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Archive for March, 2012

A Brief Note on Earnings Yields

Saturday, March 31st, 2012

I debated briefly (between my ears) how to present this data.  I settled on this method, because if you want to play with it you can do so without too much trouble.

Here are the earnings yields, dividend yields, and payout ratios (what percentage of trailing 12-month earnings have been paid out as dividends) by industry and sector:

IndustryE YieldD YieldPayout %
0124 – Metal Mining

18.24%

3.49%

19%

0606 – Oil & Gas – Integrated

13.40%

3.76%

28%

0412 – Auto & Truck Manufacturers

12.61%

1.69%

13%

0709 – Insurance (Life)

11.73%

2.44%

21%

0215 – Construction Services

11.71%

1.83%

16%

0603 – Coal

11.33%

2.89%

25%

0121 – Iron & Steel

10.41%

2.49%

24%

0957 – Retail (Grocery)

10.36%

3.00%

29%

1209 – Water Utilities

9.77%

3.51%

36%

0512 – Fish/Livestock

9.40%

1.74%

18%

0915 – Communications Services

9.03%

4.72%

52%

0706 – Insurance (Accident & Health)

8.98%

1.22%

14%

0609 – Oil & Gas Operations

8.94%

2.06%

23%

0727 – Regional Banks

8.94%

2.85%

32%

0518 – Office Supplies

8.30%

2.47%

30%

0203 – Aerospace and Defense

8.00%

2.12%

26%

0415 – Auto & Truck Parts

8.00%

1.41%

18%

0969 – Schools

7.84%

0.56%

7%

0809 – Major Drugs

7.77%

3.92%

50%

0103 – Chemical Manufacturing

7.74%

2.16%

28%

1103 – Air Courier

7.43%

2.17%

29%

0106 – Chemicals – Plastics and Rubbers

7.36%

2.12%

29%

0524 – Tobacco

7.30%

3.94%

54%

0130 – Non-Metallic Mining

7.28%

0.48%

7%

0206 – Construction & Agricultural Machinery

7.17%

1.62%

23%

0724 – Money Center Banks

7.16%

2.38%

33%

0903 – Advertising

7.00%

1.57%

22%

0218 – Misc. Capital Goods

6.92%

1.76%

25%

0403 – Apparel/Accessories

6.91%

1.41%

20%

1112 – Railroads

6.90%

1.74%

25%

0436 – Tires

6.81%

1.00%

15%

0406 – Appliances & Tools

6.71%

1.90%

28%

0509 – Crops

6.65%

0.62%

9%

0924 – Personal Services

6.61%

1.72%

26%

1006 – Computer Hardware

6.60%

0.28%

4%

0954 – Retail (Drugs)

6.45%

1.13%

17%

1203 – Electric Utilities

6.32%

3.83%

61%

0127 – Misc. Fabricated Products

6.18%

1.86%

30%

1024 – Electronic Instruments & Controls

6.01%

2.08%

35%

0503 – Beverages (Alcoholic)

5.88%

2.34%

40%

0906 – Broadcasting & Cable TV

5.75%

1.50%

26%

0109 – Containters & Packaging

5.67%

2.17%

38%

0806 – Healthcare Facilities

5.58%

0.26%

5%

1106 – Airline

5.52%

0.33%

6%

0715 – Insurance (Property & Casualty)

5.51%

1.71%

31%

1003 – Communications Equipment

5.49%

1.46%

27%

0963 – Retail (Specialty Non-Apparel)

5.49%

0.70%

13%

0506 – Beverages (Non-Alcoholic)

5.47%

2.41%

44%

0515 – Food Processing

5.46%

2.23%

41%

0912 – Casinos & Gaming

5.43%

0.88%

16%

1015 – Computer Peripherals

5.31%

2.32%

44%

0927 – Printing & Publishing

5.21%

2.21%

42%

0951 – Retail (Department & Discount)

5.20%

1.76%

34%

1027 – Office Equipment

5.09%

2.89%

57%

0942 – Restaurants

5.09%

2.02%

40%

0430 – Recreational Products

5.07%

1.57%

31%

1030 – Scientific & Technical Instruments

5.07%

1.27%

25%

0712 – Insurance (Miscellaneous)

5.04%

1.90%

38%

0118 – Gold & Silver

5.03%

1.78%

35%

0939 – Rental & Leasing

4.96%

0.73%

15%

0521 – Personal & Household Products

4.95%

2.64%

53%

1021 – Computer Storage Devices

4.80%

0.22%

5%

1036 – Software & Programming

4.76%

0.96%

20%

0960 – Retail (Home Improvement)

4.73%

1.89%

40%

0418 – Footwear

4.66%

1.09%

23%

0612 – Oil Well Services & Equipment

4.64%

1.64%

35%

0421 – Furniture & Fixtures

4.64%

1.70%

37%

0945 – Retail (Apparel)

4.58%

1.17%

26%

0921 – Motion Pictures

4.58%

0.82%

18%

0209 – Construction – Supplies and Fixtures

4.56%

2.02%

44%

0812 – Medical Equipment & Supplies

4.48%

1.25%

28%

0909 – Business Services

4.47%

1.23%

28%

0803 – Biotechnology & Drugs

4.45%

2.39%

54%

0936 – Recreational Activities

4.45%

2.36%

53%

0303 – Conglomerates

4.29%

1.33%

31%

0918 – Hotels & Motels

4.21%

0.93%

22%

0133 – Paper & Paper Products

4.03%

2.63%

65%

0424 – Jewelry & Silverware

4.03%

0.04%

1%

1109 – Misc. Transportation

3.99%

1.27%

32%

1206 – Natural Gas Utilities

3.87%

3.81%

99%

1018 – Computer Services

3.85%

0.66%

17%

0718 – Investment Services

3.77%

1.84%

49%

0730 – S&Ls/Savings Banks

3.39%

1.93%

57%

0933 – Real Estate Operations

3.00%

3.89%

129%

1033 – Semiconductors

2.81%

1.86%

66%

0112 – Fabricated Plastic & Rubber

2.59%

1.42%

55%

0948 – Retail (Catalog & Mail Order)

2.56%

0.01%

0%

0433 – Textiles – Non-Apparel

2.56%

0.09%

3%

0975 – Waste Management Services

2.55%

2.63%

103%

1115 – Trucking

2.34%

0.61%

26%

0115 – Forestry & Wood Products

2.03%

2.48%

122%

0212 – Construction – Raw Materials

1.62%

1.55%

95%

0427 – Photography

1.00%

0.26%

26%

0221 – Mobile Homes & RVs

0.72%

1.64%

228%

1012 – Computer Networks

-0.57%

0.28%

-48%

0703 – Consumer Financial Services

-3.68%

1.96%

-53%

0972 – Security Systems & Services

-5.04%

1.17%

-23%

0930 – Printing Services

-5.06%

3.58%

-71%

1118 – Water Transportation

-7.14%

3.28%

-46%

0966 – Retail (Technology)

-9.39%

2.52%

-27%

0409 – Audio & Video Equipment

-24.98%

1.32%

-5%

 

SectorE YieldD YieldPayout %
01 – Basic Materials

11.29%

2.62%

23%

06 – Energy

10.46%

2.79%

27%

04 – Consumer Cyclical

8.00%

1.53%

19%

02 – Capital Goods

7.52%

1.86%

25%

Grand Average

6.97%

2.34%

34%

07 – Financial

6.34%

2.28%

36%

09 – Services

6.34%

2.79%

44%

05 – Consumer Non-Cyclical

5.80%

2.64%

46%

12 – Utilities

5.62%

3.82%

68%

08 – Health Care

5.39%

2.49%

46%

11 – Transportation

5.17%

1.62%

31%

10 – Technology

4.82%

1.12%

23%

03 – Conglomerates

4.29%

1.33%

31%

Now, remember that the earnings yields here are backward-looking.  To give you an example, property-casualty insurers and reinsurers lost a lot over the last 12 months, but still managed to have P/E ratios of around 18 (5.5% earnings yield).  When you look at these tables, ask yourself how good current prospects might be relative to the last 12 months.

Also remember that cyclical companies tend to have low valuations before their sales slump.  As sectors go, I think Energy has a lot to commend it in this environment.  Could have a lot of upside, and not much downside.

The tables above cover the whole market, 8800+ companies weighted by their market capitalizations.  I could do a second version to these tables for a subset of the markets, forward-looking, which used the earnings estimates of the sell-side.  I suspect that would cover the larger half of the companies, and roughly 99% of the total market cap.  Let me know if you would like that, it wouldn’t be that hard to do.

PS — Note that everything here is in line with the terms of my data license, because every number here is one that I calculated.  I try to follow that rule in things that I publish, aside from well-known and limited bits of data.

Ways to Buy Cars

Saturday, March 31st, 2012

To start, I will extensively quote a prior article that I wrote on the topic:

When I buy a car, I analyze what car I would like to buy.  I look at reliability, repair costs, overall costs, and style.  I use Consumer Reports to help me analyze this.  Then I go to the website(s) of the manufacturer in question, and copy the data on all of the used models on offer at the dealerships within 30 miles of me.  With price as the dependent variable, I then run a regression with model year as dummy independent variables, and total miles as an independent variable.  After I run my regression, I look at the cars with the biggest price deviations, the predicted price is a lot higher than actual.  I then look at the features of the underpriced cars, and choose one where there are good features with a discounted price.

I go to that dealer, review the car, test drive it, and if it passes my tests, I haggle over the price, and buy it.   In my experience, this cuts thousands off the price of the car.  What a great reason to have studied econometrics.

But then there is another way to do it, and I have done it before with success, and you can review it here.  Decide what car you want to buy, and solicit offers from nearby dealerships, and buy the cheapest offer.   For used car, you will have to adjust for quality.

I will offer you one more tweak which stems from this article from my bond manager days.  Call up all of the dealers offering the car that you want and tell them that you will buy from the dealer that offers the best offer, but at the second place price.  You’ll have to explain it on average at least once more.  If you want bonus points, mention that this idea stems from the research of a Nobel Prize winning economist William Vickery.  In my experience Vickery auctions even the odds against the experts, because it takes them out of their comfort zones, and makes them bid.

=–==-=-=-=-=-=-=-=-

One final note: I have one idea that I think is a hole in the system — an area that I think harbors inexpensive cars relative to their value.  In applying the first method — gathering prices and mileages and running a regression, I found one class of vehicles to almost always trade cheaper than they should.  Cars with low mileage that are old tend to be underpriced.  There is a lot of variability here, but if you want to buy a car cheaply that is in good shape, it is a good initial screen to find some good vehicles because people prize younger cars overly, even if they have been driven heavily.

