If you’ve read me for more than two months, you probably know that I am an actuary, though not a practicing actuary at present.  I grew up in the life insurance industry.  It’s an unusual place for an investor to start, but there are some advantages:

  • You learn some of the most complex accounting rules in business.
  • You learn the value of having a strong balance sheet, because when it slips, it is hard to get back.
  • You learn the value of simplicity, because many companies that wander from that die.
  • You get to know a lot of people with different bits of specialized knowledge, which you the actuary have to tie together.  And, respecting the older people in dead-end jobs which they do well goes a long way toward getting significant cooperation.
  • If you are a corporate actuary, as I sometimes was, potentially you become a good risk manager.
  • If are an investment actuary, you learn that risk control is far more difficult than it seems, and so you learn not to take obscure risks, and test a variety of modeling assumptions, because models can go wrong.
  • You build in margins for error if you are a pricing actuary, as I often was, and review actual results when setting assumptions.
  • You get to see regulation up close and personal, because you have to interact with 51 different regulators if you do valuation, cash flow testing, pricing, etc., with your home state regulators leading the way.

There’s more, but my topic this evening is financial regulation generally.  I’ve been thinking about it, and I have had a moderate shift in my views: I think it would be wise to reinstitute a modified version of Glass-Steagall, but modeled after the way that insurance regulation is done today.  For solvency regulation, insurers are much better regulated than banks.  The banking industry should imitate the insurance industry in a number of ways.

Here’s the main idea: Allow financial holding companies to own all manner of financial subsidiaries, but disallow:

  • Stacking of subsidiaries.  No A owns B, B owns C.  This allows capital to be stretched thin.
  • Cross-ownership and cross-lending: subsidiaries may not interlace their capital.
  • There may be no reinsurance or derivative agreements across subsidiaries.

This would bar complex ownership charts.  There would be a big box at the top, with lines to little boxes below, but only one level of depth, and no lines between subsidiaries.

Also:

  • Each subsidiary must be subject to its own regulator.  There must not be an overall regulator for “financial supermarkets.”  Keep it simple and focused.  Remember, the Fed has never been a good regulator.
  • Since financial holding companies die if they don’t get dividends, make the payment of dividends from any subsidiary to the parent company subject to the discretion of the regulators.  Regulators should not care about the holding companies, but only about the solvency of subsidiaries.
  • If a company is presently in two businesses with different regulators, the company must divide the business into two subsidiaries which each regulator can separately regulate.
  • Subsidiaries do not get to choose their regulators.  If there are potentially duplicate regulators, merge them and create one regulator if that makes sense.  Otherwise, make rules so that there is no ambiguity on who regulates what.

The view of the government toward financial holding companies should be this: we don’t care if you fail.  We do care if your subsidiaries fail, so if the solvency of any of them is getting marginal, dividends to the holding company will be cut off.

Now, I would prefer the rest of the financial industry mimic the insurance industry, in that State regulation is better than Federal regulation.  If you want to end too big to fail, split up banks into state subsidiaries.  Each state regulator would separately determine solvency issues, and would limit dividends back to the holding company.

Remember, we don’t care if holding companies go broke.  If a holding company goes broke, and all of the subsidiaries are solvent, the subsidiaries will easily be sold to other holding companies.  The creditors of the bankrupt financial holding company will divide the spoils after a year or so.  Cost to the taxpayers: zero.

And maybe, mimic the guarantee funds of the insurance industry, and let the financial subsidiaries self-fund the losses of their fallen competitors.  Cost to the taxpayers: zero.

Under this sort of arrangement, you can have “financial supermarkets,” but they would be very different, because the solvency of each part would be separately regulated.  You don’t want macro-regulators, they are far easier to fool; specialization in financial regulation is a plus; don’t give any credit to those who use a diversification argument.  We are focusing on risks, not risk.  Failure does not happen from risk in abstract, but from particular risks that were underrated.

Finally you need risk managers inside all regulated financial institutions that are either FSAs [Fellows in the Society of Actuaries] or CFAs [Chartered Financial Analysts].  I am both, though my FSA status is inactive, because I don’t pay the dues.  Why is this valuable?

You need organizations with ethics codes to teach and monitor the behavior of those within.  There are failures amid FSAs and CFAs, but society and legal punishment tends to decrease the occurrence.

If we did this, financial companies would be much more stable, and we would reduce the need for the FDIC.  There would be personal ethics standards among risk managers inside financial companies, and less reason for regulators to compromise from political pressure.

This is my modified version of Glass-Steagall, which gives financial industries most of what they want, but offers solvency protections far beyond what we have today.  Is this a good compromise, or what?

My main industry model is illustrated in the graphic.  Green industries are cold.  Red industries are hot.  If you like to play momentum, look at the red zone, and ask the question, “Where are trends under-discounted?”  Price momentum tends to persist, but look for areas where it might be even better in the near term.

If you are a value player, look at the green zone, and ask where trends are over-discounted.  Yes, things are bad, but are they all that bad?  Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled “Dig through.”

If you use any of this, choose what you use off of your own trading style.  If you trade frequently, stay in the red zone.  Trading infrequently, play in the green zone — don’t look for momentum, look for mean reversion.

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

Huh?  Why change if things are working well?  I’m not saying to change if things are working well.  I’m saying don’t change if things are working badly.  Price momentum and mean-reversion are cyclical, and we tend to make changes at the worst possible moments, just before the pattern changes.  Maximum pain drives changes for most people, which is why average investors don’t make much money.

Maximum pleasure when things are going right leaves investors fat, dumb, and happy — no one thinks of changing then.  This is why a disciplined approach that forces changes on a portfolio is useful, as I do 3-4 times a year.  It forces me to be bloodless and sell stocks with less potential for those with more potential over the next 1-5 years.

I like some technology names here, some energy some healthcare-related names, P&C Insurance and Reinsurance, particularly those that are strongly capitalized.  I’m not concerned about the healthcare bill; necessary services will be delivered, and healthcare companies will get paid.

A word on banks and REITs: the credit cycle has not been repealed, and there are still issues unresolved from the last cycle — I am not interested there even at present levels.  The modest unwind currently happening in the credit markets, if it expands, would imply significant issues for banks and their “regulators.”

I’m looking for undervalued and stable industries.  I’m not saying that there is always a bull market out there, and I will find it for you.  But there are places that are relatively better, and I have done relatively well in finding them.

At present, I am trying to be defensive.  I don’t have a lot of faith in the market as a whole, so I am biased toward the green zone, looking for mean-reversion, rather than momentum persisting.  The red zone is pretty cyclical at present.  I will be very happy hanging out in dull stocks for a while.

That said, dull is hard to find these days.  Where will demand remain strong, or where will demand rebound are tough questions.

The Red Zone has a Lot of Cyclicals

What I find fascinating about the red momentum zone now, is that it is laden with cyclical companies.  That does not make sense in a confused market environment where the market has no been making any progress.

So, as I considered the green and red zones, I chose areas that I thought would be interesting.  In the red zone, I picked transportation names, and reinsurers, which have run, but could run a lot more.

I have move than enough energy producers, so I am not fishing for those industries here.

Much as cyclicals are displayed in the red zone, it does not mean the red zone or cyclicals are a good place to be.  The is a lot of weakness not just in the US, but globally.  I am left hard: where is the economy growing where the culture is honest enough that I trust the statistics?

