Day: May 19, 2012

Post 1800

Post 1800

Posted on by David Merkel

So, what do I write about at the Aleph Blog?? I write about a lot of things.? That’s a strength, and a weakness.? A weakness, because not everyone cares about a lot of things and if I shift to cover an area that is unusual, readers may not care.

It’s a strength, in the same sense that most of the best athletes could do well at a wide number of games.? I follow a wide number of themes in the financial markets and economics.? I like to think that I bring more perspective to a wide umber of issues because:

  • I have been trained in neoclassical economic theory, and I reject it.
  • I have been trained in modern portfolio theory, and I reject it.
  • I’ve worked in most areas of the financial markets, and have seen similar events happen in different markets.
  • I have quantitative skills, but I have spent a lot of time of economic history.
  • Having practiced as an actuary, I have additional skills analyzing liability structures, which are underanalyzed.

My perspective is different.? I don’t expect you to agree with me, because some of my views are “out there,” and I know that when I write it.? I sometimes write things knowing that there is no way that these will be adopted, absent major changes to society.? I write those, knowing that radical change is not impossible, and when change happens, they will need sensible guidelines.

So what have I written about?? From my categories:

Macroeconomics (898)
Stocks (814)
Bonds (770)
Portfolio Management (685)
Value Investing (463)
public policy (384)
Fed Policy (374)
Insurance (356)
Real Estate and Mortgages (354)
Structured Products and Derivatives (340)
Speculation (292)
Quantitative Methods (285)
Personal Finance (218)
Asset Allocation (172)
Book reviews (169)
Currencies (158)
Industry Rotation (133)
Blog News (123)
Ethics (117)
Accounting (113)
Pensions (109)
Banks (103)
General (100)
Academic Finance (82)
Best Articles (44)
Christianity (19)
The Rules (17)
Home Schooling (14)
Tweets (14)

I write about economics, stocks and bonds. That’s me.? I want to describe what is going on and how it affects those holding fixed claims (bonds), and variable claims (stocks).

After that, I write about portfolio management and value investing — how do we manage the assets that we own?

The next group is the guts of the market: how does government and Fed policy affect things?? How do insurance, real estate, and derivatives affect our lives?

Beyond those, I write about many things, and I appreciate that you read me.? Your time is valuable; thanks for reading me.

My Performance

My greatest fear when starting up my firm was that after having a great 10-year run with my own assets (and for an employer), that I would go cold when I started managing assets for others.? That is what has happened, with underperformance of 9%+ versus the S&P 500 over the last 16 months.? This is my worst sustained performance over the last 20 years.

I don’t think my methods are poor, nor am I planning on changing.? Every investment method goes through dry times; I have to live through this.

So what will I do?? I will persist in the strategies that have done so well for me? over the last 20 years.? I will continue to do value investing.

I don’t know that it will work, but I think it will.? Value investing is the reliable weak signal amid a lot of investment noise.

And so I act and invest.? My time is coming, and thanks for reading me.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Eurozone

 

  • If Greece Quits Euro, Its Ruin Will Be Pointless http://t.co/2DotggME Suggests Greece will face more pain if leaves E-zone than stays $$ May 17, 2012
  • Experts Try to Chart Path for Exit From Currency http://t.co/dtIAoo3g Let’s see, where is that manual for unscrambling eggs? Mmm… $$ May 17, 2012
  • On the E-zone: the politicians, like sorcerer’s apprentices, thought they could reshape Europe; end up fighting forces beyond their power $$ May 17, 2012
  • The Running of the Bank Depositors http://t.co/WC7aN5LP Governments r smaller than economies, which r smaller than cultures $$ #fightgravity May 17, 2012
  • Governments are smaller than economies, which are smaller than cultures.? The Eurozone is a huge experiment that igno? http://t.co/YUqGTSLN May 17, 2012
  • Greek President Told Banks Anxious as Deposits Pulled http://t.co/mx5626V2 If u thot u faced a conversion 2 new drachmas, ud w/d euros2 $$ May 16, 2012
  • ECB Said to Stick to Current Crisis Stance as Tools Reviewed http://t.co/vSKBTnax No worries; ECB policies r meeting the challenge $$ 😉 May 16, 2012
  • Bet on Greek Bonds Paid Off for ?Vulture Fund? http://t.co/nrka09y7 While Greece is in disarray, makes full pmt2 hedge fund Dart Management May 15, 2012
  • Lightning Strike Delays Hollande Trip http://t.co/G0hgIGsP Weird, but he gets to Germany anyway to have a disagreement w/Merkel $$ May 15, 2012
  • Hazardous Greek-Exit Scenario http://t.co/LZooTMlf WSJ goes through the steps and effects of an orderly Greek exit, should there b1 $$ May 15, 2012
  • European Officials Warn Greece http://t.co/WJ4Wmk5B No way to kick Greece out; what do you do if they refuse to pay? $$ #enduredefault May 14, 2012

?

