• 30 Innovations That Will Change The World Fascinating list; bookmarking it because I don’t have time now $$ Aug 31, 2012
  • How ‘Oxygen Foam’ Can Save People Who Aren’t Breathing Injectable oxygen can keep people alive when lungs hav probs $$ Aug 31, 2012
  • Laser-Guided Bullets Will Change The Future Of Warfare Changes bullets into mini-guided missiles $$ Aug 31, 2012
  • This Nanoparticle System May Lead To A Cure For Cancer Clever fusion of drugs, polymers, nanoparticles & infrared $$ Aug 31, 2012
  • Power Felt Feeds Off Your Body Heat To Generate Electricity If cheap enough could power developing world cellphones $$ Aug 31, 2012
  • A Tiny Microscope That Attaches To A Cell Phone Could Save Lives Around The World & it only costs $10! Amazing $$ Aug 31, 2012
  • 5 Ways Researchers Use Microbes To Make Energy First 2 seem most promising. Butanol great replacement 4 ethanol $$ Aug 31, 2012
  • The Amazing Process That Enabled Paralyzed Rats To Run Again Several different technologies used in concert $$ Aug 31, 2012
  • Check Out The Cancer Detection Program That Won Top Prize At Google’s Science Fair WIll save life & pain 4 women $$ Aug 31, 2012
  • See How Scientists Print Skin That Will Help Treat Burn Victims Amazing. Again, the cost will determine viability $$ Aug 31, 2012
  • This Concentrated Solar Cell Could Be Powering Cities ‘Within Years’ If this gets cheap enough, will change energy $$ Aug 31, 2012
  • How This Small Machine Turns Human Waste Into Clean Water Vapor Neat, is it less expensive than current methods? $$ Aug 31, 2012
  • The Secret To Making Food Packaging You Can Eat Talk about your childhood wishes: you can even eat the dishes $$ Aug 31, 2012




  • The Riddle of the Resilient Economy Solved?? I think many people factor future tax burdens & inflation into their views Sep 01, 2012
  • Bernanke on The Safe Asset Shortage When u become a large part of the market,distort price signals, difficult 2 exit $$ Aug 31, 2012
  • Not if you count in the rise in debt and unfunded liabilities $$ RT @TheStalwart: America is better off than it was four years ago Aug 31, 2012
  • ‘The Economy Stole My Retirement’ I’m sorry; no one owns a retirement, it is not an entitlement; work is good $$ Aug 31, 2012
  • If Interest Rates Go Negative . . . Or, Be Careful What You Wish For A fundamental boundary u should not break $$ Aug 29, 2012
  • U.S. Firms Move Abroad US has some of the highest corporate tax rates in world, w/too much social engineering $$ Aug 29, 2012
  • True, Even if QE does nothing $$ RT @BubblesandBusts: @AlephBlog Even admitting this, Fed may be trapped by stock market expectations Aug 29, 2012
  • Fiscal Crunch Time in the Nation’s Capitals Long article on sagging GDP amid difficulaties 4 China’s municipalities $$ Aug 29, 2012
  • Sadly, yes. Add in student loans for debt-slavery. $$ RT @jasonzweigwsj: Are Debtors’ Prisons Coming Back? #WSJ $$ Aug 29, 2012
  • The unintended consequences of QE: not what you think QE both inflates and deflates doing almost nothing on net $$ Aug 29, 2012
  • Richard Koo is overrated, as is damage from austerity. $$ Aug 28, 2012
  • If I had $1 4 every lame QE3 comment, could fund vacation 4 the Fed RT @ReformedBroker: QE3: SHUT UP, YOU HAVE NO IDEA. Aug 27, 2012




  • BOE’s Haldane: Tear Down This “Tower Of Basel” To Stop Crises International standards are ill-enforced & squishier $$ Aug 31, 2012
  • France’s Hollande speeds launch of state investment bank Governments involved in lending help create bubbles $$ Sep 01, 2012
  • Judgment Days Arrive for Euro Crisis September will be busy for the Eurozone. Strap in and enjoy the ride. $$ Aug 31, 2012
  • Spain Unveils New Financial Reforms Subordinated debt & government absorb losses, as depositors & investors flee $$ Aug 31, 2012
  • El-Erian: Who Will Determine Greece’s European Future? The weaker Italy & Spain r the more the EZone protects Greece $$ Aug 31, 2012
  • Europe banks find a rare funding window in August Can hardly think of assets with a worse risk/return ratio $$ Aug 29, 2012
  • Deposit flight from Spanish banks smashes record in July Uncertainty leads to safe-haven-seeking $$ Aug 29, 2012
  • Turks to EU: No, Thanks Turkey grows much faster without the Euro; why end a good thing? $$ #ignorethedebtbubble Aug 29, 2012
  • France Debt ‘Significantly Overvalued,’ General Re Says France is the core EZ country closest to tipping $$ Aug 28, 2012




  • Romney Can Take His Dad’s Idea and Cut Mortgage Tax Break Grandfather it, a least 4 a while $$ Aug 31, 2012
  • I don’t believe someone whose views have shifted radically $$ RT @dpinsen: @AlephBlog He’s telling you what he stands for now Aug 31, 2012
  • Please, Ron would have been far more skeptical here $$ RT @FriendsRonSmith: Mitt’s hitting it out of the park tonight! Aug 31, 2012
  • Note on last Tweet: I am not voting 4 Romney; I have no idea what he really stands 4, given his past. Will go 3rd party, if I vote 4 prez $$ Aug 31, 2012
  • How to Beat President Obama “Obama is losing independents, his base is less enthusiastic, the economy stinks” $$ Aug 31, 2012
  • Time to Get Serious on Medicare The elephant in the room for both parties: what will you do with Medicare? $$ Aug 31, 2012
  • Four Years Later, and a Million Miles From Safety We have not solved TBTF, repo funding, margining, and much more $$ Aug 31, 2012
  • Republicans Vow 2 Transform Obama’s US by Less Govt Even Reagan only held Federal Register 2 no increase; shrink? Wow Aug 31, 2012
  • Obama Second Term Would Defy Confidence Measure Only reason this race is close is the Reps had no strong candidates Aug 31, 2012
  • Ryan Pledges GOP Rebirth Nice thought, but who will have the guts to cut entitlements or defense or reform taxes $$ Aug 31, 2012
  • Piecemeal reform that gives the financial sector what it wants would be the worst of all worlds. $$ Repeal it all, pu… Aug 30, 2012
  • It is days like this that I am grateful that I do not own a TV, or I would be tempted to waste time watching the Republican Convention $$ Aug 29, 2012
  • Paul Ryan’s Intellectual Muse Hayek was not a “no government” guy as much as a “limited government” guy $$ Aug 28, 2012
  • Sen. Corker: Bernanke’s Fed Feeds ‘Perverse Addiction’ Current policy absorbs $$ from savers to finance US deficit Aug 28, 2012
  • Will they have the courage to use it, didn’t use their power last time RT @The_Analyst: OLA is some progress, no? $$ Aug 28, 2012
  • Didn’t fix TBTF or remove bad regulators RT @CFAInstitute: Sheila Bair: 2Yrs After Dodd-Frank, Y Isn’t Anything Fixed? Aug 28, 2012
  • 10 things the post office won’t tell you Point 8 I have a lot of experience with, but true of many govt buildings Aug 28, 2012
  • Partisan Finger-Pointing Misses Real Deficit Story Not dealing w/real issues until we deal w/entitlements $$ Aug 28, 2012