But what would the model suggest?

Ah, there I have something for you, and so long as Value Line does not object, I will provide that for you.  I looked for companies in the  industries listed, but in the top 4 of 9 financial strength categories, an with returns estimated over 15%/year over the next 3-5 years.  The latter category does the value/growth tradeoff automatically.  I don’t care if returns come from mean reversion or growth.

But anyway, as a bonus here are the names that are candidates for purchase given this screen.  Remember, this is a launching pad for due diligence.

CompanyTickerIndustry NameFinancial StrengthProj 3-5 Yr % Annual Total Return
FedEx Corp.FDXAir TransportA

21

United Parcel Serv.UPSAir TransportA

18

Autoliv, Inc.ALVAuto PartsB++

26

BorgWarnerBWAAuto PartsA

20

Eaton Corp.ETNAuto PartsA+

29

Gentex Corp.GNTXAuto PartsB++

21

Genuine PartsGPCAuto PartsA+

15

Johnson ControlsJCIAuto PartsA

25

Magna Int’l ‘A’MGAAuto PartsA

29

Honda Motor ADRHMCAutomotiveB++

19

Coca-ColaKOBeverageA++

15

Molson Coors BrewingTAPBeverageB++

21

PepsiCo, Inc.PEPBeverageA++

15

AmgenAMGNBiotechnologyA++

17

Questcor Pharmac.QCORBiotechnologyB++

22

United TherapeuticsUTHRBiotechnologyA

35

Adobe SystemsADBEComputer SoftwareA

24

Autodesk, Inc.ADSKComputer SoftwareA

22

CA, Inc.CAComputer SoftwareB++

23

Intuit Inc.INTUComputer SoftwareA

15

Microsoft Corp.MSFTComputer SoftwareA++

20

Oracle Corp.ORCLComputer SoftwareA++

18

SAP AGSAPComputer SoftwareA

21

Symantec Corp.SYMCComputer SoftwareB++

22

Apple Inc.AAPLComputers/PeripheralsA++

24

Dell Inc.DELLComputers/PeripheralsA

28

Hewlett-PackardHPQComputers/PeripheralsA+

33

Ingram Micro ‘A’IMComputers/PeripheralsB++

21

NetApp, Inc.NTAPComputers/PeripheralsA

22

SynapticsSYNAComputers/PeripheralsB++

22

Tech DataTECDComputers/PeripheralsB++

20

Akamai TechnologiesAKAME-CommerceA

29

Digital RiverDRIVE-CommerceB++

21

Archer Daniels Midl’dADMFood ProcessingA+

17

Fresh Del Monte Prod.FDPFood ProcessingB++

15

Heinz (H.J.)HNZFood ProcessingA+

15

Herbalife, Ltd.HLFFood ProcessingB++

15

KelloggKFood ProcessingA

17

Kraft FoodsKFTFood ProcessingA+

15

Peet’s Coffee & TeaPEETFood ProcessingB++

19

Tootsie Roll Ind.TRFood ProcessingA+

15

Canon Inc. ADRCAJForeign ElectronicsA

22

FUJIFILM Hldgs. ADRFUJIYForeign ElectronicsA+

37

Kyocera Corp. ADRKYOForeign ElectronicsA+

16

Sony Corp. ADRSNEForeign ElectronicsA

42

Quality SystemsQSIIHealthcare InformationA

32

AGCO Corp.AGCOHeavy Truck & EquipA

22

Caterpillar Inc.CATHeavy Truck & EquipA+

22

Cummins Inc.CMIHeavy Truck & EquipA

25

Deere & Co.DEHeavy Truck & EquipA++

20

Gardner DenverGDIHeavy Truck & EquipA

18

PACCAR Inc.PCARHeavy Truck & EquipA

25

Equifax, Inc.EFXInformation ServicesB++

18

Thomson ReutersTRI.TOInformation ServicesB++

24

Hanover InsuranceTHGInsurance (Prop/Cas.)B++

23

Baidu, Inc.BIDUInternetA

33

Ctrip.com Int’l ADRCTRPInternetA

36

eBay Inc.EBAYInternetA+

20

Google, Inc.GOOGInternetA++

23

IAC/InterActiveCorpIACIInternetB++

19

Netflix, Inc.NFLXInternetA

32

priceline.comPCLNInternetA

21

Sohu.com Inc.SOHUInternetB++

28

First Solar, Inc.FSLRPowerA

37

Badger MeterBMIPrecision InstrumentB++

17

KLA-TencorKLACPrecision InstrumentB++

21

Landauer, Inc.LDRPrecision InstrumentB++

15

National InstrumentsNATIPrecision InstrumentB++

17

Rofin-Sinar Techn.RSTIPrecision InstrumentB++

22

Thermo Fisher Sci.TMOPrecision InstrumentA

17

Waters Corp.WATPrecision InstrumentA

16

CSX Corp.CSXRailroadB++

22

Norfolk SouthernNSCRailroadA

22

CME GroupCMESecurities BrokerageA

18

Goldman SachsGSSecurities BrokerageA

24

IntercontinentalExch.ICESecurities BrokerageA

20

Investment Techn.ITGSecurities BrokerageB++

31

NYSE EuronextNYXSecurities BrokerageA

26

Schwab (Charles)SCHWSecurities BrokerageA

21

Altera Corp.ALTRSemiconductorA

19

Analog DevicesADISemiconductorA+

15

Intel Corp.INTCSemiconductorA++

21

Linear TechnologyLLTCSemiconductorB++

20

Microchip TechnologyMCHPSemiconductorB++

25

NVIDIA Corp.NVDASemiconductorA

26

QLogic Corp.QLGCSemiconductorB++

35

Semtech Corp.SMTCSemiconductorB++

17

Silicon Labs.SLABSemiconductorB++

16

Skyworks SolutionsSWKSSemiconductorB++

15

Taiwan Semic. ADRTSMSemiconductorB++

26

Tessera TechnologiesTSRASemiconductorB++

37

Texas InstrumentsTXNSemiconductorA++

21

Xilinx Inc.XLNXSemiconductorA

18

ADTRAN, Inc.ADTNTelecom. EquipmentB++

25

Broadcom Corp. ‘A’BRCMTelecom. EquipmentB++

19

Cisco SystemsCSCOTelecom. EquipmentA++

21

F5 NetworksFFIVTelecom. EquipmentB++

20

Juniper NetworksJNPRTelecom. EquipmentB++

31

NETGEARNTGRTelecom. EquipmentB++

22

NeuStar Inc.NSRTelecom. EquipmentB++

16

Polycom, Inc.PLCMTelecom. EquipmentB++

33

Qualcomm Inc.QCOMTelecom. EquipmentA+

16

Forward AirFWRDTruckingB++

20

Knight TransportationKNXTruckingB++

23

Werner EnterprisesWERNTruckingB++

15

Research in MotionRIMMWireless NetworkingB++

21

Zebra Techn. ‘A’ZBRAWireless NetworkingB++

20

Use these ideas as you see best.  I am not reinvesting at present, and so I am not actively looking at these names. That said, a number of them are in my portfolio, namely: INTC. THG, HPQ, ORCL, AMGN, HMC

Full disclosure: long INTC. THG, HPQ, ORCL, AMGN, HMC

Eurozone

 

