May 2012 – Page 2 – The Aleph Blog

Sorted Weekly Tweets

Posted on 19 May 201219 May 2012 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

Posted on 19 May 2012 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.

Don’t Become the Market

Posted on 17 May 201218 May 2012 by David Merkel

It was late 1993, and I knew that we could make a lot of money if I sold floating-rate Guaranteed Investment Contracts.? Let me quote an earlier piece:

My goal as an actuarial businessman was to make profits with modest risk for my ultimate owners, who were the mutual policyholders.? Once I faced a situation where there might be easy profits ? writing floating rate GICs.? So, I went to my models and tried to figure out how we could make money safely while our interest rates would shift every three months.? I came to the conclusion that there was no safe way to do so, and so I walked into the office of my boss and told him so.? He surprised me by supporting my thesis, and in his usual back-of-the-envelope way, explained to me in a few minutes why it had to be so.

A few weeks later, he informed me that an actuary from Goldman Sachs (yes), would be dropping by to tell about one of their new derivative contracts that would enable us to write floating rate GICs profitably.? The meeting day came, and I validated the expectations of my boss.? The year was 1993.? I asked the actuary from Goldman what happens if the yield curve inverts.? He answered honestly, ?This strategy blows up when the yield curve inverts.?? Score a small victory for me.? I gave myself points for avoiding trendy bad ideas.? Over the next twelve months, two major insurers and one investment bank would announce billion-dollar blowups from following that strategy.

After the blowups, I went back to the buyers of floating-rate GICs, and asked them if they would accept a lower spread over LIBOR.? The response was a firm ?no.?? So much for that market.

Those few players in that market had mispriced the risk.? Is it any surprise that they got a lot of volume?

Here’s another example:

Two years after that, I was at the Society of Actuaries annual meeting, where I met a well-known actuary who had worked inside the corporate actuarial area of the Equitable during the critical years.? I.e., he watched and analyzed the assets and the liabilities as they arose.? The conversation went something like this:

David: What was it like working inside the Equitable during that period of fast growth?

Corporate Actuary: It was amazing.? It took everything we could do to stay on top of it, and still we fell behind.

D: Didn?t you think that perhaps you were offering guaranteed rates that were too attractive?

C: We wondered about it, but with money coming in, everyone felt great about the growth.? We simply had to find ways to productively deploy all of the cash flow.

D: But wait.? Didn?t the investment department have a difficult time investing all of the proceeds?? With that much money coming in, the likelihood of making severe errors would be high.

C: Were you a bug on the wall at our meetings?? Yes, that is exactly what happened.? The money came in faster than we could invest it prudently.

D: Wow.? I thought that was what happened, but it amazes me to hear it confirmed.

They offered free options, and surprise, investors took them up on them.? They couldn?t make enough to fund the promises, and undertook a risky strategy in the late 80s that I called ?double or nothing.?? The strategy failed, and they almost went broke, except that AXA bought them, pumped in a little capital, and then the real estate market turned.

What?s my point here?? Twofold: one, rapid growth in financial institutions is rarely a good thing; it usually means that an error has been made.? Two, there is a barrier in many financial decisions, where responsible parties are loath to cry foul until it is way past obvious, because the cost of being wrong is high.

Long Term Capital Management became large relative to the markets that they “arbitraged.”? Anytime you can feel yourself moving the market, it is time to stop.

There was a correlation crisis in the CDO market in 2005.? For those with access to RealMoney, I wrote about it here.? Some quants with clever ideas, much like the current JPM fiasco, thought that they could hedge mezzanine against subordinated.? True when the trade is small, wrong when the trade is big.

Beyond that, we have the brain-dead example of AIG.? They dominated the market for AAA subprime mortgage insurance.? It was free money, until it wasn’t.? If you have a large share of a market where there are no barriers to entry, you should stop and ask why you are the only smart one.

The problem with becoming large relative to the market, is that you begin distorting the price signals of the market.? If you have a large long position and the price starts to fall, it is easy to justify purchases, because your internal model indicates that it is cheap.? But every model has weaknesses, consider the examples listed above.? Anytime you get a large fraction of the market’s volume, you should stop, and re-evaluate.? You’re probably doing something wrong.

Markets by their nature invite diversity, and do not admit anyone to dominate them except under abnormal circumstances.

So, if you find yourself growing large relative to your market, calm down, and re-evaluate your positions, before they get large enough to bite you.

Elderly Poor?

Posted on 17 May 2012 by David Merkel

There will be elderly poor.? Look at page 26 of this PDF.? I interpret those that don’t know or declined as being well below $50K in assets.? That means 60% of those reaching “retirement age” will have less than two years income stored up.