  • China’s Growing Economic Crisis The Communist Party is running out of paces to create fake growth $$ Aug 31, 2012
  • Credit crisis in China’s richest province Zhejiang “This is pervasive throughout China,” said Chovanec $$ Aug 29, 2012
  • China’s bad-debt nightmare Another aspect of Chinese malinvestment coming due $$ Aug 28, 2012
  • Latest missive out from Michael Pettis. Very bearish on commodity prices & Chinese GDP growth. rebalancing Chinese economy will be difficult Aug 28, 2012




  • Start-up savior? Killing convertible debt Proposed Alternative: An modified form of convertible preferreds $$ Aug 31, 2012
  • Quebec Whodunit: 1/4 of Province’s Syrup Reserves Go Missing Did not know that Quebec provides 75% of all syrup $$ Aug 31, 2012
  • Weekly Wrap: Bernanke speaks in Wisconsin An oops from NPR Marketplace. Jackson Hole is in what state? $$ #Wyoming Aug 31, 2012
  • Hidden Truths about Calories A Food is Not a Food, A Body is Not a Body, A Microbe is Not a Microbe, A Cal is Not a Cal Aug 31, 2012
  • ‘Virtually Untreatable’ Tuberculosis Threat Rising Existing drugs proving useless. TB: coming 2 a country near you $$ Aug 31, 2012
  • Twelve-Year-Old Programmers Help Fuel IPhone Game Frenzy SImple computer languages let kids make games, learn2code $$ Aug 29, 2012
  • Quake ‘Swarm’ Hits California Town This would be pretty nerve-wracking to have almost constant small quakes $$ Aug 28, 2012
  • When you homeschool you can never tell the next question; just had a 10 minute discussion w/kids 5 & 6 on franchising, good discussion $$ Aug 28, 2012
  • ‘ @ballenmo 5th is 18, 6th is 15 1/2 — came from a visit to Buffalo Wild Wings where 1 kid tried 2 use coupon only good @ company stores $$ Aug 28, 2012
  • 4 those of you who know me, I review a lot of books, & PR flacks send them 2me in a wide # of ways. 1st time I got 1 via $AMZN today $$ Aug 27, 2012
  • When “biggest X” is going on, where X is university building campaigns, skyscraper, private equity deal &c credit cycle is about2go bust $$ Aug 25, 2012
  • Active in Cloud, Amazon Reshapes Computing $AMZN is like the cable industry of old: grows rapidly, profit in future $$ Aug 28, 2012
  • This is why I say it will be a while before high end real estate recovers. NJ suffers as finance shrinks $$ Aug 28, 2012
  • Watson gets ready 4 more uses as $IBM works on voice interface, & broadens its knowledge & $$ Aug 28, 2012
  • This is a reason why the definition of income matters more than the rates it gets taxed at. Many rich people legally … Aug 28, 2012


Rest of the World


  • Asia’s Tide of Cash Hems in Policy Makers Today’s exhibit on effects of loose monetary policy from US, EU, Japan $$ Aug 29, 2012
  • Poor in India Starve as Politicians Steal $14.5 Billion of Food Food aid should bypass governments or don’t give $$ Aug 29, 2012
  • Brezhnev Bonds Haunt Putin as Investors Hunt $785 Billion Don’t tell me nations don’t default on debts $$ Aug 28, 2012
  • Canada Says ‘Anonymous’ May Attack Energy Firm Computers Threats2Canada’s critical infrastructure r real&will persist Aug 28, 2012


Financial Market Dynamics


  • Oh No – Another Post About High Frequency Trading? HFT is the solution to fragmentation of venues 4 executing orders $$ Aug 31, 2012
  • High-yield ETFs Drive One Tenth Of Bond-Trading Volume That’s significant, & will increase HY mkt volatility $$ Aug 31, 2012
  • How to dodge market touts and traps Chuck Jaffe goes after promoted penny stocks, similar 2 what I have said $$ Aug 31, 2012
  • At least a few of us knew that $$ RT @EddyElfenbein: “Short-Selling Bans Don’t Work. Period.” Who knew? Aug 30, 2012
  • Pimco’s Ivascyn Beats Gross’s Flagship Pimco is misunderstood because of the PR they do w/Gross & El-Erian $$ Aug 29, 2012
  • How to get a jumbo mortgage now One of the more optimistic things I’ve seen in residential real estate lately $$ Aug 29, 2012
  • SEC Commissioners Fault Schapiro Over Money-Market Rule Debate Significant tax probs w/float NAV, acctg probs w/capl Aug 29, 2012
  • Floating NAVs [4 MMFs] could prove taxing I remember when I tried to use a ST bond fund 4 checking; messy tax-wise $$ Aug 28, 2012
  • The Averaging Down Clown This is more a question of time horizon and quality; I average down a lot and make $$ Aug 28, 2012
  • How Young Homeowners Lost Out by Buying Remember, homes r primarily an expense & not an investment $$ Aug 28, 2012
  • Hertz Wins Bid to Buy Dollar Thrifty Did not know that Enterprise controls 50% of mkt, Hertz DT 26%, Avis 18% $$ Aug 28, 2012
  • Presidential Life Corporation To Be Acquired By Athene Annuity & Life Assurance Company This will not end well $$ #FTL Aug 28, 2012
  • States Review Insurers’ Capital State regulators may require addl capital 2b held against non-GSE mortgages $$ Aug 28, 2012


Occupy Wall Street


  • “I don’t have any sympathy for anyone who has any semblance of middle-class life in this country — no sympathy” #OWS Aug 29, 2012
  • Last tweet shows attitudes of some in #OWS . Can’t fight something w/nothing, though. Organization will always beat disorganization $$ Aug 29, 2012
  • Examples: Spartan & Roman armies could beat the less organized that had far larger armies. A real political movement organizes, unlike #OWS Aug 29, 2012
  • “The article sounds like #OWS is reduced to its fringe elements, which will be unpredictable, but…” — David_Merkel $$ Aug 29, 2012
  • ‘ @jmiah_th read the Bloomberg article on #OWS It almost seems like they are falling apart if the article is right $$ Aug 29, 2012