  • Spain Grazing Junk Status Fuels Contagion Risk http://t.co/bEvUbpcE Life is tough near the tipping point; EZone unstable by design $$ Jun 16, 2012
  • A Conversation on Europe’s Political Economy with George Friedman and John Mauldin http://t.co/HysUyF2N Can EZone politics work? $$ 9min vid Jun 15, 2012
  • ECB Tells Court Releasing Greek Swap Files Would Inflame Markets http://t.co/pASYdDNC All-wise ECB tells us we can’t handle the truth $$ Jun 15, 2012
  • Central Banks Warn Greek-Led Euro Stress Threatens World http://t.co/fwFSb7wr Central Bankers will dilute the curncys2pay bank ruptures $$ Jun 15, 2012
  • Draghi Hints ECB Is Ready to Act http://t.co/dG4QRLTE Nobody else is doing much, so Draghi takes the next step 2 $$ looseness #FTL Jun 15, 2012
  • Merkel’s options: Pay, inflate, or else… http://t.co/6iyl3f0H If the Germans want2keep EZone, must give up @ least 1 of their goals $$ Jun 15, 2012
  • Bond Parishioners Are Leaving The Euro Church http://t.co/szDlBJ5m “Liquidity never cures solvency problems which is exactly where we r now” Jun 14, 2012
  • David Rosenberg Channels Felix Zulauf http://t.co/7g7JN8e5 High debt levels combined w/inflexibility of Euro make solutions tough $$ Jun 14, 2012
  • Germany and Greece: a tale of estrangement http://t.co/2YFZ2xDY Greece was probably hopeless, but Germany raised/dashed expectations $$ Jun 14, 2012
  • Switzerland joining the Eurozone would have to join the EU; would not solve the currency problem but merely make the problem permanent $$ Jun 14, 2012
  • The Dangers of Switzerland’s Currency Strategy http://t.co/ryydgM5Q Switzerland should join the euro http://t.co/zdotnFSb $$ Jun 14, 2012
  • I would love to meet Angela Merkel & discuss the Eurozone w/her, but I know my limits, i am not important enough 4 that 2 happen $$ Jun 13, 2012
  • “German history teaches us compellingly that isolation would spell disaster,” I don’t agree, and think dissolving the Euro would b best $$ Jun 13, 2012
  • Spanish, Italian Yields Leap Higher http://t.co/KkIgKyYJ How long, to the point of no return? $$ Jun 12, 2012
  • Whole world feels soggy $$ RT @agnestcrane: So much for the Spanish bank bailout bounce. Dow down 1.24%, 10-Yr Tsy back below 1.6%. Jun 11, 2012
  • RT @historysquared: “We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised … Jun 11, 2012
  • Greek Blackouts Risked as Power Companies’ Cash Runs Out http://t.co/qtOOodzG When does Greece finally realize their nation has failed? $$ Jun 11, 2012
  • Italy Moves Into Debt-Crisis Crosshairs After Spain http://t.co/SDEe8FQm That’s the nature of contagion; In the EU contagion is ragin’ $$ Jun 11, 2012
  • +1 $$ RT @Queen_Europe: Well, the Spanish might be too big to bail but at least they hold their press conferences on time. #BeingGerman Jun 09, 2012

 

Energy

 

  • Venezuela’s Massive Oil Reserves ‘Irrelevant’? http://t.co/rhEZlZXJ Highlights Chavez’s mismanagement of industry, especially crude oil $$ Jun 15, 2012
  • Nationalised oil can deliver output growth http://t.co/o0ssVqXb Overly laudatory piece praising the virtues of state-run oil companies $$ Jun 15, 2012
  • Unconventional oil to alter geopolitical balance http://t.co/RABAp9FT Balance may get tilted, but I would not expect self-sufficiency $$ Jun 14, 2012

 

Financial Sector

 

  • Duke, GE Tempt Savers With Higher Yield Than Money Funds http://t.co/3HJ3BKzK I would be careful; single creditor risk w/no gtees $$ Jun 16, 2012
  • Jamie Dimon Welcomes You to the Next Financial Crisis http://t.co/6oyULAic Could $JPM make $$ anticipating EZone finl crisis? from @moorehn Jun 15, 2012
  • Why it’s time for higher interest rates http://t.co/xjmZMNub Sheila Bair takes on Paul Krugman & Ben Bernanke’s overly loose $$ policy Jun 15, 2012
  • Americans See Biggest Home Equity Jump in 60 Years http://t.co/Yq5nHxtn Another bright spot, but still lotta mtges r inverted $$ Jun 14, 2012
  • Large Institutions Discuss New Marketplace for Bonds http://t.co/t9j4sEtk Few holders, large lot sizes, usually self-liquidating $$ Jun 14, 2012
  • Private Equity Has 2 Much Money to Spend on Homes http://t.co/VPToSU8I Don’t get how many residences can b managed @ reasonable expense $$ Jun 14, 2012
  • @mickwe Thanks, Mick, I get it. I have “traded” illiquid securities in my life and have a feel for when claims r invalid. $$ Jun 13, 2012
  • Mortgages Beating Junk Bonds as Homes Top Europe http://t.co/HTjhcz7T Mkt more accepting of nonconforming mtge risk than Eurozone or junk Jun 13, 2012
  • ‘ @GaelicTorus Cool, hexadecimal yields. There are only 10 types of people in the world, those that get binary, and those that don’t $$ Jun 12, 2012
  • Loophole at MF Global Is Headache for Regulators http://t.co/P1xUc1Y5 Except Corzine, senior execs weren’t registered w/regulators $$ Jun 12, 2012
  • Why do I get so many pump&dump scams in the mail? I’m getting tired of the liars that call themselves analysts who profit from promoting $$ Jun 12, 2012
  • In other words, the crisis hit people who thought they were well-off because of overpriced housing assets; this really isn’t news $$ Jun 12, 2012
  • Family Net Worth Fell Almost 40% Between 2007-2010 http://t.co/W4rfdy1o Effect largest on 2nd wealthiest quintile $$ Jun 12, 2012
  • Wrong: Hedges’ Assets: $5 Trillion http://t.co/1fcWfhWK Mkt habitat 4 HFs limited by relatively efficient mkts & volatility avoidance $$ Jun 12, 2012
  • Banks seek to offload risk on insurers http://t.co/6laka8hb Check my comment at the end; I am dubious that this would work. $$ Jun 12, 2012
  • Panel Finds U.S. and Europe Behind Schedule on Financial Rules http://t.co/zGlSjrG6 Not too surprising regulating financials is complex $$ Jun 11, 2012
  • Bond Bubble Dismissed as Low Yields Echo Pimco’s New Normal http://t.co/lRtwy360 How do you guarantee receiving value in the future? $$ Jun 11, 2012
  • Need Money? Just Ask Your Customers http://t.co/Ce6pj7QL Clever move by companies raising $$, but people who lend to them r patsies $$ Jun 11, 2012

Rest of the World

 

  • With Tax Deal, Japan Deals Initial Blow to Big Debt Problem http://t.co/U5srcgjK Japan still has to fight their population shrinking $$ Jun 16, 2012
  • Ex-Soros Adviser Fujimaki Says Japan May Default by 2017 http://t.co/n0G6TBAC Disagree that Japan will precede Eurozone $$ $FXY Jun 15, 2012
  • Rain, Pests Imperil India’s Wheat Crop as Warehouses Full http://t.co/Qib0xsck What 2do w/a bumper crop that came at the wrong time? $$ Jun 14, 2012