That said I feel more sorry for younger workers who have to pay high amounts into Social Security/Medicare, and they will not get out of program what they put in.? There’s a longish article here, excerpting from a recently released book on the topic.? In general, the older you are, the sweeter the deal was for those who received payments from Social Security, at least until 2026 when benefits will be cut by 25%, or taxes raised.

What this means is that in aggregate, Americans don’t save enough, particularly the Baby Boomers, of which I am one, but not a negligent one.

We are heading for elderly poverty/work for a large portion of Americans.? I suspect that many older people will continue to work, solving their problem but taking jobs from those who are younger.

This should be no surprise.? Incomes should be declining for lower skilled people in the US, because there are more people who can do that work abroad.? My advice to all readers is to make sure you cannot be obsoleted by foreigners.

One more note: don’t expect the asset markets to bail you out.? Returns to financial assets will do poorly as so many begin to sell them to pay for living expenses, whether directly as individuals, or indirectly as defined benefit plans pay retirement benefits.

This is on top of the problem that when high-quality long interest rates are so low, it is typically a bad time to try to make money in financial assets, because returns on risky assets are typically only 0-2% percent higher than the yield on long BBB/Baa debt over the long run.

All for now…

Skewed Incentives

Posted on 16 May 2012 by David Merkel

May is a tough month for me, because I have to submit reports for the nonprofits that I work with, and this year is worse, because I have a moderate injury that I need? to see a doctor about, but can’t until next week, because of the schedule.

But I do want to say a few things about the JP Morgan news.? First, JP Morgan should be broken up, whether state by state, or by Federal reserve district, with an investment bank spun off as well.

Second, after we have been through 2008, why do we care about a piddling $2Billion+ loss?? JP Morgan’s balance sheet can handle far more than that, and come back kicking.

Third, there are a lot of people who are mindlessly asking for the reinstatement of Glass-Stegall, without realizing that the repeal had little to do with the crisis.? Most of the losses at banks sprang from bad lending on residential mortgages, not trading.? Also, if regulators had been more fastidious about asset quality and leverage, it also might not have happened, but who dares to oppose a boom?

My point of view is that states are better at regulating financials than the federal government.? It is far harder to co-opt 50 regulators than one.

Decentralized government, where power is limited, is far harder to corrupt than centralized governments like India, China, Russia, Greece, etc.

Fourth, when a bank engages in a complex trade, and is a large portion of the market, it is asking for trouble.? Companies have problems when they become the market for financial promises.? Markets work well when there are a large number of players, with no one dominating.? Financial markets with a dominant player have a problem because it becomes difficult for the dominant player to discern the right price.? They don’t want to set it too low, because it makes their own financials look bad.? That skewed incentive can harm economic truth, and the company as well.

Being a monopolist or an oligopolist is not as easy as the textbooks would say, at least for long-term transactions.? When there is no free market to validate your pricing against, how does an oligopolist come up with an economic price?? It can’t do so.

We get on shaky ground when anyone becomes dominant in a market of promises.? Initially the accounting is flexible enough that losses do not occur on bad lending, but eventually the bad/negative net cash flows crush the firm.? This is why I never invest in novel financial companies.

Crossroads

Posted on 14 May 201215 May 2012 by David Merkel

This is a confusing time:

Lousy fiscal policy — way too much borrowing by the government
Lousy monetary policy — way too much expansion of the monetary base, and for little good reason, and funding the deficits of the government as a result…
Negative real interest rates on Treasuries 15 years out; that is financial repression, and that can’t happen without the Treasury and Fed conspiring to do so.
Low equity market valuations, but only because profit margins are abnormally high.? There are reasons to think that profit margins will not mean-revert this time, because the increase in the global capitalist labor pool is depressing wages.? Wages may remain low for a longer time than many expect.? Sorry to the laborers, but there are more of you than the globe can accommodate.? Thus I remain agnostic on high profit margins; let’s revisit the issue when wage rates rise.

Personally, I think that the fiscal multiplier is negative.? Spend money on government projects, many of which do not build value for the economy, and the economy grows slower or shrinks.

We would do better with austerity.? The economy would grow faster with a balanced budget, and a sense that government was not out of control.? Shrinking the bureaucracy and its rules, would allow the economy to grow faster.? Delegate more responsibilities to the states, particularly regulation of financial companies.? Relatively few insurers fail, which are state-regulated.? Many banks fail, which are federally regulated.? It is far easier to co-opt a single federal regulator than many state regulators.? Best yet, split all of the too big to fail banks into 51 entities, divided into the states and DC.? No more interstate branching — that’s the real problem, not Glass-Steagall.