  • @carney Reminds me of how AIG collateralized their sec lending w/AAA subprime RMBS, or the guy who tried 2 get a loan out of me by pledging+ Aug 31, 2012
  • @carney 5x the amount of a microcap stock w/ no earnings & neg net worth. Stock cratered and was worth zero 18 months later $$ Aug 31, 2012
  • The Central Bank of Sweden Prize RT @jasonzweigwsj: why the Nobel Prize in economics isn’t (exactly) a Nobel #WSJ $$ Aug 31, 2012
  • +1 $$ RT @TheStalwart: #FF: @diana_olick. If you’re not following her, you have no idea what’s happening in real estate. Aug 31, 2012
  • @crampell Post hoc propter hoc fallacy — QE inflates assets *and* liabilities; it does nothing on net Aug 31, 2012
  • @SaraMurray What a cute kid. Aug 31, 2012
  • RT @maoxian: @niubi The plural of Ordos is Overdos. Aug 31, 2012
  • @The_Analyst She has always been kind to me. Don’t know what to say, I tend to give everyone room in this complex environment $$ Aug 31, 2012
  • RT @asymmetricinfo: Goodnight, tweeps. Remember: in 100 years, your great-grandchildren will be struggling to believe that anyone cared. Aug 31, 2012
  • @The_Analyst Heidi is a friend of mine. Why are you so hostile? Most journalists on finance learn as they go, she is better than most. $$ Aug 31, 2012
  • ‘ @BettyInTheLoop Romney will do best being authentic, whatever that is for him; efforts to remake a candidate into what he is not fail $$ Aug 30, 2012
  • @JeniecePrimus Thanks for the compliment. I try to be as fair as possible, down to my contracts, and the disclaimer on my blog. Aug 30, 2012
  • It is a loser $$ RT @ritholtz: Jeb Bush Slams Republican Anti-Immigrant Stance as Losing Recipe via @BloombergNews $$ Aug 30, 2012
  • @17thStCap This time he mentioned that he liked $GM; I’ll continue to hold on to my $HMC, but it made me think. FD: +HMC Aug 29, 2012
  • @moorehn Now, that, made me laugh — caught me needing a laugh too, thanks. Aug 29, 2012
  • RT @dakyne: @JamesGRickards Nice rebuttal! The gold standard wasn’t the problem–the problem was the price was set too low during the 20 … Aug 30, 2012
  • RE: @bloombergview Shows why economists are dumb. Unemployment is high because labor is plentiful globally, & wages f… Aug 30, 2012
  • “Russian money and influence already extends to Cyprus. Short hop to Greece …” — David_Merkel $$ Aug 30, 2012
  • “”Economic growth is stabilizing at a slow pace.” Nothing to see here. Move along. $$” — David_Merkel Aug 30, 2012
  • @groditi I think post-WWII until Roe v Wade, most politics was quieter, w/noise behind closed doors. History pre-WWII & politics was ugly $$ Aug 29, 2012
  • @danprimack Right, and look at the DEF 14A forms — to test, pulled up the board of Amerus Group in 2006, since bought out by Aviva Aug 29, 2012
  • “Toss in some moderate sideshows: Japan, Switzerland, Australia. This era is a mess.” — David_Merkel $$ Aug 29, 2012
  • @ReutersFlasseur @historysquared @firoozye slow preparation on the off-chance of unwinding the Eurozone $$ Aug 29, 2012
  • ‘ @BergCT When I read that, I thought, “I get the politics of demonizing the 1%, I do not get the politics of demonizing the ~75%.” $$ Aug 29, 2012
  • RT @KeithMcCullough: “Bernanke has becomes a 21st century Pangloss, hoping for the best and quite unprepared for the worst” @JamesGrickards Aug 29, 2012
  • RT @KeithMcCullough: “Fed has effectively declared currency war on the world” @JamesGRickards Memo from the front: Aug 29, 2012
  • @susanweiner Scope out the overall idea of what u want to say, then list ~10 articles that will say that. Write, seek feedback, repeat $$ Aug 29, 2012
  • @grossdm She has worked there long & hard, and from my dealings with Fidelity, has helped to transform them from being only mutual funds $$ Aug 29, 2012
  • RT @Convertbond: Priceless RT “@lemasabachthani: RT @Darlington_Dick: Morocco has eur-denom bond maturing on 10/2020. Trades 170bp tight … Aug 29, 2012
  • @GuardianJessica Would have phrased it more delicately; when some ppl who r selfish have kids, they expand the spheres of their selfishness Aug 29, 2012
  • @eddtorial I have Tweetdeck up in front of me, and it all people are talking about. I am reading a good book by David X. Martin on risk $$ Aug 29, 2012
  • RT @jarstone: @TheStalwart As American’s we have a choice to make in this election. We can end up like the NY Times or the Wall Street J … Aug 28, 2012
  • Used to work near there $$ RT @GlobeStcom:Philadelphia Stock Exchange building in receivership, @NewmarkKF 2market #CRE Aug 28, 2012
  • RT @The_Analyst: Book Review: “Bailout” by @neilbarofsky, or: Why I’ll Never Work in DC & Why Main Street should blame Govt Not Wall … Aug 28, 2012
  • I just reviewed: ‘The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal… via @alephblog $$ Aug 28, 2012
  • @DavidSchawel Renting offers flexibility. Owning is a commitment w/large fixed costs. Y tie up capital in 1 levered undiversified asset? $$ Aug 28, 2012
  • NB: Yuan may b overvalued $$RT @saraeisenFX: Yuan forwards trade at biggest discount to onshore rate since March 2009 on growth slowdown Aug 28, 2012
  • Commented on StockTwits: There is a time and place for renting vs buying — what are your resources, needs, time hor… Aug 28, 2012
  • @jonsticha Just this: Reagan was pragmatic, but did not want to be… w/majorities in Congress he would have been far more transformative $$ Aug 28, 2012
  • Garbage. If Reagan had had a strong majority in Congress, he would have balanced the budget & done more on social iss… Aug 28, 2012
  • RT @yvessmith: Why Neil Barofsky’s Book “Bailout” Matters: Matt Stoller is a fellow at the Roosevelt Institute. You can follow … http: … Aug 28, 2012
  • RT @ampressman: Brought my daughter to the office this morning to impress her with my piles of folders, pens of much ink and assorted tc … Aug 28, 2012
  • ‘David Frink, a spokesman for Dell, said the company’s bonds are a “more accurate market indicator,” which are “tradi… Aug 27, 2012
  • @neilbarofsky My review is out; loved your book: $$ Aug 26, 2012
  • @The_Analyst I try to release them at the same time. Aug 26, 2012
  • @The_Analyst Sorry, but I feel late to this one as well. Top reviewer at Amazon has 99/109 positive votes, from a poorly written review $$ Aug 26, 2012
  • @DynamicHedge FRED has come a long way; used it when it was a bulletin board. Now it is a treasure trove free on the Web $$ Aug 25, 2012
  • @DynamicHedge 3M LIBOR minus 3M T-bill yield Aug 25, 2012
  • Ripple effects RT @SoberLook: Post: “The crash of the Dutch housing market reminds us of a much older market bubble” $$ Aug 25, 2012
  • Miss your stuff too, when my blog was down 4 a wk, it was tough $$ RT @jennablan: cc: @kenli729 RT @unstructuredfin So sad without my blog Aug 25, 2012

Today Heidi Moore interviewed me for NPR Marketplace.  I won’t give away what it is about, but I will tell you two things:

  1. If I am on Marketplace, it will be on Friday or Tuesday.
  2. There was a point in the interview where she stumped me.  I’m usually pretty able to think on my feet, but when she asked me “Volatilty: can you explain that in language that a teenager could understand?”  I choked up, did my best on short notice, and gave what I later viewed as a lame explanation, but as I said it, my heart sank, because I realized I was not clarifying anything.

So, after the talk (It was really good to meet Heidi voice-to-voice for the first time), I took a walk outside and pondered.  Then the analogy struck me, and here it is:

Imagine you are driving down a well-engineered smooth road with gradual turns, modest traffic, and no bad weather, and you are going 60 miles per hour.  This is easy.  There is no volatility here.  That is what an average retail investor hopes for, and rarely gets.

Now consider a road that is not so smooth, with significant and frequent curves, significant traffic, and now and then it is raining hard.  That is a difficult situation.  This is similar to what the market is normally like, with all of the volatility (high variation of results).  Maybe you can’t do 60 MPH in that environment, but something less.  Those who recognize risk must run at a slower speed or risk accidents.

Now think of someone without special skills who dares to drive the easy road at 100 MPH.  He might not think it so hard, and might think he is quite a driver doing so.  So it was for equity investors in the ’80s and ’90s; conditions were uniquely favorable, and average investors thought they were hot stuff.

Now think of someone without special skills attempting to do the hard conditions at 100 MPH on average.  Odds are they wipe out, or even die.  You can’t fight physics, or can you?

Okay, now think of a highly trained driver with a special car that is able to handle the hard conditions, and can do it at 100 MPH on average, most of the time.  It doesn’t work all of the time, because there are things no one can catch — extra slipperiness, a bump in a particularly bad place that leads to an overturned car.

Finally, think of the trained driver with special car told he must average 150 MPH over the hard conditions course once.  He dies on the first try, destroying the car.  Several other trained drivers try with identical cars.  They all die, and the cars are destroyed.  Eventually, you can’t get anyone to try the hard conditions course at 150 MPH.