 

Political

 

  • Harvey Golub: A Simple Tax Code Is a Fair Tax Code http://t.co/hwUwbVfE Similar2my proposals: focuses on defn of income, not tax rates $$ Jun 15, 2012
  • Scalia represents the Constitution, which is against Obama and Bush’s Imperial Presidency views. He may be sarcastic… http://t.co/rEc5icLe Jun 15, 2012
  • Inequality: It’s Even Worse Than We Thought http://t.co/hMkbGXBp Highlights Warren Buffett’s ability to avoid capital gains taxation. $$ Jun 14, 2012
  • That said, inequality is unavoidable in a productive society, because some people work harder or smarter than others $$ Jun 14, 2012
  • @StockTwits It’s really difficult to get a muni bond to default. Ch 9 allowed in 48% of states, even then state approval sometimes needed $$ Jun 14, 2012
  • Medicaid Fraud Audits Cost Five Times Amount U.S. Found http://t.co/E3Z5d2zt Can’t win 4 losing here. How to fight Medicare fraud? $$ Jun 14, 2012
  • Romney Aide Oversees Fundraising That Makes Him Cash, Too http://t.co/mMQdDf7e Zwick definitely works hard, but he gets a lot for it. $$ Jun 13, 2012
  • ‘ @FrankButcherr If something similar happened in an SEC-regulated context, charges could b brought. But I am not an expert here. $$ #CFTC Jun 12, 2012
  • Obama to Revisit Economic Debate http://t.co/AVbVrgzV A Presidency of Excuses http://t.co/6gv8rkT1 Is fiscal multiplier positive? $$ Jun 12, 2012
  • Odd if there is no CFTC regulation that says if you acting in a regulated capacity but you aren’t registered to do so, that’s not a crime $$ Jun 12, 2012
  • States Remain Cautious Even as Finances Improve http://t.co/hAHCBq8F Things better but c this pensions article http://t.co/RQ4PMswj $$ Jun 12, 2012
  • Familiar w/author; good guy knows his stuff RT @jasonzweigwsj: who is to blame for the state & municipal budget crisis? http://t.co/YMkU2a9h Jun 12, 2012
  • Obama’s formula for more economic growth? More government http://t.co/eMw5UYiR Obama only has hammer; everything looks like a nail to him $$ Jun 11, 2012
  • @lorriebarkins My friend Cody Willard would say,”flip it,” so I say, “teach them to vote against Republicans and Democrats.” Both r fools $$ Jun 10, 2012

 

Company & Industry News

 

  • Truckers as Leading Indicator Show Stable U.S. Economic Growth http://t.co/irRAJpNm Bright spot amid punk economic conditions $$ Jun 14, 2012
  • GM’s Chief Labors to Get Rebuilt Car Maker Into Gear http://t.co/dFmKObdy New $GM was not in bankruptcy long enough 2 kill old GM $$ Jun 12, 2012
  • RT @ampressman: @AlephBlog They’re saying it now so justices can point to it in fantasy opinions, just like the majority in Citizens United Jun 12, 2012
  • Wrong: Insurers Stand Firm on Benefits http://t.co/aQ0NxDiu These changes will disappear due2 competitive pressure post-strikedown $$ Jun 12, 2012
  • Patents may not be as valuable post-Posner’s ruling in the $GOOG – $AAPL trial. Can’t patent basic things. http://t.co/L4rIhlkc $$ Jun 12, 2012
  • Companies Shape Curricula in New University Partnerships http://t.co/LhkAI3qi Good in some ways; wonder if this limits creativity? $$ Jun 11, 2012
  • Best Time for Best Buy Bid Now as Founder Exits http://t.co/41B34pdm Really doubt $BBY goes private; deteriorating erns, internet competes Jun 11, 2012
  • +1 RT @StockTwits: Love This! – Famous judge spikes $AAPL v $GOOG case, calls patent *system “dysfunctional” http://t.co/WXOjNmmi via @gigaom Jun 09, 2012

 

China

 

  • China one-child policy leads to forced abortions, mothers’ deaths http://t.co/JiwypM8q Yes, forced abortions in China & don’t care 4 moms $$ Jun 16, 2012

 

Market Factors

 

  • Foreigners Snap Up Properties in the U.S. http://t.co/4oeyYAey Offers wealthy foreigners options in a crisis & for vacations/college $$ Jun 12, 2012
  • Junk Yields Fail to Deter Investors Seeing No Recession http://t.co/YPeNc1HP Remember, the junk bond mkt works on a yield not spread basis Jun 12, 2012
  • @fuzzyinvesticle @dpinsen I put more trust in the Q-ratio, CAPE, Price/Resources, & @eddyelfenbein ‘s view stock market as a bond measure $$ Jun 12, 2012
  • The Two Reasons Stocks Won’t Get as Cheap as They Did in 1982 http://t.co/QXXjdUCc Reasons: low int rates, high buybacks. Not convinced $$ Jun 11, 2012
  • Counting on an Inheritance? Count Again. http://t.co/1Z0cnjkl Far more likely that u will support your parents than receive a bequest $$ Jun 11, 2012
  • Impressed w/ @saraeisenFX Asks great questions of Marc Faber http://t.co/pgDzHIhf & George Papandreou http://t.co/hgn8K Buy #video $$ Jun 11, 2012
  • @newrulesinvest I also admire and voted for Terrance Odean & Jason Zweig; they are bright men who deserve attention by all. $$ Jun 11, 2012
  • @BoydRoddy Thank you Roddy, and I am honored to be mentioned in the same sentence as the estimable @John_Hempton. $$ Jun 11, 2012
  • . @lorriebarkins I teach people about money so that they will b wiser; wise people r less easily taken by hucksters & popular fads $$ Jun 10, 2012

 

Miscellaneous

 

  • Just felt weird, but I laughed $$ RT @ReformedBroker: We Are All Rajat Gupta Now. Not sure what that means, just felt right. Jun 15, 2012
  • ‘ @GaelicTorus It’s my opinion that markets don’t create liquidity; they reflect the native liquidity of the asset being traded $$ #testidea Jun 14, 2012
  • @Pfro That’s not my experience. We have come so far on racism in the US that my adopted black children haven’t experienced it. $$ Jun 12, 2012
  • RT @ToddSullivan: Keep hearing people tell High School Grads “these are the best years of your life” …what a terrible message to send … Jun 11, 2012
  • RE: @wstreetallstars Wow, Cody, very glad that you survived.  What an ordeal.  Praying for you, and those near you. http://t.co/HcuU6R89 Jun 11, 2012
  • @asymmetricinfo Brings meaning to the phrase “Lied like a finance minister on the eve of the devaluation.” Jun 11, 2012

Here’s one thing I am not worried about: suppose the Bush tax cuts go away, and the budget is cut pro-rata.  That would be a good thing.  I have always believed in balanced budgets.  Yes, restoring balance may be painful for a little while, but the results are usually good after a “big bang,” whether that is a default, currency conversion, or massive privatization.

Why are balanced budgets good? Duh, they are sustainable, particularly if they are done on an accrual basis, which is not the norm.  Sustainable government budgets engender confidence in businesses and individuals, because they sense stability, and stability encourages growth.  Businessman can plan sensibly, because they have a sensible government.