My idea here gives you a way of buying something of greater quality, though unusual, for a lower price.  There’s usually a story behind the vehicles, but it often involves vehicles that had owners that rarely drove them, then had an accident, and the insurance company bought the vehicle as part of a settlement, an a used car dealer rebuilds the car, buys it cheaply, and sells it for what is for him a large markup, but cheap compared to the mileage and condition of equivalent cars of later vintages.

There.  Some practical ways of saving some money for you.  Hope it works well for you.

When Correlations Rhyme

Friday, March 30th, 2012

Before I start this piece let me give you a blast from the past, the columnist conversation comment that I most frequently reprint, from this post:


David Merkel
Make the Money Sweat, Man! We Got Retirements to Fund, and Little Time to do it!
3/28/2006 10:23 AM EST

What prompts this post was a bit of research from the estimable Richard Bernstein of Merrill Lynch, where he showed how correlations of returns in risky asset classes have risen over the past six years. (Get your hands on this one if you can.) Commodities, International Stocks, Hedge Funds, and Small Cap Stocks have become more correlated with US Large Cap Stocks over the past five years. With the exception of commodities, the 5-year correlations are over 90%. I would add in other asset classes as well: credit default, emerging markets, junk bonds, low-quality stocks, the toxic waste of Asset- and Mortgage-backed securities, and private equity. Also, all sectors inside the S&P 500 have become more correlated to the S&P 500, with the exception of consumer staples.

In my opinion, this is due to the flood of liquidity seeking high stable returns, which is in turn driven partially by the need to fund the retirements of the baby boomers, and by modern portfolio theory with its mistaken view of risk as variability, rather than probability of loss, and the likely severity thereof. Also, the asset allocators use “brain dead” models that for the most part view the past as prologue, and for the most part project future returns as “the present, but not so much.” Works fine in the middle of a liquidity wave, but lousy at the turning points.

Taking risk to get stable returns is a crowded trade. Asset-specific risk may be lower today in a Modern Portfolio Theory sense. Return variability is low; implied volatilities are for the most part low. But in my opinion, the lack of volatility is hiding an increase in systemic risk. When risky assets have a bad time, they may behave badly as a group.

The only uncorrelated classes at present are cash and bonds (the higher quality the better). If you want diversification in this market, remember fixed income and cash. Oh, and as an aside, think of Municipal bonds, because they are the only fixed income asset class that the flood of foreign liquidity hasn’t touched.

Don’t make aggressive moves rapidly, but my advice is to position your portfolios more conservatively within your risk tolerance.

Position: none

This article is motivated by this article from the estimable Morningstar.  Correlations are high among risk assets; the only place to lower correlations are cash and high quality long debt.  Guess what this period reminds me of?  2006-2008 prior to the crisis.

Now there are differences, though the prime driver is central banking in both cases.  In the earlier period, they were tightening slowly.  The mistake was not tightening rapidly, much earlier.  In this era, the floodgates of monetary excess have been wide open for three years.  The error here is assuming that monetary policy can work miracles when the economy is overlevered from the prior boom.

When the ordinary actors of the economy can’t borrow because they are overindebted, monetary policy has a hard time producing any long-term useful result.   Yes, it can spur a short-term move to risk assets.  It can twist the Treasury curve in the short-run.

This piece isn’t about monetary policy.  It’s about correlations in asset prices.  When risky assets get very correlated with each other, and the only alternative game to play is buying high quality bonds, it is an unstable situation that portends lower risky asset prices.

Color me neutral now, because the supply of cash to invest in high yield bonds, stock IPOs, and private equity is substantial.  But don’t be surprised if asset class performance reverses one year out from now.

Sorted Weekly Tweets

Friday, March 30th, 2012

 

China

 

  • China’s first bond default could be good market medicine http://t.co/8ShFniYM Bond trader: “We don’t really have a credit risk culture.” $$ Mar 31, 2012
  • Is China’s slowdown worse than previously estimated? http://t.co/CkZw8tLK Could b business conditions that are worst since 2009. $$ Mar 31, 2012
  • China Banks Said to Underestimate Local Government Risks http://t.co/qpPicyEe China has a clever bureaucracy; always has; big CYA $$ Mar 25, 2012
  • Chinese capitalism is just another knockoff http://t.co/w2hSozQL China is not Capitalist; it rewards Party members, not citizens. $$ Mar 25, 2012
  • Debating a “Hard Landing” http://t.co/NMnYk2XX friendly debate – Andrew Batson & Patrick Chovanec over China facing a “hard landing” in 2012 Mar 25, 2012
  • I Am Jordan’s Complete Lack of Surprise: Chinese Co’s Forced to Falsify Data http://t.co/BMj7ux0T Command & control economy, not free $$ Mar 25, 2012

 

Market Dynamics

 

  • The Nature of a Crowded Trade http://t.co/sf1phJjP A July 2008 article of mine where I reflected on the high correlations of the prior 3 yrs Mar 31, 2012
  • A Market Lacking Diversification http://t.co/khXUVjaL Correlation conditions similar to 2006-2008, only diversifier hi-qual long bonds $$ Mar 31, 2012
  • Pension Deficit for 100 US Company Plans Increased 41% in 2011 http://t.co/FdIZTltW Low long hi-qual rates & cruddy returns on risk assets Mar 31, 2012
  • 2277 Stocks and Still Not Diversified? http://t.co/iu0Pw8Ty Recommended solution is similar 2a levered version of the Permanent Portfolio $$ Mar 31, 2012
  • New from Aleph Blog The Rules, Part XXXI: The offering of liquidity through limit orders is a real service to th… http://t.co/ZiuzWIo5 Mar 30, 2012
  • Passive Aggressive: Index-Linked Securities and Individual Investors http://t.co/ZrjMCKCz Curbs stock picking, encourages factor timing $$ Mar 29, 2012
  • Bankers are telling corporate clients this is their chance to refinance http://t.co/Eh9tHEX6 The window of cheap junk financing is open $$ Mar 28, 2012
  • New from Aleph Blog Replacing Defined Contributions: I think that it is pretty certain that defined contribution… http://t.co/Dis34ql2 Mar 27, 2012
  • What Will Replace the 401(k)? http://t.co/miLAuoYc How about DB pensions where it depends on how much the employee kicks in plus match? $$ Mar 27, 2012
  • US Stocks Advance Following Bernanke’s Comments http://t.co/D7sORuIU Stox react 2 increases in inflation expectations. TIPS & Bonds fall $$ Mar 26, 2012
  • Hedge Funds Capitulating Buy Most Stocks Since 2010 http://t.co/XHwxzxNO Short-term money alert! Will propel mkt 4 a while, then… $$ Mar 26, 2012
  • If Bloomberg Business Week is a better magazine than old Businessweek (I think so), what magazine should we use now 4 a dumb $$ indicator? Mar 26, 2012

 

Asset Management

 

  • Nontraded REITS should be a nonstarter for clients http://t.co/O1ZuMvX8 And here’s one that just announced a 72% loss: http://t.co/la8d29my Mar 31, 2012
  • Oaktree IPO Could Pay 2 Founders $117.2M Each http://t.co/Yufla6Jk The Most Important Thing is getting rewarded 4 building AUM ;) $$ Mar 31, 2012
  • The Trouble With Exchange Traded Notes http://t.co/ZL7dVpjO Unsecured credit, total return swaps, low level of regulatory protection $$ Mar 31, 2012
  • Good 4 all of us RT @frankvoisin: My interview Research Magazine’s April issue: http://t.co/zioono6R Also features @VitaliyK @alephblog $$ Mar 30, 2012
  • Bain Gave Staff Way to Swell IRAs by Investing in Deals http://t.co/4LlAExBt Letting employees in on the fun shares the wealth. Good $$ Mar 30, 2012
  • Lying By Omission: Mutual Funds, Track Records & Departing Managers http://t.co/4MUyNRYs Track recrds shuld b suspended when critical ppl go Mar 29, 2012
  • New from Aleph Blog A Pox on Promoted Stocks (2): By this time, I would think that it would be worth the the tim… http://t.co/DJkH6E4W Mar 28, 2012
  • The Measured Approach to Value http://t.co/XiZOUMOn Features investors Vitaliy Katzenelson & Croft-Leominster, & smaller Frank Voisin & me Mar 28, 2012
  • GoodHaven Realizes Its Vision http://t.co/zJVmCFMa The CIO of Markel, Tom Gayner showed them favor and invested with them. Good for them. $$ Mar 27, 2012
  • What This Industry Needs is a Good Disruption http://t.co/imKDcElR There r a few areas of the financial industry that justify their fees $$ Mar 27, 2012
  • Found PDF slide presentation: http://t.co/0GfhME7m The Market for Financial Advice: An Audit Study $$ Worth a read, paper not free @ SSRN Mar 26, 2012
  • Treasuries Rise for Fourth Day on Global Growth Concern http://t.co/JYpanHTu Funny how the sentiment has reversed; who is surprised? $$ Mar 25, 2012

 

Monetary Policy

 

  • @kyles09 No, not a believer in MMT, MMR, or neoclassical macro. 2 much aggregation, not everything happens at once, goods/services central + Mar 30, 2012
  • @kyles09 and $$ only facilitates goods/services. Debt is important, but not central, some goods owned outright, w/no liabs. Money is a + Mar 30, 2012
  • @kyles09 creation of a culture, not the government, because @ the edges, FX & commodities will crowd out bad currencies. MMT -> inflation $$ Mar 30, 2012
  • What Does Bernanke Know? http://t.co/LydpOqk1 Introduces “The Guy Rate” http://t.co/zNVeUYmP Unemployment of older guys has hi costs Mar 29, 2012
  • Demand for U.S. Debt Is Not Limitless http://t.co/NWKHcpCD In 2011, the Fed purchased 61% of Treasury issuance. That can’t last. $$ Mar 29, 2012
  • Bitter Money Fights Shaped U.S History http://t.co/36jWnkQq Abandoning Gold Helped Dollar Gain Preeminence http://t.co/QbYMkTNL $$ Mar 28, 2012
  • For the last tweet, those r2 good articles by Simon Johnson & James Kwak, authors of “13 Bankers” & co-founders of The Baseline Scenario $$ Mar 28, 2012
  • Housing bubbles and interest rates http://t.co/9TfzMpt2 Makes my point that asset price levels should be part of monetary policy $$ Mar 31, 2012

 

Banking & Finance

 