In my analogy, the difference between the hard and easy course is volatility: how rough/variable are conditions.  Leverage is represented by speed.  Any course can be completed, but there is a maximum speed for which a course can be completed without disaster.  No surprise that those who are overly aggressive in investing frequently fail.

Now for the final tweak: imagine that you have no map for the hard course, it is new to you, no GPS, nothing to aid you in the driving.  That is what the markets are like.  As I often say, the markets always have a new way to make a fool out of you.  How fast could you go?  How fast could the trained driver with a special car go?

This is why I urge caution in investing and avoiding leverage.  Investing is tough enough without trying to earn something beyond what the market can bear.  I encourage safety first, after that, look for best advantage.

This is a short book that in some ways is a summary of Reinhart and Rogoff’s greater work This Time Is Different: Eight Centuries of Financial Folly. Think of it as an executive summary in book form.  How short is it?  Less than 160 pages, but in terms of text there’s less than 40 pages of text in this 6″ x 9″ book, so it’s a fast read.

Graphs occupy the remainder of the book, with the latter two-thirds of the book going nation-by-nation, allocating 1-3 pages to each, showing Debt/GDP, and the various sorts of financial crises they have faced.

Main Findings

1) When debt to GDP ratios get above 90%, growth rates fall by 1%.

2) Emerging markets fare worse than developed market on point #1.

3) There’s no relation in the short run regarding public debt and inflation in developed nations.

Other Findings

1) Many nations default continually… I allege cultural problems, but I am willing to be corrected.

2) Banking crises were normal in developed nations prior to WWII.

3) Private debts surge prior to banking crises. This is normal, when banks lend aggressively, they lend badly.

4) When there are banking crises, other crises tend to occur.  No surprise, because restrictions in bank lending leads to difficulties in those seeking financing.

5) Banking crises are associated with sovereign debt crises.

6) Public borrowing follows a repeated boom/bust cycle, particularly in developing markets.

7) Like Michael Pettis’ book, The Volatility Machine: Emerging Economics and the Threat of Financial Collapse, short-term debts tend to accelerate prior to crises in developing markets.

8 ) Public credit ends to absorb private debts after the crisis erupts.

This is a good book,  it summarizes the dangers that come from high national debt levels.  The graphs in the back are a handy reference to the debt histories and crises of most major nations.



Who would benefit from this book: I think every serious investor and thinker on economics should be familiar with the findings of Reinhart and Rogoff.  If you want to, you can buy it here: A Decade of Debt (Policy Analyses in International Economics).

Full disclosure: I bought this book with my own money.

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.

I’m here this evening to review another excellent book on risk control by David X Martin.

This is a difficult book to review, because if I describe what happens, I end up spoiling the book.  This is a small book, and I read it in less than an hour.

This book came into existence because the author had a hard time explaining risk to the family of a friend who had died, and then his own family.  He wanted to come up with a simple way to describe risk to those who don’t know markets.  His tool was using common animals in a forest to explain risk, because their behaviors mimic those of different sorts of people as they face risks, or decide to ignore risks.

One thing I appreciate about the book is that it takes an ecological approach to risk.  My view is that markets are not like physical systems, they are like ecological systems.

Risk can never be eliminated, but it can be prepared for and managed.  I think that is the main message of the book.

For most of you reading me at Aleph Blog, this book would be fun for you but not necessary for you.  But consider some of your friends and family members that are not as sharp as you.  Personally, I am planning on having my wife and kids read this book.  Living with me, they pick up a lot, but this book is a clever way to teach risk management without making it seem like it is being taught.

To me the real use of this book is to teach less market oriented friends, family, and children about risk.  This is a small, simple but powerful book.

For those that are advanced, and want something more meaty, please read my review of the author’s book, Risk and the Smart Investor.


It’s a little book, and it is a very good book, but 15 clams for such a small book?  I would have priced it at $10 or so.

Who would benefit from this book: This book is designed for beginners and intermediate investors.  Get it as a gift for friends who you think are taking too much risk, and don’t get that.  Or, use it to educate young people about risk.  If you want to, you can buy it here: The Nature of Risk.

Full disclosure: The author asked me if I would like the book and I assented.

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.


I am going to say something that I rarely say: I am grateful that this book was written.  Why am I grateful?

  • It highlights the idea that people, even really bright people, do not behave rationally, but imitatively — they follow recent price action — they mimic.
  • It validates the concept of a “crowded trade,” one that offered high returns in the past, may presently offer low returns to a “buy and hold” investor, but will deliver negative returns in the near future, because the holders of the trade are relying on the trade to deliver positive returns in the short run, and will bail if it doesn’t happen.
  • It points up the nonlinearity of markets, and invalidates the efficient markets hypothesis; it validates the concept of the boom-bust cycle both in micro and macro.
  • It teaches us to not take on too much debt, even if we are really, really smart.  We aren’t as smart as we think we are.
  • In short, it sums up a lot of my philosophy at The Aleph Blog.  Real risk control thinks long term, and considers what will happen if liquidity dries up.  Real risk control knows that large positions in any asset relative to the market must be regarded to be “Buy-and-hold” regardless of what your trading intentions are.  False risk control assumes that markets always function, and that your relative size versus the market does not matter.

The author of the book has led a storied life.  He was a quantitative analyst hired to work in risk control for Long Term Capital Management [LTCM] near its inception, and continued with them through the failure.  After that, he worked for Rydex, built FOLIOfn, and worked for the Bank of International Settlements, and Schroders.  He now works as a professor of finance at the University of San Francisco, after having gotten a PhD from MIT.  He knows the markets both practically and experientially, like me, though he is better than me.

LTCM is a great example of what happens when some really smart guys find clever ways to make money in the markets, and then overplay them.  The trade that has a buy-and-hold yield of 10% is genius.  When it is 8% it is bright.  At 6% it is average, why are you playing?  At 4% it is dopey.  But what happens when your trade gets big relative to the market?  The rules change, much like JP Morgan recently.  When you are big enough that you are moving the market as a normal practice, that indicates danger.  You have become the market, and are distorting it.  It will eventually come back to bite you, as JP Morgan recently learned.

The failure of LTCM may have been the template, but the author goes on to explain other disequilibrium situations such as:

  • The quantitative equity panic of August 2007
  • The failure of Bear Stearns.
  • The failures of Fannie and Freddie (free money brings out the worst in all of us)
  • The failure of Lehman Brothers.
  • The failure of the banking system both in the US & Europe
  • The failure of LTCM progeny in 2008 (no, we don’t learn)
  • The Flash Crash
  • The failure of the Eurozone, so far. (It is performance art.  How can we create the biggest failure ever?  We will eclipse the Great Depression! Oui! Ya!)

I’ve written about most of these, and I can tell you the author does a good good job.  Aside from that, he took time to interview primary sources as to their own view of the events that happened, particularly at LTCM and its progeny, and it adds to what we know about the crises that he wrote about.

People need to understand that crises are a normal aspect of markets.  Until you understand that crises are normal, you will always take too much risk.

This is an excellent book; buy it and avoid losses.


In the beginning he got the name of Cramer’s firm wrong.

I would have eliminated the appendices if I were the editor, the audience that can benefit from the math is too narrow to be worth printing it in the book.  Better you should put a PDF out on the web, and put out a slimmer book.

Who would benefit from this book: If you want to understand why crises happen, buy this book.  It is well-written but requires some degree of market knowledge for the reader to benefit.  It is not for beginners.   If you want to, you can buy it here: The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal (Bloomberg).

Full disclosure: The PR flack asked me if I would like the book and I assented.

