The Best of the Aleph Blog, Part 1

We’re coming up on the fourth blogoversary for the Aleph Blog next month, so I wanted to do something a number of readers asked me to do — create a list of my best posts, with a little commentary.  I’m going to do it in segments of three months each, so that should be 16 posts by the time I am done.

Our first period goes from February-April 2007.  I wrote a lot on the panic after the Chinese market fell dramatically.  I also got Cemex and Deerfield Capital dreadfully wrong.  But here are the high points of that quarter:

What is Liquidity?

Liquidity is not a simple concept.  Depending on the situation, it can mean different things.

Helpfully, Martin Barnes, of BCA Research, an economic research firm, has laid out three ways of looking at liquidity. The first has to do with overall monetary conditions: money supply, official interest rates and the price of credit. The second is the state of balance sheets—the share of money, or things that can be exchanged for it in a hurry, in the assets of firms, households and financial institutions. The third, financial-market liquidity, is close to the textbook definition: the ability to buy and sell securities without triggering big changes in prices.

Pretty good, but it could be better. These are correlated phenomena. Times of high liquidity exist when parties are willing to take on fixed commitments for seemingly low rewards. Credit spreads are tight. Credit is growing more rapidly than the monetary base. Banks are willing to lend at relatively low spreads over Treasuries. Same for corporate bond investors. And, if you are trying to generate income by selling options, it almost doesn’t matter what market you are trading. Implied volatilities are low, so you realize less premium, while giving up flexibility (or, liquidity).

Yield = Poison

When everyone is grasping for yield, that is the time to avoid it, and aim for capital gains.  That is what I am doing now.

Bicycle Stability Versus Table Stability

A bicycle has to keep on moving to stay upright. A table does not have to move to stay upright, and only a severe event will upend a large table.

The main point there was to ask yourself what happens to your investments if the finance markets ever shut for a while.  Not that that scenario was likely to happen.

Getting Your Portfolio in Better Shape

Getting Your Portfolio in Better Shape, Part 2

Two part series on how I make changes to my portfolio.

Your Money or Your Job! (Or Both!)

Commentary on the buyout of Tribune.  Sadly, I was proven right on this one.  Sam Zell ended up making those at Tribune worse off.

Let Them Eat Yield!

More in the vein of Yield = Poison.  Sage words in a hot fixed income market that was about to blow.

Too Many Vultures, Too Little Carrion

I got it right that subprime auctions were not a sign of strength.

International Diversification

It’s a good thing, but it is not a free lunch.

Why Financial Stocks Are Harder to Analyze

The main problem is that the cash flow statement is meaningless, but I try to put a little more meat on the bones.


So much for the first three months.  I hope you enjoy this series, as I highlight the best of the past.