' retirement-savings is having the opposite effect for some people."
from NormR, 5:37 PM EST, 07/09/11, Pensions
A Longer Term View of U.S. Public Debt
"With the August 2nd deadline for raising the United States public debt ceiling looming, it might be useful to take a longer-term view on exactly how bad the US debt situation is at least with respect to the past."
from NormR, 2:17 PM EST, 07/09/11, Debt
New all-time highs
"There is more meaning in an all-time high than meets the eye. This isn't just a data point or a plotted roadside rest stop on the open highways of chartdom. This is a coronation of sorts. When a stock hits an all-time high it means ..."
from NormR, 2:15 PM EST, 07/09/11, Momentum
How rising rates may affect bonds
"While many have been calling for the end of the bond bull market and the damage that awaits bond-heavy investors, I have rarely seen any quantification of the potential losses that bond investors could suffer. So, I ran some simple calculations."
from NormR, 1:57 PM EST, 07/09/11, Hallett
Technology and inequality
"There is no doubt that income inequality is the single biggest threat to social stability around the world, whether it is in the United States, the European periphery, or China. Yet it is easy to forget that market forces, if allowed to play out, might eventually exert a stabilizing role. Simply put, the greater the premium for highly skilled workers, the greater the incentive to find ways to economize on employing their talents."
from NormR, 1:50 PM EST, 07/09/11, Markets
Once Greece goes...
"The economic crisis in Greece is the most important thing to have happened in Europe since the Balkan wars. That isn't because Greece is economically central to the European order: at barely 3 per cent of Eurozone GDP, the Greek economy could vanish without trace and scarcely be missed by anyone else. The dangers posed by the imminent Greek default are all to do with how it happens."
from NormR, 1:46 PM EST, 07/09/11, World
You paid how much for that ticket!?
"A last-minute good seat for a hot show is going to cost you, as arts groups in L.A. and elsewhere adopt dynamic pricing. However, if demand is low, prices will drop accordingly."
from NormR, 1:28 PM EST, 07/09/11, Behaviour
A free checkup for low-cost investors
"Here's some free advice for you. If you're interested in building a portfolio with low-cost mutual funds, you can sometimes get ongoing investment advice at no extra charge. Wondering how much you should invest in stocks and bonds, or how much global diversification you should have? This is exactly the kind of free advice that is available when you buy funds directly from Leith Wheeler Investment Counsel, Matco Financial, Mawer Investment Management, Phillips, Hager and North and Steadyhand Investment Funds."
from DanH, 10:24 AM EST, 07/09/11, Funds
Mr. Innovation and his buddy, Mr. Great Idea
"Imagine you have $500,000 to feed, shelter and clothe your family for the next 30 years. You need to invest this money to protect your family against inflation. Now, imagine Mr. Innovation shows up on your doorstep and says, "I have a business to sell you and the price I put on it is $500,000." You reply, "As it turns out, I have that sum to invest, so tell me about your business." He responds: "All you need to know is that a bunch of PhDs have analyzed the business's historical share-price movements. Based on their super-computer algorithms, they believe its price will be higher in three months' time. So give me your money." Would you do it? My guess is no. Would it surprise you to hear that billions of dollars change hands on the stock market every day based on this approach?"
from RobS, 8:08 PM EST, 07/07/11, Markets
Dodger Mania
"The result has been a vicious circle: because tax evasion is so common, people trust the system less, which makes them less willing to pay taxes. And, because so many don't chip in, the government has had to raise taxes on those who do. That only increases the incentive to cheat, since there tends to be a correlation between higher tax rates and higher rates of tax evasion."
from RobS, 9:34 PM EST, 07/06/11, Government
Only millionaires should invest in bonds
"A Bond ETF will have a management expense ratio of 25-35bp. The bid-offer spread on seven year bonds purchased in amount of $5,000 will almost certainly exceed this. Additionally, there will be costs associated with further trading, unless you spend amounts exactly equal to your coupon income."
from NormR, 10:56 AM EST, 07/06/11, Bonds
Fear and loathing in the Eurozone
"The problem, as Mundell anticipated, is that if the shocks to the system are not random and are specifically and continually related to one country the concept of currency union begins to fall apart. In particular, if specific countries are characterised by lack of price flexibility and rigid labor laws restricting wage adjustment in response to lack of competitiveness the only alternative is to transfer money from one region to another: and potentially to keep on doing it, till the voters squeak."
from NormR, 6:59 PM EST, 07/04/11, World
A culture of trust
"Trust, or the lack of it, certainly matters when it comes to commerce. Knack and Keefer, for instance, showed that for a 10% rise in "trust", as they define it, a country showed a near 1% increase in annual per capital growth, and that civic co-operation was also positively correlated with economic growth. There are multiple possible reasons for this, but if trust is generally reciprocated then the need for all sorts of costly protection mechanisms to defend against being cheated - everything from contracts to security guards and from burglar alarms to prenups - go away. When Buchan and colleagues looked at this issue they also found that the degree of trust people exhibited between each other increased with the amount of personal communication between them, no matter how irrelevant. What it seems is that simply getting to know someone is sufficient to promote trust and, with it, reciprocity: we find it harder to cheat people we have a personal relationship with."
from NormR, 12:09 PM EST, 07/02/11, Behaviour
The war on lemonade stands
"But top dishonors go to the sour bureaucrat who put the squeeze on a group of kids for running a lemonade stand. Sure they were raising money for a worthy cause (pediatric cancer research), but they were doing it without a permit, and that's why they got slapped with a $500 fine."
from NormR, 10:42 AM EST, 07/02/11, Government
Affording pensions
"So let us try to sum up. The claim that public sector pensions are affordable over the long run is based on the assumptions that employees work longer, pay more, and get less generous indexation. In all aspects bar timing, these are issues to which the unions are objecting. But it is tough for them to argue that the system that was established before the current parliament was affordable, since significant reform was built into the cost estimates."
from RobS, 8:30 PM EST, 07/01/11, Government
Too much of a good thing
"The number of ETFs has swelled to 2,747 (see chart 1). Within equities, there are ETFs based on small-cap companies, value shares, individual industries and every conceivable combination of countries and regions. In bonds, there are ETFs linked to government, corporate and high-yield debt and paper of varying maturities. Some ETFs are based on commodity indices and property markets, others are designed to appeal to the environmentally conscious or to devout Muslims. There are leveraged ETFs which offer a geared return on a given index, inverse ETFs which aim to go down when a benchmark goes up (and vice versa) and, inevitably, leveraged inverse ETFs. For some, this is a worrying trend, with echoes of the subprime housing crisis, in which financial innovation went out of control. That crisis, too, had its origins in invention with a benign aim: the packaging of mortgages for use as securities for bonds was intended to reduce borrowing costs and disperse risk. Eventually, however, that simple idea transmuted into complex collateralised debt obligations and lower lending standards."
from RobS, 8:27 PM EST, 07/01/11, Indexing
Wrong number
"The cast-iron nature of this pensions guarantee ought, you might think, to be reflected in pension accounting. But states are allowed a more generous accounting treatment than private-sector employers. They can discount their liabilities on the basis of the assumed rate of return (8% is standard) on the assets in their pension funds. Companies have to use the (lower) yield on an AA-rated corporate bond. So the present value of a state's liabilities is lower than it would be if private-sector rules applied, even though the rights of public-sector workers are greater."
from RobS, 8:23 PM EST, 07/01/11, Government
Rulings Find Cuts in Public Pensions Permissible
"Judges in Colorado and Minnesota have dismissed court challenges by retired public workers whose pensions had been cut - developments that may embolden other states and cities to use pension reductions as a tool to help balance their budgets."
from RobS, 8:06 PM EST, 07/01/11, Government
5 economic lessons from Sweden
"Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied. And then there's Sweden, the rock star of the recovery."
from NormR, 4:48 PM EST, 06/28/11, World
The joy of cash
"Long ago, Keynes argued that the "central principle of investment is to go contrary to general opinion, on the grounds that, if everyone is agreed about its merits, the investment is inevitably too dear and therefore unattractive." This powerful statement of the need for contrarianism is frequently ignored, with disturbing alacrity, by many investors. The latest example in the long line of such behavior may well be the general enthusiasm for so-called tail risk protection. The range of tail risk protection products seems to be exploding. Investment banks are offering "solutions" (investment bank speak for high-fee products) to investors and fund management companies are launching "black swan" funds. There can be little doubt that tail risk protection is certainly an investment topic du jour."
from NormR, 10:42 AM EST, 06/28/11, Montier
ETFs a good idea going bad
"Ironic then that the "Mutual Fund Mania" of the 1990s appears to have morphed into the current "ETF Mania" just as media and regulators are starting to fret about some of the more esoteric ETFs, notably the controversial leveraged and double or triple "inverse" ETFs that let investors make big bets or contra-bets on any number of small sectors of the market."
from NormR, 11:14 PM EST, 06/27/11, Indexing
The Paulson Sino Forest loss
"The shortcuts we use as portfolio managers (and these are often sophisticated shortcuts born from some deep understanding of the industry) can make even the best portfolio manager susceptible to fraud."
from NormR, 11:09 PM EST, 06/27/11, Funds
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."
from NormR, 6:29 PM EST, 06/25/11, Crime
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."
from NormR, 12:09 PM EST, 06/25/11, Dividends
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."
from NormR, 11:28 PM EST, 06/23/11, Accounting
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."
from RobS, 9:16 PM EST, 06/22/11, Government
Man Turns to Crime for Prison Health Care
"As if conjured up by a presidential speechwriter to star in an anecdote about America's dysfunctional health insurance system, James Verone, an unemployed 59-year-old with a bad back, a sore foot and an undiagnosed growth on his chest, limped into a bank in Gastonia, N.C., this month and handed the teller a note, explaining that this was an unarmed robbery, but she'd better turn over $1 and call the cops. That, he figured, would be enough to get himself arrested and sent to prison for a few years, where he could take advantage of the free medical care."
from RobS, 9:21 PM EST, 06/21/11, Crime
Prospector scours sidewalks
"There's gold in them thar sidewalk cracks! A Queens man has discovered enough hidden treasure -- bits of diamonds, rubies, platinum and gold -- on the gritty sidewalks of Midtown's Diamond District to make a living."
from NormR, 4:38 PM EST, 06/21/11, Fun
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."
from NormR, 7:34 PM EST, 06/20/11, Markets
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"
from NormR, 5:57 PM EST, 06/20/11, Law
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."
from DanH, 5:33 PM EST, 06/20/11, 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."
from NormR, 2:57 PM EST, 06/19/11, Stocks
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."
from NormR, 2:56 PM EST, 06/19/11, Brokers
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."
from NormR, 12:02 AM EST, 06/17/11, World
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?"
from RobS, 10:22 PM EST, 06/16/11, Government
'Finally canceled my Facebook... long overdue.'
"Sites built upon user-generated content are vulnerable.  Any day people can pick up and take their content elsewhere, or stop playing entirely.  In other words, unless people have a reason to go to your site, unless it adds value to their lives without any input from themselves, it's probably just a matter of time before it fades away and possibly doesn't even radiate.  Let's see, we've got MySpace and Plaxo and Friendster...never mind GeoCities and... Sure, there are some bits added onto Facebook, that glom on to the assembled audience and make money, but this is no different from the concession stand at a rock concert or a sporting event.  Sure, people need to eat and drink, but they don't need to do it at the show or the game."
from RobS, 10:04 PM EST, 06/16/11, Growth Investing
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."
from NormR, 7:59 PM EST, 06/15/11, Academia
The black swan of Cairo
"How suppressing volatility makes the world less predictable and more dangerous."
from NormR, 4:43 PM EST, 06/15/11, Markets
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."
from NormR, 4:37 PM EST, 06/15/11, Behaviour
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."
from RobS, 9:00 PM EST, 06/14/11, Management
Red flags
"Con artists and financial swindlers love this sector, Mr. Rosen writes. "Because it's so easy to cook the books, you should not underestimate the risks of investing in a Canadian resource company.""
from NormR, 5:30 PM EST, 06/14/11, Accounting
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."
from NormR, 5:19 PM EST, 06/14/11, Debt
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."
from NormR, 12:45 PM EST, 06/14/11, Taxes
Rubble logic
"Now that the bubble has burst, the most important question is: What have we learned from this devastating experience?"
from NormR, 7:55 PM EST, 06/13/11, Markets
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."
from NormR, 12:50 PM EST, 06/13/11, Markets
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."
from NormR, 10:50 PM EST, 06/12/11, Stocks
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?"
from NormR, 10:48 PM EST, 06/12/11, World
There's an app for that.
"uValue is a valuation app, with surprising versatility (or at least, we think so). There are three basic models - a conventional cost of capital DCF model, an Adjusted Present Value (APV) model and a dividend discount model. For the cost of capital and APV models, we have detailed versions, where you are given full control over all of the input levers, and simple versions, where we set many of the input levers to safe defaults. In the near future, we hope to add a relative valuation (multiples and comparables) module as well as a financial tools module. Embedded in the app is a short book on valuation (called the uValue Companion) that leads you through the basics of which model to use in a specific context and the fundamentals of that model as well as data sets on industry averages on key input variables (margins, returns, betas, cost of capital etc.)."
from DanH, 9:50 PM EST, 06/12/11, Fun
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?"
from RobS, 11:26 AM EST, 06/11/11, Debt
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%."
from NormR, -4:41 PM EST, 06/07/11, Government
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!'"
from NormR, 9:44 PM EST, 06/06/11, Value Investing
Groupon has no competitive advantage
"Dear SEC Chair Schapiro: Should the market for Initial Public Offerings (IPO) give the public a shot at attractive investment returns? Or should it just give selected insiders a way to make quick, risk-free billions? I think the answer is maybe to both. But in the case of Groupon's IPO, the answer will certainly be no to the first question and yes to the second. Why? The answer to that one is simple - 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."
from RobS, 11:40 AM EST, 06/06/11, Growth Investing
A bumper crop of bureaucratic stupidity
"I see these two stories, cucumbers emergent from the stony places of Newfoundland and forcing farmers to buy fishing licences when their farms are awash with flood waters, as parables. They carry a similar moral. There are some things so far exiled from all the known limits of common sense and rational practice, so inhospitable to logic and fairness, that only - only - governments can be responsible for them."
from NormR, 6:49 PM EST, 06/04/11, Government
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.""
from NormR, 1:55 PM EST, 06/04/11, 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."
from NormR, 10:49 PM EST, 06/03/11, Debt
Many police and firefighters get $100k pensions
"That doesn't frustrate Maviglio, who insists that 'people who put their lives on the line every day deserve a secure retirement.' But do they 'deserve' more than twice the US median income? Do they 'deserve' the sum the average California teacher makes, plus $32,000? Do they 'deserve' pensions far higher than the highway workers whose jobs are much more dangerous? These aren't idle questions, given the public safety worker retirements we can expect in the near future. To cite one example: About 18,000 local public safety and California Highway Patrol officers in the Cal-PERS system were 45 or older in 2009, the latest state figures show. Most can retire at age 50 and get 3 percent of their highest pay for every year they worked, usually up to 90 percent. Their average pay: $108,000. That's $1.75 billion."
from RobS, 9:34 PM EST, 06/03/11, Government
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."
from RobS, 9:22 PM EST, 06/03/11, Taxes
"A simple tale of Sino-Forest via links"
from NormR, 9:09 PM EST, 06/02/11, Stocks
The Death of the American Dream
"For eighty years we have defined the American dream as an owner occupied family home, preferably with a nice swathe of crabgrass-free lawn around it. The home mortgage was the centerpiece of a society of consumers based on debt-financed living. It was life on the installment plan. The latest downturn in the housing market is one more grim signal that in its current form, the American Dream is going the way of the dodo."
from NormR, 4:18 PM EST, 06/02/11, World
The wisdom of statistically manipulated crowds
"Far from providing evidence that supports the existence of the wisdom-of-crowds effect, the study actually suggests that the effect may not be real at all, or at least may be a much rarer phenomenon than we assume."
from NormR, 3:34 PM EST, 06/02/11, Behaviour
Father of the year
"People are worried about the state of boys in America. For almost twenty years, though, John Lasseter and Pixar have been helping boys grow into good men. Everything is going to be fine."
from NormR, 1:20 PM EST, 06/01/11, Idle
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"
from NormR, 12:37 PM EST, 06/01/11, Management
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"
from RobS, 9:02 PM EST, 05/31/11, Management
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?"
from NormR, 12:50 PM EST, 05/31/11, Behaviour
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."
from DanH, 10:42 AM EST, 05/31/11, Funds
Wrongful conviction as way of life
"His alarming conclusion: the wrongful convictions were not idiosyncratic but resulted from a series of flawed practices that the courts rely on every day, namely, false and coerced confessions, questionable eyewitness procedures, invalid forensic testimony and corrupt statements by jailhouse informers."
from NormR, -3:53 PM EST, 05/31/11, Law
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."
from RobS, 6:53 PM EST, 05/29/11, Government
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."
from NormR, 2:18 PM EST, 05/28/11, Behaviour
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."
from NormR, 2:16 PM EST, 05/28/11, Stocks
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."
from NormR, 1:05 PM EST, 05/28/11, Dividends
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."
from NormR, 12:55 PM EST, 05/28/11, World
Population aging has begun in earnest
"The sharp rise in the retirement-age population has already begun, and very little can change the demographic trajectory of the next 20 years."
from NormR, 11:30 AM EST, 05/28/11, World
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."
from NormR, 11:24 AM EST, 05/28/11, Government
The running out of resources myth
"In fact, thanks to human ingenuity, the "carrying capacity" of the planet - its ability to support a greater human population with increasing living standards - is not fixed, but is hugely variable, depending on how much of our intelligence we mix with the natural world. Put another way, we could say that the availability of natural resources is not determined merely by the quantity of such resources in the earth, but by the interaction between such resources and our ability to squeeze more value out of them."
from NormR, 2:34 PM EST, 05/27/11, World
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."
from NormR, 1:32 PM EST, 05/27/11, Crime
The end of an era
"The golden era for the Canadian banks has ended. This era, which began in the late 1980's with the acquisition of the major broker-dealers, and continued for two decades, saw Canadian bank stocks generate a total return of nearly 14% annually. This is an astonishing achievement for a banking sector in a developed economy. Not surprisingly, since this period overlaps the career of virtually all financial journalists, analysts and stock-brokers, this exceptional performance has resulted in a near evangelical-like faith from investors, who have come to view this performance as "normal". As we will explain, it is not."
from NormR, 10:53 PM EST, 05/25/11, Stocks
Why nerds are unpopular
"I know a lot of people who were nerds in school, and they all tell the same story: there is a strong correlation between being smart and being a nerd, and an even stronger inverse correlation between being a nerd and being popular. Being smart seems to make you unpopular. Why?"
from NormR, 5:15 PM EST, 05/23/11, Behaviour
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."
from NormR, 2:22 PM EST, 05/23/11, Value Investing
Fatal Risk
"Boyd shows how AIG depended on Hank Greenberg as its one-man risk-control unit, until he wasn't."
from NormR, 2:20 PM EST, 05/23/11, Books
...the revolving door is still spinning
"No political adage gets a more vigorous workout than the one about how the real scandal in Washington isn't what's illegal, but what's legal. Case in point: Meredith Attwell Baker's announcement that she will be stepping down as a Federal Communications Commission member in June to join Comcast-NBCUniversal. Baker's new employer, of course, is the huge entity whose merger was blessed by the FCC only in January, after a year of scrutiny. Baker voted in favor."
from RobS, 5:32 PM EST, 05/22/11, Government
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. ..."
from RobS, 3:03 PM EST, 05/22/11, Taxes
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. The customer is always right."
from RobS, 2:59 PM EST, 05/22/11, Academia
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."
from RobS, 2:43 PM EST, 05/22/11, Government
Linkedin lost out
"But having watched this game for two decades now (and played it for one of them), I don't think there's any way that this positive halo is worth a 50% IPO discount. And I think that companies have been told for so long, and so persuasively, that a 'huge pop' is a sign of success that they never even give it a second thought. They should. If LinkedIn can sustain a price above, say, $75 a share, BOFA and Morgan should have sold it to institutions at $60. Because the stock was instead sold at $45, LinkedIn and its existing investors just got screwed to the tune of $175 million."
from RobS, 12:59 PM EST, 05/22/11, Stocks
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."
from DanH, -4:30 PM EST, 05/22/11, Markets
It's the end of the world
"R.E.M. performing 'It's The End Of The World As We Know It (And I Feel Fine)' to celebrate yet another bad apocalyptic prediction."
from NormR, 11:17 AM EST, 05/21/11, Fun
Financial security or financial maturity?
"But regardless of how high we boost the mathematical confidence, it's the emotional element that is so often missing. Regardless of how much money they have, clients often feel they need just a little bit more to really feel comfortable. In fact, studies show it doesn't matter if a client has $500,000 or $5 million, the typical retiree feels they need approximately 25% - 30% more than what they currently have to really "feel" secure."
from NormR, 1:05 PM EST, 05/20/11, Behaviour
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."
from NormR, 12:53 PM EST, 05/20/11, Value Investing
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."
from RobS, 10:10 AM EST, 05/20/11, Debt
Why LinkedIn Is a Scary Monster
"Career site LinkedIn Corp. went public today at $45 a share, and giddy stock traders promptly bid up the price past $100 a share -- giving the overhyped stock a market cap above $10 billion. At that market cap, investors paid the equivalent of about $98 for each of LinkedIn's 101 million registered users. So how much revenue did LinkedIn generate last year per user (based on average number of users)? $3.34 per user."
from RobS, -3:31 PM EST, 05/20/11, Stocks
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."
from NormR, 9:14 PM EST, 05/18/11, Markets
The red collar crime wave
"Chinese corporate criminals and their US-based enablers are committing Capital Genocide against American investors. We're not talking about 'a few bad apples' or 'a handful of exceptions', we're talking about a full-blown epidemic. Subterfuge and malicious avarice are simply the tools of the trade when many Chinese companies do business with outsiders."
from NormR, 2:05 PM EST, 05/16/11, World
Beware online filter bubbles
"As web companies strive to tailor their services (including news and search results) to our personal tastes, there's a dangerous unintended consequence: We get trapped in a 'filter bubble' and don't get exposed to information that could challenge or broaden our worldview. Eli Pariser argues powerfully that this will ultimately prove to be bad for us and bad for democracy."
from NormR, 1:09 PM EST, 05/16/11, Behaviour
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."
from NormR, 6:01 PM EST, 05/15/11, World
What If the U.S. Treasury Defaults?