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.


There was an academic article published recently on the investing of Warren Buffett.  Afterward, I thought I saw a few articles reflecting on it, but here is the only one I see now: There’s Warren Buffett — and then there’s the rest of us.

Buffett is different, because he grew as an investor and as a businessman, and usually made the right moves over a 50+ year career.  When you don’t have a lot of assets, and few people are doing value investing, you can do amazing things with special situations, and being an activist investor.  In 1967, Buffett had control of a textile company named Berkshire Hathaway, when he used the resources of the company to purchase some smallish P&C insurance companies, National Indemnity and National Fire and Marine Insurance.

This brings up the first way that Buffett is different than most investors.  He understands and invests in a complex industry, P&C insurance.  He begins to realize that it can be used as a platform for greater investing.  As he sees that potential, he buys half of GEICO in the 70s, before buying the whole company in 1994.

This brings up the second way that Buffett is different than most investors: Buffett was willing to buy whole companies, not replace management for the most part, and operate them.  Buffett limited himself to being the wholly-owned company’s board, asking questions on management competence, and redirecting free cash flow for the greater good of Berkshire Hathaway.

That brings me to the third way in which Buffett is different than most investors: He analyzes cash flow streams from investments, and buys shares in companies, or the whole company when they offer a reliable high prospective free cash flow yield.  And it brings me to the fourth way Warren Buffett is different than most investors: Buffett does not diversify, particularly in the early years.  He plays for best advantage.  Buffett views investing through the lens of compounding cash flows, and does not pay much attention to the market as a whole.

In my opinion, it is a worthy use of time (but don’t neglect your family) to read through the annual letters of Berkshire Hathaway.  If you do that, you will get a sense of a clever businessman who would invest for best advantage.  His tactics shifted over time, but he was always looking to compound free cash flows at the best possible rate.

I’m going to hit the publish button now, but I will finish this in part 2.

What does Washington, DC care about more — people or corporations?  Do you have to ask? DC favors corporations, and all three branches of the government support this.  Both parties favor this.  Why is this so?

The corporations, and those that own them are a more effective means of raising funds to maintain their hold on the offices that the occupy.  Beyond that, there is an attitude that economic policy needs to be carried out through laws that address corporations.

So whether you come from the t-party, Occupy, or someplace else, you might harbor resentment against the status quo: big government in league with big corporations, and wealthy people.

I wish it weren’t so, but the Constitution takes a back seat to “pragmatic” concerns, especially when a “crisis” happens. It should not be that way, but that’s the way it is.

So, what if you drop an idealistic guy, the author, Neil Barofsky, into the job of watchdog for the TARP?  [SIGTARP: Special Inspector General of the Troubled Asset Relief Program] He objects to the uncontrolled nature of how money is being handed out to banks, with few checks as to how the money will be used.

Now, the author could have made a stronger argument.  The FDIC, where does it pump in cash to failed institutions? They protect depositors — that’s the lowest level of the capital structure.  But where did the TARP add capital?  At the highest level of the capital structure; they bought stock and warrants.

Constitutionally, the government has no authority to own corporations.  Further, even if the government had that authority, if it was trying to preserve the soundness of the banking system, the proper way to do it would be to make senior secured loans.  That would guarantee the banking system, but let the common and preferred stockholders, and bondholders go broke before the taxpayer coughs up the first dime.

As it was, the author found himself adrift in DC, cleverly fighting to bring some rules to what was a giveaway to the banks, many of which did not need the bailout, and certainly did not want the limits on executive pay.  He found that DC was a place where the bureaucratic government fights itself.  No one wants to look lazy or foolish, so when someone alleges a crime against a party that another branch of the bureaucracy is supposedly investigating, they fight back.  Applying the principles of Peter Drucker, our government could be smaller, and more effective — there would be fewer turf wars.

Were the Bailouts Wrong?  Did they Fail? 

The author makes the case that the bailout has failed. When he says that he is not saying that the bailout as a whole lost money. (I would note that the bailouts have lost money on the home if you include Fannie and Freddie, the auto companies, along with all of the financial institutions including AIG.) He is saying that the problem of too big to fail banks has not only not been solved, is actually gotten worse since the crisis. The big five banks now have around 50% of the deposit base in US. “Too big to fail” is a problem unsolved that still threatens our financial system. This problem is solvable; the US government broke up AT&T (then allowed it to recombine again). Interstate branching could be limited, or ended.

The second problem with bailout is that engenders moral hazard. Because you have done it once, it would be expected next time, which when the financial system once again enters a bull cycle, the bankers will know that the federal government has its back and will not be inclined to limit risk to the same degree that they otherwise might.

The third problem with the bailout is that it was uneven. A logical question for any person harmed by the crisis is, “Where’s my bailout?” Even if bailing out the banks in order to preserve financial systemic integrity was needed, there were other ways to do it, such as being lender of last resort at a penalty rate, or giving vouchers good to reduce debts to every household in America. Particularly that last option would have been viewed as fair by the American people. That could have saved some of the pain felt by those with mortgages, and help the creditworthiness of loans at the banks. Instead, the Obama administration created programs like HAMP, which did little good for most, and actually harmed some.

The fourth problem with bailout and monetary policy that accompanied it was that it was a large transfer of wealth savers to banks. It doesn’t do much for the economy, if the banks have zero cost on their deposits, and all they do is invest in ultrasafe securities, clipping a small, but safe profit.

What was it Like to be There?

More often than not, the Treasury Department did not want to have the Special Inspector General interfering with their plans.  There was a lot of stonewalling, and nondisclosure of pertinent data.  It got fairly contentious at times, and often required members of Congress to intervene on behalf of SIGTARP.  The relationship probably got worse over time, because those working at SIGTARP knew that they would have no influence, no changes would be made, unless they convinced the media that something was wrong, and thus prodded Congress to push for change at Treasury.  The worst that that could happen would be that the President would fire the Special Inspector General, and appoint a new one.

Another part of challenge was realizing the need to build a talented team of lawyers, analysts, PR professionals, etc., to do the work analyzing how TARP funds were being spent, and write reports that would grab attention, and change the terms of the political debate.

That challenge was made more difficult by a lack of adequate facilities.  The initial staff was relegated to some pretty poor accommodations at the Treasury building.  I met with the SIGTARP staff over the AIG bailout in June of 2010 over a paper that I wrote that exposed aspects of the weakness at the domestic insurance subsidiaries.  (For Amazon readers, there is a link to my report at my blog.)  The accommodations that they had were some of the poorest I ran into in DC.

I know from personal experience that the US Treasury was sensitive to any criticism of the TARP.  At the first blogger summit at the Treasury, the officials were prickly over any questioning on the topic.  It did not help that GMAC got another dollop of cash that morning.  (links here, and here)

There were some ugly controversies.  One of the SIGTARP reports noted that if every potential program had been fully tapped the US would have expended $23.7 Trillion.  The report caveated that figure heavily, but it was seized upon by Republicans for partisan advantage.  They took a lot of flak for totaling figures that were in some sense apples and oranges.

On page 190, the question from Democrat Stephen Lynch to Tim Geithner, “Why didn’t he try harder to cut a better bargain for the American people?” was never answered by Geithner.  Truth, Treasury was making it up as they went, with counsel from money managers and banks, which left the US Treasury vulnerable to those more technically proficient at finance who had at least some degree of conflicts of interest.

One more limitation of SIGTARP, they had no ability to bring cases – they had to convince the Department of Justice or another prosecutor to take action.  That brought another level of negotiation and bureaucratic infighting.

The end came for the author after he realized that the TARP was winding down, and he was tiring of the Washington scene, and the corrosive effect it was having on his own character.