I don’t think the economy would do badly in this scenario.  Hopefully, we would clear out the least valuable programs (I dream), and the taxes raised were not counted on by those subject to the change.

I don’t think this would have a big effect on the US economy.  So Congress can’t agree; that is good, because it forces cuts that Congress would never make given their disagreements.

This is the next best thing to a balanced budget amendment.  Eliminate Keynesian idiocy, and manage the economy sensibly, balancing the budget as a normal matter, and don’t use government or central bank policy to moderate it, because that only creates liquidity traps like the one we are in.  (Need I mention that the Fed should either peg to gold, or that it should only have a a double mandate — bank solvency first, inflation second. unemployment does not figure in, largely, because the Fed has no effect on unemployment.)

Let the economy be free, aside from regulating banks tightly; it will be far better than what we currently have.  Regulation of maturity transformation is important because maturity-transformation violates basic asset-liability management rules.  We need to force banks not to take interest rate risk.  No more borrowing short and lending long.  Long-dated lending requires long-dated financing.  Organize society for stability, not boffo profits for banks in the bull phase, and huge losses/bailouts in the bear phase.

I don’t care about short-term pain, so long as we end up in a better spot afterward, with better growth prospects.

I write this realizing that the dominant reaction might be, “That won’t work.”  Well, I toss out ideas on things like this because they *might* work, amid a situation where things are ugly, and real solutions aren’t appearing.  If you explain to me why it won’t work, that will help me do better in the future.  I don’t respond to all comments due to time constraints, but I do read all comments and I consider them.

We have a lot of problems in the world today, but the one that is the most volatile at present is the Eurozone. The Eurozone has issues, because tries to have one currency across an area where levels of productivity, retirement policy, regulatory policy, etc., vary considerably.

The goals of having an “ever-closer union” are perhaps desirable, if naive. Two can only walk together if they agree on underlying issues — with 17 nations, it is far tougher.

The first step toward a solution, given that all nations have fiat currencies is to acknowledge that you made a mistake in creating the Eurozone.  If you are going to have a fiat currency, you should have some form of taxation authority behind it, and that is not true in the Eurozone.

The second step is to re-introduce individual currencies for each country in the Eurozone.  A Euro would be defined as a weighted average  of the individual currencies in the Euro; the initial weights would stem from the percentage of GDP for the Eurozone as a whole.  Local currencies would be used for local transactions, but the trade in currencies and Euro arbitrage would result in changes in the trading values of the local currencies.  Quarterly, the value of a Euro relative to the local currencies would be redefined by the percentage of GDP the country has compared to the whole of the Eurozone.

The third step is dealing with bankrupt nations.  Solvent nations should not bail out bankrupt nations, but instead, bail out local financial institutions with assets from bankrupt nations the right way — wipe out common and preferred shareholders, and junior debtholders, and make senior debtholders take a haircut.  Protect depositors, but others in the capital structure lose.

Fourth, when things have normalized, take Euros, and force an exchange into the underlying currencies.  The Eurozone is gone, and all of the problems that it created.  Send the Eurozone to the ash-heap of other currency unions; they don’t work.

There will be some complexity here, but the need to undo a major policy error — creating a common currency when there is not a common government, is a significant matter, and the effort to unwind the mess should be pursued.

And now, you can tell me why this won’t work.

You can guess that I am talking about promoted penny stocks.  From now on, whenever I write about this, I will update this table:

Ticker

Date of Article

Price @ Article

Price @ 6/12/12

Decline

GTXO

5/27/2008

2.45

0.0395

-98.4%

BONZ

10/22/2009

0.35

0.018

-94.9%

BONU

10/22/2009

0.89

0.0799

-91.0%

UTOG

3/30/2011

1.55

0.07

-95.5%

OBJE

4/29/2011

2.90

0.04

-98.6%

LSTG

10/5/2011

1.12

0.1525

-86.4%

AERN

10/5/2011

0.0770

0.0014

-98.2%

IRYS

3/15/2012

0.261

0.16

-38.7%

NVMN

3/22/2012

1.47

1.3

-11.6%

STVF

3/28/2012

3.24

0.46

-85.8%

CRCL

5/1/2012

2.22

1.12

-49.5%

ORYN

5/30/2012

0.93

0.75

-19.4%

BRFH

5/30/2012

1.16

0.765

-34.1%

Personally, I find the consistent losses to be impressive.  All of the companies that I wrote about more than three months ago have losses greater than 86%.

Tonight’s loser is Luxeyard [LUXR].  I got this sorry excuse for research today. Six months ago the company, was called Top Gear, Inc., was based in Israel, and had the goal of becoming a leading kosher food certification organization.  As a result of an acquisition of Luxeyard, and spinout of the kosher food certification efforts, the company is a website for selling luxury goods.

Well, at least the disclaimer tells some truth this time:

NBT Equities Research and/or its publisher, ChangeWave, Inc., dba NBT Communications has received $35,000 and been pledged 75,000 shares of rule 144 common shares in LuxeYard to assist in the writing of this advertisement.

Next Media LLC paid $1,500,000 to marketing vendors to pay for all the costs of creating and distributing this report, including printing and postage, in an effort to build investor awareness.

Next Media LLC was paid by non-affiliate shareholders who fully intend to sell their shares into this advertising campaign.

Prior holders of Top Gear, and those who sold Luxeyard to them have paid the research liar to bull up the price so that they can sell into it.  Those who buy Luxeyard are dumb; really, really dumb.

Anytime a third party promotes a stock to you, and it is not a normal Wall Street “We provide research so that we can do IPOs and get trading volume,” avoid it.  All of these promotions are scams.  They don’t make money.  Average investors lose, even those that think they can play the speculation game.

Again, I ask why promotions like this are legal.  If the disclaimer is small type (this one was 7.5 points), and the regular type encouraging investment is 12+ points, I think the disclaimer should not be valid, and the author, publisher, and backers should be subject to lawsuits, that they forfeit their ill-gotten gains.

This should be a short post this evening, because I am tired.  Always be skeptical of analyses that reason like this: A will lead to B, B will lead to C, C will lead to D, D will lead to E, E will lead to F, which is a (horrible disaster / incredible success).

Causality is problematic.  Things don’t always move the way we would expect, because the system is more complex and robust than most anticipate.  There’s more than one way to skin the cat.  Also, we often get spurious correlations, which fools amplify noise into signals.  Correlation is not causation.

Also, there are expectation effects that vary over time.  Sometimes a market effect that commonly occurs has been overinvested in, it is true usually, but overpriced for now.  Example BBB bonds out perform in the long haul, but in May of 2002 as spreads were crashing in, it was right for me to throw those bonds out the window for AAA, AA, and A-rated bonds for what was a small yield give-up.

When you reason about investing, write out the chain of causality, and recognize that things that are certain are less than certain.  The more links, the less likely the whole argument is.

It is better to keep things simple, and avoid extended reasoning.  Most good investing involves simple judgments on broad issues — try to get the big things right, and the little things will follow.  You can do well in investing by avoiding situations that are highly levered; yes there are some big gains with high leverage, but there are more big losses.

So keep things simple, invest simply, focusing on relative value and income.