"'Here are your two options: piece of paper number one - let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured,' he says. Then there's 'piece of paper number two,' he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. 'I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one.'"
from RobS, 2:37 PM EST, 05/15/11, Debt
The Failure of American Schools
"As a result, even when making a lifetime tenure commitment, under New York law you could not consider a teacher's impact on student learning. That Kafkaesque outcome demonstrates precisely the way the system is run: for the adults. The school system doesn't want to change, because it serves the needs of the adult stakeholders quite well, both politically and financially."
from RobS, 12:57 PM EST, 05/15/11, Academia
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."
from RobS, 9:44 PM EST, 05/14/11, Government
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."
from NormR, 6:24 PM EST, 05/14/11, World
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."
from RobS, 10:39 AM EST, 05/14/11, Government
The perennial hubris
"The idea that good things can and will happen is we merely 'work together' or the rich pay more taxes is a popular belief, but it's still namby-pamby nonsense. It's unfortunate that even though the data have never shown that countries could spend and inflate their way to prosperity, one can cherry pick history to think this true. The War on Poverty, India's 'third way', the foreign aid disaster in Africa, Keynesian failures of the 1970's throughout Western Europe, affirmative action, and the positive results of market-centered solutions such as China's market oriented reforms, Adenauer's West Germany, the entire 19th century in the West, I think it's clear the best thing we can do is reduce the size and scope of government."
from NormR, 10:57 PM EST, 05/11/11, Behaviour
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."
from NormR, 2:35 PM EST, 05/11/11, World
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."
from NormR, 1:11 PM EST, 05/11/11, Funds
Momentum gets a bad rap
"'Momentum gets a bad rap,' Zyblock wrote today in a report. The strategy has been more rewarding historically than tracking the Standard and Poor's 500 Index or favoring shares of companies with the fastest sales and earnings growth or the lowest prices relative to asset values, the report said."
from NormR, 1:08 PM EST, 05/11/11, Growth Investing
The Steve Madden counter example
"Steve Madden - the designer of the ridiculous high-heeled shoes beloved by teenage tarts - gives me nightmares. And every time I go to my office in Bondi Junction (Sydney, Australia) I pass - at the entry foyer - a far-flung outpost of Steve Madden Shoes - a reminder of the risks in my business."
from NormR, 12:48 PM EST, 05/11/11, Stocks
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."
from NormR, 12:40 PM EST, 05/11/11, Academia
Federal retreat on bigger loans
"Brokers and agents here in Monterey said terms were much tougher for nonguaranteed loans since lenders were so wary. Borrowers are required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios."
from NormR, 12:36 PM EST, 05/11/11, Real Estate
Price-to-rent back to 1999 levels
"In real terms, the National index is back to Q1 2000 levels, the Composite 20 index is back to December 2000, and the CoreLogic index back to December 1999."
from NormR, 5:11 PM EST, 05/10/11, Real Estate
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."
from NormR, 4:54 PM EST, 05/10/11, Buffett
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."
from NormR, 11:53 AM EST, 05/09/11, Fun
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."
from NormR, 5:30 PM EST, 05/08/11, World
How much would a U.S. iPad 2 cost?
"With all the talk about how globalization and outsourcing affect U.S. unemployment,  many people seem to be of the mindset that if we were to revive the U.S. manufacturing base, the unemployment problem would take care of itself.  Personally, I'd love to see more goods made here in the good ol' U.S. of A and thus more manufacturing jobs, but its a two-way street: Labor costs in the United States are SUBSTANTIALLY higher than they are in other countries, namely developing ones like China, Taiwan, Malaysia, etc."
from RobS, 11:35 AM EST, 05/08/11, Markets
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."
from RobS, 10:56 AM EST, 05/08/11, Government
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."
from NormR, 12:19 PM EST, 05/06/11, Value Investing
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%."
from NormR, -3:57 PM EST, 05/06/11, Real Estate
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."
from NormR, -3:47 PM EST, 05/06/11, Bonds
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."
from NormR, 10:52 PM EST, 05/04/11, Real Estate
Algos Gone Wild
"Now, I keep trying to get this point across: when "stupid" computers do "irrational" things in the market, that's good for us sentient, cogent, "smart" carbon based life forms. We make money trading in the market off of the stupidity of others (except, of course, for the problem that the Powers That Be don't let the erroneous trades stand - that's another issue). Crazy algos doing crazy things in the market results in opportunities for you to make money. Full stop."
from NormR, 11:43 AM EST, 04/29/11, Markets
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 retirement. I can understand why union leaders like this approach. I just can't understand why anyone else thinks it's fair."
from NormR, 11:38 AM EST, 04/29/11, Government
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?"
from NormR, 11:19 AM EST, 04/28/11, Economics
Berkshire weighs suit against David Sokol
"Former Berkshire Hathaway Inc. executive David Sokol intended to deceive the company in the way he disclosed his interest in Lubrizol Corp. and violated Delaware law in the way he behaved, the company's audit committee concluded in a scathing report. The report, released by Berkshire just three days before its annual meeting, leaves Mr. Sokol open to civil proceedings, a move Berkshire's board said it was considering."
from DanH, -4:18 PM EST, 04/28/11, Buffett
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."
from NormR, 8:05 PM EST, 04/26/11, Academia
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."
from NormR, 12:20 AM EST, 04/26/11, Fun
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."
from NormR, 7:37 PM EST, 04/23/11, Behaviour
Seeing No Sign of Recovery
"Bill McBride, who runs the popular financial blog Calculated Risk, said this might be the moment when people decisively started to turn on home ownership. "I'm starting to feel the hate," he wrote."
from NormR, 7:36 PM EST, 04/23/11, Real Estate
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."
from NormR, 7:10 PM EST, 04/23/11, Economy
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."
from NormR, 4:07 PM EST, 04/22/11, Buffett
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."
from NormR, 3:52 PM EST, 04/22/11, Indexing
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."
from NormR, 4:53 PM EST, 04/21/11, Real Estate
We're All Going To Miss Almost Everything
"Statistically speaking, you will die having missed almost everything."
from NormR, 12:24 PM EST, 04/19/11, World
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.""
from NormR, 12:30 AM EST, 04/19/11, Government
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."
from NormR, 10:43 AM EST, 04/18/11, Bonds
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."
from NormR, 11:01 PM EST, 04/17/11, World
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."
from DanH, 9:12 PM EST, 04/17/11, Behaviour
Singing the Blues
"Leslie Hannah, a business historian at the London School of Economics, analyzed what happened to the world's largest companies (as measured by stock-market value) between 1912 and 1995. The winners more than made up for the losers, but most didn't win. By 1995, only half the 100 largest concerns survived in their original form fewer than one in five stayed among the 100 biggest and only a third finished larger than they began. The rest shrank, died or got digested by other companies. Adjusted for inflation, the typical blue chip finished the period at only 40% of its original market value."
from NormR, 6:51 PM EST, 04/17/11, Stocks
E-Trade Baby Loses Everything
"Online trading is as easy as stealing candy from a baby."
from NormR, 6:49 PM EST, 04/17/11, Fun
The Confessions of an Inside Trader
"Kenneth T. Robinson knew he should walk away. But in an interview with The Wall Street Journal, he says he just couldn't stop trafficking in insider-trading tips."
from NormR, 6:21 PM EST, 04/17/11, Crime
The Real Deficits of Nassau County
"The Long Island county is wealthy, heavily taxed, and financially unhinged all at once. How one of the richest communities in the U.S. went broke"
from NormR, 6:04 PM EST, 04/17/11, Government
Is Sugar Toxic?
"If Lustig is right, then our excessive consumption of sugar is the primary reason that the numbers of obese and diabetic Americans have skyrocketed in the past 30 years. But his argument implies more than that. If Lustig is right, it would mean that sugar is also the likely dietary cause of several other chronic ailments widely considered to be diseases of Western lifestyles - heart disease, hypertension and many common cancers among them."
from NormR, 12:12 PM EST, 04/15/11, Health
Leucadia 2010 letter
"There are, nonetheless, several lurking problems: 1. The United States Congress is in an eternal mud fight with no adult supervision. 2. The Country has a huge, dangerous debt. 3. Inflation lurks behind each future borrowing. These things are dangerous and must be stopped and fixed."
from NormR, 12:11 PM EST, 04/15/11, Stocks
Summers Highlights Dilemma
"Speaking at length about the competing ideologies surrounding regulation, Summers distinguished between one side worrying that regulators will become 'co-opted' by a conflict of interest, and the other afraid regulators are simply 'ignorant' of the institutions they are charged with controlling. 'There is hardly anyone,' Summers said, 'that is both knowledgeable and sic unco-opted.'"
from NormR, 12:06 PM EST, 04/15/11, Government
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."
from NormR, 11:21 AM EST, 04/15/11, Taxes
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."
from NormR, 9:13 PM EST, 04/12/11, Markets
The future of books
"Future 'books' will be bundled with soundtracks, musical leitmotifs, 3-D graphics, and streaming video. They'll be enhanced with social bookmarking, online dating, and alerts from geo-networking apps whenever someone in your locality purchases the same book as you - anything so you don't have to actually read the thing. Authors will do their own marketing, the reader will be responsible for distribution, the wisdom of crowds will take care of the editing, and the invisible hand of the market will perform the actual writing (if any). Writers will respond either by going viral or by going feral."
from NormR, 9:12 PM EST, 04/12/11, Books
Spare us the e-mail yada-yada
"Automatic e-mail footers are not just annoying. They are legally useless"
from RobS, 3:21 PM EST, 04/12/11, Law
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."
from RobS, 3:17 PM EST, 04/12/11, Government
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."
from RobS, 3:11 PM EST, 04/12/11, Government
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?"
from NormR, 3:04 PM EST, 04/09/11, Academia
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."
from RobS, 5:05 PM EST, 04/08/11, Taxes
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."
from NormR, 11:19 AM EST, 04/08/11, Government
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 (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."
from NormR, 11:11 AM EST, 04/08/11, Taxes
Ikea as Rat-Maze
"It's a cliché that casinos are designed to prevent people from recognizing how much time has passed (no windows) and to steer people away from exit routes and back to the tables. But much more salient, to me at least, is the infuriating design of Ikea stores."
from NormR, 12:56 AM EST, 04/08/11, Behaviour
It's Hard to Make Predictions
"As Gardner shows, foxes are a bit better at predicting the future than are hedgehogs. For example, environmentalist Paul Ehrlich is a perfect hedgehog. For more than four decades, he has maintained that everything important about the world can be explained by population trends. Back in 1968, Ehrlich notoriously predicted in The Population Bomb, "The battle to feed all of humanity is over. In the 1970s, the world will undergo famines in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate...." The famines didn't happen. And Gardner notes that the world death rate was 13 per 1,000 when Ehrlich wrote his book. Every decade since it has fallen and is now 9 per 1,000 people. "In two lengthy interviews, Ehrlich admitted to making not a single major error in the popular works he published in the late 1960s and early 1970s," observes Gardner. It is almost not too much to say that Ehrlich has never been right about anything that he has predicted."
from NormR, 12:00 AM EST, 04/07/11, Behaviour
Can Oil Prices Forecast Exchange Rates?
"This paper investigates whether oil price shocks have a reliable and stable out-of-sample relationship with the Canadian/U.S Dollar nominal exchange rate. Despite state-of-the-art methodologies and clean data, we and#133find paradoxically little systematic relation between oil prices and the exchange rate, especially if one takes the monthly and quarterly frequencies into account. In contrast, the very short term relationship between oil prices and exchange rates at the daily frequency is rather robust, and holds no matter whether we use contemporaneous (realized) or lagged oil price shocks in our regression. However, the short-term out-of-sample predictive ability is ephemeral, and it mostly appears after time variation in the forecasting ability of the models has been appropriately taken into account. We show that a similar results hold for other currencies and commodity price shocks."
from NormR, 11:36 PM EST, 04/06/11, Markets
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."
from NormR, 11:28 PM EST, 04/06/11, World
Rebuilt Euro Fraud
"Inside the flight attendant's bag, the authorities say, were thousands of 1-euro and 2-euro coins that had supposedly been scrapped after years of use but had been methodically reconstructed so they could be cashed in. According to prosecutors, in recent years a fraud ring involving flight attendants has toted 30 tons of supposedly scrapped euro coins back into Europe from China. Recyclers in China were supposed to have melted down the old coins, which had been removed from circulation and sold as scrap metal. Instead, officials say, the band and its accomplices painstakingly restored the coins, then fooled the Bundesbank into redeeming them for paper currency or money transfers into bank accounts."
from NormR, 11:24 PM EST, 04/06/11, Crime
A comment on the efficient market hypothesis
"Critics of the efficient market hypothesis (EMH) have looked at people with better than average results and argued that those results were because they were so smart. I think the EHM critics have got it backward: they should be researching dumb people. The easiest way to argue the EMH is to demonstrate that it is possible to do better than the market because some people are so dumb."
from NormR, 11:16 PM EST, 04/06/11, Markets
The impact of financial advisors
"Broker clients allocate their retirement contributions across a larger number of investments, are less likely to remain fully invested in the default investment option, and less likely to change their equity allocation during the recent financial crisis. However, the portfolios of broker clients are significantly riskier, and underperform by approximately 2 percent per year on a risk-adjusted basis. Although we cannot conclude that those investing through a broker would have been better off investing on their own, our findings suggest that brokers are a costly and imperfect substitute for financial literacy."
from NormR, 11:14 PM EST, 04/06/11, Brokers
On The Bubble
"If every penny of advertising in the world came to Silicon Valley, out of these thousands of new startups, there would be only nine Googles. Worldwide. In China. In Europe. It sounds like a lot, but how many companies are out there being funded on this premise?"
from NormR, 11:10 PM EST, 04/06/11, Markets
Cigarette Arbitrage
"There's an interesting article in the NY Times today about the underground market for the sale of "loosies" - loose cigarettes..."
from NormR, 11:07 PM EST, 04/06/11, Government
The phantom $6-billion
"At such a small revenue cost, the federal corporate tax reduction is great policy. As I estimated last year, the three-point reduction in the corporate rate would lead to an increase in capital investment of about $50-billion within seven years. A $100-million annual revenue loss that can generate that much new capital expenditure is a slam-dunk in policy terms. Growing the economy will also lead to higher incomes and jobs. The personal, sales and other tax revenue raised by federal and provincial governments would add substantially to the pot of money available to governments."
from NormR, 11:05 PM EST, 04/06/11, Government
Canada's demographic time bomb
"As laid out in the budget, government spending on elderly benefits is set to surge 30% from 2010-11 levels to 2015-16, with annual increases of between 4.9% and 5.8%, well above projected rates of Canadian economic growth. Dig a bit deeper and the fiscal noose around Ottawa gets tighter. During the next five years it is expected the federal government, of whichever political stripe, will need to find an extra $2-billion each year either through program cuts or tax increases to finance payments through the Old Age Security and Guaranteed Income Supplement schemes. From 2015 to 2020, that figure climbs to $3-billion each and every year."
from NormR, 8:01 PM EST, 04/03/11, Government
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."
from NormR, 10:13 AM EST, 04/02/11, World
The Anti-Predictor
"Duncan Watts tells a story about the late sociologist Paul Lazarsfeld, who once described an intriguing research result: Soldiers from a rural background were happier during World War II than their urban comrades. Lazarsfeld imagined that on reflection people would find the result so self-evident that it didn't merit an elaborate study, because everyone knew that rural men were more used to grueling labor and harsh living standards. But there was a twist: the study he described showed the opposite pattern it was urban conscripts who had adjusted better to wartime conditions. The rural effect was a pedagogical hoax designed to expose our uncanny ability to make up retrospective explanations for what we already believed to be true."
from NormR, -3:52 PM EST, 04/02/11, Behaviour
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."
from NormR, -3:41 PM EST, 04/02/11, Behaviour
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."
from NormR, -3:14 PM EST, 04/02/11, Markets
Bernanke vs. Graham: In whom do you trust?
"I think a simple thought experiment best answers this question. Imagine a world where the stock market is open for trading only one hour of every year. No more scrolling stock tickers or central bank scuttlebutt on interest rate policy (and certainly far fewer insufferable hedge fund managers and Wall Street traders). If this would change how you invest, then apparently a steady stream of market quotations is a sine qua non of your investment process a trade makes sense to you when validated and quickly rewarded by the constant transactional opinions of your friends in the marketplace. You are a Benjamin Bernanke trader. However, if you would maintain the same investment approach as always, then your investment decisions must be based on your expectation of the cash flows to be received from those investments, irrespective of what subsequent market quotations have to say about them. You don't care what your friends think (and you probably don't have many of them anyway). You are a Benjamin Graham investor."
from NormR, -4:29 PM EST, 03/30/11, Markets
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."
from RobS, 7:52 PM EST, 03/29/11, Taxes
A Requiem for Detroit
"A once-great American city today repels people of talent and ambition. 'Detroit is a classic example of how a culture that was legendary for enterprise and innovation was slowly eroded by toxic politicization from the 1960s on,' says the Rev. Robert A. Sirico, president of the Michigan-based Acton Institute. 'It's been class warfare on steroids, and the inevitable result is that so many Detroiters who had the means - black and white - have fled the city.' Another way of putting it is this: Unlike New Orleans and Japan, the ruin we see in Detroit is entirely man-made."
from NormR, 1:18 PM EST, 03/29/11, Government
The expansion of regulators
"From an evolutionary perspective, a research regulator is a life form with three very interesting characteristics. First, its numbers explode in response to catastrophic events regardless of how rare that event is. Second, it has few natural predators, so its expansion goes unchecked. Third, regulators multiply like bacteria: they spawn more regulations which require more regulators, so there is a rapid increase in population over time. And these three characteristics derive, I submit, from a basic human tendency to focus on emotionally-engaging events while ignoring their probability."
from NormR, 6:55 PM EST, 03/27/11, Government
It's 2026, and the Debt Is Due
"The following is a presidential address to the nation - to be delivered in March 2026."
from RobS, 2:45 PM EST, 03/27/11, Government
Ontario's search for a solar system
"In Germany, where the solar revolution began, critics are now questioning the huge size of the subsidies, estimated at $200,000 to $300,000 per job created."
from NormR, 1:57 PM EST, 03/27/11, Government
Is ethanol to blame for global unrest
"The U.S. produces more corn than any other country. The total value of its crop in 2009 was about $50 billion, and that was before the recent price surge. It was also more than double the combined value of all the crops produced in Canada. Until a few years ago, corn was used almost entirely for animal feed, booze, processed foods for humans - such as corn flakes and high-fructose corn syrup - and backyard corn roasts. Today, 40% of the U.S. crop is devoted to ethanol, up from 33% in 2008. A decade ago, the figure was just 7%."
from NormR, 1:53 PM EST, 03/27/11, World
Curb your enthusiasm
"If you want to drive today's investors mad with desire, try this magic word: dividends. There's something about the promise of a high yield that makes grey-haired stock buyers turn giddy as 17-year-olds. It's not entirely clear what gives rise to this intoxicating effect. Stock market historians say dividend-paying stocks have generally done better than their non-dividend-paying peers, perhaps because being forced to disgorge cash on a regular basis pushes executives to focus on their core business rather than lavishing money on the CEO's pet projects. But paying a dividend, by itself, doesn't guarantee a company success."
from NormR, 7:50 PM EST, 03/26/11, Dividends
In Prison for Taking a Liar Loan
"It's not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. Although Mr. Engle took out the two stated-income loans, as liar loans are more formally called, in late 2005 and early 2006, it wasn't until three years later that his troubles began."
from NormR, 11:06 AM EST, 03/26/11, Law
Chart of the Day: Home Prices Since 1890
"Are you one of those people who still thinks buying a home is a good investment? Perhaps some historical perspective will help. VisualizingEconomics provides a fascinating chart showing how nominal and real home prices have changed since 1890"
from RobS, 8:07 PM EST, 03/24/11, Real Estate
You Need More Retirement Savings
"So 'about the same amount as I need now' is not necessarily a bad guide. But as Arends goes on to point out, it's a very frightening one. Even assuming that Social Security continues as promised, most people don't have nearly enough saved to make up their current incomes. And really, if you're an investment banker, that's not that big a problem--you'll have to downgrade to a merely ostentatious house and consider flying business class instead of first. But most of us aren't investment bankers. We'll need a lot more than we're saving now."
from RobS, 8:01 PM EST, 03/24/11, Retirement
The magic washing machine
"What was the greatest invention of the industrial revolution? Hans Rosling makes the case for the washing machine. With newly designed graphics from Gapminder, Rosling shows us the magic that pops up when economic growth and electricity turn a boring wash day into an intellectual day of reading."
from NormR, 3:25 PM EST, 03/24/11, World
Public Pension-Fund Squeeze
"Some public pension funds are finding themselves caught in a squeeze between actuaries worried about future benefit costs and local governments worried about immediate budgets strains. The tension was on display last week, when California pension fund Calpers decided to hold its expected annual return rate steady. The fund's actuary had recommended that the California Public Employees' Retirement System adopt a more-conservative long-term investment expectation nearly a dozen local officials attended a meeting last week to urge Calpers not to change the rate."
from NormR, 8:18 PM EST, 03/23/11, Government
The 1994 effect
"CAST your minds back to 1994. The Federal Reserve had kept rates at (what seemed then) the low level of 3% for three years in an effort to allow the financial sector industry to recover from the savings and loan crisis, a problem that was the result of reckless expansion and lending (thank goodness they learned the lessons of that disaster). The Fed then started very modestly to tighten monetary policy with a quarter point rate increase. But the bond market had its worst year since the late 1920s"
from RobS, 1:56 PM EST, 03/23/11, Bonds
How Carrots Became the New Junk Food
"The company has been around for nearly a century now, but it boomed in the 1990s, with a breakthrough product. A local grower named Mike Yurosek had become frustrated with all the waste in the carrot business. Supermarkets expected carrots to be a particular size, shape, and color. Anything else had to be sold for juice or processing or animal feed, or just thrown away. Yurosek wondered what would happen if he peeled the skin off the gnarly carrots, cut them into pieces, and sold them in bags. He made up a few test batches to show his buyers. One batch, cut into 1-inch bites and peeled round, he called 'bunny balls.' Another batch, peeled and cut 2 inches long, looked like little baby carrots. Bunny balls never made it. But baby carrots were a hit. They transformed the whole industry. Soon, the big growers in Bakersfield were planting fields with baby carrots in mind, sowing three times more seeds per acre, so the carrots, packed densely together, would grow long and skinny, for the maximum number of 2-inch cuts. Yields and profits climbed. The really big deal, the thing nobody expected, was that baby carrots seemed to make Americans eat more carrots. In the decade after they were introduced, carrot consumption in the United States doubled."
from NormR, 11:50 AM EST, 03/23/11, Behaviour
Five of the Biggest ETF Myths
"1) Myth: "When I buy an ETF, the ETF Trust has to go out and buy the underlying portfolio/commodity/etc""
from RobS, 10:26 AM EST, 03/23/11, Funds
Groupon no bargain at even half the price
"Let's look at a couple of pro-Groupon arguments designed to counter this whole barrier-to-entry argument. One is that Groupon has "first-mover advantage," which is said to be exceptionally important in the tech space. I was going to use my Netscape browser to access the Excite search engine to research this concept more, then share what I found on Friendster, but decided to move on to the next point instead."
from NormR, 8:24 PM EST, 03/21/11, Stocks
Creative Destruction?