That leaves me with one closing question: What good did the author and his team do?  In one sense, not a lot.  The current financial regulatory environment post-Dodd-Frank continues business as usual with a more complex bureaucracy, with likely more infighting between competing regulators.  My view is when many are responsible, no one is responsible… that is certainly not the fault of SIGTARP, but we are probably in a worse regulatory environment than prior to the crisis.

That said, SIGTARP gathered data on the TARP, which led to a decent number of small and medium-sized fraud cases, and constrained the open-handed nature of the US Treasury toward financial companies, which could have result in a lot more fraud, and/or higher costs to the taxpayer.


Small mistake on page 173, where the author mentions PNC acquiring City National Bank instead of National City Bank.

The book reads a little disjointedly.  It is mostly chronological, but topical by chapter, so sometimes it feels like two steps forward, one step back as far as the time flow goes.

Who would benefit from this book:  This book will benefit anyone who wants a first person account of what it was like to be the Special Inspector General of the TARP.  It is also for those who want to see how dysfunctional politics can be in DC, and how resistant the Treasury Department was to any limits on their autonomy.  Finally, it shows how difficult it is for anyone to change the system in DC.  The author survived in DC for 2+ years as a change agent; that’s difficult enough, but he is gone now, though SIGTARP soldiers on.   If you want to, you can buy it here: Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.

Full disclosure: I asked the author to send me data on his PR flack, who I asked to send the book to me.

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

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



  • Bernanke Letter Defends Fed Actions Hope the election brings enough change that we end up w/a fresh Fed Chairman $$ Aug 25, 2012
  • Private equity tax questions for Mitt Romney 1) Carried interest 2) Corporate interest deductions 3)Mgmt fee waivers $$ Aug 24, 2012
  • Sorry, Henry Blodget, You’re Wrong About Election 2012 Religious Conservatives r viewed as suckers 2 support the GOP $$ Aug 24, 2012
  • Obama Supporter Suggests Anti-Mormon Whisper Campaign Too obvious. Democrats pay Evangelicals to describe Mormonism $$ Aug 24, 2012
  • The Treasury’s Oversimplified View of Its Mortgage Relief Effort The program did wonderful things… for the banks $$ Aug 23, 2012
  • Top six myths about Medicare Mostly correct but #3 brings lower quality & #6 is wrong, see: $$ Aug 23, 2012
  • White House Worked With Buyout Firm to Save Plant Government help to get deals done begets more of the same $$ Aug 22, 2012
  • Consider keeping Bernanke, top Romney adviser says This is rhetoric, if Romney is elected, Hubbard will chair Fed $$ Aug 22, 2012
  • Is BUBB (breaking up the big banks) now a ‘conservative imperative’ ? I like $BAC so much; there should b 50 of them $$ Aug 21, 2012
  • Why Democrats think taxes will need to rise by more than 50% Entitlements will drive change in America but what change? Aug 21, 2012
  • How the tea party beat Occupy Wall Street No contest. The t-party organized politically, & #OWS didn’t $$ Aug 21, 2012
  • Lanai owner Larry Ellison used tax loopholes for payouts The problem isn’t Larry, it’s the politicians’ bad tax code $$ Aug 21, 2012
  • The Real Conservative Opportunity This November Urges Republicans 2 champion banking reform. $$ #nixonwent2china Aug 20, 2012
  • Effective protest requires wide organization and general respect for the property rights of others, which these three women did not have $$ Aug 20, 2012
  • Fannie and Freddie: The Walking Dead Fannie & Freddie may be dead, but the US Govt’s role in housing is not dead $$ Aug 19, 2012




  • There’s Warren Buffett — and then there’s the rest of us The new paper on Buffett’s investing has gotten attention $$ Aug 24, 2012
  • Take that Square! eBay still a leader in mobile payments Am I wrong, or is most of the value of $EBAY in Paypal? $$ Aug 23, 2012
  • Yellow Pages’ Last Lifeline: Clinging to Each Other $DEXO $SPMD hit sell button, internet destroys yellow pages $$ Aug 22, 2012
  • The Beginning of the End of Print: The Lessons of an Amazingly Prescient 1992 WaPo Memo No one listened 2 Cassandra $$ Aug 22, 2012
  • Last tweet FD: long $PSX . Frankly I’m surprised that an oil refiner, transporter, marketer would help come up w/an advance on solar $$ Aug 22, 2012
  • Phillips 66, South China U of Technology, & Solarmer Energy Set a World Record in Solar Power Conversion Efficiency $$ Aug 22, 2012
  • Zynga Spurning Sale Strands Owners @ Worst Web Value Remember u r a outside minority investor. Choose mgmts w/care $$ Aug 22, 2012 $AMZN does amazing things as nonprofit $$ Aug 21, 2012

  • Monsanto Genetic ‘X-Ray Glasses’ Speed Tastier Tomatoes Interesting comment thread, no one defending $MON $$ Aug 21, 2012
  • Facebook Shares: Still Too Pricey The lack of a reliable revenue model makes $FB a buy at prices ~$9-15 $$ Aug 21, 2012
  • Barnes & Noble Falls After Second Straight Nook Sales Drop $BKS losing to $AMZN . Slow-motion train wreck $$ Aug 21, 2012
  • Up Against Retail Giant Amazon, BufferBox Aims to Jump-Start Parcel Delivery Any of these should team up w/USPS $$ Aug 21, 2012
  • Amazon Wins Race to the Bottom With Radical Pricing on Long-Term Data Storage
  • Facebook Investors Brace for More Shares Coming to Market Test of how much insiders truly believe in Facebook $FB $$ Aug 20, 2012
  • Aetna to Acquire Coventry Health Care The People’s Republic of Maryland loses another large company $$ #BDK #USFG Aug 20, 2012
  • Stocks: The ‘Lockup’ Effect A lesson learned during the dot-com bubble is forgotten & must b re-learned. $$ #lockup Aug 18, 2012


Financial Markets


  • Stock Market Indicators Interesting take from the normally bullish Ed Yardeni $$ Aug 23, 2012
  • Hedge funds are betting on disaster Maybe some hedge funds r putting on “big shorts” through CDS, but most avoid vol $$ Aug 23, 2012
  • ‘Insider Trucking’ Drives Strategy at J.P. Morgan Fund This brings “bottoms up” analysis to a much lower bottom $$ Aug 23, 2012
  • The bond bubble still has room to grow High yield bond defaults typically peak 2-3 years after issuance peaks $$ Aug 22, 2012
  • FDIC files lawsuit tied to failed bank RMBS investments I know many investors that did due diligence & avoided the prob Aug 22, 2012
  • The Profession’s Faulty Assumptions: A Top Ten List A worthy article displaying common errors for financial planners $$ Aug 22, 2012
  • Wrong: Why hedge funds may not be right for you Only global macro benefits from volatility, other HFs like calm $$ Aug 21, 2012
  • Is Your Credit-Card Company Secretly Screwing You Over? Excellent advice from @eddyelfenbein . Follow it & prosper $$ Aug 21, 2012
  • Goodbye, Growth. Hello, Dividends. Companies pay divs get more efficient w/capital. Doesn’t slow growth much $$ Aug 20, 2012
  • When Wall Street Watchdogs Hunt Whistle-Blowers Really a sad article. Try to do the right thing & many fight u $$ Aug 20, 2012
  • A Flock of Black Swans Study history & other cultures &u may find possible some things considered impossible by many $$ Aug 20, 2012
  • Russell To Close All But One Of Its ETFs A trend that I think will come to most marginal ETF providers $$ Aug 20, 2012
  • Calpers Defends Pension Benefits While Risking Losses CALPERS relishes its importance, but not its performance $$ Aug 20, 2012
  • Five Myths about Glass-Steagall What’s the other side of the argument here? The Fed was hollowing out G-S b4 GLB $$ Aug 20, 2012
  • Revisiting Stocks For The Long Run DIfficulty of using & rolling the 30-yr Tsy… it’s a very special bond $$ Aug 20, 2012
  • Wrong: Six Investment Moves to Make Now Reads like this: missed the rally, so take more risk now to make up 4 it $$ Aug 18, 2012