  • FiveBooks Interviews > @Ritholtz on Causes of the Financial Crisis http://t.co/RQQZfHTz Many good perspectives from 6 authors on the crisis Mar 31, 2012
  • Geithner’s Math Puzzle Beyond Numbers for DeMarco http://t.co/Eg9BjcgE Principal forgiveness would have moral hazard impacts. $$ Mar 30, 2012
  • Why not make LIBOR off of binding offers of the banks to borrow/lend to any of their group $10M short-term unsecured? Avg — LIBOR/LIBID $$ Mar 30, 2012
  • Libor Links Deleted as UK Bank Group Backs Away From Rate http://t.co/HOy8TOof British Bankers’ Association distances itself from LIBOR $$ Mar 30, 2012
  • Branson’s Virgin Money Seen Disrupting U.K. Retail Banks http://t.co/bPcD8im7 Always been a Branson skeptic; he have audited financials? Mar 30, 2012
  • Why not make LIBOR off of binding bids/offers of the banks to borrow/lend to any of their group 10 million dollars sh… http://t.co/wK3HyopV Mar 29, 2012
  • Is Hartford Financial’s market exit a death knell for the annuity crowd or just more Hartford haplessness? http://t.co/AUEVqxWQ Both. $$ Mar 29, 2012
  • The Birth (and Death) of the Moral Age of Wall Street http://t.co/eStszd7i At one point the moral code of $GS had some meaning, not much now Mar 29, 2012
  • @BarbarianCap More subtle than that; for insurance accounting &the concept of release from risk, it is the conservative side of realistic $$ Mar 27, 2012
  • A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market http://t.co/WYQGAVVx +1 $$ Mar 26, 2012
  • But, disagree. Would b simpler and more effective to disallow repo financiers unrestricted access to collateral even in counterparty default Mar 26, 2012
  • Obama Relies on Debt Collectors Profiting From Student Loan Woe http://t.co/pYWwgLq2 How independent debt collectors get people 2 pay $$ Mar 26, 2012
  • A Bailout by Another Name http://nyti.ms/GRTNMM GSE writedowns would constitute a direct & sizable gift from taxpayers 2 the largest banks Mar 26, 2012
  • Banks’ preemptive strike against Dodd-Frank http://t.co/wjHW0nyv Banks adjusting strategies in order to keep doing as much biz as possible Mar 26, 2012
  • MF’s Corzine Ordered Funds Moved to JP Morgan, Memo Says http://t.co/cYaT9sHy The most likely cause may prove to b correct $$ #corzine Mar 26, 2012
  • BOE’s Tucker: Rehypothecation Consequences ‘Under the Radar’ http://t.co/0X8ZQMMH Good. Rehypothecation should b reviewed, perhaps limited Mar 26, 2012
  • @EpicureanDeal @dsquareddigest I would still lay the blame @ the door of $GS mgmt. Could have grown via retained earnings &stayed private $$ Mar 26, 2012
  • @EpicureanDeal @dsquareddigest Also, there r real advantages 2 partnership culture in an investment bank; risk control works a lot better $$ Mar 26, 2012
  • The Age of the Shadow Bank Run http://t.co/deJRQGgy Borrow short, lend long; clip a spread. Surprise! During the crisis you lose big! $$ Mar 25, 2012
  • The Interest Rate Swaps that Are Bankrupting Local Governments http://t.co/yHQZ1r3u Not true. Gov’ts tried to minimize taxes w/swaps, failed Mar 25, 2012
  • Three’s a Crowd http://t.co/KHtbrqpe Disagree w/the conclusion, because $GS did not have to go public; problem is mgmt, not shareholders $$ Mar 25, 2012

 

Pensions

 

  • Brazil’s pension system http://t.co/90O97tQ4 They allow people to retire too early & offer too much. More unsustainable than Medicare $$ Mar 30, 2012
  • @AlexRubalcava Perhaps a cash balance plan would do that. DB plans are not expensive because of explicit costs. They r expensive b/c + Mar 28, 2012
  • @AlexRubalcava during boom times benefits look free and get set too high, leading to high costs in the bust phase & plan terminations. $$ Mar 28, 2012

 

Politics

 

  • Obama Is a Loser Who Wins, Like FDR in 1936 http://t.co/K0x9go0T Don’t assume a bad economy insures the defeat of Obama. FDR won in ’36 $$ Mar 31, 2012
  • The Rejection of Austerity Begins http://t.co/CgWKa9x6 Until failure, ppl vote 4 politicians who promise magic prosperity thru govt fiat $$ Mar 30, 2012
  • Germany: The Final Frontier… Whose True Debt/GDP Is Now 140% http://t.co/KgW2d76E When you add up the guarantees, doesn’t look so good. $$ Mar 29, 2012
  • Justices Suggest Parts of Health-Care Law May Be Thrown Out http://t.co/cMvKHR20 B best 2 throw the whole law out; let Congress start over Mar 29, 2012
  • Contra: Court Can’t Let Broccoli Get in Way of Health Care Law http://t.co/5Yp2o8tB Sup Ct is moving 2 define interstate commerce better Mar 26, 2012
  • Death Tax Defying http://t.co/FrkL5yLB Eliminate the estate tax; Tax everyone on unrealized capital gains. $$ Same result. Mar 25, 2012
  • Intelligence community can keep data on Americans with no ties to terrorism for up to 5 years http://t.co/PCM7ldiG Stinks; call the ACLU $$ Mar 25, 2012

 

US Economy

 

  • Why Natural-Gas Prices Could Fade to Red http://t.co/GApb0xie When everyone tries 2 frack @ once, there is too much natgas, price falls Mar 30, 2012
  • US coal production declines as industry faces further stress http://t.co/l3WpZtDC Fracking has unpredictable consequences; affects energy $$ Mar 29, 2012
  • Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls http://t.co/JsgIdewr In certain locales, & on the low end, there r bidding wars Mar 29, 2012
  • The Biggest Bellwether In The World Is Giving Some Ominous Comments About Growth http://t.co/vHWs9lwB $FDX says things r slowing down $$ Mar 29, 2012
  • Planned Pipelines to Rival Keystone XL http://t.co/qQZ1Dsj2 Enterprise Products Partners & Enbridge may build competing pipelines $$ Mar 28, 2012
  • ‘Pink slime’ producer suspends operations http://t.co/CvptYPhU Goes from 4 factories to 1. 600 people will probably lose their jobs $$ Mar 28, 2012
  • @valuewalk @The_Analyst It is better for students to start small businesses. Forget economics, it is a waste. Profit/loss best teacher $$ Mar 27, 2012
  • The Economic Surprise Index is now trending down http://t.co/eJCEEdvy @soberlook reminds us that not everything is going well $$ Mar 27, 2012

 

Miscellaneous

  • Like it? I’ve actually bought cars that way! RT @mprobertson: http://t.co/UHdFL0Eu How to buy a car using game theory. very interesting. $$ Mar 31, 2012
  • Eating Chocolate Regularly May Make You Leaner, Survey Suggests http://t.co/l8c6MMpA This means one dark chocolate Dove promise/day $$ Mar 27, 2012
  • The second most dangerous people in the world are smart people with wrong postulates. Mar 25, 2012
  • The most dangerous people in the world are politicians who peddle the views of the smart people with wrong postulates. $$ Mar 25, 2012
  • Madoff FBI Files Reveal How He Fooled His Own Employees http://t.co/lmq2AoZG Gives hope to those accused; Madoff controlled data tightly. Mar 25, 2012

The Rules, Part XXXI

Friday, March 30th, 2012

The offering of liquidity through limit orders is a real service to the market, and on average gets rewarded in lower overall execution costs.  In choppy markets, it can really add value.

I urge all investors to place limit orders as a normal practice.  Better not to get filled on a few orders every now and then, than to get ripped off by market makers when a market order hits a thin market and you end up with a lousy fill.

Patience is a virtue in trading.  Don’t insist that you will get a full position on a stock you you want to own.  Rather, have multiple companies that you might want to own at their respective prices, and own the ones that the market is willing to sell to you.

When you think about “flash crashes” and what drove them, there are many factors involved, but one thing is clear: someone placed a market order at the wrong time, asking to buy or sell, no matter what.

Personally, anytime I place orders that are large relative to the ordinary volume of the market, and/or where the bid/ask spread is wide, I use discretionary reserve orders.  Say the bid is 20.50 for 200 shares, and the ask is 21.31 for 300 shares, and I am looking to buy. I would place a discretionary reserve order showing 100 shares at 20.49, but offer 41 cents of latitude, but with 2000 shares available to be bought.  In doing this, the bid/ask does not change, but if a program trade sweeps through the market seeking to sell at less than 20.90, my trade executes, and some will wonder, “Where did that come from?”

My view is that with high frequency trading, managers must adopt tactics, particularly on less liquid stocks, that we become invisible liquidity providers.  We match stealth with stealth, but look to get good fills on solid companies at very good prices.  We become market makers in a sense, up to the level of our price limits.

If I have done my fundamental homework right, putting out limit orders, even those that are “good till cancelled” offer value to me and my clients, because we get shares at prices that offer good value, and and sell shares at prices that represent full value or more.

Why Auditors Should be Rotated

Thursday, March 29th, 2012

There is a proposal afoot to mandate auditor rotation every fiver years or so.  Some don’t like it.  I think it is a great idea, with large benefits relative to the costs.

My insights, or lack thereof come from working in life insurance financial reporting in a number of different ways for around 15 years.  Only on time in 15 years, in what is arguably one of the most complex industries as accounting goes, did I ever find serious questioning going on.  Should I tell this story?

Yeah, I should, because it involves the “piece of work” that I reported to at AIG who told me, “Dealing with auditors is bloodsport.”  He also said, “Dealing with reinsurers is bloodsport.”  Delicious that this came to bite him in both ways.

A certain life reinsurer who was large then (call them Geta Life), but is out of the business now (unimaginable then, but given what happened here, no surprise), reinsured a large portion of the immediate annuities and structured settlements, including rated structured settlements that the AIG domestic life companies had written.

Did the treaties pass risk?  With a vengeance they did; not only did they pass mortality risk, but all investment risks were passed as well.  For this fine service, Geta Life earned 1% per year on the surplus relief, i.e., the difference between the book value of liabilities and assets reinsured.

It was not so well understood then, but mortality risk for structured settlements did not tend to work out well.  After an injury giving rise to a court case which would structure a settlement for the plaintiff, the defendant would ask insurance companies to bid on the settlement, which was a stream of certain and life contingent payments.  When the injury impaired the life of the plaintiff, bidding would get stiffer, because it is cheaper to fund life-contingent payments to those who aren’t likely to live so long.

Or so you would think… there was one case where a two-year old boy was injured, to the point of being in a coma, and the underwriter who bid the case rated him as having the lifespan of one who was age 73.  But the money transferred to the parents in the judgement was more than enough to care for the boy, and have a lot left over for the parents.  Ding!  The kid would live a lot longer than 15 years as a result of the settlement.

Rated settlements, where one bid on impaired lives, carried the “Winner’s Curse.” If you won, you overpaid.

But this was not on the radar screen of the somewhat oblivious Geta Life, until they found that the treaties were passing large losses to them, and they decided to audit the treaty.  Sadly, the actuaries above me, who had signed the treaties before I was employed by AIG, forgot to inform the investment department that the treaty limited the trading of around 20% of the bonds of the company in ways that would be mimicked 10 years later in CDOs.