"Modern economies, it turns out, are adept at rebuilding and are often startlingly resilient. The quintessential example comes from Japan itself: in 1995, an earthquake levelled the port city of Kobe, which at the time was a manufacturing hub and the world's sixth-largest trading port. The quake killed sixty-four hundred people, left more than three hundred thousand homeless, and did more than a hundred billion dollars in damage (almost all of it uninsured). There were predictions that it would take years, if not decades, for Japan to recover. Yet twelve months after the disaster trade at the port had already returned almost to normal, and within fifteen months manufacturing was at ninety-eight per cent of where it would have been had the quake never happened."
from RobS, 4:27 PM EST, 03/21/11, Disaster
Trouble Lurks in Junk Bonds
"Risky bonds have been on a tear since 2009. But as the events in Japan and elsewhere fuel demand for safer assets, investors would be wise to exercise caution."
from NormR, 10:42 AM EST, 03/20/11, Bonds
Is Happiness Overrated?
"The relentless pursuit of happiness may be doing us more harm than good. Some researchers say happiness as people usually think of it - the experience of pleasure or positive feelings - is far less important to physical health than the type of well-being that comes from engaging in meaningful activity."
from NormR, 6:59 PM EST, 03/19/11, Behaviour
The Canada bubble
"Eleven years into the bull market in commodities, it's easy to forget just how much Canada has riding on strong resource prices. For one thing, the boom has boosted our paycheques. The rise in commodity prices was responsible for two-thirds of the 15 per cent gain in disposable income experienced in the last decade, Bank of Canada governor Mark Carney said in a 2008 speech. While Canada's soaring loonie has hurt manufacturers, it's also improved living standards by keeping inflation low. And rising commodity prices have also helped keep unemployment muted. As bad as Canadians think the recent recession was, in terms of the job market it was the mildest downturn of the last 30 years. In January, the Canadian economy added nearly double the number of jobs created in the entire U.S. economy, which is 10 times larger."
from NormR, 3:46 PM EST, 03/18/11, World
The Crowded Restaurant Conundrum
"These restaurants have perfected the art of creating Veblen goods - items where demand increases as the price goes up. In this rarefied world, high prices are a feature, not a bug they're status symbols that alert others to the fact that the patrons can pay $26 for something as basic as a spinach salad. They also serve to keep out the riff-raff."
from NormR, 8:01 PM EST, 03/16/11, Behaviour
Why this value investor holds cash
"The Canadian stock market is more vulnerable to a major pullback than its U.S. counterpart, warns one of Canada's more successful money managers of the past decade. "We think that valuations in Canada, in particular, are at a very dangerous level," said Vito Maida, founder of Toronto-based investment firm Patient Capital Management Inc. "Equities in Canada have, I think, gone to levels that are not attractive today, and could be in for a serious correction.""
from NormR, 7:45 PM EST, 03/16/11, Value Investing
Reinvent education
"Salman Khan talks about how and why he created the remarkable Khan Academy, a carefully structured series of educational videos offering complete curricula in math and, now, other subjects. He shows the power of interactive exercises, and calls for teachers to consider flipping the traditional classroom script -- give students video lectures to watch at home, and do 'homework' in the classroom with the teacher available to help."
from NormR, 3:46 PM EST, 03/13/11, Academia
How state budgets are breaking
"In this fiery talk, Bill Gates says that state budgets are riddled with accounting tricks that disguise the true cost of health care and pensions and weighted with worsening deficits -- with the financing of education at the losing end."
from NormR, 3:45 PM EST, 03/13/11, Government
A Red Flag On Reverse Mortgages
"It is the saddest of paradoxes: a government-backed financial maneuver intended to free up extra money for struggling older people turns out to have left some widows and widowers on the brink of foreclosure."
from NormR, 3:43 PM EST, 03/13/11, Real Estate
Tilting at Wind Turbines
"Is renewable energy really a green pathway to a brighter economic future? Or is it nothing more than a heavily subsidized impossible dream?"
from NormR, 11:21 PM EST, 03/10/11, Government
The Lobster Underground
"Whether as a treat for the common man or an excuse to slum it for the well-to-do, the lobster roll was never terribly hip, edgy, or controversial. Until last year, when a Brooklyn artist and chef reinvented the lobster roll as delicious underground performance art. Using the moniker Dr. Claw, the thirtysomething chef began boiling batches of lobsters in his home kitchen and using the meat in rolls he sold - without the requisite licenses and permit - in Greenpoint, a Brooklyn neighborhood populated by Polish Americans and an ever-increasing numbers of hipsters. In order to skirt the law, Claw - whose real name is widely published but whom I chose not to identify here so that he could speak freely to me - devised a system that would be the envy of even the most enterprising drug dealers on The Wire. Claw's customers first had to friend him on Facebook. Then, if they checked out, Claw would provide the potential customer with a phone number, exchange texts when the roll was ready, and hand off the goods in a plain brown bag."
from NormR, 11:12 PM EST, 03/10/11, Government
Chinese Mothers
"We talk to Xinran, a Chinese writer who has documented the heart-breaking choices many Chinese women have made because of the country's one-child policy. [Warning: listen with a box of tissue handy ...]"
from NormR, 11:33 PM EST, 03/08/11, World
Meanwhile, in New York...
""The rank and file are deeply offended by the actions of Scott Walker," she says. New York is generally pro-labour, with 24% of the state's workforce unionised. But unlike Mr Walker, pragmatic Mr Cuomo is sticking purely to finance, not ideology. And over in New Jersey, Mr Christie said in his own budget address this week that pension reform is neither a Republican nor a Democratic issue, but an issue of moral responsibility. "The day will come, mark my words," he said, "when the pensioner will retire and there will be no pension...I am worried for the police officer. I am worried for the firefighter. I am worried for the schoolteacher.""
from RobS, 8:07 PM EST, 03/08/11, Government
The elephant in the room
"As can be seen, entitlements and interest will absorb all government spending by 2025. But when the CBO did the same sums a decade ago, says Ms Meeker, the critical point was reached in 2060. In short, the fiscal position is deteriorating rapidly. Where then is the appetite for cutting entitlements or increasing taxes sharply?"
from RobS, 8:01 PM EST, 03/08/11, Government
The Berkshire Hathaway Currency
"Mr. Buffett has long been loath to use Berkshire Hathaway as currency when he thinks the shares are undervalued. In his annual letter last year, he lamented the use of stock in the purchase of the Burlington Northern Santa Fe Railway for $44 billion, saying he enjoyed issuing the shares as much as "prepping for a colonoscopy'. "The reason for our distaste is simple. If we wouldn't dream of selling Berkshire in its entirety at the current market price, why in the world should we 'sell' a significant part of the company at that same inadequate price by issuing our stock in a merger?""
from RobS, 2:07 PM EST, 03/08/11, Buffett
Made in America
"For US firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and US manufacturing is no longer as expensive. As the labor equation has balanced out, companies - particularly the small to medium-size businesses that make up the innovative guts of America's technology industry - are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet."
from NormR, 10:19 AM EST, 03/08/11, World
Tour De Gall
"Twenty minutes later, possibly under their own steam, the snails arrive. Vesuvian, they bubble and smoke in a magma of astringent garlic butter and parsley. We grasp them with the spring-loaded specula and gingerly unwind the dark gastropods, curling like dinosaur boogers. They go on and on, expanding onto the plate as if they were alien. We have to cut them in half, which is just wrong. The rule with snails is: Don't eat one you couldn't get up your nose."
from NormR, 12:08 AM EST, 03/08/11, Fun
Wisconsin Union Fight Enters Phase Two
"In Madison, where protests over Republican Gov. Scott Walker's proposed bill seeking to do away with public employee collective bargaining rights have lasted more than two weeks, the response to the unavoidable 'what do we now?' question finally has been answered: recall the Republican state senators who back the bill."
from RobS, 6:38 PM EST, 03/06/11, Government
Public Unions Get Too 'Friendly'
"We're at quite a moment when public-employee unions remind you of Johnny Friendly. They're so powerful, such a base of the Democratic Party, and they must think nothing can hurt them. But they can hurt themselves. And they are. Are they noticing?"
from NormR, 12:41 AM EST, 03/06/11, Government
Talking Your Book
"We study how professional investors use social networks to impound price-relevant information into asset prices. Exploiting novel data from an online social network that facilitates information sharing among fund managers, we find that long (short) recommendations released into the private network generate cumulative abnormal returns of 3.61% (-4.90%) over a twenty-day window. These results suggest that social networks play a direct role in facilitating the price discovery process."
from NormR, 4:23 PM EST, 03/04/11, Academia
Avoid News
"We are so well informed and yet we know so little. Why? We are in this sad condition because 200 years ago we invented a toxic form of knowledge called "news." The time has come to recognize the detrimental effects that news has on individuals and societies, and to take the necessary steps to shield yourself from its dangers."
from NormR, 4:22 PM EST, 03/04/11, Behaviour
The Most Expensive Town in America
"The lowest-priced single-family home on the market in Aspen is listed for $559,000. It's located in a trailer park. While most housing markets in the rest of the country continue to struggle with anemic demand and foreclosures - and sales at many other luxury ski resorts are still sluggish - Aspen has forged its own orbit. The average home price in this mountain town has increased over the past four years, to $6 million in 2010 from $5.4 million in 2006, according to multiple-listings data. The median price for single-family homes is now the highest in the country at $4.6 million, says San Francisco-based Altos Research, surpassing the Hamptons, Beverly Hills and Palm Beach."
from DanH, 2:18 PM EST, 03/04/11, Real Estate
A madcap quest for 'free'
"As soon as Kathy Spencer walked into the Rite Aid in Haverhill, early one recent Sunday morning, she knew something was up: All the carts were gone. At that hour, she was accustomed to having the store to herself, quietly piling hundreds of dollars worth of goods in her cart, quietly working the system, quietly walking out the door without having to pay for any of it. Instead, the store was "a madhouse full of crazy women fighting over toilet paper,'' she said. She knew exactly who was to blame: she was."
from NormR, 1:40 PM EST, 03/04/11, Thrift
Flee the land of quota
"So, rightly or wrongly, unlike so many others, we didn't base our family's future on an industry spinning its wheels, plus having an investment-to-earnings ratio similar to where Nortel was when things went into the manure pit."
from NormR, 10:47 PM EST, 03/03/11, Government
Broke Town, U.S.A.
"In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city's firehouses were closed. Last summer, a fire ravaged a house in one of the city's better neighborhoods one of the firetrucks came from another town, 15 miles away. Is this America's future?"
from RobS, 3:38 PM EST, 03/03/11, Government
The Madoff Tapes
"One evening, my home phone rang. "You have a collect call from Bernard Madoff, an inmate at a federal prison," a recording announced. And there he was."
from RobS, 10:28 PM EST, 03/02/11, Crime
Five Tips From Warren Buffett
"While the stock market overall has boomed, and it's a battle to find cheap stocks, one thing does stand out: Many of Warren Buffett's favorite stocks remain at, or around, the prices he paid for them. As Mr. Buffett only likes to buy stocks for a lot less than he thinks they are really worth, this suggests you can get a bargain or two"
from NormR, 4:57 PM EST, 03/02/11, Buffett
Global Investment Returns 2011
"High dividend yield strategies are a focus of this year's report."
from NormR, 11:16 AM EST, 03/02/11, Markets
Pension Funds Strained, States Look at 401k Plans
"Unlike private companies, most states are constitutionally or contractually barred from changing the pension plans of current employees without their consent. So the new rules are generally voluntary or apply only to new employees. In fact, switching workers to 401(k)-type plans can make the underfunding problem even worse. As contributions move to individual investment accounts, less money goes into the traditional plan to help finance pensions promised to other workers. "There's no free lunch here," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "People say, 'We can reduce our costs here if we have a defined-contribution system.' Well, if you do this, you still haven't done anything about your unfunded liabilities.""
from RobS, 6:05 PM EST, 03/01/11, Government
ASC.PR.A Extraordinarily Abusive
"Readers will remember the recent proposal to extend term for PIC.PR.A which was eventually approved. I didn't think much of that plan either, given the distribution policy and the low level of asset coverage (which was nevertheless higher than is currently the case with ASC.PR.A), but the promoter, Mulvihill, acted with all the integrity one might wish: they provided that in the case of the term extension proceeding, there would be a special retraction right, effective on the date of the original maturity, whereby shareholders could bail out if they didn't like the prospects going forward. This resulted in a large retraction, which wound up improving the credit quality of the preferred shares significantly. This was well done: bravo Mulvihill! There is no such privilege being offered to holders of ASC.PR.A."
from NormR, 1:51 PM EST, 03/01/11, Dividends
Why Koch Industries Is Speaking Out
"Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That's well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property)."
from NormR, 1:48 PM EST, 03/01/11, Government
The Myth of Japan's 'Lost Decades'
"There is clearly a contradiction here, and after studying the facts on the ground in Tokyo for decades I find it hard to avoid the conclusion that the story of Japan's stagnation is a media myth. Certainly anyone who visits Japan these days is struck by the obvious affluence even among average citizens. The cars on the roads, for instance, are generally much larger and better equipped than in the 1980s (indeed state of the art navigation devices, for instance, are more or less standard on many models). Overseas vacation travel has more than doubled since the 1980s. The Japanese boast the world's most advanced cell phones, and the biggest and best high-definition television screens. Japan's already long life expectancy has increased by nearly two years. Its Internet connections are some of the world's fastest -- something like ten times faster on average than American speeds. True, not all of Japan's indicators are equally impressive. The Tokyo stock market, for instance, has never recovered from its 1990s slump. Neither has the real estate market. (In the latter case, however, there is a silver lining in a major boost to living standards, in that young home buyers now get far more space for their money. In any case the implosion since 1991 has merely restored some sanity to valuations that had previously become -- very temporarily -- outlandish)."
from NormR, 9:04 PM EST, 02/28/11, World
JPMorgan fund eyes 10% stake in Twitter
"The company has 253m unique users per month, up 85 per cent from a year ago, according to venture capital firm Kleiner Perkins Caufield and Byers. Internet market research firm eMarketer expects revenues to reach $150m this year. Kleiner Perkins invested $200m in Twitter in December at a $3.7bn valuation. The JPMorgan valuation of $4.5bn would mark a swift rise in value, and could aggravate concern about of a new tech bubble. Facebook is now worth up to $70bn on the secondary market, a price considered too rich for the JPMorgan fund, said people familiar with the plans. JPMorgan, Twitter, Skype, Gilt and LivingSocial all declined to comment."
from DanH, 12:45 PM EST, 02/28/11, Growth Investing
Sometimes a Great Notion
"One common thought in the equity world has been that a rotation of investor dollars toward shares of 'high-quality' companies should be imminent. This is a sane and sober idea, and one that generally hasn't worked in the past couple of years, when markets have been lifted by improving credit conditions, a snap-back in corporate profits and surging risk appetites. These drivers of market action almost always favor smaller, more volatile, more cyclical and less well-capitalized stocks, which have led this bull market."
from NormR, 2:04 PM EST, 02/27/11, Stocks
Negative fee fund
"Those performance fees have led to another distinguishing characteristic for two of Bridgeway's funds: Bridgeway Micro-Cap Limited has an expense ratio of zero, while the recently reopened Bridgeway Aggressive Investors 1 has a negative 0.51 percent expense ratio - it pays investors $5.10 for every $1,000 they have invested in it."
from NormR, 1:41 PM EST, 02/27/11, Funds
Berkshire Hathaway 2010
"Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential - a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War - remains alive and effective. We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America's best days lie ahead."
from NormR, 10:58 AM EST, 02/26/11, Buffett
Equity Risk Premiums: The 2011 Edition
"I used to think that equity risk premiums in developed markets were fairly stable numbers and that mean reversion (assuming that things move back to a normal or at least average level) was a safe assumption. That is.. until September 2008. I got a wake-up call between September 2008 and December 2008 about the dangers in this assumption as equity risk premiums in developed markets exploded.. by my estimate, the equity risk premium in the S&P 500 almost doubled in two months. I wrote a paper on equity risk premiums in the midst of that crisis in November 2008 and the response indicated that quite a few other people were just as concerned as I was about the lack of attention that practitioners paid to what the equity risk premium was and what it was measuring. Gratified by the response to that first attempt, I have returned to the well two times and done updates of the equity risk premium paper at the start of 2009 and 2010. Since we are into 2011, I just finished my latest update on equity risk premiums and you can get it here"
from DanH, -4:21 PM EST, 02/25/11, Academia
A small hedge fund manager's lament
"Running a small hedge fund, I would usually want to buy small caps on which I had done superior analysis. Alas, when I look at small caps - even medium caps I keep finding expensive, dodgy and well promoted stocks. Small caps are a land of shorts. The good stuff - and then the less good stuff left behind - has been picked over by numerous PE shops."
from NormR, 10:51 AM EST, 02/24/11, Markets
A bad habit continues
"The problem with public sector/private sector pay comparisons is that pay comes in two forms current and deferred (ie pensions). A pension promise from the government is a very valuable thing indeed some states have made it constitutionally protected. So, unlike the typical private sector employee who is now in a DC scheme, the public sector employee has certainty about his or her pension entitlement. If the equity market falters, the DC plan member will suffer the employer of the DB member will make up the shortfall. In effect, the employer has written the employee a put option on the market. How valuable is this option? We can make a judgment by looking at the Bank of England scheme. It avoids all equity risk by buying index-linked bonds to cover its pension liability. This costs it 55% of payroll in the current year (the ratio varies with the level of real yields). The average contribution into a DC scheme (employer and employee) is 10%, in both Britain and America. In a room full of actuaries last week, I asked whether this was a fair basis of pay comparsion and the answer was yes."
from RobS, -4:39 PM EST, 02/24/11, Government
Shiller: 20% lower for real estate
"Cleveland and Las Vegas joined perennially troubled Detroit in December in having home prices that fell below the level of January 2000. Both Cleveland and Las Vegas were areas overflowing with bad and fraudulent loans during the boom."
from NormR, 4:02 PM EST, 02/22/11, Real Estate
Why Investors Can't Get More Cash
"Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money? Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another."
from NormR, 10:23 AM EST, 02/20/11, Taxes
Tim McElvaine talk
"A rare talk from one of the nicest value investors in Canada."
from NormR, 3:37 PM EST, 02/16/11, Value Investing
Lewis on the financial crisis
"Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust. Amazingly, these ordinary Americans don't even appear to feel guilty for their actions. Like wild animals that have lost their fear of humans, they continue to wander down from the hills to rummage through our garbage cans for sustenance."
from NormR, 11:42 PM EST, 02/15/11, Fun
Economic Meltdown Looming
"Bob Rodriguez says the U.S. has seven months to implement significant budgetary reductions or face tipping point"
from NormR, 4:12 PM EST, 02/15/11, Funds
Berkshire's $1.2 billion selling spree
"In the you can't-have-too-much department, Berkshire Hathaway raised cash last year as it prepared for a rare change of the investing guard."
from NormR, 4:01 PM EST, 02/15/11, Buffett
Why Ten Million Dollar IPOs Matter
"Today only the largest of companies can go public, generally only those with over $500 million dollars of market capitalizations. In the 80s there were IPOs where the net proceeds were less than $900K."
from NormR, 4:00 PM EST, 02/15/11, Markets
Love the downgrade
"It would appear that as long as they spell your company's name right,upgrades and downgrades are both good news for your stock."
from NormR, 1:05 PM EST, 02/12/11, Brokers
From Pentagon, a Buy Rating on Contractors
"If the Pentagon wants the military industry to be healthy and profitable, it can pretty much ensure that outcome. Not being an industry insider, however, I found myself a little taken aback by Mr. Carter's "guidance." Monopsony or not, why should the Pentagon be talking up the stocks, even implicitly, of the companies it buys from? Why was Mr. Carter going out of his way to talk to investors and analysts? Didn't he have more important things to do? The answer, I eventually learned, has to do with something that happened a very long time ago, and goes under the category of "Be careful what you wish for." Let's just say that banking isn't the only industry where the government has allowed a handful of companies to become too big to fail."
from RobS, 10:48 AM EST, 02/12/11, Government
The Ominous Undertone of Rallies
"By chasing the potential for higher return in riskier assets, investors drive prices up. Under the classic definition of risk - how widely the returns deviate from the average - that alone doesn't make assets more dangerous. But by Mr. Marks's common-sense definition of risk - 'the likelihood of losing money' - rising prices are pure investment poison."