  • China Confronts Mounting Piles of Unsold Goods As w/any command & control economy, eventually get gluts & shortages $$ Aug 24, 2012
  • How China Sees America Believe US a revisionist power, seeks2curtail China’s political influence & harm its interests Aug 24, 2012
  • Caterpillar Cuts China Production as Digger Slump Reaches Mining China’s coming slump has ripple effects $$ $CAT Aug 24, 2012
  • China Has Become One Big “Stuffed Channel” Strategies of promoting exports & forced industrialization have failed $$ Aug 24, 2012
  • Weak Demand Drags on Chinese Carmakers, Earnings Growth Stalls China slowing rapidly, also c $$ Aug 22, 2012
  • For China, Too Much Steel Isn’t Enough Economic growth happens when actions expand options 4 society as a whole $$ Aug 22, 2012
  • China’s Brewing Pension Crisis Still at $3T, it’s a lot smaller than what the developed nations r facing $$ Aug 22, 2012
  • China Reluctance on Reserve Cut Signals Inflation Concern If inflation starts running in China, the game changes $$ Aug 20, 2012
  • China’s Yuan Decades From Challenging Dollar It takes a long time to create deep/transparent capital markets $$ Aug 20, 2012
  • China Said to Order Action by Banks as Developer Loans Sour This is a liquidity crisis, not a solvency crisis, NOT $$ Aug 18, 2012


Money Market Funds


  • Statement Regarding Money Market Funds by Commissioner Luis A. Aguilar Well-thought out dissent on MMFs. Good job $$ Aug 24, 2012
  • Wrong: The lurking dangers in money market funds Another scare piece. MMFs are more stable than banks $$ Aug 23, 2012
  • Just sent Mary Shapiro my compromise proposal on money market funds. Hope she grabs it and runs with it $$ Aug 23, 2012
  • Big Blow for Money-Fund Overhaul Yay! No changes for MMFs, which are better managed than banks. $$ Aug 23, 2012


Municipal Bonds


  • The 5 Biggest Muni Defaults Ever Instructive. CA & OH tobacco bonds, Jefferson County, AL, American Air & WPPSS $$ Aug 23, 2012
  • Should Muni Investors Follow Buffett to the Exits? Sound advice: B selective, only buy what funds necessity $$ Aug 23, 2012
  • U.S. muni market riled by Fed report on defaults Corrects many false impressions generated by the NY Fed muni piece $$ Aug 23, 2012
  • School district debt, representing lgst % of California net par insured (35.5%), is ineligible for Chapter 9 BK $$ $AGO Aug 22, 2012
  • Buffett’s Exit From Muni-Bonds Signals Trouble Ahead 4 Local Govts Don’t think so; Buffett still owns lotsa munis $$ Aug 21, 2012
  • Meredith Whitney’s Muni Prediction Gets No Boost From Fed Fed study focused on risky areas, non-rated & IDBs $$ Aug 21, 2012




  • College Tuition’s 1120% Increase Outstrips even the rising cost medical services $$ Graph: Aug 24, 2012
  • The closing of American academia Adjunct professors earn little&teach a lot. But getting a PhD in Anthropology: Fail $$ Aug 24, 2012
  • Lawyer separates variable annuity investor & annuitant, allowing him 2 benefit from the deaths of sick people $$ Aug 24, 2012
  • My Last Post – Arnold Kling One of the best hangs up his blogging. It’s the way of the internet, ephemeral $$ Aug 24, 2012
  • Blind Mice Given Sight After Device Cracks Retinal Code Looks like a huge advance $$ #goodnews Aug 23, 2012
  • Wrong: How algorithms will help us spend, spend, spend People will start blocking it, like telemarketers $$ #FTL #fail Aug 21, 2012
  • Hopes for Chestnut Revival Growing Efforts to restore the chestnut tree seem to be succeeding $$ Aug 21, 2012
  • Historians, rather than mathematicians usually make better economic predictions, but that’s not saying much… Aug 20, 2012




  • Greek Crisis Evasion to Fore as Merkel Hosts Hollande Not sure how this will lead to a long-term solution $$ Aug 23, 2012
  • Last Man Standing Means Europe Investment Banks Resist Cuts Total capacity must fall, the survivors get better biz $$ Aug 22, 2012
  • Wrong: Spain and Italy Are (Probably) Fine Add in the social welfare obligations & dysfunctional politics $$ Aug 20, 2012
  • Finnish Euro Doubts Hide Business Plea to Commit to Currency Euro weak 4 core EZ countries, & 2 strong 4 EZ-fringe $$ Aug 20, 2012


Around the World


  • First Solar to Build India Farms as Outages Propel Sun Power Sunshine is more reliable than India’s electric grid $$ Aug 23, 2012
  • The ECB: Europe’s Conditional Bank “these ideas fail to take account of a key ECB requirement: conditionality.” $$ Aug 21, 2012
  • A Tax Revolt in Japan, and a Bond Bubble Too Unrealistic view; financial claims exceed Japanese resources $$ Aug 22, 2012
  • What a Tangled Financial Web Terrorist Networks Weave In a networked era, difficult2avoid leaving digital breadcrumbs Aug 22, 2012
  • “The FSA warned that its [risk] survey results were based on self-assessments by individual [hedge fund] managers” $$ Aug 21, 2012




  • Think Gas Prices Are Bad Now? Between Iran & refinery outages, gas prices are rising particularly on the coasts $$ Aug 21, 2012
  • The Exquisite Symmetry of the Natural Gas Revolution 10 points on how cheap natural gas is an aid 2 the economy $$ Aug 21, 2012
  • Methanol Wins Interesting experiment fueling a car w/methanol did not take much effort, cheaper & cleaner $$ Aug 20, 2012