Limiting banking to states keeps it small, Glass-Steagall tinkers at the edges, but if banks are kept small by limiting their size by states, like insurers, they won’t become systemic problems.? Simple, huh?

Much like the AT&T breakup, I think a breakup of interstate banking would be good for the US economy.? It would unleash competition in financial services, and would eliminate systemic risk in the financial economy.? And once banking regulation is returned to the states, like insurance, we can eliminate the Fed, which has been a poor regulator of banks, and a bad manager of monetary policy.? Go back to a gold standard, or at worst a currency board.? Get money out of the hands of the government, who diverts much of the economics back to themselves.

Simple Stock Valuation

Posted on 12 May 201213 May 2012 by David Merkel

I appreciate Eddy Elfenbein.? He comes up with ideas that make me say, “Huh. Interesting.? Let’s test that.”? His recent article, World?s Simplest Stock Valuation Measure, put forth the idea that:

Growth Rate/2 + 8 = PE Ratio

Cool, reminds me of my 1993 formula for value investing:

Price per share < Tangible Book per share + 5 * EPS

Eddy’s idea is that you can buy a company that isn’t growing or shrinking earnings at a PE of 8, or alternatively, a E/P (earnings yield) of 12.5%.? In a weird environment like this, it means an earnings yield that is more than 9% over the long bond is a good purchase.? I like that idea, it offers a good reward for taking risk.

But as the growth rate rises, you can expand the PE multiple by half of the anticipated growth rate.? So, a company anticipated to grow at a 10% rate would warrant a PE multiple of 13, a 20% rate 18, etc.? I like his formula, because it is conservative.? It seeks growth at a reasonable price.? It will not overpay for high growth rates.

But now let’s test this statistically to see what validity it presently has.? I ran a regression on Current year expected PEs versus expected 3-5 year growth rates.? I excluded all companies with fewer than two analysts putting forth growth estimates.? Here were the results:

SUMMARY ?OUTPUT

Regression Statistics
Multiple R	0.15
R Square	0.0224
Adjusted R Square	0.0218
Standard Error	39.70
Observations	1,589

ANOVA
?	Df	SS	MS	F	Significance F
Regression	1	57,333	57,332.91	36.38	0.000000002
Residual	1,587	2,500,838	1,575.83
Total	1,588	2,558,170

?		Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Eddy	T-test
Intercept	11.87	1.88	6.33	0.0000000003	8.19	15.55	8.00	2.06
eps_eg5	0.69	0.11	6.03	0.0000000020	0.47	0.91	0.50	1.66

Significant results statistically, but what a low R-squared.? Just shows us all how complex the market really is.? Look at this graph to see it as it is:

There really doesn?t seem to be much of a relationship.? But Eddy?s formula is conservative versus the estimates.? His formula invests in no-growth? companies ?at an earnings yield of 12.5%, the market does so at an earnings yield of 8.4%.? His formula increases the PE multiple at a 50% rate as earnings increases, but the market does so at a 69% rate.

Good for Eddy, and any that follow him.? His method builds in a margin of safety, which is a key to all good investing.

Before I close I would like to offer the 20 most mispriced companies, both positively and negatively.? Just be aware that the markets are complex, and this valuation method is simple, and most likely wrong? but it can provide a jumping-off point for due diligence.

Potential Buys

company	ticker	eps_eg5	PE
Seagate Technology PLC	STX	37.94	4.3
US Airways Group, Inc.	LCC	38.5	4.9
China Xiniya Fashion Ltd (ADR)	XNY	12	2.6
Exide Technologies	XIDE	15	3.4
HollyFrontier Corp	HFC	31.19	5.3
First Solar, Inc.	FSLR	20	4.2
Xerium Technologies, Inc.	XRM	20	4.3
YPF SA? (ADR)	YPF	13.69	3.9
Newmont Mining Corporation	NEM	54.68	9.6
Western Digital Corp.	WDC	20.84	5.1
Gulfport Energy Corporation	GPOR	48	9.1
Delta Air Lines, Inc.	DAL	17.25	4.9
KKR & Co. L.P.	KKR	22.43	5.7
Dana Holding Corporation	DAN	31.56	7.1
Perfect World Co., Ltd. (ADR)	PWRD	9.78	4
Marathon Petroleum Corp	MPC	25.16	6.3
Stoneridge, Inc.	SRI	35.2	7.8
GT Advanced Technologies Inc	GTAT	11	4.2
Telecom Argentina S.A. (ADR)	TEO	11.3	4.3
SUPERVALU INC.	SVU	11.1	4.3