from NormR, 8:22 PM EST, 02/11/11, Markets
Augmented Dividends
"The authors find that "the widely documented decline in the predictive power of dividends for excess stock returns is due largely to the omission of alternative channels by which firms distribute and receive cash from shareholdlers." Additionally, while dividend yield has lost its predictive ability over time, the payout yield has remained a robust indicator for excess stock return."
from NormR, 8:13 PM EST, 02/11/11, Dividends
Rethinking Stocks for the Long Haul
"Put yourself in the shoes of an intrepid investor in 1900. Both the U.S. and Argentine equity markets looked extremely attractive. Yet the buy-and-hold investor would have pocketed a small fortune in U.S. equities and would have been essentially wiped out in Argentina over the course of the century. 'We don't know what the equity premium will be over the next 30 years,' says Pastor. 'And that uncertainty compounds with time.'"
from NormR, 7:25 PM EST, 02/11/11, Markets
Expectation Errors in Value/Glamour Strategies
"This paper uses financial statement analysis to identify expectation errors regarding future firm performance embedded in the prices of value and glamour firms. We contrast performance expectations implied by firms' value/glamour classification against a simple, financial statement analysis-based metric that differentiates improving versus deteriorating financial performance. We find that the value/glamour effect is concentrated among firms whose financial performance conflicts with implied expectations. Corroborating evidence of predictable expectation errors exists for future analyst forecast errors, forecast revisions, earnings announcement-window returns, and momentum reversals. Together, the results suggest that the value/glamour effect is an artifact of erroneous performance expectations that are predictable from financial statement analysis."
from NormR, 1:22 PM EST, 02/11/11, Academia
Government workers don't need unions
"Workers are most likely to get a cut that reflects the value of their contributions when they band together and bargain collectively. 'To each according to his or her individual bargaining power' is hardly a compelling principle of distributive justice, which is why institutions that equalise bargaining power, such as private-sector labor unions, make moral sense. The thing is, public-sector unions don't work like this. They aren't bargaining against capitalists for a fair cut of the cooperative surplus. They're bargaining against everybody who pays taxes and/or benefits from government spending."
from RobS, -4:41 PM EST, 02/10/11, Government
People play events into biases
"I'm a big believer in Jonathan Haidt's characterization of our brains as articulate confabulators, primarily engaged in rationalizing our prejudices. I have rarely witnessed someone change their mind on something important to them based on any one fact sure, disinterested people do, but not anyone who's invested several years on a subject. Last week's John Tierney's NYT article on academics highlights they are just as biased as the uneducated, even though they consider them paragons of rational, unbiased thought"
from NormR, 1:10 PM EST, 02/09/11, Behaviour
How Great Entrepreneurs Think
"Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible. That is not to say entrepreneurs don't have goals, only that those goals are broad and - like luggage - may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research."
from NormR, 1:09 PM EST, 02/09/11, Behaviour
Canada is 'a purely random success story': Shiller
"Robert Shiller, the Yale professor who correctly predicted the 1987 stock market collapse and the recent U.S. housing market meltdown, said Canada's robust financial health compared to other nations is largely due to a random run-up in oil prices in the midst of the global financial crisis. "It's a major export for Canada and it went to US$140 a barrel in 2008, right when Canada needed it," Prof. Shiller said in an interview Tuesday. Canada's economic output fell roughly 4.2% from its peak in 2007 to its trough in 2009 - even with the oil price surge, while the U.S. saw a near-identical decline. "It seems that if the country didn't have that boost from oil, it would have done worse than the United States," Prof. Shiller said."
from DanH, -3:19 PM EST, 02/09/11, Economy
Celebrating 75 Years Of Sloth
"Wharton professor Jeremy Siegel pointed out in his 2005 book, The Future for Investors, that the original S&P 500 stocks in 1950 outperformed the annually reconstituted index from 1950 through 2003. Interestingly, many of the largest stocks from the original S&P 500 Index are also in this fund's portfolio, including ATandT, ExxonMobil, and DuPont (DD). The fund's winning streak has continued since 2003, too, as it has beaten the S&P 500 Index by 2.5 and 1.5 percentage points annualized over the trailing five- and 10-year periods, respectively. The fund has benefited from the same dynamics that have powered the returns of the original S&P 500 constituents. In fact, the fund has returned an annualized 11.1% since 1970 (which is as far back as our database goes) versus 9% for the S&P 500. It has also beaten the 17 actively managed equity funds introduced in 1935 or earlier."
from NormR, 3:19 PM EST, 02/08/11, Indexing
Land of the free lunch
"In short, America is the ultimate example of survivorship bias. Go back to 1900 and you might have picked Argentina or Russia as emerging nations with the ability to rival the US but each proved to be a huge disappointment."
from NormR, 11:00 AM EST, 02/08/11, Markets
A License to Shampoo
"Amid calls for shrinking government, lawmakers across the country are vowing to cut regulations that crimp economic growth. President Barack Obama recently said it's time to root out laws that 'are just plain dumb.' Tell that to the cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country who are clamoring for more rules governing small businesses."
from NormR, 7:16 PM EST, 02/07/11, Government
Super Rich
"In both authors' works, it's difficult to find concrete business lessons. And perhaps that's the point. For example, writes Chopra: 'Your body is a constant projection of you in the world. Every cell eavesdrops on your thoughts.' The author views our metabolisms as chat rooms, with epidermal cells listening in to what's going on in the cranium. If you don't understand what he means, your foot can explain it to you."
from NormR, 6:51 PM EST, 02/07/11, Books
Hedging Bankers Skirt Efforts to Overhaul Pay
"Intent on fixing a banking system that contributed heavily to the recent financial crisis, lawmakers and regulators pushed Wall Street to overhaul its pay practices. Big banks responded by shifting more compensation into stock, a move intended to align employees' interests more closely with those of investors and discourage excessive risk-taking. But it turns out that executives have a way to get around those best-laid plans. Using complex investment transactions, they can limit the downside on their holdings, or even profit, as other shareholders are suffering."
from RobS, 10:35 AM EST, 02/06/11, Management
State Budget Bunk
"When Arizona claimed to be selling its government buildings, it was engaging in a far more deceptive kind of borrowing - a gimmick known as "tax-exempt certificates of participation" and even more preposterous than the Daily Show correspondent realized. There was no new owner in this so-called sale. Rather, the state floated more than $1 billion of notes, promising to repay bondholders with the "rent" that it would pay to lease the buildings. Since rent, not tax revenues, technically would repay the certificates, Arizona could borrow the money, even though it exceeded the state's constitutional debt limit. Yet Arizona will pay the rent on the buildings with tax revenues, so the impact on taxpayers is exactly the same as more borrowing would have been: in this case, $1.5 billion in future taxes."
from RobS, 4:21 PM EST, 02/04/11, Government
Bloomberg Seeks Overhaul of City's Pensions
"In trying to control soaring pension costs, Mr. Bloomberg is taking aim at retirement rules considered sacrosanct by the city's powerful municipal unions and their political allies."
from RobS, 3:56 PM EST, 02/04/11, Government
Neosho Capital Q4 2010 Commentary
"While free cash flow passes the logic test as the basis for analyzing an investment, does it pass the most important test of all: does it play a role in the creation of satisfactory returns? Without that, it is just another nice theory and we are in this business to grow your and our capital. Toward that end, we came across some work by Ned Davis Research that focuses on "factor attribution", in which 133 hypothetical single-factor hypothetical portfolios based on dividend yield, market beta, volatility, 26-week momentum, operating cash flow yield, credit spreads, etc. are created by buying the top 10% and shorting the bottom 10% of the stocks bearing or lacking these singular characteristics. Over the past 10 years, the factor producing the highest returns was operating cash flow yield (underlined below) which produced a 520 week return of 20.3%, with sales/price and market capitalization (liquidity and size) nipping at its heels at around 19% return for the period. We also note that momentum and riskseeking factors produced the lowest returns over the decade. Here is a summary of the list"
from DanH, 1:03 PM EST, 02/04/11, Value Investing
Nobody Gets Married Any More
"Urban teachers face an intractable problem, one that we cannot spend or even teach our way out of: teen pregnancy. This year, all of my favorite girls are pregnant, four in all, future unwed mothers every one. There will be no innovation in this quarter, no race to the top. Personal moral accountability is the electrified rail that no politician wants to touch."
from NormR, 6:31 PM EST, 02/03/11, Academia
Cracking the Scratch Lottery Code
""Just imagine if there were people who made a living off plundering the lottery," he says. "The first thing you'd want to do is avoid the losing or break-even tickets, which is why they're underreported. They're a waste of time. Instead, you'd want to buy only the tickets that made money. If there were people doing this, if there were people who could sort the winners from the losers, then what you'd see on the payout statistics is exactly what we see. This is what a plundered game looks like.""
from RobS, 7:50 PM EST, 02/02/11, Crime
Think twice
"Business schools have long sold the promise that, like an F1 driver zipping into the pits for fresh tyres, it just takes a short hiatus on an MBA programme and you will come roaring back into the career race primed to win. After all, it signals to companies that you were good enough to be accepted by a decent business school (so must be good enough for them) it plugs you into a network of fellow MBAs and, to a much lesser extent, there's the actual classroom education. Why not just pay the bill, sign here and reap the rewards? The problem is that these days it doesn't work like that. Rather, more and more students are finding the promise of business schools to be hollow. The return on investment on an MBA has gone the way of Greek public debt. If you have a decent job in your mid- to late- 20s, unless you have the backing of a corporate sponsor, leaving it to get an MBA is a higher risk than ever. If you are getting good business experience already, the best strategy is to keep on getting it, thereby making yourself ever more useful rather than groping for the evanescent brass rings of business school."
from NormR, 7:07 PM EST, 02/02/11, Academia
When Irish Eyes Are Crying
"First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country - from one another. After which their banks and government really screwed them. So where's the rage?"
from NormR, 7:03 PM EST, 02/02/11, World
Municipal Bankruptcy Means Big Sacrifices
"Workers, retirees and other 'unsecured creditors' claim the city owes them about $262 million. Under the new plan, these people could make as little as five cents on every dollar. For de Alba, the mechanic, his annual pay has dropped from just over $70,000 to about $60,000, he says. The city owes him about $18,000 for the compensation he's missed since the bankruptcy began, he says, but he predicts he'll get less than $1,800. Caballero, the union president, is similarly pessimistic."
from RobS, 8:07 PM EST, 01/31/11, Government
Cowen's Great Stagnation
"Cowen's way of thinking is rather common, that growth emanates from some limited resource, and like 'peak oil' goes through a natural cycle of growth and decline. The Physiocrats in the eighteenth century believed that the wealth of nations was derived solely from the value of things from soil like minerals and agriculture, all the rest - advertising, management, finance - just parasitic. Such thinking influenced Malthus's idea that we are all doomed by a finite amount of land, which will ultimately constrain our population via starvation. Later the labor theory of value tried to make labor the source of all wealth, where capital was disembodied labor. This too is mistaken, and while no one promotes these theories anymore, their intuition lives on."
from NormR, 4:11 PM EST, 01/31/11, Economics
The Hot Spotters
"Brenner wasn't all that interested in costs he was more interested in helping people who received bad health care. But in his experience the people with the highest medical costs - the people cycling in and out of the hospital - were usually the people receiving the worst care. "Emergency-room visits and hospital admissions should be considered failures of the health-care system until proven otherwise," he told me - failures of prevention and of timely, effective care. If he could find the people whose use of medical care was highest, he figured, he could do something to help them. If he helped them, he would also be lowering their health-care costs. And, if the stats approach to crime was right, targeting those with the highest health-care costs would help lower the entire city's health-care costs. His calculations revealed that just one per cent of the hundred thousand people who made use of Camden's medical facilities accounted for thirty per cent of its costs. That's only a thousand people - about half the size of a typical family physician's panel of patients."
from NormR, 2:26 PM EST, 01/31/11, Health
Follow the Cash
"'A company can transfer that free cash flow to shareholders even without sales growth. That's our theology!' jokes the former seminarian. Double-digit cash-flow yields look very attractive compared with 10-year Treasuries yielding roughly 3.5%."
from NormR, 11:01 AM EST, 01/30/11, Value Investing
How to Tax the Rich
"The president was too polite to mention it during his State of the Union speech on Tuesday, but here's a quick summary of the problem: The U.S. is broke. The hole is too big to plug with cost cutting or economic growth alone. Rich people have money. No one else does. Rich people have enough clout to block higher taxes on themselves, and they will. Likely outcome: Your next home will be the box that your laser printer came in. I hope that you kept it."
from NormR, 10:59 AM EST, 01/30/11, Fun
Why We Do What We Do
"A simple summary of behavioral economics - I've borrowed this one from the Guardian - is that it is the study of 'how people actually make decisions rather than how the classic economic models say they make them.' But this approach is now under attack, from Gerd Gigerenzer, a psychologist, and Nathan Berg, an economist, and they argue that behavioral economics is not nearly as realistic as its boosters claim. While it does study what decisions we make, the very last thing it does is study how we make them - and as a result it is even more wedded to silly accounts of the way human beings think than its neoclassical rival."
from NormR, 10:58 AM EST, 01/30/11, Behaviour
Lady Gaga and hedge fund managers
"Three decades ago, University of Chicago economist Sherwin Rosen set out to solve the riddle of why some people are paid so much more than the rest of us. He looked at the industry with the most extreme inequalities: the entertainment business. There are millions of starving artists in the world, like the singer at your local pub who can barely make rent. Yet Lady Gaga made an estimated $62 million last year. How come?"
from NormR, 9:57 PM EST, 01/29/11, Economics
The misunderstood side of value investing
"Warren Buffett, on the other hand, whom many consider a value investor, has modified, if not deserted, the value approach he once employed. At the extreme, value investing is, in Mr. Buffett's own words, like buying a three-puff cigar butt for the price of one puff, and selling it for two, leaving the remnant for the final holder. The cigar is merely a butt, intended for a one-time gain. This is how Mr. Buffett started investing, until his partner, Charlie Munger, convinced him to modify his approach. Instead of looking for more one-time gains, Mr. Buffet instead began looking for steady businesses that would keep growing, and buy them only when, once in a blue moon, they suffered non-terminal problems that made their stock temporarily cheap."
from NormR, 4:18 PM EST, 01/29/11, Value Investing
In debt to Grandpa
"Sometimes the financial system can appear like one of those Escher drawings in which water flows simultaneously uphill and downhill. Governments rescued banks from the threat of failure in 2008, but banks are also big buyers of government bonds - so much so that a sovereign default in Europe might cause a banking crisis. Who is supporting whom? The same question can be asked of pension funds."
from RobS, 11:52 AM EST, 01/29/11, Government
How to Make Trillions of Dollars
"You can make millions by selling a great product to people who need it, but you make billions and trillions by conditioning an entire nation of people to react to every inconvenience, every whim, and every passing desire or fear by buying something."
from RobS, 3:44 PM EST, 01/29/11, Behaviour
Lies, flame-grilled lies and statistics
"Burgernomics does support claims that Argentina's government is cooking the books. The gap between its average annual rate of burger inflation (19%) and its official rate (10%) is far bigger than in any other country. Its government deserves a good grilling."
from NormR, 10:21 AM EST, 01/28/11, World
Overstretched union
"US debt:  The budget shortfalls gripping many U.S. states have rattled the $3 trillion municipal bond market. Yet even with unfunded pensions added in, their debt burdens are dwarfed by those of the federal government. There are big structural differences, but the evidence suggests investors should worry less about munis and more about Treasuries."
from RobS, 8:58 PM EST, 01/27/11, Debt
Peter Cundill's last interview
"Reporter David Berman spoke with the legendary investor, who passed away this week, for the February issue of Report on Business magazine. Here is Mr. Cundill's last interview."
from NormR, 6:01 PM EST, 01/27/11, Value Investing
Peter Cundill passes away
"He was very anxious to provide some legacy of his investment genius which might be useful to others and this culminated in the production of a book, There's Always Something To Do - The Peter Cundill Investment Approach. To his immense delight the first copy was pressed into his hands in hospital two days before he died. It will be released at the end of February."
from NormR, 5:53 PM EST, 01/27/11, Value Investing
The Cost of Clout
"People in Chicago tend to write off clout and political corruption in Chicago with a shrug, as a unique or even amusing local affectation, or just part of the character of purely political life of the city, but one that doesn't fundamentally change its status as the "City That Works." But nothing could be further from the truth. Chicago's culture of clout is a key, perhaps the key, factor holding the city back economically."
from NormR, 5:18 PM EST, 01/27/11, Government
Illinois Plan for Pensions Questioned
"The Securities and Exchange Commission has said it has a special team devoted to investigating public pensions, and last year it brought its first case ever against a state, accusing New Jersey of securities fraud for claiming to have pension assets that did not really exist."
from RobS, 12:25 PM EST, 01/26/11, Government
The president as micromanager
"While watching the speech, I tweeted that 'Obama sounds remarkably similar to the CEOs I used to listen to on earnings calls: the ones with mediocre EPS and a failing business model.' This wasn't a crack at Obama, or Democrats it was a reaction to the content. And after watching the responses, the impression lingers--indeed, maybe it's strengthened. The nation is facing some really difficult problems, particularly on the fiscal front. There's no longer any way to put it off pretty soon, the government is going to have to start making some very hard choices about taxes and spending. No matter what it chooses, that probably means lower economic growth, angry voters, and some real loss on the part of whoever's ox is gored."
from NormR, 11:57 AM EST, 01/26/11, Management
How Public Unions Took Taxpayers Hostage
"Restraining the immense clout that government-employee unions have accumulated over the past half-century will be difficult, but not impossible. Civil rights for African-Americans and women was a fulfillment of the universalist American promise as expressed in the Declaration of Independence. Collective bargaining by public employees was not rooted in deep-seated American tradition. Instead, the decision to grant this privilege was a political decision designed to enhance the power of a pressure group whose interests, even many liberals assumed, would be at odds with those of the general public. Political decisions can be reversed."
from RobS, 9:36 PM EST, 01/24/11, Government
Don't enter the dragon
"Yet, because the railways offered - and sometimes delivered - the prospect of enormous wealth, the money kept flowing. Today, the same is true. China's boom is real enough, and so it's possible for investors in small Chinese stocks to believe that they're heeding Deng Xiaoping's famous admonition "To get rich is glorious." Unfortunately, many of them are just proving the truth of another famous adage: "There's a sucker born every minute." "
from RobS, 9:08 PM EST, 01/24/11, Stocks
Mr. Moneybags
"A flush Berkshire Hathaway is in its best shape ever and piling up cash so quickly that it could be sitting on close to $50 billion at its core insurance operation alone by year end, and might even begin paying a dividend. Berkshire's profit recovery, aided by some smart acquisitions and investments by CEO Warren Buffett -- notably its purchase of the Burlington Northern railroad -- has gone largely unrecognized on Wall Street, where Berkshire's Class A shares, now trading around $121,000, haven't budged in nearly a year."
from NormR, 1:13 PM EST, 01/23/11, Buffett
China is a bubble close to bursting
"The Mayfair hedge fund manager said he started work when he saw some news reports on China's "ghost towns". Last year Al Jazeera, the Middle Eastern television channel, aired a short report from Ordos Shi, a city in inner Mongolia built for one million people that is almost entirely empty. The report reveals empty streets, housing estates, shops and restaurants. The locals prefer the old town of Ordos and tell the cameras there's no need to move to the new city. According to Corriente, China has consumed just 65pc of the cement it has produced in five years, after exports. The country is outputting more steel than the world's next seven largest producers combined. It has 200m tons of excess capacity. In property, Corriente said it had found an excess of 3.3bn square meters of floor space in China - yet 200m square meters of new space is being constructed each year. Despite the vast population, the property is generally out of the price range for most. House prices are around 22 times disposable income in Beijing."
from NormR, 12:56 PM EST, 01/23/11, World
Hedge Fund Analyst Checklist
"Anyways, I was cleaning out some old files and came across these notes from the class and thought I would repost them as they are a wonderful guide for a young analyst on how to think about investing in stocks."
from RobS, 10:51 AM EST, 01/23/11, Value Investing
A wealth of notions
"Self-interest obviously isn't bad. Smith's most famous thought is that "it is not from the benevolence of butcher, the brewer or the baker that we expect our dinner but from their regard to their own interest." Self-interest is what makes a civilized and prosperous society work - but it only does so when tempered by competition. Self-interest that leads people to lobby for and achieve the privileges and monopolies that were the bread and butter of politics in Smith's day, and still are now, is inimical to improvement and progress."
from RobS, 10:15 AM EST, 01/23/11, Economy
A path to escape debt
"Policymakers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers."
from RobS, 10:34 AM EST, 01/22/11, Government
A continuing disgrace
"However, what is disgraceful is that savers cannot hedge this inflation risk. The government stopped the sale of index-linked national savings certificates last year. This was not because the government didn't need the money the budget deficit is still £150 billion. It can only be viewed as a deliberate attempt to punish savers by denying them the chance of a positive real return. And slamming savers is not in the country's long-term interest."
from RobS, 3:23 PM EST, 01/21/11, Thrift
Forensic Finance, Benford's Way
"One of the more curious statistical anomalies of the universe has turned out to have a range of practical applications in the world of finance. It also turns out to be one of the stranger laws underpinning the stock market, although figuring out why is a painful process. Above all, Benford's Law can be used to spot financial fraudsters because of a psychological quirk that means we humans are dead useless at pretending to be random. All of this comes from a law that was discovered by one man, explained by another and named after a third. Now that's random."
from NormR, 6:27 PM EST, 01/19/11, Accounting
Burton Malkiel interview
"FBN's Sandra Smith and 'Random Walk Down Wall Street' author Burton Malkiel on how active funds do compared with indexing."
from NormR, 3:35 PM EST, 01/19/11, Indexing
Why Do People Gamble?