I try to do “The Best of the  Aleph Blog” pieces between 1-2 years after original publication.  Why?  It gives time for reflection, time for series to complete, time for me to be proven wrong/right, etc.  I would have preferred that readers do this job for me, so that I could be neutral, but I realized that I am the one that has the most concentrated interest in doing this, so that is why I do this.  The main benefit for me in doing this is when I submit free content to “Wall Street All Stars,” I know what I think is good stuff, and I utter a few words to explain how my wisdom has proven right, or fell on its face.

This episode covers the era of November 2010 through January 2011.

On Investment Modeling, Part 1

On Investment Modeling, Part 2

On Investment Modeling, Part 3

On Investment Modeling, Part 4

Investment modeling is tough, you omit some bits of reality, and deny other bits of reality.  In this four-part series, I try to explain how difficult good modeling is, and how to make it better.

Flavors of Insurance, Part I

Flavors of Insurance, Part II (Life)

Flavors of Insurance, Part III (Personal Lines)

Flavors of Insurance, Part IV (Commercial)

Flavors of Insurance, Part V (Reinsurance)

Flavors of Insurance, Part VI (Brokers)

Flavors of Insurance, Part VII (Health)

Flavors of Insurance, Part VIII (Financial)

Flavors of Insurance, Part IX (Title)

Flavors of Insurance, Part X (Conglomerates)

Flavors of Insurance, Part XI (Banks and the Insurance Business)

Flavors of Insurance, Part XII (Summary — The End)

This was a unique series where I tried to bring my expertise to bear on a complex industry.  I wrote the original piece in 2003, and it never got published.  I used OCR to scan it and one of my brighter children to edit it, so you have my original text, plus my commentary in 2010, pointing out where I was right and wrong.

Time to Grow Up

I am an advocate for a brainy libertarianism that reflects the intelligence embedded in the Bible, coming form the Creator Himself.  I do not back what the t-party has to say, whose positions reflect personal selfishness.

Nonidentical Twins: Solvency and Liquidity (III)

Now, when a government is overleveraged, but interest rates are low, the situation is potentially unstable.  A rise in rates could tip the scales.  Market actors would conclude that they can’t survive at rates high than a certain threshold, so sell the debt now, in case rates would get so high.  That action forces rates higher, leading to a self-reinforcing panic.

Sometimes this happens in advance of a debt refinancing, leading some politicians and bureaucrats to say the forever bogus phrase, “This is not a solvency crisis, this is a liquidity crisis.”  Sorry, if you play near the cliff, don’t complain if you happen to fall off.

Liquidity crises do not happen to governments with low debt levels.  Liquidity crises are solvency crises during the panic phase, before they are revealed to be solvency crises alone.

The Value of Fair Accounting

Why fair value accounting has value to investors.  This should be a “duh” moment, because everyone should understand this.

2010 Financial Report of the US Government

My annual post on the topic, describing the deterioration of the situation.

A Portrait of Maryland’s Public Companies

I explain why Maryland, my adopted homestate, has the mix of publicly traded companies that it does.

Why We Don’t Need the Fed

We would do better with a commodity standard, and even a gold standard.  The Fed hoodwinks us with its pretended efforts to maintain value.  I genuinely mean that we could do better without the Fed.  Put James Grant and Steven Hanke in charge of our monetary policy, and we will do well

On Human Fertility

A controversial topic, but fertility rates are falling more rapidly than the demographers expect. Why? It is politically correct to say that the planet is running out of resources, a bogus idea, but often stated.  As it is, because of changes in the way that women and men view their roles, fewer children will be born.

And as for a guy who has sired three children, and adopted five (far more difficult), I would simply say that we are better off with more children in homes that care about the results of how children turn out.

US State Economics

 

  • State Politicians and the Public Pension Cookie Jar http://t.co/NLyWlK2X Politicians don’t cut public pensions b/c they pad own pensions $$ Jun 09, 2012
  • North Las Vegas Crisis Shows Fragility of Nevada Economy http://t.co/sCnrcmRk Moral laxity of Vegas invites elements that lead2trouble $$ Jun 09, 2012
  • Wrong: What Scott Walker can teach Barack Obama http://t.co/lpO5hETn When Walker campaigned he did not know he would have a majority in +1/2 Jun 06, 2012
  • both houses of the legislature. He seized the opportunity & did something bold in order to fix Wisconsin’s finances. Result: Survives recall Jun 06, 2012

 

US Fiscal Policy

 

  • U.S. House May Split Up Package of Expired Tax Breaks http://t.co/hXcmb1Ec Good idea; let each tax break stand on its own &b abolished. $$ Jun 09, 2012
  • True Capitalists Are Pro-Market, Not Pro-Business http://t.co/HVQjkfk2 Get business special interests out of tax code & govt subsidies $$ Jun 08, 2012
  • Senate Dealmaker Baucus Turns to Rewrite of US Tax Code http://t.co/naa2hePj Baucus is going to try to gore everyone equally, maybe? $$ Jun 08, 2012
  • RT @TheOneDave: True capitalists are pro-market rather than pro-business, according to Yale’s Stephen Carter: http://t.co/vQQ64YDa via @ … Jun 08, 2012
  • Americans Cling to Jobs as U.S. Workforce Dynamism Fades http://t.co/acaAmcGm Inverted Mtge, 2 earners, ec uncertainty reduce flexibility $$ Jun 08, 2012
  • Teachers Unions Have a Popularity Problem http://t.co/QGqzD8Ys Pct of electorate backing rights of teachers 2 collectively bargain falls $$ Jun 05, 2012
  • Monetary Aid Coming as Wal-Mart Helps Housing http://t.co/pBBoiRH6 Mixed Bag: QE3, Youth unemployment & being near a WalMart boosts home $$ Jun 04, 2012
  • U.S. Multinationals Lobby to Alter Tax Rules They Sought http://t.co/7maKR41m Would be better to eliminate, & raise taxes on divs & CGs $$ Jun 04, 2012

 

US Mortgages & Real Estate

 

  • Mortgage Rates Hit New Low, 30-Year Drops to 3.67% http://t.co/BLQGkosE Because housing is not recovering, mtge rates continue to fall $$ Jun 08, 2012
  • FHA Turns to Investors as Losses Continue to Rise http://t.co/c73e01TU US Govt messes up another lending guarantee area. They always do $$ Jun 08, 2012

 

Asia

 

  • Strong Yen Won’t Survive Japan’s Fiscal Cliff http://t.co/e7P6RyFl Shilling argues that Japan will suffer as it ages & sells govt debt $$ Jun 09, 2012
  • Ikea to Consider India Entry, Plans More China Stores http://t.co/lfrvVgTY Many difficulties setting up biz in overregulated India $$ Jun 08, 2012
  • Japan Confronts Flight to Quality With Brutal Yen http://t.co/bWj62zo3 Wondering when the “flight to quality” may no longer benefit Japan $$ Jun 07, 2012
  • China Cuts Interest Rates for First Time Since 2008 http://t.co/7bIbIdUd Unlikely to do much to stimulate, not much demand 4 loans now $$ Jun 07, 2012
  • Bad News Piles Up for China’s Economy http://t.co/coT0mfgf Repeated cycles of malinvestment are finally hitting tipping point of failure $$ Jun 07, 2012
  • Keep tight stops RT @mercenaryjack: Contrarian buy signal $USDJPY RT Japan Confronts Flight to Quality With Brutal Yen http://t.co/D98ax8rH Jun 07, 2012
  • Japan’s Debt Sustains a Deflationary Depression http://t.co/6sUCexpl As Japan ages & shrinks, will be hard 4 it to maintain economy $$ Jun 05, 2012
  • Bob Fu: The Pastor of China’s Underground Railroad http://t.co/1HXIypo5 Fascinating tale of life in China & influencing China from outside Jun 04, 2012