Potential Sells

Company	Ticker	eps_eg5	PE
Rubicon Technology, Inc.	RBCN	15	125.6
NetSuite Inc.	N	34.79	204.1
Amazon.com, Inc.	AMZN	30.02	190.6
Clear Channel Outdoor Holdings	CCO	24.04	175.5
Servicesource International In	SREV	27	192.1
Wright Medical Group, Inc.	WMGI	9.43	117.1
Lamar Advertising Co	LAMR	4	96.8
Cogent Communications Group, I	CCOI	17	170.5
Shutterfly, Inc.	SFLY	18.75	182.6
Lattice Semiconductor	LSCC	11.5	165.3
Conceptus, Inc.	CPTS	17.5	201.6
Cepheid	CPHD	20	225
Black Diamond Inc	BDE	2.33	146.9
Quidel Corporation	QDEL	17.5	421.5
WebMD Health Corp.	WBMD	15	485.1
SL Green Realty Corp	SLG	-3.09	230.2
Diana Shipping Inc.	DSX	-16.62	11.4
Netflix, Inc.	NFLX	16.96	803.8
Citi Trends, Inc.	CTRN	10.67	942.7
Weatherford International Ltd	WFT	-30.72	11.4

That’s all for now.

Sorted Weekly Tweets

Posted on 12 May 2012 by David Merkel

Eurozone

Danske Bank?s Patience With Moody?s Evaporates http://t.co/eGbf3kV5 Questions over willingness of Denmark to provide support in a crisis. May 11, 2012
CIC Stops Buying Europe Government Debt on Crisis Concern http://t.co/dljk9Tau Overblown; China will return to funding the Eurozone $$ May 10, 2012
Greeks May Hold $510 Billion Trump Card in Renegotiation http://t.co/P7U4LSpG Depends on how well Core EZone banks have divested Greece $$ May 10, 2012
Spanish Banks Erode Creditors With ECB Loans http://t.co/HaEx3bgT Better collateral highly encumbered; Unsec debts implicitly subord 2 ECB May 10, 2012
Greece Euro-Exit Debate Goes Public http://t.co/0xOgsa7G Core Eurozone wrestles w/how to kick Greece out, even though they can’t. $$ May 10, 2012
How a Radical Greek Rescue Plan Fell Short http://t.co/Ds0589IG Greece is failing as a culture due2 corruption; no rescue would work $$ May 10, 2012
Denmark?s Banks Endure Writedown Shock Delaying Recovery http://t.co/A2Vdpymn Good sign on Denmark; take pain early -> in good shape $$ May 10, 2012
Greek Election Surprise Rejects ?Barbarism? of Bailout Austerity http://t.co/oX0nt5SF Growth is magic, magic I tell u! Just invoke it! $$ May 08, 2012
Merkozy End Means Franco-German Gulf; Greek Voters Rebel http://t.co/iCd0Cs6l Loss of Sarkozy may not b bad, but Greek paralysis will b $$ May 08, 2012
Francois Hollande has ten weeks to avert a French bond crisis http://t.co/3SEAWJB5 When few adults r in the room the children run wild $$ May 08, 2012
Challenge to Austerity, And Germany, Is Sharpened http://t.co/BWbgQJ85 The odds have risen that Germany will leave the Eurozone $$ May 08, 2012
Obvious but it needs 2b said $$ RT @Hawk100Clemens: Mauldin tells #CFA12 every monetary union in history has failed. May 07, 2012
France faces 40pc house price slump http://t.co/nPuMaVnJ If French banks have trouble now, just wait until the bad mortgage debt hits $$ May 06, 2012

JP Morgan

What Beached the London Whale? Credit Indices http://t.co/JKFxfaMb Crosshedging long credit risk by buying protection on an index? $$ May 11, 2012
J.P. Morgan Trades In Its Crown http://t.co/QUJ6hmoA That goes for firms and CEOs as well: $JPM and Jamie Dimon will not get free passes May 11, 2012
Drew Built 30-Yr JPMorgan Career Embracing Risk http://t.co/uocyyVC1 Lifetime 2build reputation; few years 2destroy it; revealed: 1 day $$ May 11, 2012
And the best way to reduce risk is to lower leverage & raise cash $$ RT @marydchilds: “The best way to hedge something is to get rid of it.” May 11, 2012