"Thus, from the very beginning, utility theory was problematic. Solutions had a whack-a-mole tendency to rid one anomaly and create another. The basic problem is that 1) People pay to buy insurance. 2) People pay to gamble."
from NormR, 12:40 PM EST, 01/18/11, Behaviour
The Groupon Bubble
"The paper reports that Groupon, which turned down $6 billion from Google last month, is in talks with Wall Street for an IPO that Wall Street is pitching to investors valuing the company at between $15 billion and $20 billion. The NYT says the two-year-old Groupon "is pushing ahead with plans for its initial public offering," and I'm sure it is. I'd be pushing to cash in too before this bubble pops."
from RobS, 8:31 PM EST, 01/17/11, Stocks
Blaming the Rat
"Here's the problem in a nutshell: our mix of jobs has changed profoundly while our approach to incentives has not. As a consequence, we have employees who have lost motivation and faulty incentive programs that have introduced a raft of unintended consequences."
from NormR, 8:20 PM EST, 01/16/11, Behaviour
Don't Get Carried Away by the Market Rally
"Yes, it has been a sharp rise. And maybe Wall Street will go higher. But maybe it won't. No one really knows. Stock-market fever is one of your biggest enemies as an investor. Here are seven antidotes. Take with half a glass of water as needed."
from RobS, 10:19 AM EST, 01/16/11, Markets
Worthless Stocks from China
"Bird's involvement would evolve from irritation that a company could get away with making a claim that so obviously defies basic business logic to the conviction that many pieces of the Chinese miracle that trade in the U.S. are, in his words, 'flat-ass' frauds. And what started as a retiree looking into a company has turned into a dispute that has drawn in other shorts, the Securities and Exchange Commission, auditors, and, according to recent reports, the U.S. House Committee on Financial Services. It has also revealed significant flaws in U.S. markets and how they are regulated. Although the stocks trade on U.S. exchanges, and thus project a sense of having to play by American rules, the assets and the principals of many of the companies reside in China. The companies operate on their terms, leaving injured parties and the SEC powerless. Bird says the carnage is just beginning. 'The whole thing has no place to go but to blow up,' he says. 'That's a rational position for an investor to start with, that every one of these Chinese reverse mergers is a fraud.'"
from NormR, 1:35 AM EST, 01/16/11, Stocks
State of the unions
"This resentment is most evident in the backlash against public-sector workers (who now make up a majority of union members). A recent study by the economics professors Keith Bender and John Heywood found that, when you control for a host of variables, public employees are not actually paid more than their private-sector counterparts. But they do often enjoy good retirement schemes, and in states like Illinois and California politicians have agreed to hefty contracts with state employees and then underfunded the pension plans, leaving future taxpayers to pick up the bill. It's no wonder that people are annoyed"
from RobS, -4:02 PM EST, 01/14/11, Government
Putting monthly distributions to the test
"I don't make many bold predictions. But nearly a decade ago I did just that. I challenged the most popular monthly income mutual fund of the day, now known as IA Clarington Canadian Income. I stated that this balanced fund's 10% distribution rate at the time could not be sustained and would have to be cut. No recommendation has ever caused me such grief. I received angry phone calls and e-mails. But I turned out to be right. Fast forward to 2011. In today's Global and Mail I take readers through a process for testing whether an investment's monthly cash payout can continue longer-term. It's the same process I used to make my Clarington prediction in 2001. While Clarington and some other firms have adopted more flexible distribution policies, several funds continue to sport unsustainable cash payouts. And I use a popular big bank fund to illustrate our distribution sustainability test in today's article."
from DanH, 3:24 PM EST, 01/12/11, Funds
A Brief Visual History of U.S. Taxes
"Tax reform might be The Issue of 2011. Or, like most years, it might linger on the sidelines of the national debate, but never press its way into the limelight. Either way, the Senate Finance Committee is hearing the case for tax reform today -- and who better to hear from first than the head of the Joint Committee on Taxation, Congress' official oracle and arbiter of tax policy. You can download the full testimony here, but I wanted to pass along four easy charts from the presentation that explain some major developments in the tax code over the last 40 years. I don't want to say too much, as these charts speak for themselves."
from RobS, 10:23 PM EST, 01/11/11, Taxes
Is Law School a Losing Game?
"Based on the seething and regret you hear from some law school grads, more than a few wish that someone had been patronizing enough to say, "Oh no you don't." But it's often hard to convince students about the potential downside of law school, says Kimber A. Russell, a 37-year-old graduate of DePaul, who writes the Shilling Me Softly blog. "This idea of exceptionalism - I don't know if it's a thing with millennials, or what," she says, referring to the generation now in its 20s. "Even if you tell them the bottom has fallen out of the legal market, they're all convinced that none of the bad stuff will happen to them. It's a serious, life-altering decision, going to law school, and you're dealing with a lot of naïve students who have never had jobs, never paid real bills.""
from NormR, 12:23 PM EST, 01/10/11, Law
That guy who called the big one?
"How can someone with the insight to be so right about a major event be so wrong about so many other ones? According to a recent study, it's simple: The people who successfully predict extreme events, and are duly garlanded with accolades, big book sales, and lucrative speaking engagements, don't do so because their judgment is so sharp. They do it because it's so bad."
from NormR, 12:04 PM EST, 01/10/11, Behaviour
Dire States
""If something cannot go on forever, it will stop." States with a permanent mismatch between taxes and spending will not be able to squeak by on budget gimmicks and backdoor borrowing forever either they'll find a way to bring their budgets into balance, or they'll run out of money and default on their obligations. The path they choose will make a big difference in the future of the states, and of their citizens - and in the life of the nation as a whole."
from RobS, 11:22 AM EST, 01/08/11, Government
Disassembling, Reassembling Hoover Dam
"Systematically tearing down such a massive edifice will create at least 25,000 jobs over the next five years. And then reassembling it, using all the same pieces in the exact same configuration, will employ another 25,000 workers. America is back"
from RobS, 11:02 AM EST, 01/08/11, Fun
Government workers of the world unite!
"It would be a mistake to write off the public-sector unions. They are masters of diverting attention from strategic to tactical questions. Undoubtedly the unions will lose some of their privileges over the coming years the scale of the debt crisis makes this inevitable. But will governments have the courage to tackle the root causes of the problem (such as pensions) rather than dealing with secondary problems (such as wages)? And will they dare to tackle questions of power rather than just pay and perks? If they are to claim victory in the coming fight, they need not just to restore the public finances to health. They also need to breathe the spirit of innovation into Leviathan."
from RobS, 3:30 PM EST, 01/07/11, Government
The battle ahead
"The immediate battle will be over benefits, not pay. Here the issue is parity. Holidays are often absurdly generous, but the real issue is pensions. Too many state workers can retire in their mid-50s on close to full pay. America's states have as much as $5 trillion in unfunded pension liabilities. Historic liabilities have to be honoured (and properly accounted for, rather than hidden off the government's balance-sheet). But there is no excuse for continuing them."
from RobS, 3:23 PM EST, 01/07/11, Government
Penny Stock Risk Premium Has Wrong Sign
"In case you didn't know, penny stocks are lousy investments high risk, negative return."
from NormR, 12:56 AM EST, 01/07/11, Markets
Canadians Spend Like Crazy Americans
"Spendthrift Canada? Many Americans would find that hard to believe. Throughout the subprime crisis that rocked the U.S., Canada's economy and banking industry remained rock solid. Yet in mid-December, the Canadian government released statistics showing that the indebtedness of Canadians surpassed U.S. levels for the first time in 12 years. Household debt as a portion of disposable income was 148 percent in the third quarter, according to government agency Statistics Canada, exceeding the U.S. level of 147 percent."
from NormR, 1:45 PM EST, 01/06/11, Debt
Goldman Pitch vs Nigerian Scam
"Of course, unlike Nigerian email scams, the solicitation came from a Goldman money manager rather than a random stranger. And Goldman isn't offering a scam but an investment opportunity so hot that the investment bank had to stop taking orders, as our colleagues reported this afternoon. But we couldn't help note some similar language used by Goldman and purported Nigerian princes. Read and compare"
from NormR, 1:38 PM EST, 01/06/11, Fun
Buffett on Berkshire, Succession and America
"Finally, he talked a little about why he was optimistic about the future of the United States: "We had four million people here in 1790," he tells Vanity Fair. "We're not more intelligent than people in China, which then had 290 million people, or Europe, which had 50 million. We didn't work harder, we didn't have a better climate, and we didn't have better resources. But we definitely had a system that unleashes potential. This system works. Since then, we've been through at least 15 recessions, a civil war, a Great Depression. ... All of these things happen. But this country has optimized human potential, and it's not over yet."
from RobS, 2:23 PM EST, 01/05/11, Buffett
Goldman's Mutual Friend
"Can Goldman really expect to squeeze more water from this stone? Sadly, yes. To understand why, we have to go to the heart of the many problems in the way the Wall Street cartel does business, despite the promised reforms of the Dodd-Frank law. With Goldman's investment in Facebook, we have a front-row seat to the process by which Wall Street creates and inflates financial bubbles."
from RobS, 2:17 PM EST, 01/05/11, Stocks
Financial Crisis Q and A
"The panic in 2007 was not observed by anyone other than those trading or otherwise involved in the capital markets because the repo market does not involve regular people, but firms and institutional investors. So, the panic in 2007 was not like the previous panics in American history (like the Panic of 1907, shown below, or that of 1837, 1857, 1873 and so on) in that it was not a mass run on banks by individual depositors, but instead was a run by firms and institutional investors on financial firms. The fact that the run was not observed by regulators, politicians, the media, or ordinary Americans has made the events particularly hard to understand. It has opened the door to spurious, superficial, and politically expedient "explanations" and demagoguery."
from DanH, 11:27 AM EST, 01/05/11, Debt
When States Default
"Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts."
from NormR, 6:43 PM EST, 01/04/11, Government
Value Averaging and Automated Bias
"Value averaging is a formula investment strategy which can be shown to achieve a lower average cost and higher IRR than alternative strategies. However, in contrast to previous studies, this paper shows that this does not lead to higher expected profits. Instead an "averaging down" effect systematically biases the IRR up and the average purchase cost down. The same bias applies to a wide class of investment strategies (including dollar cost averaging) where the amount invested in each period is negatively correlated with the return made to date."
from NormR, 3:12 PM EST, 01/04/11, Academia
Hindsight Bias in Dollar-Weighted Returns
"Dollar-weighted returns have been used as evidence that consistently bad timing drags investor returns significantly below the buy-and-hold market return, and that consequently the equity risk premium is overstated. In this paper we show that this approach is affected by hindsight bias in the dollar-weighted return. We present an alternative method which quantifies and removes this effect. The results show that bad timing has actually had little impact on investor returns from mainstream US equities. We conclude that previous estimates of the equity risk premium remain valid."
from NormR, 2:51 PM EST, 01/04/11, Academia
Dollar-Weighted Returns to Stock Investors
"Dichev (2007, American Economic Review), in an influential paper, examines the gap between the performance of major stock markets and the dollar-weighted performance of investors in these markets. He finds a significant gap of 1.3 percent per year for NYSE/AMEX and 1.5 percent internationally. We question these results. The NYSE/AMEX performance gap is actually negative in the last two thirds of Dichev's 1926-2002 period, while his international results are influenced by a dramatic increase in Datastream's coverage. When, instead of Datastream, we use a comprehensive share price database, the U.K. performance gap changes from 1.1 to -1.3 percent. In short, Dichev's findings are not robust."
from NormR, 2:50 PM EST, 01/04/11, Academia
Laws to Curb Labor Unions
"Of all the new governors, John Kasich, Republican of Ohio, appears to be planning the most comprehensive assault against unions. He is proposing to take away the right of 14,000 state-financed child care and home care workers to unionize. He also wants to ban strikes by teachers, much the way some states bar strikes by the police and firefighters. "If they want to strike, they should be fired," Mr. Kasich said in a speech. "They've got good jobs, they've got high pay, they get good benefits, a great retirement. What are they striking for?""
from RobS, 10:47 AM EST, 01/04/11, Government
Facebook's quasi-IPO
"One of my concerns around investments in this special purpose entity centres on investor behaviour. All too often, investors are wooed by a company's 'story', often at the expense of even basic financial due diligence and valuation. In fact, my conversations with many retail investors over the years has led me to believe that most investors buying stocks don't know how to value a business. And I fear that investments in Facebook, via Goldman's SPE, could end badly. Failing more details of Goldman's SPE, the deal appears to lock in a company value of $50 billion. I found a few sources that quoting Facebook's 2010 revenue at $2 billion (a figure likely to have originated from the firm itself). Assuming that's true, this latest round of financing implies a price-to-sales ratio of 25 times. This level of valuation brings back memories of figures I thought I'd never see again."
from DanH, 10:16 AM EST, 01/04/11, Growth Investing
Public Workers Face Outrage
"And a growing cadre of political leaders and municipal finance experts argue that much of the edifice of municipal and state finance is jury-rigged and, without new revenue, perhaps unsustainable. Too many political leaders, they argue, acted too irresponsibly, failing to either raise taxes or cut spending. A brutal reckoning awaits, they say."
from RobS, 3:57 PM EST, 01/03/11, Government
Debt forgetfulness
"There was plenty of Schadenfreude when, in late 2009, Dubai was forced to admit it had trouble paying its debts. The brash emirate's Gulf neighbours quietly hoped to tempt bankers and business people to their rival financial hubs. Now, irritatingly for many, Dubai is showing signs of recovery. A $10 billion bail-out by Abu Dhabi staved off the threat of a big default. The emirate returned to the bond markets in September. Although the issue was unrated, it was heavily oversubscribed."
from DanH, 5:48 PM EST, 01/02/11, Debt
Why a Budget Is Like a Diet
"As a species, humans are notoriously poor at following through with their plans. Sticking to a budget - a dirty word even among many financial planners, who prefer the more euphemistic 'spending plan' - feels too much like dieting. And we often fail at both for the same reasons: too much focus on the restrictions, not enough on fun. So it's not surprising when people end up bingeing later, more than making up for dollars not spent or calories not consumed."
from NormR, 5:34 PM EST, 01/02/11, Thrift
The downfall
"Next time you go to an AGM, if you think there is cause for concern, ask the CEO during the QandA if management could leave the room for 15 minutes because you have a few questions to ask the independent directors concerning executive compensation, and point out that it would not be appropriate for management to be present for such a discussion. Don't be afraid. The meeting is for you, the shareholder. If the CEO gets defensive, that might be taken as a bad sign. If the independent directors get defensive, that could be taken as a really bad sign, because it would suggest that, in their hearts, they don't represent shareholders at all."
from NormR, 3:15 PM EST, 01/02/11, Management
It's When You Start And Finish
"But historical averages can vary widely depending on their starting and ending points. For example, averages that start before the 1929 crash are substantially different from those that start after it, and Mr. Easterling felt that choosing a single date was arbitrary. In response, he created the chart above, which shows annualized returns based on thousands of possible combinations of market entry and exit."
from NormR, 3:09 PM EST, 01/02/11, Markets
The virtue of simplicity
""Complexity isn't necessarily a good thing when it comes to picking stocks," he says. "The real challenge is sticking to the stocks you like and not getting scared out of them if they don't work out immediately.""
from RobS, 1:46 PM EST, 01/01/11, Value Investing
The jobs crisis
"Why have new jobs been so hard to come by? One view blames cyclical economic factors: at times when everyone is cautious about spending, companies are slow to expand capacity and take on more workers. But another, more skeptical account has emerged, which argues that a big part of the problem is a mismatch between the jobs that are available and the skills that people have. According to this view, many of the jobs that existed before the recession (in home building, for example) are gone for good, and the people who held those jobs don't have the skills needed to work in other fields. A big chunk of current unemployment, the argument goes, is therefore structural, not cyclical: resurgent demand won't make it go away. Though this may sound like an academic argument, its consequences are all too real. If the problem is a lack of demand, policies that boost demand - fiscal stimulus, aggressive monetary policy - will help. But if unemployment is mainly structural there's little we can do about it: we just need to wait for the market to sort things out, which is going to take a while."
from RobS, 7:17 PM EST, 12/29/10, Economy
Have You Ever Tried to Sell a Diamond?
"The diamond invention is far more than a monopoly for fixing diamond prices it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- 'forever' in the sense that they should never be resold."
from RobS, 6:50 PM EST, 12/29/10, Economics
The Truth Wears Off
"Although many scientific ideas generate conflicting results and suffer from falling effect sizes, they continue to get cited in the textbooks and drive standard medical practice. Why? Because these ideas seem true. Because they make sense. Because we can't bear to let them go. And this is why the decline effect is so troubling. Not because it reveals the human fallibility of science, in which data are tweaked and beliefs shape perceptions. (Such shortcomings aren't surprising, at least for scientists.) And not because it reveals that many of our most exciting theories are fleeting fads and will soon be rejected. (That idea has been around since Thomas Kuhn.) The decline effect is troubling because it reminds us how difficult it is to prove anything. We like to pretend that our experiments define the truth for us. But that's often not the case. Just because an idea is true doesn't mean it can be proved. And just because an idea can be proved doesn't mean it's true."
from NormR, 11:59 AM EST, 12/29/10, Academia
Why don't Chinese spend more money?
"If anyone on the planet can afford to head down to the neighborhood mall and indulge in a shopping spree, you'd think it would be the Chinese. After all, they live in an economy that routinely posts growth rates of 9% or higher, resulting in surging incomes and boundless job opportunities. While much of the world experienced GDP contractions and dramatic spikes in unemployment during the Great Recession, China, supported by massive stimulus programs, barely missed a beat. In theory, as income increases, and the prospects for future earnings become brighter, families should be more willing to postpone savings and spend now. But in China, just the opposite is happening"
from NormR, 11:45 PM EST, 12/27/10, World
Dogs could have their day in 2011
"Michael O'Higgins is the first to admit that the Dogs of the Dow strategy has fallen on hard times as a stock-picking technique. "I'd say it's very unpopular right now," he said. "In the investment world, if something hasn't worked for a year or two, they damn it.""
from NormR, 11:32 PM EST, 12/27/10, Dividends
The disposable academic
"There is an oversupply of PhDs. Although a doctorate is designed as training for a job in academia, the number of PhD positions is unrelated to the number of job openings. Meanwhile, business leaders complain about shortages of high-level skills, suggesting PhDs are not teaching the right things. The fiercest critics compare research doctorates to Ponzi or pyramid schemes."
from NormR, 11:01 AM EST, 12/26/10, Academia
Alabama Town's Failed Pension Is a Warning
"The situation in Prichard is extremely unusual - the city has sought bankruptcy protection twice - but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow."
from RobS, -5:45 PM EST, 12/23/10, Government
Computers That Trade on the News
"Math-loving traders are using powerful computers to speed-read news reports, editorials, company Web sites, blog posts and even Twitter messages - and then letting the machines decide what it all means for the markets."
from RobS, -5:43 PM EST, 12/23/10, Brokers
Bargain Junkies Beating Retailers
"'I wonder why they waste money on advertising,' she muses. 'We'll buy whatever they want us to buy - as long as they pay us to buy it.'"
from NormR, 10:26 PM EST, 12/22/10, Thrift
Bank Leverage Limits
"Crises are often compared to drinking binges, where excessive exuberance is followed by hangovers. Following that analogy, if you try to say, 'we don't want people drinking to excess, so we will stop everyone at 6 drinks', well then, they will switch from beer to wine, whiskey, or grain alcohol. But the drinking problem is potentially soluble because you can measure alcohol, and say allow people one 12 ounce beer, one 5 ounce glass of wine, etc. Basically, the key unit is 'ethanol, which has measurable properties. In contrast, we don't know what 'risk' is. Beta? Volatility? Skew? Get back to me on that. You can't regulate what you can't define."
from NormR, 11:41 AM EST, 12/22/10, Behaviour
Break-Ins by Banks
"When Mimi Ash arrived at her mountain chalet here for a weekend ski trip, she discovered that someone had broken into the home and changed the locks. When she finally got into the house, it was empty. All of her possessions were gone: furniture, her son's ski medals, winter clothes and family photos. Also missing was a wooden box, its top inscribed with the words "Together Forever," that contained the ashes of her late husband, Robert. The culprit, Ms. Ash soon learned, was not a burglar but her bank."
from NormR, 11:28 AM EST, 12/22/10, Real Estate
Don't forget bonds
"There is an interesting dichotomy at play today in retail investment circles. Individual (i.e. retail) investors are clamouring for bonds and bond funds since the wounds from the 2007-09 bear market remain fresh while bonds have been a haven. Financial advisors - already an equity oriented contingent - are increasingly buying the industry's pitch to ditch bonds in favour of equities. But some context is needed before making any big shifts. The industry argument goes something like this. Dividend yields on stocks are now about the same as or more than the yield to maturity on bonds. Rates are bound to rise as the economy regains more solid footing, which will push bond prices down. Accordingly, buy stocks since they're the better relative value and likely to be superior long-term performers. This is an intuitive argument but there are good reasons to step back for a moment before jumping head first into stocks."
from DanH, 10:25 PM EST, 12/21/10, Bonds
Day of Reckoning
"60 Minutes recently did a short program on the looming municipal bond problems, with a focus on Illinois and New Jersey, plus an interview with Meredith Whitney..."
from NormR, 4:16 PM EST, 12/20/10, Government
Coming in from the cold
"The consoling thought for Ireland's put-upon taxpayers has been "at least we're not Iceland", whose outsize banks failed spectacularly in 2008. But that comfort is fading. Evidence of economic recovery in Iceland means the Irish can no longer persuade themselves that things are worse elsewhere."
from NormR, 6:49 PM EST, 12/19/10, World
Active Share
"Active share can have a direct influence on returns. Looking at U.S. stock fund performance in the 20 years ending 2009, Prof. Petajisto found that the most active stock pickers beat their benchmarks by 1.26 percentage points annually after fees. On average, funds with lower active share didn't beat their benchmarks."
from NormR, 6:44 PM EST, 12/19/10, Funds
Could green-energy contracts be reversed?