  • Trades may not lower credit quality
  • Trades may not lower yield
  • The cashflow profile of the assets can’t be materially changed.
  • And a few more things…

This problem got dumped in my lap as a young actuary, as I found we were way out of compliance with the treaty terms, selling had gone on with abandon, on assets the reinsurer relied on, reducing the investment income the reinsurer would receive in a falling interest rate environment.

So, I proposed to the reinsurer that I go back in treaty history, and select assets purchased to replace those sold that would have kept the treaty in compliance, and put those into the segregated portfolio, and inform the investment department of the rules.  Once Geta Life understood that, they agreed to my “solution.”  That solution took me several months to work out, but I got it done.

In the meantime, the reinsurance treaties with Geta Life had become so valuable to AIG’s domestic life subsidiaries that if they came into question, the subsidiaries would fail.  The accountants of the auditors, realizing that there was something big to analyze, but not knowing how to do it, called in one of their best actuarial auditors.  My ever-confident boss knew he could beat him.

I still remember critical parts of the meeting as the actuarial auditor slowly checkmated my boss, and forced him to reduce the reserve credit for GAAP accounting, resulting in a sizable loss.

Closing off the story, Geta Life was satisfied on the changes in the asset portfolios, but was still annoyed at the losses.  The changes in assets did not avail much; bad underwriting was pinching.  They came to us saying that “Reinsurance is a good faith venture. You’re not supposed to take advantage of us.  Refund our losses, or we will take you to court for not having having managed the treaty properly from inception.”

I said, “You wrote the treaty.  You accepted my asset changes.  You are supposed to absorb mortality risk, such as there is.  I am not an officer of the company, so if you aren’t happy with this, talk to my boss.”

Shortly after that, I left AIG; it was not a great place to work.  Geta Life sued AIG for damages and won (far more than they should have).  Should have produced a blip in terms of earnings, and didn’t.

Mmmmm…. back to the original point.  Should auditors be rotated?

In all my years of financial reporting, I got wind of things in other areas of the company that I served that auditors should have questioned.  Auditors have often been “lap dogs.”  Only once did I ever see a significant challenge.  More often, I saw the auditors try to help the company explain an “accounting oddity.”  (AIG had a nonstandard way of reporting deferred annuity reserves that was very liberal, and it was proposed by their auditors.)

If auditors know that they are only going to be on the job for five years, they will realize a few things:

  • If this is going to die in a few years, it doesn’t matter as much if it dies next year.  Maybe firm reputation is worth more than two more years of a contract.
  • My work will be reviewed by someone unsympathetic to me in a few years.  He will have little incentive not to tear my work up, and call for restatements.
  • Having a fresh set of eyes on corporate finances will lead to questioning of assumptions that get ignored because they are boilerplate to the continuing auditor.
  • If auditing ceases to be an annuity to auditors, they will be less complacent, and might even act like auditors on occasion.

My experience with auditors was that they spent a lot of time on the data, and rarely asked the tough questions on assumptions and methods.  They were bean-counters, not actuaries, and certainly not businessmen.

If auditors are rotated, the incentives for just letting things slide will diminish.  That’s why auditors should be rotated.

A Pox on Promoted Stocks (2)

Wednesday, March 28th, 2012

By this time, I would think that it would be worth the the time of penny stock promoters to put a big red X over my house, and not send me any more promotions.  But alas, I got another one, Stevia First, Inc.  This is a weird one, a really, really weird one, as I will attempt to explain.

Stevia First [STVF] was originally Legend Mining, which was based in China, and was looking for diamonds in Canada, much as Nova Mining may be doing.  Any organization flexible enough to switch industries from mining to agriculture is probably no well-managed.  The two skill sets are very different.

Stevia First was a subsidiary of Legend Mining, but through a reverse merger, it became the parent company in 2011.  In the process, the majority of the stock was sold to a new CEO, but that has happened before with this company.  The original interests in the company were priced at a pittance, giving large profits to those who sold them.  The original shares were sold for a small fraction of a penny, and now trade for nearly $2/share.

And what has the company done to deserve this increase in value?  Less than nothing because:

  • There have never been any revenues
  • Income has always been negative
  • Net worth is decidedly negative

That is similar to so many promoted penny stocks.  The valuation is absurd, but remember absurd is like infinity.  Twice infinity is still infinity.  Twice absurd is still absurd.  “The market can remain insane longer than you can remain solvent, as Keynes once said.

I think that the price is so high because speculators are manipulating the price, thinking they can profit off of the momentum, and exit before the crash.  Why do I think this?

Well, as I researched this, reading through the SEC documents, and Googling some search terms, I ran across a series of websites promoting penny stocks, and tracking the promotion of penny stocks.  This was new to me, if there is anyone in my readership that has a more cogent explanation than I am about to give, please give it in the comments.

Here are some of the websites for Stevia First:

When I write about penny stocks, I usually print out the juicy parts of the disclosure because that explains the story, and so I will do here.  It was in 5-point type.  It is a blur until I do OCR.  Maybe we could have a rule that says disclosures must be made in the same font as the largest print in the document.  My but that would cramp their style.

Chuck Hughes and the Microcap Alert Newsletter OWNS NO SHARES, OPTIONS, WARRANTS in Stevia First, Inc (STVF). Also, Stevia First, Inc. has neither approved nor paid for this specific advertisement.  Readers should perform their own due diligence. The information presented is provided for information purposes only and the endorsement is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities. Endorser has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor.

My but that is lousy work.  Every evening, even though I make mistakes, I endeavor to make sure that what I write will help people.  But what of the promoter?

Conmar Capital, Inc., the third party advertiser, has paid $869,500 to Diamond Spot Media, LLC (DSM) as of March 7, 2012 for this advertising effort in an effort to build investor awareness. DSM shall retain any amounts over and above the cost of creating and distributing this advertisement which advertises Chuck Hughes, Microcap Profit Alert Newsletter coverage of Stevia First, Inc. Advertising services include; production, outsourced advertising copywriting services, mailing and other related distribution services and advertising media placement costs. Conmar Capital, Inc., the third party advertiser, is a company based In Belize City, Belize. Conmar Capital, Inc., the third party advertiser, has represented to DSM in writing that it does not own any shares of Stevia First Inc. except for restricted stock which Conmar Capital, Inc. has represented to DSM in writing that it will not sell, pledge or hypothecate or otherwise agree to dispose of forgo days following the initial dissemination of this advertisement Conmar Capital, Inc. has also represented to DSM in writing that neither it nor its affiliates will buy or sell any shares of Stevia First, Inc. during the period that this advertisement is being disseminated by DSM or third party media vendors.

Wait.  Let me get this straight.  You paid $870K for the mailing, and from what I can tell, more than $2 million for advertising in entire so far, and all you have is restricted stock?  With 2/3rds of the stock in the hands of the new and old CEOs, how can they make money?

Here are some ideas:

  • Since the start of the promotion, they have pushed the stock up from nearly 80 cents to nearly two bucks.  That’s a 150% gain.  To cover the $2.4 million paid, they would have had to own at least 2 million shares.  That’s not impossible, but remember, rocket up, rocket down.  Tough to lock in the gain.
  • Maybe they have some implicit, quiet deal with Stevia First management.  After all, they stand to benefit the most from this.  If I were part of the Stevia First management, I would be looking to do some sort of dilutitive deal (like a PIPE) to bring real cash into the company, and allow the company to last.
  • Maybe penny stock promoters are getting more slick.  They don’t speculate on their own deals, but on the deals of others.  Working as a greater group, they earn more money off the rubes that speculate on penny stocks.
  • Maybe they think the pump will hold the price up long enough that they can sell their restricted stock for a profit.

So how well has the pump and dump been working so far?  Pretty well.  But that says nothing about the future.  This is a company with no equity, no income, no assets, no stable management team.  It’s all air.  There are no patents that they own on Stevia.  There are no barriers to entry, so why should an obscure company be worth anything when it has no sustainable competitive advantage?

So far on the penny stocks, I am batting one thousand.  In my opinion, Stevia First will not be an error on my part, but only on the part of those that buy this company.

Replacing Defined Contributions

Tuesday, March 27th, 2012

I think that it is pretty certain that defined contribution [DC] plans 401(k)s, 403(b)s, 457s, much as they have grown to be dominant, have been a failure.  Many, though not all people like the illusion of control, and seeing their cash balance — makes the pension plan tangible, even if they don’t get what they will really need at retirement.

Pension plan reform has to face three realities.  The first is people don’t know how much to put away for retirement.  I’ll give you a hint: for almost all people, it should be over 10% of your gross pay.  The second is that people don’t know how to invest, so hand it off to advisors who will do it for them, and cheaply.  The third is silent, and leaves a lot of money on the table — most people would be better off taking an annuity from their pension plan than a third party, or trying to manage a lump sum on their own.  This is usually an option only for defined benefit [DB] plans.

On the last point, annuities from insurance companies will almost always be inferior to those from DB plans — the investment policy of the DB plan will likely yield more than the investments of the life insurance company.  The DB plan has more ability to take risk, and its expenses are lower.

And speaking of lower expenses, that’s another reason to replace DC plans.  Not only do DB plans provide better security, they have lower expenses.

But employers don’t want to fund expensive DB plans, particularly in a low interest rate environment.   Fine, that’s not what I am arguing for.  I am suggesting an odd sort of DC plan:

  • Participants can contribute what they wish
  • Employers can contribute what they wish
  • Professionals manage the assets; no asset management by participants.
  • During active employment, the cash balance can transfer with a change of employment.
  • At retirement, it converts to a DB plan, and an annuity is granted, more generous than could be obtained privately.  The retiree does not get the agony of managing a lump sum.

I think this would lead to much better results for plan participants.  The case would have to be made to participants that they have not done well managing their own funds — they will underperform by less through third party managers.  Also, few are good at managing lump sums for income.

This is the sort of plan that would yield better results for most, given that DB plans are out of favor, and participant-directed DC plans lead to high expense lousy results.  Best to have a hybrid plan.  Trustee-directed DC plan for accumulation.  DB plan for distribution.

That’s how I would structure it at present.  Better ideas are welcomed.  Thoughts?