Rest of the World

 

  • Hugo Ch?vez’s Enemy No. 1 http://t.co/LtdZXcM7 Henrique Capriles, governor of Miranda state & candidate selected by the united opposition May 19, 2012
  • Kolatch Bullish on Argentina?s Debt http://t.co/8dfUoRdv When someone is willing to cheat others, he is more likely to cheat you $$ #FTL May 17, 2012
  • Iranian Rapper Fears for His Life After Fatwa http://t.co/AD27SHZY Interesting how killing ceases 2b murder after cleric issues fatwa $$ May 16, 2012

 

Bond Markets

 

  • US insurers seek $300 mln cat bond cover http://t.co/rNw0b4hu There’s a hard property reinsurance market, so alternatives r attractive $$ May 18, 2012
  • Junk-Debt ETFs Set Markets ?Abuzz? After Record Trades http://t.co/Zzq4BHV2 New ways of putting biggish HY positions on/off quietly $$ May 18, 2012
  • @Fullcarry @munilass At least the Treasury yield curve is “out of this world.” Have long Tsys on as a hedge in my bond strat, when2punt? $$ May 17, 2012
  • Every two years, the annual shareholder filing for the iShares Trust, which holds the big bond ETFs, doubles in size: now 20MB $$ May 15, 2012
  • RT @Munisrgood: @munilass More room to go. If you subscribe to Hoisington’s predictions, (I do to an extent) 30 yr tsy could be 75-100 l … May 15, 2012
  • +1 Needle in red zone $$ RT @groditi: HY CEF wavg premium 15%; min -8.27 max 67.3%; +1.1stdevs; sample-size: $11B (40 funds) #YieldChase May 14, 2012
  • Euro-Zone Fears Drive Bund Yield to Record Low http://t.co/sNntlOYU Opposite risk: Germany might leave EZone; ECB actions disliked $$ May 14, 2012
  • Euro Officials Begin to Weigh Greek Exit as Euro Weakens http://t.co/nERx6dAG Note the shift, indicates the bailouts may b over 4Greece $$ May 14, 2012

 

Elderly Poverty

 

  • See pg 26 4 details http://t.co/NnS2Jyo2 Figure is low IMO b/c 25% “don’t know” what they have saved. They r prob below $50K, so ~60% <$50K May 17, 2012
  • Report says “Overall, slightly more than one-third have saved less than $50,000.” http://t.co/NnS2Jyo2 Still thought the % was higher, ~50% May 17, 2012
  • Same here RT @ballenmo: @AlephBlog @fundmyfund 20%? I?m surprised the number is so low. May 17, 2012
  • +1 that’s what I think RT @fundmyfund: @AlephBlog 20% of 50 and 60 yr old dont have 50K to their name, not to mention saved for retirement May 17, 2012
  • Expected worse RT @MoneyMag_Penny 20% of workers in 50s & 60s have saved less than $50,000 for retirement: Transmerica http://t.co/PqWIm74w May 17, 2012

 

JP Morgan

 

  • Lawrence Lindsey: Why Washington Hates Jamie Dimon http://t.co/dZEzVnOq Not a diplomat & does not perform kowtows to politicians $$ $JPM May 18, 2012
  • For JP Morgan Trader, From ‘Caveman’ to ‘Whale’ http://t.co/U2iXH2uJ It is often dangerous to win, next step is try to win big & fail $$ May 17, 2012
  • Romney Vowing Dodd-Frank Repeal Hits JPMorgan Risky Trades http://t.co/Y9aMyHR0 Tough sell; existing law had enuf pwr, but regs didn’t use May 14, 2012
  • The core problems with JPMorgan’s failed trades http://t.co/HktxLRnq When that illiquid, putting positions into runoff only solution $$ May 14, 2012
  • Dimon Fortress Breached as Push From Hedging to Betting Blows Up http://t.co/Rc5TXU9E $JPM too big relative 2market; hard2mark prices $$ May 14, 2012
  • Bank Order Led to Losing Trades http://t.co/00llzrIO $JPM ‘s Efforts2Shield Itself From European Market Fallout Prompted Disastrous Bets May 12, 2012

Buffett & Newspapers

 

  • Why Warren Buffett is buying newspapers http://t.co/a6qVZAet It certainly isn’t for economic reasons; he overpaid, plain & simple. $$ $BRK.B May 18, 2012
  • Warren Buffett buys into ‘declining’ newspapers http://t.co/BYmAmiZT $MEG does have TV and data businesses, not sure how much that helps. May 17, 2012
  • Berkshire Buys Media General Newspapers for $142 Million http://t.co/ISIniNZG add in a $400 million term loan with an rate of 10.5% $$ May 17, 2012

(As an aside, if you read any of my comments on Buffett, newspapers, and Media General, I made the mistake of think that he had bought Media General, when he bought most of their newspapers, a portion of the company, and lent them $400 million at 10.5% with a first priority of payment in bankruptcy.? Now that I realize my mistake, I can?t say whether Buffett got a good, bad, or indifferent deal.? Apologies for the mistake.)