"That doctrine, to date, has been applied chiefly in undemocratic settings, where tyrants callously rack up debts that a hostage citizenry is then expected to repay. It may soon be applied more broadly in democratic states where elected leaders fail in their fiduciary duties, wrongly saddling current taxpayers as well as their children with dubious obligations that do not benefit them, and that they didn't request."
from RobS, 11:51 AM EST, 12/19/10, Government
Toronto a city of socioeconomic extremes
"Toronto is becoming a city of stark economic extremes as its middle class is hollowed out and replaced by a bipolar city of the rich and poor - one whose lines are drawn neighbourhood by neighbourhood."
from NormR, 5:40 PM EST, 12/16/10, World
Accounting for Leverage
"This paper lays out a decomposition of book-to-price (B/P) that articulates precisely how B/P 'absorbs' leverage. The B/P ratio can be decomposed into an enterprise book-to-price (that pertains to operations and potentially reflects operating risk) and a leverage component (that reflects financing risk). The empirical analysis shows that the enterprise book-to-price ratio is positively related to subsequent stock returns but, conditional upon the enterprise book-to-price, the leverage component of B/P is negatively associated with future stock returns. Further, both enterprise book-to-price and leverage explain returns over those associated with Fama and French nominated factors - including the book-to-price factor - albeit negatively so for leverage. The seemingly perverse finding with respect to the leverage component of B/P survives under controls for size, estimated beta, return volatility, momentum, and default risk."
from NormR, 5:13 PM EST, 12/16/10, Academia
BoC December 2010
"The Bank of Canada has released the December 2010 Financial System Review which includes reports on: The Countercyclical Bank Capital Buffer: Insights for Canada, Strengthening the Infrastructure of Over-the-Counter Derivatives Markets, Central Counterparties and Systemic Risk, Contingent Capital and Bail-In Debt: Tools for Bank Resolution"
from NormR, 10:27 PM EST, 12/14/10, Markets
One nation, under too many laws
"Once a law is in place in the United States, it's almost impossible to dislodge. Our political class assumes that, after a law is forged in the crucible of democracy, it should be honored as if it's one of the Ten Commandments - except it's more like one of 10 million."
from NormR, 2:38 PM EST, 12/13/10, Law
Household debt ratio hits record
"Household debt loads are getting heavier. The ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter from 143.4 per cent in the prior quarter, Statistics Canada said Monday. Much of the reason stemmed from a 1.5-per-cent drop in disposable income."
from NormR, 1:35 PM EST, 12/13/10, Debt
Web Focus Helps Revitalize The Atlantic
"How did a 153-year-old magazine - one that first published the "Battle Hymn of the Republic" and gave voice to the abolitionist and transcendentalist movements - reinvent itself for the 21st century? By pretending it was a Silicon Valley start-up that needed to kill itself to survive."
from NormR, 1:24 PM EST, 12/13/10, Management
Who's Checking Your Channel?
"But another wrinkle has equity research analysts on red alert. Regulators are now thought to be probing whether an analyst practice commonly known as "channel checking" constitutes illegal insider trading. If so, the public companies whose information is in play could soon be pulled into the whirlwind."
from RobS, 5:16 PM EST, 12/12/10, Law
A Secretive Banking Elite Rules Derivatives
"On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable - and controversial - fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential."
from RobS, 2:31 PM EST, 12/12/10, Derivatives
The 10 Mistakes Investors Most Commonly Make
"In an interview with DailyFinance, Statman, a professor of finance at Santa Clara University in California, shared his top 10 errors that trip up average investors"
from RobS, 1:49 PM EST, 12/11/10, Behaviour
Accounting for Public Pensions
"A generation ago, when Ronald Reagan was president, the accounting rule makers forced American companies to come clean on the cost of the pension plans they were promising to employees. That decision, perhaps more than any other, heralded the eventual demise of defined-benefit pensions for employees of American companies. Now something very similar may be in store for public sector employees..."
from RobS, 12:11 PM EST, 12/11/10, Government
U.S. Arrests Online Seller Who Scared Customers
"This article is a follow-up to the 11/28/10 12:10 PM post 'A Bully Finds a Pulpit on the Web' .... 'Federal law enforcement agents on Monday arrested a Brooklyn Internet merchant who mistreated customers because he thought their online complaints raised the profile of his business in Google searches. '"
from RobS, 11:17 AM EST, 12/08/10, Crime
Are complex models the answer?
"To those who believe that complex models with more variables are the answer to uncertainty, my response is a paper by Ed Lorenz in 1972, entitled Predictability: Does the flap of a butterfly's wing in Brazil set off a tornado in Texas?, credited with creating an entire discipline: chaos theory. In the paper, Lorenz noted that very small changes in the initial conditions of a complex models created very large effects on the final forecasted values. Lorenz, a meteorologist, came to this recognition by accident. One day in 1961, Lorenz inputted a number into a weather prediction model he entered 0.506 as the input instead of 0.506127, expecting little or no change in the output from the model. What he found instead was a dramatic shift in the output, giving rise to a Eureka moment and the butterfly effect."
from DanH, 3:53 PM EST, 12/08/10, Markets
China's credit bubble
"Experts argue heatedly over whether or not China has managed to outdo America's subprime bubble, or even match the Tokyo frenzy of late 1980s. The IMF straddles the two. It concluded in a report last week that there was no nationwide bubble but that home prices in Shenzen, Shanghai, Beijing, and Nanjing seem 'increasingly disconnected from fundamentals'. Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China's eastern cities has risen by over 200pc since 2004 The IMF said land sales make up 30pc of local government revenue in Beijing. This has echoes of Ireland where 'fair weather' property taxes disguised the erosion of state finances."
from NormR, 2:59 PM EST, 12/07/10, World
200 Countries, 200 Years, 4 Minutes
"Hans Rosling's famous lectures combine enormous quantities of public data with a sport's commentator's style to reveal the story of the world's past, present and future development. Now he explores stats in a way he has never done before - using augmented reality animation. In this spectacular section of 'The Joy of Stats' he tells the story of the world in 200 countries over 200 years using 120,000 numbers - in just four minutes. Plotting life expectancy against income for every country since 1810, Hans shows how the world we live in is radically different from the world most of us imagine."
from NormR, 12:08 AM EST, 12/05/10, World
The 25-Year Foreclosure
"Patsy Campbell could tell you a thing or two about fighting foreclosure. She's been fighting hers for 25 years. The 71-year-old retired insurance saleswoman has been living in her house, a two-story on a half acre in a tidy middle-class neighborhood here in central Florida, since 1978. The last time she made a mortgage payment was October 1985."
from NormR, 12:06 AM EST, 12/05/10, Real Estate
Sold to you ...
"If I were in his shoes, I know what I'd be screaming at the top of my lungs if Sergey Brin came calling: sold to you ... (warning: some saucy language)"
from NormR, 4:14 PM EST, 12/04/10, Stocks
A fund for the fee-conscious investor
"Three of its employees have supplied their owns desks from home. When its people do road shows for investment advisers at hotel conference rooms, they collect up all the pens and pads of paper at the end of the day to use back at the office. The marketing material? Black and white. Flights? Economy. [Disclosure - Article contributor indirectly owns EdgePoint shares via his investment in Cymbria (CYB:TSX)]"
from RobS, 10:47 AM EST, 12/03/10, Funds
Looking to invest in a back-tested fund? Don't
"If you are approached by a fund touting a back-tested strategy, here's my advice - run the other way."
from RobS, 10:41 AM EST, 12/03/10, Funds
Prem Watsa sees commodity bubble
"Never mind the current hype over commodities: Prem Watsa and his team at Fairfax aren't convinced that resources and agricultural goods will continue to skyrocket. "Anything that everybody thinks is going to happen worries us," Mr. Watsa said in an interview. "The excesses get built up. Recessions take them out.""
from NormR, 10:43 PM EST, 12/02/10, Value Investing
It's Not Rocket Science
"We've compiled four years of Tom's articles and blogs into a new book titled It's Not Rocket Science: Plain-English Advice for Managing Your Investments. The pieces are short narratives that reinforce some of the basic, yet most important, principles of investing."
from NormR, 12:26 AM EST, 12/02/10, Books
Securities Class Actions Punish Shareholders
"It's a belief many law-school graduates cling to fiercely, in the face of all contrary evidence: That the tort system is a mechanism for discovering the truth, disciplining wrongdoers, and compensating victims for their losses. A new study in the Financial Analysts Journal casts serious doubt on the premise, at least when it comes to shareholder class actions. In most cases, the authors found, the litigation mainly serves to punish shareholders who have already suffered from a downturn in their stock. Only suits targeting illegal insider trading, and to a lesser extent, accounting fraud were associated with subsequent higher long-term returns."
from NormR, 12:22 AM EST, 12/02/10, Law
A Bully Finds a Pulpit on the Web
"Which means the owner of ... might be more than just a combustible bully with a mean streak and a potty mouth. He might also be a pioneer of a new brand of anti-salesmanship - utterly noxious retail - that is facilitated by the quirks and shortcomings of Internet commerce and that tramples long-cherished traditions of customer service, like deference and charm."
from NormR, 12:09 PM EST, 11/28/10, Behaviour
Vancouver real estate bubble?
"UBC geographer David Ley has attempted to address the question of "Who's buying these places?" in a different way, checking sales data for Vancouver neighbourhoods against variables like interest rates, unemployment levels and house construction - none of which correlated well. Instead, the strongest indicators of price movement were related to international investment and immigration. The arrival of other Canadians from elsewhere in the country actually dampened prices. The same effect showed up when Ley widened his lens to Greater Vancouver: The highest values occurred in areas with high immigrant populations and a predominant Chinese ethnicity. So Vancouver may be the first North American city where the phrase "there goes the neighbourhood" should be uttered when a Caucasian moves in next door."
from NormR, 6:31 PM EST, 11/27/10, Real Estate
Looking for a bank stock? Pick a loser
"There is a new contrarian strategy for investors who want to swing for the fences when it comes to the Big Six Canadian banks. Forget about buying shares of the best bank. At the end of every year, invest in the one with the shares that have had the worst performance over the previous 12 months."
from NormR, 3:20 PM EST, 11/27/10, Stocks
Why Black Friday Is a Trap
"Sure, you might just snag a cheap TV - if you stand in line for a few hours, sprint down the aisles and karate-chop some of your competing shoppers. But for most people, doing your Christmas or Hanukkah gift shopping on this day is probably going to be a bad move. You have a much better chance of getting good deals across the board if you just wait. Why?"
from NormR, 3:11 PM EST, 11/27/10, Markets
Why work doesn't happen at work
"Jason Fried has a radical theory of working: that the office isn't a good place to do it. At TEDxMidwest, he lays out the main problems (call them the MandMs) and offers three suggestions to make work work."
from NormR, 3:09 PM EST, 11/27/10, Management
Evan Davis meets Warren Buffett
"Warren Buffett is the greatest investor of all time. His decisions about buying shares and companies have beaten the stock market year after year and made him the richest person in the world - thought to be worth 37 billion dollars. Yet Buffett lives modestly in his native Omaha, in America's mid-West, and runs his 150 billion dollar business with a staff of just twenty. Evan Davis meets him to find out about his unique investment strategy and his eccentric lifestyle. He talks to Buffett's family, friends and colleagues about the man they call the Sage of Omaha, and Buffett's friend Bill Gates praises his philosophy of life. As the greed of the super-wealthy is widely criticised in the current financial crisis, Davis asks whether Warren Buffett is the acceptable face of the filthy rich"
from NormR, 1:54 PM EST, 11/27/10, Buffett
Programming our lives away
"Increasingly, algorithms are used to determine whether we can get access to credit, insurance and government services. They are posing a challenge to human decision-making in the arts. They are being used by prospective employers to decide if we should be hired. They can determine whether your online business will succeed or fail, and they have revolutionized the world of high finance."
from NormR, 1:26 PM EST, 11/27/10, Behaviour
Neosho Capital Q3-10 commentary
"When asked how he had weathered the 2008/9 financial meltdown, Markowitz said he had been moderately liquid going into those years, thanks to having sold off some of his 20-odd ETFs and some of his Kraft holdings. Thinking that his own use of MPT, CAPM, Monte Carlo simulations, etc. formulas, had contributed to his decision to reduce his allocation to securities in the run-up to the '08/'09 meltdown, we were surprised when Markowitz confessed, somewhat sheepishly, that it was a phone call with his friend, "Steve", a hedge fund manager, who advised him to sell off a significant enough portion of his holdings prior to the panic that started in September of 2008. Given this admission, we wonder if a further updating of the MPT models is needed to reflect this invaluable step: Call Steve. The trick will be finding a way to put this extra step into algorithmic form."
from DanH, 8:49 PM EST, 11/25/10, Value Investing
Happy Travels
"If you get stopped by security, and they are acting inappropriately ..."
from NormR, 10:39 PM EST, 11/23/10, Fun
Why the housing bulls are wrong
"Hedge fund manager Bill Ackman is the latest prominent investor to jump on the housing bandwagon. But here are four reasons by housing is still not a good investment."
from NormR, 9:27 PM EST, 11/22/10, Real Estate
Does your birthday matter?
"Gladwell got it wrong because he looked at Major Junior (CHL) teams, like the Medicine Hat Tigers and the Vancouver Giants. At 15 and 16, when players are drafted into Major Junior, players born in the first quarter of the year enjoy a size advantage, so CHL rosters are filled with early-born players. Yet making it into the NHL requires such extraordinary talent that those with the necessary skills will make it onto a Junior roster, even if they are born in December."
from NormR, 9:07 PM EST, 11/22/10, Idle
Did VenGrowth boards cast a wide-enough net?
"Covington quickly improved its offer only after GrowthWorks entered the fray, promising a sweeter bid. Among other things, GrowthWorks committed to directly paying $5 million of the more than $28 million in termination and other lump sum payments that will be triggered under the Covington deal. On November 19, Covington stepped up and announced it would also absorb $5 million of the termination fees. I can't help but wonder, however, what kind of deal VenGrowth funds' boards could have negotiated if they actually invited all interested parties to the table. Purposely excluding a firm that is willing, able and interested in doing a deal seems inconsistent with the boards' responsibility to make reasonable effort to maximize shareholder value."
from DanH, 8:21 PM EST, 11/21/10, Funds
Life and investing after Buffett
"So it may be time to start taking a look at Berkshire substitutes. While no company is a Berkshire clone, a couple of U.S.-based holding companies offer a similar mix of experienced management, financial heft and the assurance that your money is being overseen by value-oriented investors who have much of their money riding along with yours."
from NormR, 3:17 PM EST, 11/21/10, Value Investing
Stocks Acting Like Commodities
"In the past few years, many investors have concluded that commodities like oil, corn and gold offer independent returns that can diversify away the risks of stocks. But the correlations between stocks and commodities - the extent to which their prices move together - are in many cases the highest they have been in nearly 30 years."
from NormR, 3:14 PM EST, 11/21/10, Markets
Speak softly and carry a big chainsaw
"Mr Obama badly needs to show that he can still lead on domestic policy. He should start by cajoling Congress into an agreement to tackle America's ominous fiscal arithmetic. Conventional wisdom says such an agreement is impossible: the problem is too big, the politics too difficult. But it is wrong to suppose that the deficit is unfixable, as two proposals for fixing it have shown this month. And even the politics may not be totally intractable."
from NormR, 3:04 PM EST, 11/21/10, Government
Epilepsy's Big, Fat Miracle
"The idea of food as medicine has been a controversial topic in this country in recent years. For decades the fight that the late Robert Atkins and his low-carb acolytes had with mainstream medicine has been as vitriolic as a religious war. There are food cures for everything from cancer and heart disease to cataracts. Doctors talk about diet as a part of basic good health all the time. But talk to them about a diet instead of drugs to stop an infection or treat a tumor and most would be visibly alarmed, and in many cases, they would have good reason to be. A decade ago most doctors held the same contempt for keto. An Atkins-like diet that worked as well - and often better - than antiepileptic drugs? Common sense suggests that's crazy."
from NormR, 2:25 PM EST, 11/21/10, Health
Wedbush's roof leaks, but his wallet doesn't
"His investment firm, Wedbush Inc., manages more than $15 billion in assets, employs 1,000 people and is valued at $300 million. His personal stake is worth more than $150 million. Yet Wedbush has never let go of a compulsive frugality with roots in a Great Depression boyhood and his early days as an entrepreneur, when pinching pennies was the difference between survival and oblivion. For Wedbush, cost control is much more than a slogan. It's a guiding principle, maybe even a way of life."
from NormR, 2:21 PM EST, 11/21/10, Thrift
Data birth
"After that there was no stopping the love affair between financial economists and number-crunching. Myron Scholes, now a Nobel laureate, became director of CRSP in 1974 and ensured the database was both kept up-to-date and made readily available to academic economists everywhere. In turn, this resource became ever more useful as computing power became more pervasive and affordable. The CRSP database has since been expanded to include bonds, property, some commodities, mutual funds and exchange-traded funds. It has been replicated across the world."
from NormR, 2:10 PM EST, 11/21/10, Markets
A Tax Cut To Save
"Ambac Financial declared bankruptcy, needlessly. Had Congress acted to change the tax code to give troubled corporations a much needed break, Ambac probably could have raised enough equity to rebuild its core business. Unfortunately the U.S. tax code left Ambac with no way of raising equity without destroying one of its most valuable assets, $7 billion worth of net operating losses that could have been used to offset future tax burdens after the company returns to profitability."
from NormR, 9:07 PM EST, 11/19/10, Whitman
Why gold won
"The periodic table lists 118 different chemical elements. And yet, for thousands of years, humans have really, really liked one of them in particular: gold. Gold has been used as money for millennia, and its price has been going through the roof. Why gold? Why not osmium, lithium, or ruthenium?"
from NormR, 3:02 PM EST, 11/19/10, Idle
A world of predictable erroneous predictions
"On one level, journalist Dan Gardner's new book, Future Babble: Why Expert Predictions Fail - and Why We Believe Them Anyway, is disturbing, documenting as it does the vast human capacity for cognitive error: In other words, the dumb mistake. On another level, it's funny. Perhaps that's why McClelland and Stewart chose a cover showing a suit-wearing chimpanzee chatting on the phone. The sardonic salute to homo sapiens isn't subtle. The chimp captures perfectly the sublime confidence that many experts exude as they lead people (and countries) into catastrophic mistakes."
from NormR, 3:35 PM EST, 11/17/10, Books
Dear Uncle Sucker
"Well, Uncle Sam, you delivered a motherload of cash. Considering the dollar sums involved, your actions were remarkably ineffective. What was left over afterwards was a wildly over-leveraged consumer whose credit limits had been reached State and municipal budgets were heavily dependent upon that excess consumer spending, creating huge budget holes because of it. Net net: The resultant economy was in the worst recession since the Great Depression."
from NormR, 3:19 PM EST, 11/17/10, Buffett
Cities Face a Deepening Fiscal Crisis
"The city with the highest per household unfunded liability in the nation is Chicago, $41,966 per household, or $45 billion in total obligations. Illinois, meanwhile, is the state with among the most troubled pension systems, with about $285 billion in unfunded liabilities. 'Even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made,' the study by Rauh and Novy-Marx estimates. Meanwhile, Illinois' pension obligations amount to seven times annual state tax collections."
from NormR, 11:15 AM EST, 11/17/10, Government
Bond Vigilantes Ride Again
"Bond yield have shot up in almost unprecedented fashion since the Federal Reserve announced its plan to purchase $600 billion of Treasury securities two weeks ago - precisely the opposite effect the monetary authorities intended from QE2, the second phase of its quantitative easing. From a low of 2.48% on Nov. 4, the day after the announcement of launch of QE2 by the Fed, the 10-year note yield began to rise and then shot up in the past week, to a peak of 2.96% Monday, amid a barrage of withering criticism that was largely political in nature."
from NormR, 11:04 AM EST, 11/17/10, Bonds
Pretty Good for Government Work
"You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess - most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly. That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world. So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening. But in this extraordinary emergency, you came through - and the world would look far different now if you had not."
from NormR, 10:58 AM EST, 11/17/10, Buffett
Bill Miller's Nov 2010 Commentary
"It is useful to remember that the great bond bull market that began nearly 30 years ago was preceded by a 30 plus year bond bear market that took long term treasury yields from 3% to nearly 15%. The devastating losses people suffered were such that my friend Lee Cooperman dubbed bonds, "certificates of guaranteed confiscation," when he was overseeing the Goldman Sachs research and strategy effort. A common feature of that 30 year bond bear market was the bond swap. Almost every year, investors who owned bonds lost principal value as yields rose, so they sold their bonds in December and took a tax loss, replacing the bonds with others of similar maturity and quality. This continued year after year, inexorably. Finally, in 1982, yields started to fall. One elderly relative of mine had been taking her tax losses year after year, for over 30 years. When she asked me to look at her portfolio in late 1982, I told her there were some things I thought she needed to do. She said, "Oh yes, it's time for my bond swap." I told her that was not necessary as she now had gains in her bonds. She looked startled, and asked, "Is it legal to have gains in bonds?" I suspect that question may again be asked in the next 30 years."
from DanH, 3:13 PM EST, 11/16/10, Growth Investing
The Shopaholic Myth
"The Bureau of Labor Statistics reports that single men and women between the ages of 25 and 34 spend at similar levels. The main difference is that single men spend more on transportation, while single women spend more on apparel and services. (Men, incidentally, spend about twice as much on alcohol and $600 more on car purchases.) As for credit, men and women aren't that different. A higher proportion of women carry some credit card debt compared with men - 76 percent to 67 percent. But men on average carry higher dollar amounts of debt. According to Experian, a global credit group, credit scores - a measure of fiscal responsibility - show virtually no difference between men and women."
from NormR, 12:58 PM EST, 11/15/10, Thrift
China towns
"A game of Chinese whispers has been doing the rounds this autumn. In September, an economist claimed on television that Chinese investors are snapping up homes in east London. Two days later, an estate agent who misheard the programme declared that one-third of all home buyers in the British capital come from the People's Republic of China. Another estate agent got into a muddle, saying one-in-three pupils starting school at Eton College this autumn is Chinese. The true figure is less than 3 per cent. Misunderstandings aside, however, an essential truth remains: well-heeled Chinese property buyers are making their mark on housing markets worldwide. Some 475,000 Chinese have assets of $1m or more, according to the wealth management strategy firm Scorpio Partnership. This means China has the fourth-largest number of high net-worth individuals (HNWIs) in the world. More good news for estate agents is the fact that China's HNWIs keep one-fifth of their assets in property."
from NormR, 12:54 PM EST, 11/15/10, Real Estate
Four Stocks Ben Graham Might Pick
"My Graham-inspired picks sell for less than book value (corporate net worth per share) and less than 12 times earnings. They also have debt less than 50 percent of stockholders' equity."
from NormR, 10:29 AM EST, 11/15/10, Graham
The Shadow Scholar
"...colleges are a perfect launching ground - they are built to reward the rich and to forgive them their laziness. Let's be honest: The successful among us are not always the best and the brightest, and certainly not the most ethical. My favorite customers are those with an unlimited supply of money and no shortage of instructions on how they would like to see their work executed. While the deficient student will generally not know how to ask for what he wants until he doesn't get it, the lazy rich student will know exactly what he wants. He is poised for a life of paying others and telling them what to do. Indeed, he is acquiring all the skills he needs to stay on top."
from RobS, 1:47 PM EST, 11/14/10, Academia
The Unmeasured Cost of Ottawa's Pensions
"The federal government's net pension obligation under the fair-value approach stands at almost $208 billion - some $65 billion larger than reported in the Public Accounts to keep pace with benefit accruals and stop the gap from growing, contributions in the latest fiscal year would have had to be almost double what was actually paid in."
from RobS, 1:29 PM EST, 11/14/10, Government
California Shellacking
"These funds are getting mangled on expectations of - All Aboard! Munis and California joining Ireland on the default train."
from NormR, 12:11 AM EST, 11/14/10, Bonds
The slaying of the Celtic Tiger
"Ireland itself is a fiscal mess, thanks to a budget deficit that makes Greece's look like spare change. The real estate market is a disaster, and interest rates demanded by bond investors are so high that the exchequer effectively can't afford to finance the country. The Irish government has some breathing room - it doesn't have to return to the capital markets until next July. But if that bond auction fails, the country will almost certainly be broke and require a bailout from the European Union."
from NormR, 11:41 PM EST, 11/13/10, World
Microfinance: Little loans, big trouble
"Microfinance was supposed to mean economic empowerment for the poorest of the poor, many of them female villagers living in India's southeastern state of Andhra Pradesh. Instead, the sector has spiraled into crisis in recent weeks, where the state is blaming 57 recent suicides on aggressive loan collectors."
from NormR, 11:40 PM EST, 11/13/10, World
Video: Quantitative Easing Explained
"this is pretty funny"
from RobS, 4:59 PM EST, 11/13/10, Fun
The Man Who Called the Financial Crisis
"Mr. Palyi warned in 1938 that a push toward universal home ownership would 'make the population fixed to the ground' by 'overburdening them with housing costs.' That, he foresaw, would limit the mobility of American workers - helping explain why unemployment is so stubbornly high today. He also derided what is now called 'quantitative easing,' characterizing it as 'a sort of Santa Claus to the economic system' that can lead to 'runaway inflation' and a concentration of too much power in too few hands. Investors piling into stocks today based on the Federal Reserve's latest bond-buying binge shouldn't get too cocky. Mr. Palyi was fond of saying that sooner or later, too much credit always turns into a giant debit as borrowers crumple under the burden of escalating interest payments. That's a warning this entire country would do well to heed."
from RobS, 10:47 AM EST, 11/13/10, Debt
Are ETFs a Menace?