Sorted Weekly Tweets

Saturday, March 24th, 2012

Central Banking

 

  • Been using FRED since it was a bulletin board in 1991. Great job, FRED team! http://t.co/kksvwllM Mar 24, 2012
  • The Villain http://t.co/yYReRb4r On Bernanke, the man who expanded the power of the Fed far beyond constitutional limits, if there r any $$ Mar 24, 2012
  • Bernanke Sees Need for Higher Household Spending to Fuel Growth http://t.co/3LQUTGji Yes Ben, we will spend more while we are inverted $$ Mar 24, 2012
  • Fed’s Evans Calls for Stronger Commitment to Low Rates http://t.co/vSKfU36q Read paper; don’t buy it. ARIMA, no out of sample tests $$ Mar 24, 2012
  • Bernanke Says Low Rates Didn’t Fuel Bubble http://t.co/XlF50zKV Perhaps Bernanke can’t remember minor crisis; RMBS extension mid-2003 $$ Mar 24, 2012
  • That crisis created a very sharp move up in rates http://t.co/jfNAVN3o $$ Mar 24, 2012
  • Bernanke: the man, the legacy and the law http://t.co/zA7OeFc4 “courts have shied away from developing jurisprudence on monetary policy.” $$ Mar 24, 2012
  • @fatdaz It is my firm belief that no economic entity can dominate entirely; central banks have been destroyed b4; will happen again $$ Mar 24, 2012
  • Masters of the Universe Start to Challenge Ben Bernanke http://t.co/31Pr1yrQ Markets are more powerful than Central Banks, watch out Fed! Mar 23, 2012
  • European Banks Would Have Passed Fed’s Stress Test http://t.co/z5bCBeYy Ultimate insult 4 stringency of Fed’s stress tests $$ #devildetails Mar 20, 2012
  • Bernanke Stands to Gain Capital-Market Experts With Nominees http://t.co/oX8xOdEU We need some people that doubt neoclassical economics $$ Mar 20, 2012
  • Bernanke Returns to Academic Roots to Justify Fed’s Existence http://t.co/ORfma5sE Safe audiences let him talk publicly w/little risk $$ Mar 20, 2012
  • Federal Reserve Stress Tests Make Us All Muppets http://t.co/CQu827KD Ignores E-Zone contagion, increase in int rate volatility, etc $$ Mar 19, 2012
  • Bernanke: “I Want to Bring Back Irrational Exuberance” http://t.co/p0qlQwXe @brucekrasting on overheating in some debt asset classes $$ Mar 19, 2012

 

China

 

  • Ai Weiwei: “You’re There but You’re Not Existing” http://t.co/d7mLxHXm RARE interview w/Ai Weiwei, describing his detention in China $$ Mar 24, 2012
  • China’s stock-market supervision suffering http://t.co/QEBPC5ya “Understaffed securities regulator, weak legal system cited” $$ #nosurprise Mar 21, 2012
  • @Roy_Cam They can’t make money b/c of overcapacity; China invested too much in steel & global growth stinks. US exports of steel r rising $$ Mar 20, 2012
  • @Roy_Cam We only import 30% of steel used in US, 4% of which comes from China = 1.2% of steel used is from China http://t.co/FTWt80oa $$ Mar 20, 2012
  • @Roy_Cam You are right there, and that’s one reason why profitability is declining in steel industry globally. $$ Mar 20, 2012
  • China to increase fuel prices 6-7% http://t.co/dBwrepDj Pump prices at record highs; biggest rise since June 2009 #ouch $$ Mar 20, 2012
  • Sad Industry Mantra: Make Steel, Lose Money http://t.co/Pu9e6qFj Insanity; doing same thing, expecting different results. Future bailout $$ Mar 20, 2012
  • The State-Owned Enterprises of China http://t.co/55nvgUMs I think a “big bang” would work, but the Communist Party would never do it $$ #Mao Mar 20, 2012
  • Chinese property *alert* http://t.co/eklWzXkU Property sales value contracted 20% year on year in the two months ending in February. $$ Mar 20, 2012
  • China’s new home prices “no longer rising” http://t.co/UL4T3yzQ The Chinese Gov’t always gets what it wants, until it gets too much of it $$ Mar 19, 2012
  • Chinese Companies Forced to Falsify Data, Government Says http://t.co/tH0MUiYn AN example of why I don’t trust Chinese economic data. $$ Mar 18, 2012
  • @Xiphos_Trading Don’t know if there will be a crash or not, but there has been a lot of malinvestment in China, like Late 80s Japan $$ Mar 18, 2012

 

Europe

 

  • Those Catchy Spanish (Yield) Curves http://t.co/qoGmGl7E Yields backing up in the Spanish bond market; this could be the next crisis $$ Mar 24, 2012
  • Euro-Zone Banks Get Show of Faith http://t.co/ZWqd8Df5 US MMFs begin adding back yieldy E-zone bank CP $$ #wedontlearnwereallydontlearn Mar 24, 2012
  • On second thought, hold off moving that business to Ireland http://t.co/Bdu6ezon Ireland heading into recession; possibility of default? $$ Mar 23, 2012
  • @Mapsofworld Gun to the head, I think it fails entirely, but that opinion is not held with high probability $$ Mar 22, 2012
  • @Mapsofworld If the E-zone doesn’t move 2a full fiscal union, the Euro will either fail entirely, or become the currency of a smaller group Mar 22, 2012
  • The Safe Haven of the Nordic Currencies Is No More http://t.co/FquH5ZWW It’s a little early to get categorical about this $$ Mar 21, 2012
  • A Wall St. Firm Advises Greece, With Discretion http://t.co/Y12GeNZq $BLK is one powerful firm that many govts in crisis turn 2 4 help $$ Mar 21, 2012
  • Swiss Secrecy Besieged Makes Banks Fret World Money Lure Fading http://t.co/qV197Px1 What good r Swiss banks if no secrecy, tax evasion $$ Mar 20, 2012
  • Germany on a Different Track http://t.co/Gl3BNXBA While Much of EZone Deals W/Busts, Property Prices r Rising in Berlin, Hamburg, Munich Mar 20, 2012

 

Rest of the World

 

  • Israel Billionaires Put Own Interest Ahead of Holders http://t.co/QSTpBn6E What’s mine is mine; what’s yours is negotiable $$ Mar 24, 2012
  • Late Shah’s Son Selected As Iran’s Person Of The Year http://t.co/phWmAFRQ This is VOA so take it w/a grain of salt; still funny 2thinkabout Mar 24, 2012
  • Latin American Nations in Worse Shape for Crisis, IDB Says http://t.co/zlZvDJi4 “result of lower budget surpluses b4 interest payments” $$ Mar 20, 2012
  • What is the real rate of interest telling us? http://t.co/Vbk13I02 Excess capacity in devel world post bubble pop, send cap 2 emerg mkts Mar 20, 2012

 

Insurance

 

  • @CflGator Life companies should be simple, but product design exploded to the point where reserving can’t keep up; I own only 1 life co. Mar 24, 2012
  • @CflGator Variable & Universal life products have secondary gtee issues; there r a variety of long dated term products w/rsv issues $$ Mar 24, 2012
  • @CflGator and P&C insurance — life insurance is capital intensive; they are sticking with their simplest biz, aside from long-tail P&C $$ Mar 24, 2012
  • @CflGator It really depends; they wrote a lot of complex life products. On the bright side, a company in runoff is a cash cow. $$ Mar 24, 2012
  • @CflGator That’s the tough Q. $HIG offered significant secondary guarantees when they were the #1 annuity writer. May not b prop reserved $$ Mar 21, 2012
  • Hartford Shares Jump On Split, Analysts Like It Too http://t.co/APFbv4UA Not so fast on $HIG; regulators must approve a split; c my cmmt Mar 21, 2012
  • Should Hartford’s Annuity Holders Be Worried? http://t.co/HfuZO3QO Probably not; small annuitants have protection from guaranty funds $$ Mar 21, 2012
  • Annuity Case Chills Insurance Agents http://t.co/rHkg68Lw I’m always skeptical of products w/high commissions & surrender charges $$ Mar 19, 2012

 

Fixed Income

 

  • Why Fixed Income Funds May Fall Short http://t.co/cHmF3hOj On the difficulties of combating tracking error in fixed income ETFs. $$ Mar 24, 2012
  • Top Junk Pummels Treasuries for Safest Profits http://t.co/E5vl2qHB That’s the rearview mirror; will be harder to squeeze more returns out Mar 21, 2012
  • The differentiation of Agency MBS risk profiles http://t.co/IJN2mbCm Interesting to see long avg life on high coupon underwater mortgages $$ Mar 21, 2012
  • Bond Bear Market Yet to Roar http://t.co/oNENX9jc The selloff has been piddling so far, has not affected equities, & it may reverse $$ Mar 21, 2012
  • Do High Yield Bonds Know Something Stocks Don’t? http://t.co/986Evuok Equities & Inv Grade corps outperforming HY Corps- call provisions? $$ Mar 19, 2012
  • RE: @thearmotrader Thanks, you did the post that I wanted to do.  Now I just have to point to it. http://t.co/Ru22nvom Mar 19, 2012

 

Exchange Traded Products

 

  • “@HerbGreenberg mentions that once the creation/redemption mechanism “breaks” (my word, not his), that the ETF/ETN sh… http://t.co/jxK0bZfX Mar 23, 2012
  • RE: Not likely, but maybe.  If they were forced to see that they were getting a negative (or very low positive) yield… http://t.co/nnxLt2oj Mar 23, 2012
  • Exchange-Traded Notes Are Worse Than You Think http://t.co/FAO4IS3H Path-dependent fees, shadow NAVs, high fees, tracking error, credit risk Mar 21, 2012
  • Who Uses Leveraged and Inverse ETFs Anyway? http://t.co/cYpkVMr5 Retail owns 80%+. Normal ETFs r mostly held by institutions $$ Mar 21, 2012
  • Know Your Client – Leveraged ETF Version http://t.co/gqPtiZtF Doesn’t matter if leverage is internal or external, client needs come first $$ Mar 21, 2012
  • Money Managers Serving Clients First, Ego Second http://t.co/gY9bd1iR Using the investment vehicles of competing firms — a good thing $$ Mar 21, 2012
  • RE: @finadd “Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by t… http://t.co/cn5TM1cR Mar 20, 2012
  • @amy_calistri at the levels implied by the CEF pricing at some funds, it would shave the yield 3% $DHF $MAV $HIX, 5% $PHT, 12% $PHK $$ Mar 19, 2012
  • @amy_calistri Right. I watch the premiums on credit-sensitive CEFs as a measure of frothiness. If the underlying at some HY CEFs were bot + Mar 19, 2012
  • Anybody know what was up with $EFT today? Floating-rate loan CEF up 4%+, Closed near par last Friday… odd. $$ Mar 19, 2012
  • ‘Junk’ ETFs: Tread Lightly http://t.co/lXftKjwB Check the Price vs the NAV before you buy; also, if w/ds start, index bonds will get hit Mar 19, 2012

 

Individual Equities

 