Facebook

Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO http://t.co/kL1VQYXU Cuts down on the tax bill; discount prior 2 IPO $$ May 11, 2012
Facebook IPO Said to Get Weaker-Than-Forecast Demand http://t.co/ktK5Bgun $FB faces slowing revenue growth, order books 4 IPO go slack $$ May 11, 2012

Miscellaneous

Google?s Brin Makes Strides in Hunt for Parkinson?s Cure http://t.co/YvL4LUNA He may get it one day; his Mother already has Parkinson’s $$ May 11, 2012
And also for those who call vegetables “veggies?” RT @jasonWSJ: Can we impose a $40 fine on dudes who refer to sandwiches as “sammies”? May 10, 2012
Firefox browser group irked with Microsoft, Windows 8 http://t.co/tBZ9GFuw Only Internet Explorer runs on Windows 8; expect some lawsuits $$ May 10, 2012
Aluminum Buyers in Japan to Pay Record Fee on Supply Drop http://t.co/7AVU1knI Smelting capacity reduced, China buys more, Japan pays up May 10, 2012
@RobTheStreet A lot depends on the definition of marriage, Would you allow people to marry inanimate objects, animals, or multiple parties? May 09, 2012
Brookstone to sell Lilliputian portable power chargers, this year http://t.co/FnSvdfOw Impressive technology if it works. $$ May 08, 2012
Economy Reshapes Wisconsin Recall Vote http://t.co/G0OetHhV My wife and father were forced in2 unions by collectivist brutes. Go Walker! May 08, 2012
Father?s Shadow as Transit Leader Hard to Evade for Shuster http://t.co/0FAZUqd4 Bud Shuster is a jerk, forcing us through Breezewood $$ May 08, 2012
Kellogg?s Kashi Targeted as Web Food Fighting Escalates http://t.co/BNhf5294 We need 2 send a lot of people back 4 science reeducation May 08, 2012

Rest of the World

Sony, Panasonic Fall to 30-Year Lows as TV Losses Mount http://t.co/Euo37RLQ Sold Panasonic after reviewing uneconomic “green” agenda $$ May 11, 2012
Kim Jong Un Bashes ?Pathetic? North Korea Fun Park http://t.co/gb4S9HBc He should know; he lived outside NK, where there is real fun $$ May 10, 2012
Sukhoi SuperJet Disappears During Indonesia Demo Flight http://t.co/0JrxAkAw Another sign of degraded Russian abilities in aerospace $$ May 10, 2012
Bad H/L: Shooting to Kill Pirates Risks Blackwater Moment http://t.co/laW55VEo Correct H/L: Hiring Armed Guards protects cargoes &crews $$ May 10, 2012
Drug-Defying Germs From India Speed Post-Antibiotic Era http://t.co/XGeno5mf Long. Scariest article of the day; wash your hands w/soap $$ May 08, 2012
Israel Pyramid Rules Turn Insurers Into Buyout Targets http://t.co/4tXBqehx Interesting:

Israel is limiting holding company levels to 3 $$ May 10, 2012

UK Pay Protests Oust Aviva Chief http://t.co/WKVdmQGM I remember when they overpaid for Amerus Life in the US; sign of bad management $$ May 10, 2012

Energy

RT @merrillmatter: @AlephBlog Methinks we’ll need to see some epic blowouts in natgas space (ha ha) before supply/demand can come back i … May 10, 2012
Chesapeake Deals Carry $1.4 Billion in Undisclosed Liability http://t.co/UFohsseZ $CHK May b worth a look when things stop getting worse May 10, 2012
When the Exxon way stops working http://t.co/BgN2zLO6 $XOM learns 2b more cooperative w/foreign countries where it wants 2 explore 4 oil $$ May 08, 2012
Argentina Taps Ex-Schlumberger Executive Galuccio to Run YPF http://t.co/j5P1oyoS Possibly a good choice to run the purloined company $$ May 08, 2012

Fixed Income

Still time to make money in Treasury bonds http://t.co/ABl43gzM The depressionary bull case 4 long T-bonds; D. Rosenberg & Lacy Hunt $$ May 10, 2012
Why Emerging Market Corporate Bond ETFs are Hot http://t.co/tWvz0sif High USD yield, but be wary. Laws governing creditor rights vary $$ May 10, 2012
In other words, the 30-year Tsy sold well today b/c some seek Depression insurance & others hedge convexity or immunize long liabilities $$ May 10, 2012
Treasuries Pare Losses as Europe Concern Aids Sale http://t.co/C7jytF08 Investors make sure they get income 4 30-yrs & $$ back when old May 10, 2012
S&P Warns Of $46T Perfect Credit Storm http://t.co/jZTbvy42 If companies have adequate cash flows from operations, this is not an issue. May 10, 2012