"The proliferation of ETFs, the report contends, raises at least three worries. First, these funds have overconcentrated the ownership of thinly traded stocks. Second, they have led to an escalating number of trading failures. Third, ETFs could trigger another massive market swing like the May 6 'flash crash.'"
from NormR, 11:32 PM EST, 11/12/10, Indexing
Cultures of Impunity
"The Irish government now has to deal with the effective evaporation of a major source of revenue at the worst possible time - raising taxes on either individual taxpayers or businesses will further deepen the economic hole that the country is in. But even with drastic cutbacks in government spending, it's unavoidable. This particular bit of the Irish crisis is a direct result of the country's grossly skewed taxation model. And it's left the country in a pretty horrible bind."
from NormR, 2:24 PM EST, 11/10/10, World
The High Cost of Free Parking
"Professor Shoup is the author of The High Cost of Free Parking, and points out that, 'just because the driver doesn't pay for parking doesn't mean the cost goes away.' In addition to making it harder to find a spot when you need one, 'free' parking exacerbates other problems, from pollution to traffic congestion. Using the power of market pricing, Shoup explains how to fix the parking mess in three steps."
from NormR, 8:26 PM EST, 11/09/10, Economics
The Times' Paywall and Newsletter Economic
"Even if paywall economics can eventually be made to work with a dramatically reduced audience, this particular referendum on the future (read: the present) of newspapers is likely to mean the end of the belief that there is any non-disruptive way to remain a going concern."
from NormR, 7:09 PM EST, 11/09/10, Management
Losing the Lender of Last Resort
"Now, of course, the default risk free asset is the government bond. Ultimately, the reasoning goes, a government can just print money if it needs to, so an investor can guarantee getting paid even if the value of that money is devalued. The problem is, that as Reinhart and Rogoff have shown, this ain't necessarily true."
from NormR, 7:07 PM EST, 11/09/10, Markets
Evil ETFs
"There is an old joke about economists looking under the lamppost for his lost keys only because that was where the light was, not necessarily because the keys were there. We have a strange feeling that the recent debate over market structure and trading activities has the same character. The "heat" and "light" have been directed toward activities - high frequency and algorithmic trading - that either have brought real benefits to the market and investors, or have not imposed the harms of which they are accused. In contrast, the main problem to which policy makers should be paying most attention - the proliferation of ETFs and ETF derivatives and the accompanying systemic risks and capital misallocations they entail - so far has been largely ignored. The same is true of the CTA and artificial efforts to promote exchange competition that, in reality, only hurt investors."
from NormR, 8:24 PM EST, 11/08/10, Indexing
Ireland is effectively insolvent
"Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term. From here on, for better or worse, we can only rely on the kindness of strangers."
from NormR, 8:01 PM EST, 11/08/10, World
70 Years Early
"Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default. The record was so unreliable that it would be 'still more responsible,' Mr. Palyi growled, to 'stop the publication of ratings altogether.'"
from NormR, 12:41 PM EST, 11/07/10, Government
The Perfect Stimulus: Bad Management
"One day, a position opened above me, and I was the most obvious candidate to fill it. My boss called me into her office and said she had some bad news. She explained that the media was giving our company a lot of heat because almost all of our managers and executives were white males. Promoting me, she explained, would only make things worse. I asked how long I might need to wait for all of this to blow over. My boss was vague, but she said the timeline involved smoothing out the effects of two centuries of corporate discrimination."
from NormR, 11:30 PM EST, 11/06/10, Management
You Can't Be Too Thin
"Roger Ibbotson has devoted a career to answering a question that has defied the greatest minds of finance. Namely, why some securities offer better returns than others, even when they have a close resemblance. Now a 67-year-old finance professor at Yale University, Ibbotson thinks he's discovered the answer. It's liquidity. Or the lack of it."
from NormR, 2:11 PM EST, 11/06/10, Value Investing
The Man Who Saved the Whales
"In the last half of the 19th century, whales were facing extinction. They were hunted in large part because their oil was the best, most affordable illuminant available to growing western nations. One man more than any other headed off their extinction, a man whose picture should be in on the wall of every Greenpeace office: John D. Rockefeller, founder of the Standard Oil Company."
from NormR, 8:58 PM EST, 11/05/10, World
No matter how bad you think it is, it's worse
"The first thing every governor and state legislator should do is read Government Accountability Office study GAO-10-899. It says in no uncertain terms, "We calculated that closing the fiscal gap over the next 50 years would require action to be taken today and maintained for each and every year going forward equivalent to a 12.3 percent reduction in state and local government current expenditures.""
from RobS, 6:48 PM EST, 11/05/10, Government
Does capital repayment objective = guarantee?
"In a recent Globe and Mail column, Shirley Won wrote about how investors in VentureLink 'capital repayment' labour sponsored investment funds are not getting their capital back. The article quoted a financial advisor - who bought the funds for himself and his clients - who is upset that VentureLinkisn't holding up its end of the bargain. One could argue, however, that this is simply a case study in a lack of due diligence."
from DanH, 10:51 AM EST, 11/05/10, Funds
The Fed Loses Twice
"Bad timing for the Fed. They are powerless, or even negatively powerful (They will achieve the opposite of what they are intending), because they don't understand how monetary policy really works, particularly during times of crisis. The Fed is imitating Japan, which has done horribly over the last 20 years. Can't they learn from recent data? Interest rates that are too low cause businessmen to make bad decisions."
from NormR, 3:09 PM EST, 11/03/10, Government
Pensions: Angry populists' next target
"This is déjà vu: Generous retirement packages, enabling middle-age workers to retire early, helped sink Detroit -- eventually landing GM and Chrysler at Treasury's door. The United Auto Workers, of course, negotiated those packages -- and management signed off on them. Now a majority of union members work for the government, and labor is determined to protect its pensions. Unlike those in the private sector, government retirement packages are often embedded in law. Wait until politicians tell that to the taxpayers stuck footing the bill."
from RobS, 2:27 PM EST, 11/02/10, Government
Why are High Risk Stocks so Crappy?
"The key to the dominance of low volatility equities is that high volatility stocks are bad investments on the two main dimensions of stockworthiness: volatility and return. Volatile stocks by definition have high volatility, and also high correlation with the overall market (CAPM beta) and the business cycle. They all have below average returns. So why do so many people like them?"
from NormR, 1:02 PM EST, 11/02/10, Markets
Are Monthly Seasonals Real?
"Over 300 years of UK stock returns reveal that well-known monthly seasonals are sample specific. For instance, the January effect only emerges around 1830, which coincides with Christmas becoming a public holiday. Most months have had their 50 years of fame, showing the importance of long time series to safeguard against sample selection bias, noise, and data snooping. Only - yet undocumented - monthly July and October effects do persist over three centuries, as does the half yearly Halloween, or Sell-in-May effect. Winter returns - November through April - are consistently higher than (negative) summer returns, indicating predictably negative risk premia. A Sell-in-May trading strategy beats the market more than 80% of the time over 5 year horizons."
from NormR, 12:47 PM EST, 11/02/10, Markets
Patient Capital 2010 Q3
"At current bond prices we strongly believe prospective returns are very low while the potential for loss is extremely high. If interest rates were to rise to only one half of their historical average fixed income securities would suffer substantial losses! We would recommend only very short term fixed income securities at this time. For those looking for income, high quality dividend paying equities are safer and will likely provide returns that are superior to fixed income alternatives over the next several years."
from NormR, 11:27 PM EST, 11/01/10, Value Investing
The Papers of Benjamin Graham
"These papers are not part of either Intelligent Investor nor Security Analysis. The papers range from 1930 to 1974, basically Ben Graham's entire professional life."
from NormR, 3:02 PM EST, 11/01/10, Value Investing
Your Adviser Is Scared to Set You Straight
"One danger is that if you voice a strong opinion, your adviser might not give you a second opinion. He might merely echo your own, making you think he is smart because he agrees with you - and clearing the path of least resistance to his next commission. Sometimes, acting like a sheep just pays better."
from NormR, 4:22 PM EST, 10/31/10, Brokers
Enduring Values, Enduring Value
"There are four ways to create wealth it is not just cash flow. They are, one, having cash flow from operations available to security holders. A company can use that cash to expand its asset base, reduce liabilities or distribute the money to shareholders, either by paying dividends or buying back stock. Two, and probably much more important, is having earnings, which we define as creating wealth while consuming cash. Remember, though, that earnings for most companies do not have a long-term value unless the company also has access to capital markets because if it doesn't, sooner or later, it will to run out of cash. The third - and very, very important - value-creation method is resource conversion. Such as? Mergers and acquisitions, changes in control, massive recapitalizations, spinoffs, etc. The fourth wealth-creation method, which I touched on previously, is having extremely attractive access to capital markets."
from NormR, 12:22 PM EST, 10/30/10, Value Investing
Confessions of a central planner
"It's not enough (in some cases) to put the carrot in front of the donkey. You have to point to the carrot, tell the donkey it is a carrot, and that he can eat it. And work out marginal revenue and marginal cost for the donkey too. And repeat this several times."
from NormR, 12:14 PM EST, 10/30/10, Economics
More from less for more
"Engineer RA Mashelkar shares three stories of ultra-low-cost design from India that use bottom-up rethinking, and some clever engineering, to bring expensive products (cars, prosthetics) into the realm of the possible for everyone."
from NormR, 2:46 PM EST, 10/28/10, World
Krugman Demotivator
"To fight this recession the Fed needs more than a snapback it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble..."
from NormR, 11:46 AM EST, 10/28/10, Fun
Kimberly-Clark rolls out tube-free toilet paper
"The toilet paper roll is about to undergo its biggest change in 100 years: going tubeless. On Monday, Kimberly-Clark, one of the world's biggest makers of household paper products, will begin testing Scott Naturals Tube-Free toilet paper at Walmart and Sam's Club stores throughout the Northeast. If sales take off, it may introduce the line nationally and globally - and even consider adapting the technology into its paper towel brands."
from DanH, -4:04 PM EST, 10/28/10, Fun
Labour and the left
"Last year there were more public-sector employees (7.9m) than private-sector workers (7.4m) in unions - the first time this has happened. And public-sector unions have a distinct advantage over private ones. 'Through their extensive political activity,' says Mr DiSalvo, 'these government-workers' unions help elect the very politicians who will act as 'management' in their contract negotiations - in effect handpicking those who will sit across the bargaining table from them, in a way that workers in a private corporation (like, say, American Airlines or the Washington Post Company) cannot.' And the public-sector managers sitting across the table don't have the same worries as private-sector bosses, who must answer to profit-driven overlords. The lack of competition in government services produces little pressure on management or unions to come up with the most efficient work agreement. As a result, public-sector unions have become accustomed to getting what they want."
from NormR, 1:20 AM EST, 10/28/10, Government
Mad Meat
"I met Eric Von Berg at an ING conference where I had just given a speech. Afterwards, he handed me a copy of this short book he wrote and illustrated: Mad Meat! How securitized lending collapsed the financial system which now exists on life-support. As the plane waited in the queue for takeoff in Atlanta, I started reading it. Byt he time we hit 2000 feet, I had finished. I found it delightful, and I am pleased that Eric allowed me to share it with you here"
from NormR, 11:49 PM EST, 10/27/10, Government
Night of the Living Fed
"Since it is customary in polite society to apologize for causing distress, on behalf of the Fed, let me apologize for the extraordinary destructiveness of its policies for the last 15 years. Bernanke's version of an apology, delivered in January this year to the American Economic Association, was to claim that the Fed's monetary policy during the 2000-08 period was appropriate, and that there were no major failings, such as missing the housing bubble completely, that were worth mentioning. This stubbornness in the face of clear data is right up there with efficient market believers. And very impolite indeed."
from NormR, 11:47 PM EST, 10/27/10, Government
Hidden Cost for Index Funds
"This paper empirically investigates the index premium and its implications from 1990 to 2005. First, we find that the price impact has averaged 8.8% and 4.7% for additions to the S&P 500 and Russell 2000, respectively, and -15.1% and -4.6% for deletions. The premia have been growing over time, peaking in 2000, and declining since then. Second, the implied price elasticity of demand increases with firm size and decreases with idiosyncratic risk, supporting theoretical predictions. Third, we introduce a new concept that we label the index turnover cost, which represents a hidden cost borne by index funds (and the indexes themselves) due to the index premium. We illustrate this cost and estimate its lower bound as 21-28bp annually for the S&P 500 and 38-77bp annually for the Russell 2000."
from NormR, 11:42 PM EST, 10/27/10, Indexing
The Hidden Costs of Indexing
"Petajisto estimated that from 1990 to 2005 the annual turnover drag for the small-cap Russell 2000 was at least 0.38%-0.77% and for the S&P 500 at least 0.21%-0.28%. Researchers Honghui Chen, Gregory Noronha, and Vijay Singal in a 2005 paper estimated the cost of index turnover drag at 1.30%-1.84% for the Russell 2000 and at around 0.03%-0.12% for the S&P 500. These figures imply that index funds that don't slavishly follow the index can beat their benchmarks by avoiding the price pressure surrounding index additions and deletions. It's one of those rare free lunches in investing."
from NormR, 11:39 PM EST, 10/27/10, Indexing
Buffett: Combs is 'a 100% Fit'
"Mr. Combs was one of hundreds of people who responded to an unconventional 'help wanted' request Mr. Buffett made in early 2007. But his initial inquiry didn't distinguish itself. Undaunted, the low-key father of three, who lives in Darien, Conn., recently sent another letter to Berkshire Vice Chairman Charles Munger asking for a meeting. Mr. Munger said in an interview that he gets 'hundreds' of such requests each year, but 'something in his request piqued my interest.' The two soon met for a lunch that extended well into the afternoon at the California Club in downtown Los Angeles. Mr. Munger later phoned Mr. Buffett and told him, 'this is a guy I am sure you are going to like,' Mr. Munger recalls."
from NormR, 8:35 PM EST, 10/26/10, Buffett
Relative unknown to handle Berkshire assets
"He's virtually unknown and was in diapers when Warren Buffett had already earned his reputation as the world's greatest investor. But 39-year-old Todd Combs of Castle Point Capital has been tapped as Mr. Buffett's possible successor at Berkshire Hathaway Inc. - at least on the investment side."
from DanH, 7:30 PM EST, 10/25/10, Buffett
Companies aren't charities
"In South Africa, where more than a third of the workforce is jobless, the problem is not that corporations are unethical but that there are not enough of them. One reason is that South Africa's leaders blithely heap social responsibilities on corporate shoulders. Strict environmental laws cause long delays in building homes. This is nice for endangered butterflies, but tough for South Africans who live in shacks. Such laws also slow the construction of power plants, contributing to the rolling blackouts that crippled South Africa in 2008. South African labour laws make it hard to fire workers, which deters companies from hiring them in the first place. And a programme of "Black Economic Empowerment", which pressures firms to transfer shares to blacks, has made a few well-connected people rich while discouraging investment."
from NormR, 5:32 PM EST, 10/24/10, World
Secret Past of Chinese Stocks
"This week, the People's Bank of China jolted stock markets around the world with a surprise interest-rate rise, and the leaders of China's Communist Party called for 'accelerating the transformation of the nation's economic-development pattern.' This drive to manage growth harks back to a declaration on April 22 that 'of the many government functions, the most important is to facilitate commerce and help industries.' The odd thing is, the Chinese government made that statement on April 22, 1903. Amid the almost irresistible excitement over China's explosive growth, it is important to understand that the Asian giant has run this exact race before - several times - and the results weren't pretty."
from NormR, 5:46 PM EST, 10/23/10, World
A new age dawns for online brokers
"Online brokers like to play down the importance of fees to clients, and yet two big firms have just made some significant price cuts for people trading stocks and bonds. Both moves sharpen the cost advantage of do-it-yourself investing, but there's more to them than that. They also highlight the continuing evolution of online brokers from a tool for active stock traders into a mainstream investing channel that you can access without a big portfolio or encyclopedic knowledge of the market."
from NormR, 4:29 PM EST, 10/23/10, Brokers
The long shadow over Canada's housing market
"A wide range of indicators say Canada can no longer count on a booming housing market to keep the economic blues at bay. But in the quarters where it most needs to be heard, the message is not resonating."
from NormR, 4:25 PM EST, 10/23/10, Real Estate
The Future of Fish
"As overfishing threatens the world's wild fisheries, aquaculture advocates say fish farms will play a far greater role in feeding people around the world. 'We are no more going to get our seafood from the wild than we get our beef, nuts, fruit from the wild,' predicts Kevin Fitzsimmons, a professor at the University of Arizona and former president of the World Aquaculture Society. He is also on the board of HQ Sustainable Maritime Industries (HQS), an NYSE Amex-listed company that sells Chinese-raised tilapia. 'It's all going to be farm-raised,' he says. And there's no fish better suited to this new world than tilapia, says Fitzsimmons. It's a fast-growing species with mild-tasting flesh that producers can easily adapt to all kinds of uses. 'Tilapia,' says Fitzsimmons, 'is going to be basically where chicken is with poultry.'That means that the creatures thrashing in Chen's ponds are the future of fish. The growing American appetite has led to a boom in Chinese aquaculture: With hundreds of breeding centers, fish farms, feed mills, and processing plants, China is the world's tilapia superpower."
from NormR, 12:15 PM EST, 10/23/10, World
How dairy farmers milk taxpayers
"Imagine that you and 13,600 friends have the ability to tax each and every Canadian $70 a year. Your group's members share the revenue and, while the number of members may decline it will never grow. Moreover, there is every prospect that the tax will, for the foreseeable future, rise faster than inflation. Canada's government sanctioned National Dairy Policy offers just such a deal, and results in a wealth transfer of more than $2.4-billion annually from consumers and food processors to diary farmers. That's more than $175,000 for each dairy farmer. "
from NormR, 11:39 PM EST, 10/21/10, Taxes
Ridley and the rational optimist
"Matt Ridley, author of The Rational Optimist, talks with EconTalk host Russ Roberts about why he is optimistic about the future and how trade and specialization explain the evolution of human development over the millennia. Ridley argues that life is getting better for most of the people on earth and that the underlying cause is trade and specialization. He discusses the differences between Smith's and Ricardo's insights into trade and growth and why despite what seems to be strong evidence, people are frequently pessimistic about the future."
from NormR, 3:26 PM EST, 10/21/10, World
The Tax Haven
"Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent "
from NormR, 3:18 PM EST, 10/21/10, Taxes
John Meriwether gets another chance
"It's unclear why ostensibly savvy people keep giving Meriwether money to pick up pennies on train tracks, but it offers a clear illustration of the Trader's Put, as well as an argument against the typical performance fee structure. The Trader's Put describes an option, effectively owned by a trader, that encourages him or her to take excessive risk."
from DanH, -4:40 PM EST, 10/20/10, Funds
The Eternal Return of Overpopulation
"According to research published by the Royal Society, it looks as though the world will be able to feed 9 billion people by 2050, perhaps even allowing some farmland to revert to nature. Water is a problem, but economic and technological solutions show promise in ameliorating it. But more importantly, Walker and other overpopulationists get the causality backwards. Poverty is the cause and high fertility is the symptom. Poverty traps and failed states which result in high maternal death rates, starvation, pollution, and deforestation are not created by population, but by bad policies. Working to spread economic freedom and political liberty is a lot harder than self-righteously blaming poor people for breeding too much. But it's the only real option."