  • Leon Black’s Bid Gets No Respect as Great Wolf Surges http://t.co/kqS6pNyU Used 2call this stock “little dog;” badly managed frm beginning Mar 24, 2012
  • @merrillmatter Bezos is scary-smart. I don’t own $AMZN either $$ Mar 21, 2012
  • Just watched it. Wow, very impressive RT @merrillmatter: Skynet shall be renamed SkyBezos — Order Fetch http://t.co/6l9R9bHn $$ Mar 21, 2012
  • +1, ugh RT @abnormalreturns: [post] America officially ran out of good corporate names today. http://t.co/lLGEmeAB $ABT $KFT $AAPL $NKE $MCD Mar 21, 2012
  • You’re on a roll today @merrillmatter: @AlephBlog soon our robot overlords will deliver our bread and circuses to us in the Bezos Colosseum Mar 21, 2012
  • No RT @merrillmatter: @AlephBlog I want to start a consultancy that veto’s stupid company names. Would your anti-consultancy veto that? :) Mar 21, 2012
  • Amazon Wrings Profit From Fulfillment as Spending Soars http://t.co/McHUqMhe Tough work 4 laborers, though. $AMZN pushes pretty hard $$ Mar 21, 2012
  • Kraft to Be Renamed Mondelez After Grocery Unit Is Spun Off http://t.co/GONE6x47 Pronounced “Mohn-dah-LEEZ.” Sigh, who got paid 4 this? $$ Mar 21, 2012
  • The 400% Man’s New Big Bet http://t.co/33rHut9y Implicitly a bet that $BRKa will always be able to buy back stock @ 1.1x book value $$ Mar 21, 2012
  • In a Major Restructuring, $HPQ To Combine Printer and PC Groups http://t.co/Aj3zaKaY FD: +HPQ; seems like a marginal idea, maybe works $$ Mar 20, 2012
  • Why $HPQ Really Needs A CEO Succession Plan http://t.co/hkPDVkAy Good cultures should promote from within; HP used to have that $$ FD: +HPQ Mar 20, 2012
  • Buffett Message Is ‘Do as I Say, Not as I Do’ http://t.co/Gcblc8oZ Alice Schroeder very acidic on Buffett; half right & half wrong $$ Mar 20, 2012
  • $AAPL to Pay Dividend, Buy Back Stock to Return Some of Cash http://t.co/uxf6jEBP About time, if there aren’t opps 2use the $$ Mar 19, 2012

 

Money Market Funds

 

  • @MarcHochstein Thanks, I found the CFA Institutes comment today, and their view is similar 2 mine in some ways: http://t.co/8yPLcXfX $$ Mar 22, 2012
  • @MarcHochstein investment restrictions moved back to 2008 norms. The ability 2 have credit events frees MMFs to pursue best advantage $$ Mar 21, 2012
  • @MarcHochstein My idea will work 4 MMFs using inv policies prior 2 2008. The MMF folks aren’t earning $$ now, but they could with + Mar 21, 2012
  • @MarcHochstein After reading this: http://t.co/aUoaN4kb Ask them, what if you traded Merkel’s idea 4 a loosening of investment rules? $$ Mar 21, 2012
  • @MarcHochstein 1 more thing; if they have any sympathy toward my idea, I live near DC & would be willing to testify to the SEC $$ Mar 20, 2012
  • @MarcHochstein Does that help? I still think my proposal, one of the few compromise proposals out there would work best of all. Mar 20, 2012
  • @MarcHochstein Having been a life actuary, most regulatory progress happens when actuaries talk w/smarter regulators & forge compromise Mar 20, 2012
  • @MarcHochstein Does that help? MMFs are just saying “We r fine, nothing needs 2b done.” 2me that strategy prob loses. Mar 20, 2012
  • @MarcHochstein Would ask them if they have any way of stopping MMF runs on a private basis; this is the SEC goal; solve that, they leave Mar 20, 2012
  • @MarcHochstein More humbly, I would ask them if they really think they can beat the SEC. SEC’s proposal is horrible, but saying “no” loses Mar 20, 2012
  • @MarcHochstein Not so humbly, I would ask that u show them my proposal that I sent to the SEC, & ask them to back it http://t.co/vuNL8tQE Mar 20, 2012

 

Market Dynamics

 

  • The Easy Money’s Been Made, Four Reasons for Caution http://t.co/9kAXqEU4 E-zone calm, risk tolerance+ , VIX low, FOMC may move soon Mar 24, 2012
  • …and then all of a sudden, THE BULLS WENT BERZERK! http://t.co/bJKCVJha Lots of bullishness out there, though Howard Marks thought otherwise Mar 21, 2012
  • @byrneseyeview That’s true, & I did a presentation on that. One more complicating factor were financials, which looked cheap but weren’t $$ Mar 21, 2012
  • @byrneseyeview Found it. Here: http://t.co/YupRW6yD It’s on a number of topics; it was well-received $$ Mar 21, 2012
  • Contra: The Biggest Bubble You’ve Never Heard Of http://t.co/0tzkPyiA Value can’t b a bubble. Growth can b a bubble. Growth & ROE meanrevert Mar 21, 2012
  • Is this time really different? http://t.co/eePs0aIV It’s never different. It’s always different. Profit margins will mean-revert; Q is when Mar 21, 2012
  • Biggs boosts bullish bets on stocks to 90% net long http://t.co/5fYQDhUC Won’t be the first 2 say this, but makes me doubt the rally $$ Mar 21, 2012
  • The Ax is Back http://t.co/B1j3f7nH @reformedbroker Reduced profits on Wall Street translates into reduced perks, bonuses & jobs $$ Mar 21, 2012
  • Public Companies: The End Is Near http://t.co/KejHwYDu There r still advantages 2being publicly traded, but has eroded since Sarbox, etc $$ Mar 20, 2012
  • S&P 500 Rises to Four-Year High as Apple Plans Dividend http://t.co/RnBf9yEw $AAPL raises the div yld on the S&P 500 by 0.08%. Big! $$ Mar 19, 2012
  • Shares and shibboleths http://t.co/CspyJCNX The equity premium over a diversified portfolio of investment grade bonds is ~1%/yr IMO $$ Mar 19, 2012
  • Hubble, Bubble, Index Trouble http://t.co/2q3CPx4g Been saying this for years, indexing changes market dynamics, what happens @ reversal? $$ Mar 18, 2012

 

Politics

 

  • Why Are Your Neighbors Just Like You? http://t.co/0lcPOuLZ On the demise of really knowing your neighbors; we try 2 reach out; few others do Mar 24, 2012
  • @traderscrucible @interfluidity My blog (& Steve’s) have always had a strong public policy emphasis. Dreaming, but we suggest better policy. Mar 23, 2012
  • Agent Based Models http://t.co/0etJ20fL “Why not keep it simple, and just say, you pay an asset tax for every dollar over $100B?” $$ Mar 23, 2012
  • The Warren Buffett Chain Letter http://t.co/31FFSrmm Draconian adjustments. What Buffett did & didn’t say. 3% deficit ejects Congress $$ Mar 21, 2012
  • Migration of sovereign debt from private hands to public institutions http://t.co/rQbDTXg3 &the debt sits til liquidity is needed -> crisis! Mar 21, 2012
  • To Stay On Top, The US Must Invest In Research Universities http://t.co/P4kyUqY0 FD: + $INTC; do it w/yr own $$ not taxes; c my comment Mar 20, 2012
  • RT @BarbarianCap: “cnbc: California Cities Scrambling to Avoid Becoming Insolvent” > the die was cast years ago; clowns, path depende … Mar 20, 2012
  • Stopping the National Debt: A Movement Led By a Cowboy, a Colonel, & a Citizens’ Cavalry http://t.co/frqAXCpy Natl Debt Relief Amendment Mar 20, 2012
  • Who is REALLY paying in the $25bil TBTF mortgage settlement http://t.co/T2h1B5CO $5B from banks, rest MBS holders eg pension plans, insurers Mar 19, 2012
  • The JOBS Act: Plutocracy in Action http://t.co/Fjo3Ppet Another article on the previous topic; don’t downgrade information quality $$ Mar 19, 2012
  • Small Biz Jobs Act Is a Bipartisan Bridge Too Far http://t.co/AwBXg184 Would not mess w/securities laws in that way to create growth $$ Mar 19, 2012
  • Public Unions Send Medical Bills to Taxpayers http://t.co/Lb2XgAv9 CA Sup Ct foolishly makes healthcare nonreducible. CA will die $$ Mar 18, 2012
  • As Unions Lose Their Grip, Indiana Lures Manufacturing Jobs http://t.co/vj177CT2 Like my article that few like http://t.co/WgdN7Mmq $$ Mar 18, 2012
  • Pension Legislation Could Cut Contributions, Hike Taxes http://t.co/Tj1UlUz8 Stupid proposals that weaken DB pensions, companies r strongnow Mar 18, 2012

 

Regulation

 

  • Where is the Center for Audit Quality When We Actually Could Use It? http://t.co/jWt09bcw JOBS Act: destroy info reliability to create jobs Mar 23, 2012
  • Fed’s Fisher Says ‘Too-Big-to-Fail’ Problem Remains http://t.co/eLvHGmXt Richard Fisher favors breakup of the biggest banks. $$ Mar 21, 2012
  • @carney just read your piece on the net capital rule. Similar to my piece last November http://t.co/tl28NPku Good piece. $$ Mar 21, 2012
  • Top Court’s Patent Rejection Alarms the Biotech Industry http://t.co/oK11WlvR ’bout time we forced a more fundamental review of patents Mar 21, 2012

 

Economics

 

  • Solar’s 80% Plunge Hurts Utilities From Hawaii to Spain http://t.co/m9eACVTp Overcapacity drives down prices of PV panels for now. $$ Mar 21, 2012
  • Mean Time Between Failures http://t.co/zkT0z9cX The “recovery” is getting long in the tooth, eg it may end soon; graph: http://t.co/xOHA1IYA Mar 20, 2012
  • Obama’s tax hikes threaten a new US recession http://t.co/uNHwBpeJ Looking @ 4 more years of divided govt & stalemate $$ #debtbombgrows Mar 20, 2012
  • @The_Dumb_Money I would have liked to see the Banks/Etc. who owned the servicers bear more of the cost $$ Mar 20, 2012
  • Partial equilibrium intuitions about choice http://t.co/215kIrmS @interfluidity more difficult to solve general equilibrium Qs than partial Mar 19, 2012
  • Understanding the New Price of Oil http://t.co/TaMTaneR No surprise here; most cheap oil has been found, the price of oil should rise $$ Mar 18, 2012

 

Miscellaneous

 