 

 Politics

 

  • Brown Challenged Over Dodd-Frank http://t.co/UsRpt5tf Scott Brown best chance at election: pro-business moderate; paint Warren extremist $$ Jun 08, 2012
  • What’s Changed After Wisconsin http://t.co/rTa0vaWi Don’t normally link2 Peggy Noonan, but the last line was quite a stinger. Jun 08, 2012
  • “Because Bill Clinton loves politics, he hates losers. Maybe he just can’t resist sticking it to them a little, when he gets a chance.” $$ + Jun 08, 2012
  • Romney Executive Style Forged in Faith He Rarely Mentions http://t.co/SOOSDnwI He has 2b quiet; there is no upside explaining Mormonism $$ Jun 08, 2012
  • Hollande Gets Crisis-Protection Tips From Business-Friendly Lyon http://t.co/4emjSYXn Interesting piece; Lyon businessmen guide Socialism $$ Jun 08, 2012
  • Walker Bets on Brats to Heal Wisconsin as Praise Pours In http://t.co/9Kto2qIA Smart move on Walker’s part after a bitter election fight $$ Jun 08, 2012
  • Chavez Losing Grip on ‘Benjamin’ as U.S. Dollars Sought http://t.co/YQ9aLNTp Thier’s law in action in Venezuela http://t.co/mNNp2KzJ $$ Jun 08, 2012
  • Congressman to Bernanke: Take QE3 Off the Table http://t.co/QpQnU0BZ I’m sorry, but the Fed doesn’t listen 2 Congress; they’re above that $$ Jun 07, 2012
  • Bernanke Cites Risks, but Doesn’t Signal Action http://t.co/Ew9Nc2K8 Bernanke is a dove, but does not like to telegraph views, only leak $$ Jun 07, 2012
  • French, Greek Unemployment Rise http://t.co/vKfvrwWY Highest jobless rate in France in a decade and a record unemployment rate in Greece $$ Jun 07, 2012
  • Hollande Deficit Vow Lures Investors to French Debt http://t.co/25CZUhHS I’ll believe it when I c it. What taxes rise & programs cut? $$ Jun 07, 2012
  • Merkel Allies Signal Progress on Fund to Pool Debts http://t.co/p8UGaOXr Don’t see how this works economically or politically long-term $$ Jun 07, 2012
  • RE: @bloombergview Bloomberg’s regulation fails one basic test: “I’d like two sodas, please.”  Very dumb, and he went… http://t.co/GphkCClc Jun 07, 2012

·  Student Loans Held by the Federal Government http://t.co/IsW6eywX When the govt enters a lending business, it typically creates a bubble $$ Jun 06, 2012

·  Obama’s Debt Boom http://t.co/OsPykK3q $$ borrowed & misspent produces no growth; same 4 QE which inflates goods and Hi-Qual asset prices $$ Jun 06, 2012

  • Wisconsin Voters Head to Polls in Recall Election http://t.co/9pNJvCsL <2% of WI voters uncertain. Most divisive election I can recall.. $$ Jun 05, 2012
  • Recall Stirs Passion in a Purple State http://t.co/2NsLiisy I think Wisconsin would b more civil if it weren’t recall election $$ #civilwar Jun 04, 2012

 

Energy

 

  • Oil Heads for Longest Weekly Losing Streak in 13 Years http://t.co/Gx0wPKr4 After oil bubble popped in 2008, we went down to $50, not now $$ Jun 09, 2012
  • Oil Tankers Squeezed as Rates Drop to Lowest Since ’97 http://t.co/dXFAzMw4 Could go lower; what will the bondholders do w/the boats? $$ 😀 Jun 05, 2012
  • Romney Aversion to Wind-Power Aid Alienating Republicans http://t.co/V7yp3lHE Good. End *all* energy subsidies, especially ethanol. $$ Jun 05, 2012

 

Bond Markets

 

  • Investors Bail on Junk Bonds http://t.co/Iwk1URn2 This is still early, & we lack notable defaults necessary to have a full-scale panic $$ Jun 09, 2012
  • A Safe Haven in ‘Cat’ Bonds http://t.co/MbXh1KLB Every fixed income subclass eventually underwrites crud in a mania; still waiting here $$ Jun 07, 2012
  • MF Global and the Risks Looming in the Repo Market http://t.co/AD8XXOGh Should have been a red flag to see Corzine change the core biz $$ Jun 07, 2012
  • The TIPS curve has become inverted http://t.co/DN0ZHsbY CPI inflation expectation falling in near term; may justify some dumb move by Fed $$ Jun 06, 2012
  • Thought experiment: What if PIMCO Hi Inc $PHK 70% prem2NAV did a rights offering giving each share a tradable right 2 buy a share @ par? $$ Jun 05, 2012
  • Quirks of High-Yield ETFs http://t.co/voVBkmvr Good article; I will follow up w/a piece comparing time- & $$ -weighted returns of bond ETFs Jun 04, 2012
  • In all of the bond furor of last week, anyone else notice that the real yield on the on-the-run 20-yr TIPS went negative? I didn’t either $$ Jun 04, 2012

 

Eurozone

 

  • I like to think that I am pretty imaginative, so, wow! $$ RT @betandbetter: @AlephBlog and the reality of France is worst than u CAN imagine Jun 07, 2012
  • The rise and fall of European banking http://t.co/94t9dzk2 Lenders retreat within own borders to minimize losses in breakup scenario $$ Jun 07, 2012
  • 4 reasons why the euro will survive http://t.co/PcDpsERP Too painful, Votersr risk-averse, euro is innovative?? & ECB can handle troubles $$ Jun 07, 2012
  • Spanish, French Borrowing Costs Diverge http://t.co/X2XfTUem Spain had to cut the size of its auction to make it succeed $$ Jun 07, 2012
  • My Self-Esteem a Mess Is Refrain for Spain’s Unemployed http://t.co/sV7l8Gbq When the economy turns down many other problems occur $$ Jun 07, 2012
  • Germany Grapples With Role in Rescue http://t.co/dvkQXL38 Will the rest of Eurozone embrace the idea of a Federal Europe? Open question. $$ Jun 06, 2012
  • Maybe the solution is to send unemployed Greek, Portugese, Spanish, Italian & Irish workers to Germany, there is low unemployment there $$ Jun 06, 2012
  • “It has brought untold suffering to Europe” http://t.co/JDvp91eq Interview w/Felix Zuluaf, translated from German, regarding the Eurozone $$ Jun 05, 2012
  • @JackHBarnes @japhychron Maybe define a euro as exchangeable into fixed %s of subcurrencies, and let the subcurrencies trade; learn new wgts Jun 05, 2012
  • RT @JackHBarnes: How hard would it be to relaunch sub currencys at the N.C.B level, but have a quote vs the Euro as a whole? Dynamic int … Jun 05, 2012
  • Spain Warns Market Access Being Shut http://t.co/tkr6No7s Spain auctions 2-yr, 4-yr & 10-yr bonds on 6/7, which will tell us a lot. $$ Jun 05, 2012
  • Germany refuses Eurobonds: http://t.co/RLqELufX Germany would accept eurobonds if full fiscal/banking unification http://t.co/qXcrvsXh $$ Jun 04, 2012
  • Portugal Props Up Three Banks http://t.co/xJOpX1yP The Eurozone must either centralize, or break into smaller compeatible units $$ Jun 04, 2012