Canada

In Canada, Alternate Currency Keeps Traction With Fans http://t.co/ePyXRH1f Paper Money, Issued by Canadian Tire, Is Popular Way 2Pay $$ May 11, 2012
Revisit after their housing bubble pops RT @vgmac: There is a lot of love for Canada’s banking system here at the Chicago Fed conferences $$ May 10, 2012
@vgmac Then again, at the first Treasury/blogger summit I told them they should imitate the Canadian regulators and central bankers. #canada May 10, 2012
Canada Housing Bubble Concern Shown in Insurer Query http://t.co/kGHcqgDE Should the Canadian govt try2exit the mortgage insurance biz? $$ May 10, 2012
CMHC Says Capital Levels “Double” OSFI Requirements http://t.co/R4p5TuBO F&F also had capital far higher than their disaster level $$ May 08, 2012

Cisco Systems

Cisco shares drop on tech spending worries http://t.co/06maBaX4 Global economic weakness feeds into tech firms that sell much abroad $$ May 10, 2012
@ampressman Cramer said something like, “It’s not a growth company if they have to talk about the economy, weather, industry factors, etc.” May 10, 2012
@ampressman $AAPL is a growth company, at least for now, $CSCO was a growth company somewhere in the last 15 years… May 10, 2012

Delta Air Lines

Buy Delta Air Lines: Trainer Refinery Purchase & Improving Financials Will Lift The Stock http://t.co/W7YeEmgb Poorly reasoned thesis $$ May 08, 2012
Remember when $DD bot Conoco? There would b synergies in petrochemicals. $DD bot it at the peak, spit it out at the bottom $$ #limitscope May 08, 2012
$DAL substitutes risk in jet fuel pricing 4 risks in crude oil, gasoline, heating oil prices, & operational risk in a biz it doesn’t know $$ May 08, 2012
@The_Analyst Agreed, though enough capacity has come out of the industry through mergers that they might finally c some pricing power $$ May 08, 2012

US Housing

5 Pitfalls of Home Refinancing http://t.co/ZxGUF3HM Longer maturity, Closing costs, Contract terms, Hidden fees, Appraisals $$ May 10, 2012
Look Who?s Pushing Homeowners Off the Foreclosure Cliff http://t.co/T6CBkUAt Mtge docs exist to protect the lender’s property interest $$ May 08, 2012
RE: @bloombergview Read any mortgage contract; it exists to protect the rights of lenders, including protecting the m? http://t.co/ob9eIcBt May 08, 2012
No Repeating Slowdown Seen by U.S. With Banks to Housing http://t.co/A0LNwrjh While hi % of mtges r underwater, finl stress will remain $$ May 08, 2012
Pimco Housing Bear Kiesel Says It?s Time to Start Buying http://t.co/f3zaBNZA He assumes dark supply will hang on for higher prices. $$ May 06, 2012

US Regulation

Maybe to be perfectly fair, the government releases the data on a website at midnight ET, long before the US markets ? http://t.co/9Zqniljs May 10, 2012
A Jury of Peers for Broker Disputes http://t.co/5Ly14oKJ The playing field may be more even now; odds r still stacked against investors May 10, 2012
Congress Seeks Postal Overhaul While Making It Impossible http://t.co/lvcEBxmw The real danger is after reduction, PS is less relevant $$ May 10, 2012
US Millionaires Told Go Away as Tax Evasion Rule Looms http://t.co/Tx6lr1Bl Fewer foreign banks will accept accts w/US citizens/firms $$ May 10, 2012

Berkshire Hathaway

Biggest Buffett Targets Seen Spanning Deere to Henkel http://t.co/dLbp9pic Muses about what Buffett would buy 2 eclipse BNSF $$ May 08, 2012
+1 RT @Kevin_Holloway: Good read on possibilities of recent $BRK.B purchases among some other gd thoughts by @AlephBlog http://t.co/xkN8SlXu May 08, 2012
Deep in the Insurance Weeds at Berkshire Hathaway http://t.co/GkH9oWBo This helps explain the life reinsurance losses at $BRKB. LTC $$ May 08, 2012
Buffett understands tech. But he searches for revenue streams that can’t easily be obsoleted. $AAPL & $GOOG could be ? http://t.co/VyOnKUTy May 07, 2012