  • @merrillmatter Factoid: 100,000,000,000 to 1 for a monkey to type the word “banana” from random typewriter jumping Mar 21, 2012
  • Is a Calorie a Calorie? http://t.co/4hyTfSvr Yes, but different nutrients come w/calories. Also, a unit of fat has 2x cals vs carbs/protein Mar 21, 2012
  • Madoff’s Lament: I Was An Honest Money Manager Once http://t.co/OGp2xRHR The outside world should ignore Madoff now. Attention feeds him. Mar 21, 2012
  • Trust no one http://t.co/cFYBkCA7 & http://t.co/ILP0dPlA Independent & regular journalists face conflicts of interest in giving speeches $$ Mar 20, 2012
  • On Slime and Water http://t.co/8iezy0FK Pink Slime in burgers, and shortages of potable water in most of the globe, except Canada & US. $$ Mar 18, 2012
  • The NSA Is Building the Country’s Biggest Spy Center (Watch What You Say) http://t.co/iUsN5D0t Time to increase encryption key sizes $$ Mar 18, 2012
  • @TimABRussell I always read all the books I review; in rare cases when I don’t, I tell readers that I skimmed it. $$ Mar 18, 2012

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Central Banking

 

·  Been using FRED since it was a bulletin board in 1991. Great job, FRED team! http://t.co/kksvwllMMar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  The Villain http://t.co/yYReRb4r On Bernanke, the man who expanded the power of the Fed far beyond constitutional limits, if there r any $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke Sees Need for Higher Household Spending to Fuel Growth http://t.co/3LQUTGji Yes Ben, we will spend more while we are inverted $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Fed’s Evans Calls for Stronger Commitment to Low Rates http://t.co/vSKfU36q Read paper; don’t buy it. ARIMA, no out of sample tests $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke Says Low Rates Didn’t Fuel Bubble http://t.co/XlF50zKV Perhaps Bernanke can’t remember minor crisis; RMBS extension mid-2003 $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  That crisis created a very sharp move up in rates http://t.co/jfNAVN3o $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke: the man, the legacy and the law http://t.co/zA7OeFc4 “courts have shied away from developing jurisprudence on monetary policy.” $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @fatdaz It is my firm belief that no economic entity can dominate entirely; central banks have been destroyed b4; will happen again $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Masters of the Universe Start to Challenge Ben Bernanke http://t.co/31Pr1yrQ Markets are more powerful than Central Banks, watch out Fed! Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  European Banks Would Have Passed Fed’s Stress Test http://t.co/z5bCBeYy Ultimate insult 4 stringency of Fed’s stress tests $$ #devildetails Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke Stands to Gain Capital-Market Experts With Nominees http://t.co/oX8xOdEU We need some people that doubt neoclassical economics $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke Returns to Academic Roots to Justify Fed’s Existence http://t.co/ORfma5sE Safe audiences let him talk publicly w/little risk $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Federal Reserve Stress Tests Make Us All Muppets http://t.co/CQu827KD Ignores E-Zone contagion, increase in int rate volatility, etc $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Bernanke: “I Want to Bring Back Irrational Exuberance” http://t.co/p0qlQwXe @brucekrasting on overheating in some debt asset classes $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

 

China

 

·  Ai Weiwei: “You’re There but You’re Not Existing” http://t.co/d7mLxHXm RARE interview w/Ai Weiwei, describing his detention in China $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  China’s stock-market supervision suffering http://t.co/QEBPC5ya “Understaffed securities regulator, weak legal system cited” $$ #nosurprise Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @Roy_Cam They can’t make money b/c of overcapacity; China invested too much in steel & global growth stinks. US exports of steel r rising $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @Roy_Cam We only import 30% of steel used in US, 4% of which comes from China = 1.2% of steel used is from China http://t.co/FTWt80oa $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @Roy_Cam You are right there, and that’s one reason why profitability is declining in steel industry globally. $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  China to increase fuel prices 6-7% http://t.co/dBwrepDj Pump prices at record highs; biggest rise since June 2009 #ouch $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Sad Industry Mantra: Make Steel, Lose Money http://t.co/Pu9e6qFj Insanity; doing same thing, expecting different results. Future bailout $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  The State-Owned Enterprises of China http://t.co/55nvgUMs I think a “big bang” would work, but the Communist Party would never do it $$ #Mao Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Chinese property *alert* http://t.co/eklWzXkU Property sales value contracted 20% year on year in the two months ending in February. $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  China’s new home prices “no longer rising” http://t.co/UL4T3yzQ The Chinese Gov’t always gets what it wants, until it gets too much of it $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Chinese Companies Forced to Falsify Data, Government Says http://t.co/tH0MUiYn AN example of why I don’t trust Chinese economic data. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

·  @Xiphos_Trading Don’t know if there will be a crash or not, but there has been a lot of malinvestment in China, like Late 80s Japan $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

 

Europe

 

·  Those Catchy Spanish (Yield) Curves http://t.co/qoGmGl7E Yields backing up in the Spanish bond market; this could be the next crisis $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Euro-Zone Banks Get Show of Faith http://t.co/ZWqd8Df5 US MMFs begin adding back yieldy E-zone bank CP $$ #wedontlearnwereallydontlearn Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  On second thought, hold off moving that business to Ireland http://t.co/Bdu6ezon Ireland heading into recession; possibility of default? $$ Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  @Mapsofworld Gun to the head, I think it fails entirely, but that opinion is not held with high probability $$ Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

·  @Mapsofworld If the E-zone doesn’t move 2a full fiscal union, the Euro will either fail entirely, or become the currency of a smaller group Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

·  The Safe Haven of the Nordic Currencies Is No More http://t.co/FquH5ZWW It’s a little early to get categorical about this $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  A Wall St. Firm Advises Greece, With Discretion http://t.co/Y12GeNZq $BLK is one powerful firm that many govts in crisis turn 2 4 help $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Swiss Secrecy Besieged Makes Banks Fret World Money Lure Fading http://t.co/qV197Px1 What good r Swiss banks if no secrecy, tax evasion $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Germany on a Different Track http://t.co/Gl3BNXBA While Much of EZone Deals W/Busts, Property Prices r Rising in Berlin, Hamburg, Munich Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

 

Rest of the World

 

·  Israel Billionaires Put Own Interest Ahead of Holders http://t.co/QSTpBn6E What’s mine is mine; what’s yours is negotiable $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Late Shah’s Son Selected As Iran’s Person Of The Year http://t.co/phWmAFRQ This is VOA so take it w/a grain of salt; still funny 2thinkabout Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Latin American Nations in Worse Shape for Crisis, IDB Says http://t.co/zlZvDJi4 “result of lower budget surpluses b4 interest payments” $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  What is the real rate of interest telling us? http://t.co/Vbk13I02 Excess capacity in devel world post bubble pop, send cap 2 emerg mkts Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

 

Insurance

 

·  @CflGator Life companies should be simple, but product design exploded to the point where reserving can’t keep up; I own only 1 life co. Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @CflGator Variable & Universal life products have secondary gtee issues; there r a variety of long dated term products w/rsv issues $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @CflGator and P&C insurance — life insurance is capital intensive; they are sticking with their simplest biz, aside from long-tail P&C $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @CflGator It really depends; they wrote a lot of complex life products. On the bright side, a company in runoff is a cash cow. $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @CflGator That’s the tough Q. $HIG offered significant secondary guarantees when they were the #1 annuity writer. May not b prop reserved $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Hartford Shares Jump On Split, Analysts Like It Too http://t.co/APFbv4UA Not so fast on $HIG; regulators must approve a split; c my cmmt Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Should Hartford’s Annuity Holders Be Worried? http://t.co/HfuZO3QO Probably not; small annuitants have protection from guaranty funds $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Annuity Case Chills Insurance Agents http://t.co/rHkg68Lw I’m always skeptical of products w/high commissions & surrender charges $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

 

Fixed Income

 

·  Why Fixed Income Funds May Fall Short http://t.co/cHmF3hOj On the difficulties of combating tracking error in fixed income ETFs. $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  Top Junk Pummels Treasuries for Safest Profits http://t.co/E5vl2qHB That’s the rearview mirror; will be harder to squeeze more returns out Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  The differentiation of Agency MBS risk profiles http://t.co/IJN2mbCm Interesting to see long avg life on high coupon underwater mortgages $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Bond Bear Market Yet to Roar http://t.co/oNENX9jc The selloff has been piddling so far, has not affected equities, & it may reverse $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Do High Yield Bonds Know Something Stocks Don’t? http://t.co/986Evuok Equities & Inv Grade corps outperforming HY Corps- call provisions? $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  RE: @thearmotrader Thanks, you did the post that I wanted to do.  Now I just have to point to it. http://t.co/Ru22nvom Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

 

Exchange Traded Products

 

·  “@HerbGreenberg mentions that once the creation/redemption mechanism “breaks” (my word, not his), that the ETF/ETN sh… http://t.co/jxK0bZfX Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  RE: Not likely, but maybe.  If they were forced to see that they were getting a negative (or very low positive) yield… http://t.co/nnxLt2oj Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  Exchange-Traded Notes Are Worse Than You Think http://t.co/FAO4IS3H Path-dependent fees, shadow NAVs, high fees, tracking error, credit risk Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Who Uses Leveraged and Inverse ETFs Anyway? http://t.co/cYpkVMr5 Retail owns 80%+. Normal ETFs r mostly held by institutions $$ Mar 21, 2012

·  Know Your Client – Leveraged ETF Version http://t.co/gqPtiZtF Doesn’t matter if leverage is internal or external, client needs come first $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Money Managers Serving Clients First, Ego Second http://t.co/gY9bd1iR Using the investment vehicles of competing firms — a good thing $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  RE: @finadd “Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by t… http://t.co/cn5TM1cR Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @amy_calistri at the levels implied by the CEF pricing at some funds, it would shave the yield 3% $DHF $MAV $HIX, 5% $PHT, 12% $PHK $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  @amy_calistri Right. I watch the premiums on credit-sensitive CEFs as a measure of frothiness. If the underlying at some HY CEFs were bot + Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Anybody know what was up with $EFT today? Floating-rate loan CEF up 4%+, Closed near par last Friday… odd. $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  ‘Junk’ ETFs: Tread Lightly http://t.co/lXftKjwB Check the Price vs the NAV before you buy; also, if w/ds start, index bonds will get hit Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

 

Individual Equities

 

·  Leon Black’s Bid Gets No Respect as Great Wolf Surges http://t.co/kqS6pNyU Used 2call this stock “little dog;” badly managed frm beginning Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @merrillmatter Bezos is scary-smart. I don’t own $AMZN either $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Just watched it. Wow, very impressive RT @merrillmatter: Skynet shall be renamed SkyBezos — Order Fetch http://t.co/6l9R9bHn $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  +1, ugh RT @abnormalreturns: [post] America officially ran out of good corporate names today. http://t.co/lLGEmeAB $ABT $KFT $AAPL $NKE $MCD Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  You’re on a roll today @merrillmatter: @AlephBlog soon our robot overlords will deliver our bread and circuses to us in the Bezos Colosseum Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  No RT @merrillmatter: @AlephBlog I want to start a consultancy that veto’s stupid company names. Would your anti-consultancy veto that? :) Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Amazon Wrings Profit From Fulfillment as Spending Soars http://t.co/McHUqMhe Tough work 4 laborers, though. $AMZN pushes pretty hard $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Kraft to Be Renamed Mondelez After Grocery Unit Is Spun Off http://t.co/GONE6x47 Pronounced “Mohn-dah-LEEZ.” Sigh, who got paid 4 this? $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  The 400% Man’s New Big Bet http://t.co/33rHut9y Implicitly a bet that $BRKa will always be able to buy back stock @ 1.1x book value $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  In a Major Restructuring, $HPQ To Combine Printer and PC Groups http://t.co/Aj3zaKaY FD: +HPQ; seems like a marginal idea, maybe works $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Why $HPQ Really Needs A CEO Succession Plan http://t.co/hkPDVkAy Good cultures should promote from within; HP used to have that $$ FD: +HPQ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Buffett Message Is ‘Do as I Say, Not as I Do’ http://t.co/Gcblc8oZ Alice Schroeder very acidic on Buffett; half right & half wrong $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  $AAPL to Pay Dividend, Buy Back Stock to Return Some of Cash http://t.co/uxf6jEBP About time, if there aren’t opps 2use the $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