 

US Economy

 

  • ?One Recession Away? From Next Bull Market ? John Mauldin http://t.co/WwOL8nj7 5 min interview, short-term bearish, long-term bullish $$ May 17, 2012
  • Paul Krugman’s Simple — or Is It Simplistic? — Reasoning http://t.co/0lmcAVSQ Is there any level of govt spending or debt that is2much? May 17, 2012
  • North Dakota Tops US States in Credit Ranking as Florida Rises http://t.co/cttmsatF Amazing what energy & the influx of elderly will do $$ May 17, 2012
  • North Dakota Tops Alaska in Oil Output http://t.co/Ulo7jzcU The US potentially has more hydrocarbons than Saudi Arabia. TX, ND, AK $$ May 17, 2012
  • RE: @bloombergview The two papers look pretty good, but would the bureaucracy have the guts to rein in a boom based o? http://t.co/mvScOD74 May 16, 2012
  • Tom Frost: The Big Danger With Big Banks http://t.co/414ZAkTV Fine, but it was mortgage lending that led the crisis, not invt banking $$ May 16, 2012
  • When I used to mix sound, there was a knob on my board called “contour.” That’s what QE is to the Fed.? When I would ? http://t.co/DC0O0kjS May 17, 2012
  • Midwest Sees a Sand Rush http://t.co/815yYdBQ Fracking Spurs Demand for the Stuff, Sparking a Mining Boom?& Vexing Some #midwestboom $$ May 14, 2012

 

US Politics, Regulation, and Culture

 

  • SEC Probes Role of Hedge Fund in CDOs http://t.co/wMUFuoPt Don’t forget the blame due the yield hogs 4 their inadequate due diligence $$ May 17, 2012
  • Dental Abuse Seen Driven by Private Equity Investments http://t.co/QzEb161T Long article on unscrupulous dentists that harm poor kids 4 $$ May 17, 2012
  • The creeping disaster for USPS is that as they cut services, they become irrelevant. The internet changes everything? http://t.co/ION20cep May 17, 2012
  • School-Test Backlash Grows http://t.co/RIiaRg1Z Some Parents, Teachers & Boards Rebel, Saying Education Is Being Stifled $$ #room4both May 16, 2012
  • Please apply the same logic to the liberal justices of the court, who have flouted the Constitution for far longer. http://t.co/gEsZGazC May 16, 2012
  • Jerry Brown vs. Chris Christie http://t.co/T0uyb6iC More states r realizing that the road2fiscal hell is paved w/progressive intentions May 15, 2012
  • California Deficit Swells to $16 Billion, Governor Says http://t.co/LJT9Dl1s & http://t.co/2Rg8E98K CA in self-reinforcing neg spiral $$ May 14, 2012
  • Obama Hits Romney on Bain as He Raises Wall Street Money http://t.co/09M2hhHK “The pot calls the kettle black.” $$ (has 2ba better phrase) May 14, 2012
  • Midnight Was Movie Hour, Nap Time in New York Air Tower http://t.co/cNT0C080 Long piece; parts of the FAA r seriously messed up $$ #unions May 12, 2012
  • Trouble in Coal Country for Obama http://t.co/dJoko2Aj If persists, could mean Obama wins popvote, Romney win the election $$ #kingcoal May 12, 2012

 

Companies

 

  • Tsst… $COP is no longer in the refining biz, it spun of $PSX which is.? FD: +COP, +PSX $$ Oh, and selling the comp? http://t.co/LxFTP91s May 17, 2012
  • Facebook ($FB) announces that they will no longer accept General Motors ($GM) cars in exchange 4 advertising exposure $$ 😉 #lamejoke May 15, 2012
  • Avon Shares Tumble After Coty Pulls Bid http://t.co/SVZ4zZgN Coty might b better off creating the parts of $AVP it wants organically $$ May 15, 2012
  • Margin Call: The Most Exposed http://t.co/4v2IsU16 Interesting what CEOs have borrowed against shares of the companies that they run $$ May 15, 2012
  • Yahoo CEO’s resignation spotlights tech action http://t.co/mUF19hRa We keep the board of $YHOO around 2make that of $HPQ happy. FD +HPQ May 14, 2012

 

Miscellaneous

 