Market Dynamics

World?s Simplest Stock Valuation Measure http://t.co/OvmQTmHs Growth Rate/2 + 8 = PE Ratio; @eddyelfenbein & his conservative PE formula $$ May 10, 2012
Dole Food Breakup Seen Bearing Fruit With 58% Return http://t.co/C4SvaNvw Can $DOLE become a high margin biz, & pay down debt? $$ May 10, 2012

Financial Sector

What about front-running? $$ RT @abnormalreturns: @MebFaber: Nail in the Mutual Fund Coffin (NAV Based ETF Trading) http://t.co/SZ3CbIY3 May 08, 2012
BTW, for those holding dividend funds, back in 1994, stock managers following a yield strategy got crushed. $$ #annushorribilisforbonds May 08, 2012
The Dangers of Dividend Funds http://t.co/5WSdEFwN Dividend funds may b safer than other stock funds, r still stock funds w/real risk $$ May 08, 2012
True 4 many $$ RT @ReformedBroker: ?Daddy, what do you do at your job?? http://t.co/mxrcVyhm May 08, 2012
BofA?s New Black-Belt Data Chief Targets Blinding Gaps http://t.co/P60yhtAk Merger integration didn’t happen in $BAC ‘s IT areas $$ #mess May 08, 2012
Billion-Dollar Traders Quit Wall Street for Hedge Funds http://t.co/2yFJ2JXr Volcker Rule reducing dealer-driven market liquidity $$ May 08, 2012
Flash-Crash Story Looks More Like a Fairy Tale http://t.co/0mBQDGKZ Still a mystery; but4any self-feeding panic, players leaning wrong way May 08, 2012
Almost Half of Finance Graduates Seek New Jobs, PwC Says http://t.co/YUuH9KJl The bubble in financial jobs has popped, decamp 2 other inds May 08, 2012
?Where is Everybody?? http://t.co/7YPOcMUb Little retail participation is bullish; it means that only the relatively smart $$ is playing May 08, 2012
50 Ways to Restore Trust in the Investment Industry http://t.co/VHhllKyp The CFA Institute gathers opinions from members on cleaning up $$ May 08, 2012
RE: @bloombergview Equity is more expensive than other types of bank capital; raising the cost of capital means fewer? http://t.co/qPvVygll May 07, 2012
Heat’s on Triparty Repos http://t.co/7Jk7DrTS Fed Is Pressing Big Players to Reduce Exposures to $1.7 Trillion Market $$ May 06, 2012

Company Specific

How Hewlett-Packard lost its way http://t.co/pA683e3H Very long & ugly article about board & mgmt dysfunction @ $HPQ. FD: +$HPQ 4 me&clients May 08, 2012
A Real Concern For Apple?s Stock: Telecom Carriers Threaten to Kill Subsidies on Phones http://t.co/JlQwSDAq Interesting thesis $$ May 08, 2012
AMR Said to Seek More Overseas Flights as Suitor Circles http://t.co/eUHdHju4 $LCC wins more backing, could allow filing another plan $$ May 08, 2012

Politics

Exodus From Tiburon to Texarkana Is Exaggerated http://t.co/nsyd3QjF Truth is, people & firms r sticky, until they finally get fed up! $$ May 10, 2012
If we do not discipline ourselves, the bond market will discipline us $$ RT @carney: Why the left will keeping winning. http://t.co/kJcfgEt4 May 08, 2012
Too bad, we need a better opponent to Obama $$ RT @BloombergNews: Breaking: Santorum Endorses Former Rival Romney as Republican Nominee May 08, 2012
Don’t Worry (About GDP), Be Happy http://t.co/BaSDMbTM GDP approximates economic growth; more subjective progress measures r ridiculous May 08, 2012
@justinwolfers Last thing we need on the Fed is another neoclassical Ph. D. economist. Let’s try some brainy generalists, value investors $$ May 07, 2012
@GaelicTorus @justinwolfers All I am saying is value investors understand how the economy works better than neoclassical economists do $$ May 07, 2012
Disabled Americans Shrink Size of U.S. Labor Force http://t.co/NX6ZzCjK I still resent former neighbor on SSD, putting Xmas lights on roof May 06, 2012
But are they ending with an accrual basis surplus, not just a cash surplus? That’s the question. http://t.co/uGa7WX14 May 06, 2012

Book Review: The Little Book of Emerging Markets

Posted on 11 May 201211 May 2012 by David Merkel

This book is written by one of the foremost stock investors in emerging markets, Mark Mobius.? This is a short book that has little to no math in it, and few graphs.? It can be read in 2-3 hours.

The edge that this book will give you is understanding the limitations of emerging market investing.? What are those limitations?