 

Companies

 

  • Intel Can’t Break TV’s Bundles http://t.co/4RUtMAPi Difficult 2encourage a la carte pricing for television shows; few incentives FD: + $INTC Jun 08, 2012
  • Pushing the PRAM: when chips just can’t get any smaller http://t.co/G7Tcd6hg Fascinating technologies 4 future shrinkage of storage & NAND $$ Jun 08, 2012
  • Could value investors be the reason a stock’s cheap? http://t.co/xAMVjAqx No, cheap stock is y value investors show; we don’t make it cheap Jun 08, 2012
  • Big Customers Are Taking Longer to Pay http://t.co/7JS1Nov0 Causes everyone to seek longer financing terms; not a good sign $$ Jun 07, 2012
  • The (very) bullish case for the American auto market http://t.co/ukPi2GUj Premature to forecast a boom here; credit is not that good $$ Jun 05, 2012
  • JPMorgan Faces $4.2B Trading Loss, ISI Forecasts http://t.co/0FPsl5bR $JPM looks cheap here, but is it safe here? Almost tempted 2 buy $$ Jun 05, 2012
  • Hedges Gone Awry Set Back Chesapeake http://t.co/Kw7gUpOD How many times does a hedger lose $$ speculating? Usually once, the last time 😉 Jun 04, 2012

 

Monetary Policy

 

  • Rely on BB2provide dovish $$ policy RT @cabaum1 Bernanke says nothing without committing to anything http://t.co/qCV9J5SF via @BloombergView Jun 07, 2012
  • Why Everyone Still Wants Dollars http://t.co/9QbDkaxl $$ hegemony will stop when neomercantilistic nations stop subsidizing exporters via FX Jun 07, 2012
  • Pimco’s Home-Loan Wager Seen as Prescient on QE3 Odds http://t.co/gr8BmHOr Key Q: if QE3, what will the Fed buy? Tsys, Agys, Mtges, other $$ Jun 07, 2012
  • @ampressman Monetary policy has not been run properly since Volcker left. $$ Jun 06, 2012
  • RE: @bloombergview Where is your proof that QE works? A stupid idea thought up by ivory tower economists. Rubbish. http://t.co/Wgzpx01I Jun 06, 2012
  • @GaelicTorus Sorry, disagree. Fiat monetary policy is constrained by the total resources/productivity of an economy @ a given price level $$ Jun 06, 2012
  • Bill Gross: Global monetary system may be fatally flawed http://t.co/Hm2kIEFD System doesn’t work well if savers don’t earn more than CPI $$ Jun 06, 2012

 

Economics

 

  • Behind every model is an analogy; behind every datum is history; marry the 2, you have a story. Math obscures, doesn’t reveal econ truth $$ Jun 07, 2012
  • Wrong: What If Speed Traders Competed on Price? http://t.co/jZm0dlOs Moves to lower the tick size have always led to more games, not less $$ Jun 07, 2012
  • Are Economics PhDs Learning the Wrong Thing? http://t.co/oT5oH9eK If more Economics depts taught philosophy & history would help fix Econ $$ Jun 07, 2012

 

Resources

 

  • Gold Bugs Defy Bear-Market Threat With Soros Buying http://t.co/Q3g6xOwS Gold does well when real interest rates fall, & vice-versa $$ Jun 06, 2012
  • Exhausting the Earth’s Resources? Not So Fast http://t.co/OZlc0GS5 It will b a long time b4 mining asteroids will b economic. $$ Jun 05, 2012
  • Next Frontier: Mining the Ocean Floor http://t.co/o7DAp8Oi After years of discussing it, it is finally happening, w/Glencore buying ores $$ Jun 05, 2012

 

Miscellaneous

 

  • Wall Street to Muppets: Thanks for the Love http://t.co/d0KLKPYF Blunt opening: “The dumb money is back.” Equity mutual funds get $$ inflows Jun 06, 2012
  • 10 Things Law Schools Won’t Tell You http://t.co/l5NcIHBd Most of it boils down to oversupply, high training costs, low quality, job lies $$ Jun 06, 2012
  • Bristol Immune Drug Success in Cancer May Spur Industry Race http://t.co/kivy3JgW Promising therapy awakens immune system 2fight cancer $$ Jun 05, 2012
  • NRA-Backed Law Spells Out When Indianans May Open Fire on Police http://t.co/8v922BB2 Law will likely not last long; few corrupt cops $$ Jun 05, 2012
  • AIG Chief Sees Retirement Age as High as 80 After Crisis http://t.co/VF0thYCp A bit of a tin ear as he relaxes at his Croatian villa $$ Jun 04, 2012
  • IPads on a Plane Let Scoot Save Fuel by Shedding TV Tons http://t.co/50POpeO2 Never realized the entertainment system weighed so much $$ Jun 04, 2012
  • Q: What Is New and Scary? A: The Revised GMAT http://t.co/Z0LR8dq4 Nu requires test-takers2read & sort complex charts & analyze much data $$ Jun 04, 2012
  • Iran and Israel Can Agree on This: Rita Jahanforuz Totally Rocks http://t.co/83HxNwsx Jewish Star Remakes Persian Oldies; Fans in Tehran $$ Jun 04, 2012
  • European Project Trips China Builder http://t.co/7jtu1Q5M Long tale of woe in Poland from accepting lowball bid from Chinese construction co Jun 04, 2012
  • Good time had by all $$ MT @interfluidity: a mexican lunch in ellicott city with @interfluidity makes for a delightful afternoon. Jun 04, 2012

Note: there is a vote going on at http://list.ly/list/1HO-top-100-investment-blogs  regarding the best investment blogs.  Whether you vote for me or not, I encourage you to vote up blogs you like.  I voted for 12 or so blogs, I didn’t just vote for myself.  Recommend other blogs if you see fit.

PS — If anyone wants to nominate me for Who do you think is a big thinker in finance? I would be honored, but I understand if otherwise.  I voted for many who were there already.

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It took me a while to come over to the views of Lacy Hunt, Van Hoisington, and Gary Shilling, but with the addition of Bill Gross, Mizuho Securities, and Jason Zweig, I am beginning to feel crowded.  When abnormal theories begin to get embraced I get concerned that the cycle is changing and that the theory will fail because more people believe it.  In the short-run, it means the long end of the yield curve will rally, in the long run, macroeconomic forces will dominate.

Will long rates continue to fall?  Probably.  Will they stay low?   They might stay low for a few years, but if the US government takes actions that reduce regulation, the economy will grow, banks will lend, and rates will rise.  But if Obama is re-elected, regulations will increase, businesses will not grow, banks will have no reason to lend, and we will remain in this morass.

Note: I am planning on voting for a third party, I don’t care for Romney.  Romney would be far better for the economy than Obama, but economics does not figure into my voting; I look for the man who can best lead us ethically, and that is almost never the Republican or the Democrat.