 

Money Market Funds

 

·  @MarcHochstein Thanks, I found the CFA Institutes comment today, and their view is similar 2 mine in some ways: http://t.co/8yPLcXfX $$ Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein investment restrictions moved back to 2008 norms. The ability 2 have credit events frees MMFs to pursue best advantage $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein My idea will work 4 MMFs using inv policies prior 2 2008. The MMF folks aren’t earning $$ now, but they could with + Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein After reading this: http://t.co/aUoaN4kb Ask them, what if you traded Merkel’s idea 4 a loosening of investment rules? $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein 1 more thing; if they have any sympathy toward my idea, I live near DC & would be willing to testify to the SEC $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein Does that help? I still think my proposal, one of the few compromise proposals out there would work best of all. Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein Having been a life actuary, most regulatory progress happens when actuaries talk w/smarter regulators & forge compromise Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein Does that help? MMFs are just saying “We r fine, nothing needs 2b done.” 2me that strategy prob loses. Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein Would ask them if they have any way of stopping MMF runs on a private basis; this is the SEC goal; solve that, they leave Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein More humbly, I would ask them if they really think they can beat the SEC. SEC’s proposal is horrible, but saying “no” loses Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @MarcHochstein Not so humbly, I would ask that u show them my proposal that I sent to the SEC, & ask them to back it http://t.co/vuNL8tQE Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

 

Market Dynamics

 

·  The Easy Money’s Been Made, Four Reasons for Caution http://t.co/9kAXqEU4 E-zone calm, risk tolerance+ , VIX low, FOMC may move soon Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  …and then all of a sudden, THE BULLS WENT BERZERK! http://t.co/bJKCVJha Lots of bullishness out there, though Howard Marks thought otherwise Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @byrneseyeview That’s true, & I did a presentation on that. One more complicating factor were financials, which looked cheap but weren’t $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @byrneseyeview Found it. Here: http://t.co/YupRW6yD It’s on a number of topics; it was well-received $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Contra: The Biggest Bubble You’ve Never Heard Of http://t.co/0tzkPyiA Value can’t b a bubble. Growth can b a bubble. Growth & ROE meanrevert Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Is this time really different? http://t.co/eePs0aIV It’s never different. It’s always different. Profit margins will mean-revert; Q is when Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Biggs boosts bullish bets on stocks to 90% net long http://t.co/5fYQDhUC Won’t be the first 2 say this, but makes me doubt the rally $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  The Ax is Back http://t.co/B1j3f7nH @reformedbroker Reduced profits on Wall Street translates into reduced perks, bonuses & jobs $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Public Companies: The End Is Near http://t.co/KejHwYDu There r still advantages 2being publicly traded, but has eroded since Sarbox, etc $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  S&P 500 Rises to Four-Year High as Apple Plans Dividend http://t.co/RnBf9yEw $AAPL raises the div yld on the S&P 500 by 0.08%. Big! $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Shares and shibboleths http://t.co/CspyJCNX The equity premium over a diversified portfolio of investment grade bonds is ~1%/yr IMO $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Hubble, Bubble, Index Trouble http://t.co/2q3CPx4g Been saying this for years, indexing changes market dynamics, what happens @ reversal? $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

 

Politics

 

·  Why Are Your Neighbors Just Like You? http://t.co/0lcPOuLZ On the demise of really knowing your neighbors; we try 2 reach out; few others do Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

·  @traderscrucible @interfluidity My blog (& Steve’s) have always had a strong public policy emphasis. Dreaming, but we suggest better policy. Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  Agent Based Models http://t.co/0etJ20fL “Why not keep it simple, and just say, you pay an asset tax for every dollar over $100B?” $$ Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  The Warren Buffett Chain Letter http://t.co/31FFSrmm Draconian adjustments. What Buffett did & didn’t say. 3% deficit ejects Congress $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Migration of sovereign debt from private hands to public institutions http://t.co/rQbDTXg3 &the debt sits til liquidity is needed -> crisis! Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  To Stay On Top, The US Must Invest In Research Universities http://t.co/P4kyUqY0 FD: + $INTC; do it w/yr own $$ not taxes; c my comment Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  RT @BarbarianCap: “cnbc: California Cities Scrambling to Avoid Becoming Insolvent” > the die was cast years ago; clowns, path depende … Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Stopping the National Debt: A Movement Led By a Cowboy, a Colonel, & a Citizens’ Cavalry http://t.co/frqAXCpy Natl Debt Relief Amendment Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Who is REALLY paying in the $25bil TBTF mortgage settlement http://t.co/T2h1B5CO $5B from banks, rest MBS holders eg pension plans, insurers Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  The JOBS Act: Plutocracy in Action http://t.co/Fjo3Ppet Another article on the previous topic; don’t downgrade information quality $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Small Biz Jobs Act Is a Bipartisan Bridge Too Far http://t.co/AwBXg184 Would not mess w/securities laws in that way to create growth $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Public Unions Send Medical Bills to Taxpayers http://t.co/Lb2XgAv9 CA Sup Ct foolishly makes healthcare nonreducible. CA will die $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

·  As Unions Lose Their Grip, Indiana Lures Manufacturing Jobs http://t.co/vj177CT2 Like my article that few like http://t.co/WgdN7Mmq $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

·  Pension Legislation Could Cut Contributions, Hike Taxes http://t.co/Tj1UlUz8 Stupid proposals that weaken DB pensions, companies r strongnow Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

 

Regulation

 

·  Where is the Center for Audit Quality When We Actually Could Use It? http://t.co/jWt09bcw JOBS Act: destroy info reliability to create jobs Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

·  Fed’s Fisher Says ‘Too-Big-to-Fail’ Problem Remains http://t.co/eLvHGmXt Richard Fisher favors breakup of the biggest banks. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  @carney just read your piece on the net capital rule. Similar to my piece last November http://t.co/tl28NPku Good piece. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Top Court’s Patent Rejection Alarms the Biotech Industry http://t.co/oK11WlvR ’bout time we forced a more fundamental review of patents Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

 

Economics

 

·  Solar’s 80% Plunge Hurts Utilities From Hawaii to Spain http://t.co/m9eACVTp Overcapacity drives down prices of PV panels for now. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Mean Time Between Failures http://t.co/zkT0z9cX The “recovery” is getting long in the tooth, eg it may end soon; graph: http://t.co/xOHA1IYA Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Obama’s tax hikes threaten a new US recession http://t.co/uNHwBpeJ Looking @ 4 more years of divided govt & stalemate $$ #debtbombgrows Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  @The_Dumb_Money I would have liked to see the Banks/Etc. who owned the servicers bear more of the cost $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  Partial equilibrium intuitions about choice http://t.co/215kIrmS @interfluidity more difficult to solve general equilibrium Qs than partial Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

·  Understanding the New Price of Oil http://t.co/TaMTaneR No surprise here; most cheap oil has been found, the price of oil should rise $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

 

Miscellaneous

 

·  @merrillmatter Factoid: 100,000,000,000 to 1 for a monkey to type the word “banana” from random typewriter jumping Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Is a Calorie a Calorie? http://t.co/4hyTfSvr Yes, but different nutrients come w/calories. Also, a unit of fat has 2x cals vs carbs/protein Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Madoff’s Lament: I Was An Honest Money Manager Once http://t.co/OGp2xRHR The outside world should ignore Madoff now. Attention feeds him. Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

·  Trust no one http://t.co/cFYBkCA7 & http://t.co/ILP0dPlA Independent & regular journalists face conflicts of interest in giving speeches $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

·  On Slime and Water http://t.co/8iezy0FK Pink Slime in burgers, and shortages of potable water in most of the globe, except Canada & US. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

·  The NSA Is Building the Country’s Biggest Spy Center (Watch What You Say) http://t.co/iUsN5D0t Time to increase encryption key sizes $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

·  @TimABRussell I always read all the books I review; in rare cases when I don’t, I tell readers that I skimmed it. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

Book Review: How Markets Really Work

Friday, March 23rd, 2012

Do you want to make money in the short run? Beat the markets? This could be the book for you.

I am a longer-term investor, but  this book looks at a lot of strategies that are commonly understood by traders, and finds that the traders are wrong.

What are we talking about?  For the most part the book indicates that momentum strategies fail in the short run.  That’s not as radical as it sounds because the academic literature documents a short term reversal effect (one month) for stocks that are moving dramatically.

But this book shows the effect in many ways, looking at:

  • Changes vs 5 & 10-day highs/lows
  • When markets make higher highs or lower lows over three days
  • Days up or down in a row
  • Market Breadth
  • Large move up or down
  • Number of 52-week highs versus lows

When these factors are strong, the market tends to be weak in the short run.

Then there are these factors:

  • Volume
  • Put/Call ratio

They have little effect on future returns in the short run.  But what does have effect in the short run?

  • VIX
  • RSI(2)
  • Low Vol beats High Vol

High VIX relative to trend indicates a short-term rally, as does a low RSI(2) score.  As for the low volatility, it takes a different approach, segmenting the market by historical  volatility, and no surprise, low volatility wins.

At the end the book tries to draw all of the ideas into a trading strategy, but I have no idea how good it is, because I have no idea how many strategies they tested before announcing the one that fit the past the best.

This is an audacious book, but what would be needed to make this a great book is not what happens over the next five days, but what happens over the next year.  Capital does not recycle annually, much less weekly.

Most strategies that involve a lot of trading fail; this book may fall into that bucket.

Quibbles

Graph 3-7 is blank.

This is a very short book, with many graphs and tables taking up 80% of the book.  That can be a weakness or strength, depending on your point of view.

Who would benefit from this book: Those who want to improve their trading of the markets in the very short run would benefit from this book.  If you want to, you can buy it here: How Markets Really Work: Quantitative Guide to Stock Market Behavior (Bloomberg Financial).

Full disclosure: The publisher asked me if I wanted the book, so I asked for the book and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

 

 

 

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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