1) Emerging markets are volatile, and dependent on the overall health of the developed economies.? Companies in emerging markets often export to the developed nations.? Emerging market governments often gear their monetary policy to aid their exporters, which forces them to absorb the loose or tight monetary policy of the developed nations.

2) Emerging markets often lack legal safeguards on property rights that developed markets take for granted.? Remember that there is a difference between “rule of law” (governments are subject to a constitution), and “rule by law.” (governments make laws to enforce their will on everyone else)

3) Accounting methods may be less well-developed.? Typically this leads to valuation discounts, until the accounting is deemed as trustworthy as in the developed nations.

4) Corporate governance can be weak, with insiders getting significantly more benefits than shareholders.? Getting to know whether the board & management are honest, and acting for the good of all is critical.

5) Frontier emerging markets offer a lot of potential for profit, but they have all of the above problems, and much larger.? When there are few foreign investors in a market, safeguards are few.? Ask who registers the shares, and you may find that no one does, or the company does, so how can you prove you are the owner.

6) As a result, one must insist on a large margin of safety when investing in emerging markets.? That involves a good balance sheet, cheap valuation, and growth potential.

7) Emerging market investing is a hybrid — look at the country, the industry, and the company itself.? To buy, you have to have some confidence in most/all of them.

8) Opportunities are often best after a large pullback in the nation’s stock index.? Buy the strongest most liquid names after a crisis.? They will come back.

9) Privatizations are often good opportunities to buy; the company will do much better once there is a profit motive.

10) Banks are mirrors of the local economy; they lead the market down and up.? Anything affecting the economy in specific affects the banks, because usually bond markets are not active.

11) To be long emerging market stocks, you have to be an optimist.? It is similar to being a high-yield bond manager.? Investment grade bond managers are paid to be pessimists; there is little to no upside.? High yield managers have some upside that they play for; they are always more optimistic.? So it is for emerging market stock managers — there is a lot of upside to play for , so they have to be optimists.

12) As such, investing in emerging markets takes a lot of work to do it well.? And if you read the book, you might think by the end that you don’t have enough information to do it on your own, and I think you would be right.

Think for a moment about all of the scandals over Chinese reverse mergers with US shell companies — and these are listed in the US!? What hope does a US investor have of investing in emerging markets at a distance?? Accounting differences, disclosure differences, legal rights can be different… it could be a full time job.

This is why you need a manager of an open-end or closed-end mutual fund, or at least an exchange-traded fund [ETF] to invest in.? Mark Mobius explains how difficult it is to do it yourself, without saying that bluntly to you as I am doing.? Personally, I would encourage investing in a broad fund that can go anywhere, and not a country-specific fund, unless you have a very strong view of why a particular market will do well.

I recommend this book so that you can learn, but I think at the end, you won’t do much with it, except buy a mutual fund or an ETF.

Quibbles

This is a “little book.”? As such, you only get a taste.? If you want a full meal from Mr. Mobius, you might get this book: Passport to Profits: Why the Next Investment Windfalls Will be Found Abroad and How to Grab Your Share.

Who would benefit from this book:People who want an introduction to emerging market investing, including the market cycles would benefit from this book.? If you want to, you can buy the book here: The Little Book of Emerging Markets: How To Make Money in the Worlds Fastest Growing Markets (Little Books. Big Profits).

Full disclosure: This book was sent to me without my asking for it.

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.

Yahoo Finance News

Posted on 10 May 201211 May 2012 by David Merkel

I want to call attention to News at Yahoo Finance.? I have used Yahoo Finance for 15 years and have found it valuable.? As time has gone on, Yahoo has added low value news sources like Seeking Alpha, Motley Fool, and Zacks.? These are websites that if I could eliminate them, it would be done already.

News at Yahoo Finance is the best free source of finance news that I know of.? If there is a better source of free finance news, please let me know.

My main gripe with Yahoo Finance is that it allows for considerable customization of the news feed, but excludes certain providers, such as:

Bloomberg
CNBC
CNNMoney.com
Financial Times
Fortune
Fox Business
Investor’s Business Daily
Morningstar
Motley Fool
Seeking Alpha
The Daily Ticker
The Wall Street Journal
Wall St. Cheat Sheet
Zacks

I have written Yahoo Finance about this issue three times but have not gotten any help from them.? Maybe they get a lot of revenue from those that I don’t want to see.? If that is true, let them tell shareholders about it, and us as well.

The three entities I would like to block occupy 25% of my news feed.? Yahoo, do you think you can allow me to block them?? It makes reading your news feed a lot harder.

PS — yes, it says you can block Motley Fool, and I have unchecked that box, but I still get them.