from NormR, 10:44 PM EST, 10/19/10, World
Spain's Solar on Edge of Bankruptcy
"Spain stands as a lesson to other aspiring green-energy nations, including China and the U.S., by showing how difficult it is to build an alternative energy industry even with billions of euros in subsidies, says Ramon de la Sota, a private investor in Spanish photovoltaic panels and a former General Electric Co. executive. "
from NormR, 10:22 PM EST, 10/19/10, World
Forget gold, buy stocks
"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
from NormR, 9:53 PM EST, 10/19/10, Buffett
Mortgage Repurchases
"Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said."
from NormR, 8:37 PM EST, 10/19/10, Real Estate
From e-books to no books
"Last month, the University of Texas at San Antonio announced it had built the world's first bookless library. Its Applied Engineering and Technology Library offers access to 425,000 e-books and 18,000 e-journal subscriptions, and librarians say they've yet to hear a complaint from the 350-plus students and faculty who pass through its doors daily. "We've gotten no negative feedback," says Krisellen Maloney, library dean at the University of Texas. "We looked at circulation rates, we looked at electronic resources, we looked at requests, and we decided that having the services was more important than the physical books." She adds bluntly: "When we prioritized the needs, the books weren't the priority.""
from RobS, 4:18 PM EST, 10/19/10, Books
Warren Beffett Bias
"The simplicity of Buffett's approach and his folksie wisdom belie a tough-minded and intensely focused individual whose career has been marked by a single minded determination to make money. Most people don't see this, though, what they see are the incredible gains that can be made by actively trading and draw the obvious, but mad, conclusion that what's good enough for the one person capable of defying the logic of markets is good enough for them. Following Warren Buffett without Warren Buffett's temperament is a one-way ticket to the poorhouse."
from RobS, 4:15 PM EST, 10/19/10, Buffett
A gold-plated burden
"Mr Rauh calculates that seven states will have exhausted their pension assets by 2020 - even if they make a return of 8%, a common assumption that looks wildly optimistic. Half will run out of money by 2027. If pension promises are to be kept, this will place immense strain on taxes. Several have promised annual payments that will absorb more than 30% of their tax revenues after their pension funds are exhausted "
from RobS, 2:46 PM EST, 10/19/10, Government
Three-trillion-dollar hole
"Following rules set down (rather shamefully) by the Government Accounting Standards Board, the individual states discount their pension liability by the assumed rate of return on the assets, in most cases around 8%.This is "Alice-in-Wonderland accounting", as David Crane, an economic adviser to California's governor, Arnold Schwarzenegger, has remarked. For a start, pension schemes have not achieved such returns over the past decade of dismal stockmarkets, and are unlikely to do so in future. Nor do the liabilities disappear if the pension scheme fails to achieve its targeted returns. ...... Given those conditions, the states' pension promises should be discounted by the risk-free rate, or the yield on Treasury bonds. On that basis, total liabilities are $5.3 trillion, compared with $1.9 trillion of assets. The total shortfall of $3.4 trillion is the equivalent of a quarter of all federal debt."
from RobS, 2:17 PM EST, 10/19/10, Government
$200 Billion Blunder
"Warren Buffett says Berkshire Hathaway is the 'dumbest' stock he ever bought. He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to 'chisel' Buffett out of an eighth of a point on a tender deal."
from NormR, 1:10 PM EST, 10/19/10, Buffett
O Canada!
"By the 1990s, Canada had also become one of the developed world's most socialized economies, with the government accounting for 53% of the country's GDP. Economic growth was stagnating, while debt levels were inexorably and dangerously mounting. At its scariest zenith, Canadian federal and provincial government debt amounted to 120% of GDP, with roughly 70% at the national level and an outrageously bloated 50% owed by the provinces. Again, to put that in perspective, despite our debt binge over the last decade, US government debt is around 60% of GDP, while state debt is nearly 17% of GDP, or 77% overall (this is based on net, not gross, debt and excludes the Social Security trust fund holdings as well as intergovernmental liabilities.)Moreover, unlike in our present situation, Canada's interest rates were rising due to worries about the nation's solvency. Its coveted AAA credit rating was yanked, and the market was treating it as an increasingly unreliable borrower. In other words, it was much like the situation a number of European countries find themselves in today - except that Canada didn't have Germany to bail it out. As you can readily see, there's simply no question that Canada was in some very deep doo-doo. Which begs the multitrillion-dollar question: How the heck did it get out of that jam? "
from RobS, 12:31 PM EST, 10/19/10, Government
BoC lowers economic outlook
"That bank said it now believes Canada's economy will likely grow about three per cent this year instead of the 3.5 per cent it had predicted in July - and that's all due to a faster-than-expected start to the year. Next year will be even worse, with moderate growth of 2.3 per cent, six-tenths of a point lower than previously projected. It's not until 2012 that the bank sees the economy gathering steam, but at 2.6 per cent, that's still far below Canada's historic growth levels during expansionary periods. More surprising was how far the bank's senior officers set back the time frame for the economy to return to normal, or full-capacity - to the end of 2012 from the previously thought end of 2011. 'This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending,' they wrote. The bank said with household debt so high, it expects Canadians will spend less on consumer goods and on homes, meaning the housing market is in for a protracted cooling-off period."
from DanH, 12:05 PM EST, 10/19/10, Economy
Five Beaten Down Bargains
"Some securities, however, have missed the party. Among the stocks in the Standard and Poor's 500 Index, about three dozen have declined 20 percent or more so far this year. The S&P 500 is up 5 percent.Some of these laggards now look like bargains. Here are five that I want to bring to your attention..."
from NormR, 9:36 PM EST, 10/18/10, Value Investing
Volatility mesures behavioural risk
"I was wrong to dismiss standard deviation as a risk measure for all of those years. It's not a measure of investment risk but a measure of behavioural risk. Still, standard deviation measures a type of risk that has potentially damaging consequences."
from DanH, 12:34 PM EST, 10/18/10, Behaviour
Lies, Damned Lies, and Medical Science
"He zoomed in on 49 of the most highly regarded research findings in medicine over the previous 13 years, as judged by the science community's two standard measures: the papers had appeared in the journals most widely cited in research articles, and the 49 articles themselves were the most widely cited articles in these journals. These were articles that helped lead to the widespread popularity of treatments such as the use of hormone-replacement therapy for menopausal women, vitamin E to reduce the risk of heart disease, coronary stents to ward off heart attacks, and daily low-dose aspirin to control blood pressure and prevent heart attacks and strokes. Ioannidis was putting his contentions to the test not against run-of-the-mill research, or even merely well-accepted research, but against the absolute tip of the research pyramid. Of the 49 articles, 45 claimed to have uncovered effective interventions. Thirty-four of these claims had been retested, and 14 of these, or 41 percent, had been convincingly shown to be wrong or significantly exaggerated. If between a third and a half of the most acclaimed research in medicine was proving untrustworthy, the scope and impact of the problem were undeniable."
from NormR, 11:58 AM EST, 10/18/10, Health
How to Erase the Lost Decade?
"Whatever figure turns out to be right, the bottom line is that "people should ratchet down their expectations for stocks," he said."There's no harm in hoping that things turn out better," Mr. Arnott added. "But the danger is assuming and planning for the best while saving as if the market can do your work for you.""
from RobS, 11:05 AM EST, 10/17/10, Stocks
The Financial Time Bomb of Longer Lives
"FIRST the good news: We're living longer, healthier lives than ever before.We're already so used to the idea of greater longevity, in fact, that it may seem ho-hum to learn that boys and girls born in 2008 in the United States have life expectancies of 75 and 81, respectively.Those life spans, however, represent a bonus of about three decades, compared with Americans born in 1900, according to a report last year from the Census Bureau. And, by the way, Spain, Greece and Austria fared even better, proportionally: Life expectancies in those countries doubled over the course of the 20th century.Now for the bad news: At this rate, we can't afford to live so long."
from RobS, 10:58 AM EST, 10/17/10, Government
Bad Mathematics
"It is likely that someone who engaged in large amounts of deliberate practice in mathematics could perform extremely well on mathematical tests, exams, and other competitive measures so long as these tests involved calculations or derivations that had been practiced. The problem is that by their nature inventions and discoveries involve problems that have never been solved by anyone. There is no way to practice in this way."
from NormR, 12:45 AM EST, 10/17/10, Academia
Flash Crash
"PrefBlog takes a peek at the flash crash."
from NormR, 7:46 PM EST, 10/16/10, Markets
The loonacy of parity
"Economists have a name for this weakness - Dutch disease. As the commodity-driven loonie rises, it becomes too expensive to produce innovative goods and services in Canada. Canadian firms exporting such world-beating products as asset management services (Manulife), regional jets (Bombardier) and addicting handhelds (RIM) have been forced by the strong dollar to move at least part of their operations to lower-cost jurisdictions. That's Dutch disease. That's the weakness of a strong loonie."
from RobS, 10:29 AM EST, 10/16/10, Economy
The Next Level
"In this environment, it would be easy for Netflix to fall back on its safety cushion, milk the existing DVD business for all it's worth, and try to slow down customers' migration into streaming, particularly since a customer who streams movies is less lucrative than one who rents three DVDs a month. But then, a decade from now, we'd be writing Netflix obituaries that sounded just like the ones for Blockbuster. Sometimes you have to destroy your business in order to save it."
from RobS, 4:06 PM EST, 10/15/10, Management
The Mortgage Morass
"But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by "robo-signers," or low-level employees who had no idea whether their assertions were true. Now an awful truth is becoming apparent: In many cases, the documentation doesn't exist."
from RobS, 3:45 PM EST, 10/15/10, Law
Uncle Sam's Mysterious Hoard
"Under current law, income from the sale of gold must be used to reduce the national debt. But nothing would stop Congress from rewriting the regulation to permit other uses. By Washington's corpulent spending standards, 300 billion may seem modest, but it's hardly trivial: it could, for example, reduce our 1.3 trillion budget deficit by more than 20 percent finance Social Security for nearly six months or fund unemployment benefits for several years - in effect, create a stimulus package without pushing us further into debt. "
from RobS, 3:19 PM EST, 10/15/10, Government
N.Y. Faces 200 Billion in Retiree Health Costs
"The health benefits are entirely separate from the pensions that New York's public workers have earned. Governments have reported their pension obligations for years, but their retiree medical obligations have been building up unseen, because governments were not required to account for them. The information is starting to come to light because of a new accounting requirement."
from RobS, 10:17 PM EST, 10/12/10, Government
Debt market strips U.S. of triple-A
"The cost of insuring against a default on U.S. government bonds via so-called credit default swaps rose 28% in the quarter ended Sept. 30, the firm said.That puts the United States' third-quarter performance behind only two other nations, both of which are struggling with the early stages of sovereign debt crises: Ireland, whose CDS prices rocketed 72% to a record amid growing questions about the costs of a massive bank bailout, and Portugal, whose costs jumped 30%.What's more, the decline leaves U.S. debt trading at an implied rating of double-A-plus for the first time in memory."
from NormR, 4:50 PM EST, 10/12/10, Bonds
No Margin of Safety
"This creates a terrible problem for investors here. Given that the yield on the SandP 500 is now below 2%, it is essential for investors to recognize that they now rely on the achievement and maintenance of sustained bubble valuations in the years ahead. Unless investors believe that bubble valuations can be maintained indefinitely, they can expect little but abysmal returns over the coming 5- 7 year period. "
from NormR, 3:02 PM EST, 10/12/10, Markets
The Crisis in Local Government Pensions
"We calculate the present value of local government employee pension liabilities as of June 2009 for approximately 2/3rds of the universe of local government employees. Using local government accounting methods, the total unfunded liability in these areas is 190 billion or over 7,000 per municipal household. When government accounting is corrected by discounting already-promised benefits at zero-coupon Treasury yields, the total unfunded obligation is 383 billion or over 14,000 per local household."
from NormR, 2:26 PM EST, 10/12/10, Government
The Cleansing Force Of Foreclosures
"I see no silver lining around the present foreclosure mess. Close to 2 trillion has been lost in the current downturn. Delaying foreclosure won't recover a nickel of that sum. You can bank on these losses, whether or not the foreclosures are allowed to go forward. Indeed, foreclosure moratoria could well increase the losses, by leading to sharp declines in the maintenance level that short-term owners give to their homes, knowing that the respite is at best temporary."
from NormR, 10:16 AM EST, 10/12/10, Real Estate
The greatest heist
"Our economy is being stolen from us, and our nation's real estate crisis is providing cover for what will - if it goes unchallenged - go down as one of the greatest heists in our country's history."
from NormR, 10:10 AM EST, 10/12/10, Real Estate
Annoying dentist
"Particular details of the comments aside, I would like to take this opportunity and clarify my position on the pay-for-service model that we commonly use in dentistry and its effects on conflicts of interests (dentists that get paid for X want to do X), and on the quality of care"
from NormR, 3:32 PM EST, 10/12/10, Behaviour
Economic Misconceptions
"Students typically come to an economics class with many misconceptions, not just random errors but systematic biases.Bill Goffe recently surveyed one of his macro principles classes and found, for example, that the median student believes that 35% of workers earn the minimum wage and a substantial fraction think that a majority of workers earn the minimum wage."
from NormR, 3:29 PM EST, 10/12/10, Economics
Why Foreclosure Fraud Is So Dangerous
"There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists excusing horrific conduct by the banks. Others are excusing endemic property right destruction out of genuine ignorance."
from NormR, 3:22 PM EST, 10/12/10, Crime
ETF Wars: Deflation Investors Should Cheer
"Like stocks, but unlike many mutual funds, ETFs can be costly to trade. They may trade at a 'premium,' a markup from the value of their underlying assets, or at a 'discount.' A big buy order may push up the price the buyer has to pay likewise, a large sell order can knock the price down.The more you trade, the more those costs matter - and the more important it is to compare an ETF's price against its indicated (or intraday) net asset value, or INAV, a measure of its underlying assets' worth. (On Google Finance, type '.IV' after an ETF's ticker symbol.) As a rule of thumb, look for a market price that differs from INAV by 0.5% or less."
from RobS, 9:45 PM EST, 10/11/10, Indexing
Higher taxes will make me work less
"Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don't let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden."
from RobS, 7:58 PM EST, 10/11/10, Taxes
Congressional Staffers Gain From Trading in Stocks
"The aides identified by the Journal say they didn't profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider-trading laws don't apply to Congress."
from NormR, 1:28 PM EST, 10/11/10, Government
ETFs versus buying the stocks
"Telecommunications is one sector where the utility of exchange-traded funds might be questioned. Because their holdings are concentrated, it is cheaper to capture the sector's price trend by directly purchasing the largest constituents of the ETF's index. "
from NormR, 2:11 PM EST, 10/09/10, Indexing
The Politics of Foreclosure
"The bigger damage here is to the housing market, which desperately needs to find a bottom by clearing excess inventory and working through foreclosures as rapidly as possible. The moratoriums further politicize the housing market and further delay a housing recovery. In an economy and a financial system engulfed in Washington-created uncertainty, the political class has decided to create still more."
from NormR, 2:00 PM EST, 10/09/10, Real Estate
Preferred Shares Quick Pick
"Top 12 high yield TSX listed preferred shares paying eligible dividends in Canadian dollars. Updated weekly."
from NormR, 1:47 PM EST, 10/09/10, Markets
The good news of the decade
"Hans Rosling reframes 10 years of UN data with his spectacular visuals, lighting up an astonishing - mostly unreported - piece of front-page-worthy good news: We're winning the war against child mortality."
from NormR, 1:26 PM EST, 10/09/10, World
Share buybacks put a shine on Danier
"The market, in other words, appears to be assigning scant value to Danier's ongoing business - and that's hard to understand. In the year to June - certainly no boom time for the Canadian economy - it produced 7.2-million in earnings, or about 1.58 for each of the shares remaining at the end of the most recent quarter. If the market were willing to pay even 12 times those earnings, Danier would be a 19 stock."
from NormR, 12:22 PM EST, 10/09/10, Stocks
What Amazon Fears Most: Diapers
"So much work has to go into efficiency because shipping diapers and household goods is a hard way to make money. Shawn C. Milne is an Internet analyst at Janney Capital Markets, and when he talks about Quidsi and Amazon, he talks about scale, scale, scale. 'It's all about driving high volume over fixed costs,' he says, meaning you've got to spend a lot and sell a lot. 'These are not 15 to 20 percent operating margin businesses, these are 5 to 7 percent peak operating margins.' That's a low return, but it's a return in a business that's been growing at around 10 percent annually while retail overall has been slumping. "
from NormR, 12:41 PM EST, 10/08/10, Stocks
A closer look at BetaPro's HXT
"In a recent blog post, I provided an overview of the new Horizons BetaPro SP/TSX 60 Index ETF (HXT/TSX). HXT's synthetic exposure left us with two questions, both of which are addressed below."
from DanH, 3:16 PM EST, 10/06/10, Indexing
Buffett says cut taxes for all but the rich
"Buffett has been railing for years about the absurdity of the current tax structure - he remarked Tuesday with some disbelief that he pays the lowest rate in his Omaha office -- and has accordingly called for higher taxes on those earning large wages, including himself.But he hasn't previously pushed for lower taxes on those making less. Asked why not, he said that no one ever asked."
from NormR, 4:07 PM EST, 10/05/10, Buffett
How Fake Money Saved Brazil
"This is a story about how an economist and his buddies tricked the people of Brazil into saving the country from rampant inflation. They had a crazy, unlikely plan, and it worked."
from NormR, 4:04 PM EST, 10/05/10, World
Individual Investors Duped by Derivatives
"Leona Miller, an 84-year-old retired beautician, says she was seeking safe and steady income from bonds two years ago when she bought securities recommended by her Wachovia (WFC) broker, Robert Baldacci, paying 9 percent interest. Within six months, Miller lost about 30 percent of her 20,000 investment, and the bonds were converted into shares of Merck (MRK) in a falling stock market."
from NormR, 12:26 AM EST, 10/05/10, Derivatives
A Tale of Two Majorities
"The most compelling argument of Chavista apologists has always been the idea that, whatever else might be said, Hugo Chávez's movement represents the voice of an overwhelming majority of Venezuelans. Or perhaps it would be truer to say that this argument used to be compelling. Allied under the banner of a coalition called the Mesa de la Unidad Democrática (MUD), the Venezuelan opposition, in conjunction with a small non-aligned party, has finally refuted this long overstated rationalization for Chavista tyranny by winning a slight majority of the national vote on Sunday's legislative elections."
from NormR, 11:59 PM EST, 10/04/10, World
A Greek Bankruptcy Is Unavoidable
"Sitting in his bare office at Harvard University with the shades drawn, Rogoff says, coolly and soberly: 'A Greek bankruptcy is unavoidable. There is a 95 percent chance that Spain will go bankrupt. Hungary is on the brink. Things will get much worse in Eastern Europe. We will have a certain number of countries that will go bankrupt. We will have a number of euro zone countries that would be well advised to take a sabbatical from the euro for a year. The situation in the United States is very worrisome. The markets will refuse to tolerate this level of debt.' The worst of it is that it sounds as if he were expressing unavoidable facts."
from NormR, 11:26 PM EST, 10/04/10, World
"A few years ago, Dan Ariely, a psychologist at M.I.T., did a fascinating experiment examining one of the most basic external tools for dealing with procrastination: deadlines. Students in a class were assigned three papers for the semester, and they were given a choice: they could set separate deadlines for when they had to hand in each of the papers or they could hand them all in together at the end of the semester. There was no benefit to handing the papers in early, since they were all going to be graded at semester's end, and there was a potential cost to setting the deadlines, since if you missed a deadline your grade would be docked. So the rational thing to do was to hand in all the papers at the end of the semester that way you'd be free to write the papers sooner but not at risk of a penalty if you didn't get around to it. Yet most of the students chose to set separate deadlines for each paper, precisely because they knew that they were otherwise unlikely to get around to working on the papers early, which meant they ran the risk of not finishing all three by the end of the semester. This is the essence of the extended will: instead of trusting themselves, the students relied on an outside tool to make themselves do what they actually wanted to do."
from NormR, 1:47 PM EST, 10/04/10, Behaviour
Can an ETF collapse? No.
"The ETF world erupted Wednesday after CNBC ran a report suggesting that ETFs could lose all their value in an instant due to naked short-selling. There's only one problem: It's not true."
from DanH, 1:40 PM EST, 10/03/10, Indexing
The Bond Bubble
"If anybody is to blame for a bond bubble, it isn't Joe Schmo it's Uncle Sam, with some help from overseas.'The Fed has effectively been taxing money-market funds by cutting short-term interest rates to recapitalize the financial system and to make things easier on borrowers,' says Dan Dektar, chief investment officer at Smith Breeden Associates. "
from NormR, 11:31 AM EST, 10/03/10, Bonds
China Metal Monopoly
"A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security. "
from NormR, 1:32 PM EST, 09/30/10, World
What is the Carry Trade
"For the next 20 years, and many hedge funds specialized in the 'carry trade', which was as simple as it was successful: lend capital to high interest rate currencies, enjoy the high riskless rates and currency appreciation on the spot rate borrow capital at the low interest rate currency, and make money on the depreciation of this debt over time. In 2008 these strategies suffered significantly, but the net effect is still there is no clear relation between risk and return in currencies."
from NormR, 11:40 AM EST, 09/30/10, Markets
What's the Matter With Wall Street
"We are at the bitter end of a 30-year interest rate cycle. Declining interest rates are the ideal environment for economic growth. In January 1981, short-term interest rates were 19.08% - now they are 0.14%. Thirty-year mortgages in October 1981 were 18.45% - now they are 4.28%. Over this period the stock market rose tenfold.Wall Street made a fortune over these 30 years and grew from small partnerships into the giant behemoths of 2007. But the behemoths began to collapse under the challenge of generating the huge returns they promised shareholders.At some point, the powers that be will figure out that rising interest rates will be the cure for what ails the U.S. economy by driving the dollar higher, commodities back toward their extraction values, and encouraging commitments of capital based on market mechanisms, not the wishes of the government and the Federal Reserve. That will not be good news for Wall Street, which doesn't do well