  • Paper Plane Champ Watches His Record Fly, Fly Away http://t.co/zdPMR62e Division of labor in design & tossing-> paper airplane record $$ May 18, 2012
  • @ReformedBroker You really had lunch w/Mauldin? Cool, I know he is friends w/ @ritholtz ; I just reviewed his recent “Little Book.” $$ May 17, 2012
  • When people get 2 deep into a sliver of knowledge, they get dumb RT @jasonzweigwsj: is your sense of self an illusion? http://t.co/PHUXLmdB May 17, 2012
  • 5. They sometimes bring specialized knowledge of the topic at hand. 6. They tend to write for users, not reviewers o? http://t.co/T3oElbxQ May 17, 2012
  • Going for Gold?or Whatever http://t.co/F6kSto8O Secret to an Aging Olympian’s Endurance: Don’t Let Training Get in the Way of Fun $$ May 16, 2012
  • When you show up DD, you usually make me smile $$ RT @DoubleDeuce: Wisdom: “try to convince, don?t gripe” by @AlephBlog http://t.co/kDwSKgYJ May 15, 2012
  • ?Trigger-Happy? Investors Boost IPO Insurance Through Litigation http://t.co/GQKdNia3 Looks like Errors & Omissions coverage applied 2IPOs May 14, 2012
In Defense of Nothing

In Defense of Nothing

Posted on by David Merkel

Two years ago, I was at a board meeting for a nonprofit that I serve, and during a break, one of the older gentlemen made a statement that the big problem with America is that we don’t make anything anymore.? I suggested to him that many services enhance and replace the need for some goods.

Now, I don’t have a Facebook account, and I have no intent of getting one.? But I must have been thinking about Facebook as an investment, because I asked him, “What about something like Facebook then?? Doesn’t that have value?? It’s profitable, and current estimates say it might be worth $25-50 billion dollars.”? He replied that Facebook was emblematic of what was wrong with our economy, because it doesn’t produce anything, and consumes a lot of productive time in the process.? I had to call the meeting back to order, so I had to leave it there.

Today, with the Facebook IPO, I heard on the radio a number of times, “We don’t make anything anymore.”? From politicians, “We need manufacturing jobs.”? When Governor Martin O’Malley spoke to the Baltimore CFA Society two weeks ago, he sounded the theme of manufacturing jobs as well.? Afterward, I spoke with a Deputy Secretary at the Maryland Department of Business & Economic Development, and in passing mentioned that I owned part of a manufacturer operating in Maryland.? He asked me for the name, and when I mentioned it, he said, ‘I visited there two weeks ago.? Great firm!”

I know it is a great firm, but I also know that it costs Maryland and the Federal Government to encourage manufacturing.? I see the pro-rata deductions on my personal taxes, and wonder at why we care so much about manufacturing.

When I go places with my kids, I sometimes point out to them business parks where light industrial work goes on.? We are very good today at hiding where things get made, and so people think that factories don’t exist.? We have ordinances on noise, pollution, etc., and most of these entities have moved outside the big cities where the land values are cheaper.

So part of my answer here is that we are still making things here in America.? We just don’t notice it.

America is an amazing place.? The breadth of resources that can be extracted, the crops that are grown, the amazing division of labor, the level of technological innovation, and the relative degree of freedom to pursue any of these is astounding.

We make a lot of things.? We just do it with far fewer people than we used to.

And that is the great increase in manufacturing productivity. We don’t need as many people to makes things as we used to.? That’s a good thing, so people can be released to more productive uses.

Labor productivity is a squishy thing, though.? Measuring labor productivity in manufacturing is relatively easy, because the output and its value is easily measured.

With services, the same calculation can be done: output/revenue per worker, but it doesn’t have the same punch, because goods produced have mostly the same quality, but the quality of services varies widely.

But maybe we can look at this a different way.? Even though it is not easily measurable, what if the right thing to value is not production, but happiness, health, or freedom?

Services provide value, or people would not pay for them.? Facebook exists because it allows people flexibility and facility of communicating with many people.? It makes money from ads that are targeted off of data collected from users.

Many people like using Facebook.? It is a large part of their lives.? For most it is not a part of their work, but a part of their recreation.? Recreation is valuable, and people use their extra time as suits them best.? Keeping “friends” informed on what you are doing and thinking has subjective value to those who do it.

Services make life easier, and sometimes make manufacturing more productive.? The consultant that reviews a factory’s activities, and submits a report to enhance productivity did not make anything, but made producing things less expensive.

Having more people employed in services is not a weakness.? As productivity increases, we need fewer people for extraction and production, and this is true globally.? Manufacturing employment is falling globally.? So is agricultural employment.? As a result, we have many people available to tailor services that make our lives richer.? We don’t just need goods; we need help.? In that way, the service economy is not a waste, but closer to what we need than “goods.”

I know this is not erudite, complete, whatever.? I am comfortable (absent major war), that the “lack of manufacturing” in America is not true, and even if true, is not a problem.? So relax, and enjoy the good life you have in America, with all the help that is available at a price.

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