  • “None of the things you mentioned are markets. The article above is about manipulating markets, not…” — David_Merkel Aug 25, 2012
  • Tropical storm Isaac is likely to miss Tampa anyway, storm is consistently moving west of the forecast track of NOAA $$ Aug 24, 2012
  • Haiti has trouble w/rain & 40 mph winds, much less 60 mph $$ RT @AnnieLowrey: Forget Tampa. Pray for Haiti. Aug 24, 2012
  • @PlanMaestro Thanks 4 passing the article along; some of those benefit designs are astounding $$ Aug 24, 2012
  • @BubblesandBusts I don’t think so Aug 24, 2012
  • @AnaCapMgmt Very good points. There are others trying to do things his way, but difficult 2 manage an insurance investing conglomerate $$ Aug 24, 2012
  • @ToddSullivan Yes, and here it is: Aug 24, 2012
  • RE: @bloombergview The only way medical costs will decline is to move to a first-party payer system. When its your ow… Aug 24, 2012
  • “Impossible to manipulate markets without leaving accounting trial. Conspiracies r bunk.” $$ Aug 24, 2012
  • RT @fundmyfund: again why is Japan stock market not up 100% of %,they did many QEs and CB can buy equity assets there.Its mostly psychol … Aug 24, 2012
  • plus ça change, plus c’est la même chose $$ RT @munilass: So Glenn Hubbard has started blogging and Arnold Kling is giving it up. Egads. Aug 24, 2012
  • @rajivatbarnard Nice piece. Did not know you had written it, because my RSS reader broke 2 months ago & I have not rebuilt it yet $$ Aug 24, 2012
  • @ShawnMcFarlane My proposal makes MMF holders take losses in bites, and avoids “runs of funds.” U can read it here: Aug 24, 2012
  • RT @merrillmatter: @ShawnMcFarlane @alephblog I disagree. They should not be FDIC insured and should be allowed to ‘break buck’ on occasion. Aug 24, 2012
  • @politicoroger Isaac may hit the gulf coast on FL panhandle or further west. God is not man or woman, but he represents himself as a man Aug 24, 2012
  • RE: @bloombergview Hasn’t worked so far. Doing the same thing repeatedly and expecting different results $$ http://ww… Aug 23, 2012
  • @nereidadin Yes, no response yet Aug 23, 2012
  • @foxjust Just sent it off to her. Commented on her article, but Reuters is having issues w/blogs and comments these days Aug 23, 2012
  • @SallieKrawcheck @Reuters Would you be willing to review my compromise proposal on money market funds? Thanks. Aug 23, 2012
  • @foxjust Been pushing this idea for 3 years, have sent it to the SEC, but I’m a disinterested nobody. Felix Salmon liked it, as have others Aug 23, 2012
  • @eisingerj Would you be willing to look at my compromise proposal on MMFs, & tell me what you think? $$ Aug 23, 2012
  • @foxjust Would you be willing to look at my compromise proposal on MMFs, & tell me what you think? $$ Aug 23, 2012
  • @merrillmatter I’ve even heard that Dihydrogen Monoxide is making is way into the water supplies! $$ #help #thereisalwaysenoughtimetopanic Aug 23, 2012
  • @TFMkts @The_Analyst Good points, seems to be more mkt timing than disaster, though I know of some putting on CDS trades. Pay prem & hope $$ Aug 23, 2012
  • @munilass Yes, that’s correct, but I could not fit that in. Aug 23, 2012
  • @TheStalwart Really seems like Romney was on the aggressive side of legal on taxes, but his investments aren’t unusual for a rich guy $$ Aug 23, 2012
  • @TheStalwart Do I have this right then: a company that Romney invested in was 1 of the lenders through CLOs to American Media Operations? $$ Aug 23, 2012
  • @BarbarianCap Thanks for the praise. I just try to write about what is most motivating to me on any given night Aug 23, 2012
  • @moorehn Read some of the comment letters at the SEC, a non-stable public NAV 4 MMFs would cause significant harm to users. $$ Aug 23, 2012
  • @Dvolatility Yes, I heard, that was a decade or so in the making. Actuaries sometimes joke that we keep GASB around 2 make FASB look good $$ Aug 23, 2012
  • @Dvolatility does that affect Poway School district’s ability to service their debt? Yes, data quality varies more with munis than corps Aug 22, 2012
  • @Dvolatility don’t knowhow to bring their thinking up a level of complexity, and say, if CA is in trouble, and San Diego County, then how + Aug 22, 2012
  • @Dvolatility Just read a few articles on overlapping debt. Interesting; love to learn. I think some investors don’t look at it b/c they + Aug 22, 2012
  • @Dvolatility Yes, but I am not an expert on it; as investors go, I am a generalist Aug 22, 2012
  • @Dvolatility What do you mean by overlapping? I just found it interesting that CA schools can’t use BK Ch 9… Aug 22, 2012
  • RT @TheStalwart: In the old days, the idea that None Of The Above could actually ‘win’ (thus making an office go unfilled) was promoted … Aug 22, 2012
  • RT @historysquared: The $Fed is like the frustrated driver who keeps pumping gas into a car that won’t start, eventually flooding the en … Aug 22, 2012
  • @GaelicTorus I might be inclined to the bank debt of $ZNGA or $GRPN. No way $FB goes broke; it has a franchise $$ Aug 22, 2012
  • @joshuademasi I’m saying that Japanese society has not yet come to grips with its inability to fund future promises, that’s all $$ Aug 22, 2012
  • Clever and not what I expected $$ RT @AnnieLowrey: “But at least now we know.” Aug 22, 2012
  • Just finished complex stock screening: 28 candidates, auto parts, airlines, insurers, regional banks, infotech, retail, etc. $$ #bizarre Aug 22, 2012
  • “At that price, bondholders will scour the Globe 4 external assets of Belize, and place liens on them” $$ David_Merkel Aug 21, 2012
  • “Maybe they should team up with the US Postal Service. Lotsa locations, and they need $$” — David_Merkel Aug 21, 2012
  • @LarryThompson5 Historically, successful political movements do 1 of 2 things: form a 3rd party, or gain influence over1 of the parties $$ Aug 21, 2012
  • @LarryThompson5 I would agree w/u that #OWS is not Dem-driven. Some tried to use it, couldn’t figure out how, vs repubs co-opting t-party $$ Aug 21, 2012
  • Catch my comment Yes, 4 2 reasons RT @ritholtz: Is Pension-Plan Shift Into Bonds Permanent? $$ Aug 21, 2012
  • @WatersLogan Good, keep it up. 12% of my readers are Canadian. Aug 21, 2012
  • @TheStalwart Here it is: Aug 21, 2012
  • @TheStalwart I wrote a data-intensive post on the Poway School Distirict, and you didn’t post it to BI, but lesser posts did make it to BI. Aug 21, 2012
  • @ETFProfessor1 I understand and that is fine. Aug 21, 2012
  • @e_d_sanders I’m interested in stopping the next crisis; I would like to end interstate branching, and hand regulation back to the states $$ Aug 21, 2012
  • @milktrader Thanks, nice to know it is not just me. Aug 20, 2012
  • Anyone else finding Yahoo Finance to be squirrelly now? $$ Aug 20, 2012
  • @ritholtz I live near Baltimore. B4 my father-in-law died, wud visit in-laws in La Jolla every few years. Wife’s favorite beach near Romney Aug 20, 2012
  • I know I have walked past it; didn’t know Romney owned it $$ RT @ritholtz: Mitt Romneys water front LaJolla shack Aug 20, 2012
  • @asymmetricinfo Most homeschoolers in Howard County, MD r secular, many r liberal; the schools r not performing well; HS kids get peer time2 Aug 20, 2012
  • RT @asymmetricinfo: Why worry homeschool kids won’t get socialized? It’s spending most of your time around a mob of your own age that is … Aug 20, 2012
  • As a class yes, some won’t gain critical mass $$ RT @GaelicTorus: but bond etf doing ok, right? low costs, asset growth – as a class Aug 20, 2012
  • Too much honesty there $$ RT @RNPJHP: @The_Analyst @AlephBlog RBC Dominion told me they can’t make 5% returns on client’s money! Aug 20, 2012
  • @wesbury @ 1st Tsy-blogger summit, I encouraged the high-level people there to do that, & what are they considering now — floaters! $$ Aug 20, 2012
  • @ETFProfessor1 You would probably know better than me. It seems economics of running a bunch small funds is poor. Open to your thoughts $$ Aug 20, 2012
  • @abnormalreturns I would consider $FB @ around $8, a touch over book value and a PEEG ratio of 50%, mainly b/c revenue model is unclear $$ Aug 20, 2012
  • @ToddSullivan I knew you were being sarcastic, just wanted to flesh out my thoughts further Aug 20, 2012
  • @ToddSullivan Of course that’s easier; I use a technique like that to try to deal w/high growth situations that r uncertain $$ Aug 20, 2012
  • Hard to compete against $AMZN, which doesn’t have an immediate profit motive. $BKS Aug 20, 2012
  • “Corporate spread tightening is highly correlated w/VIX, another reason $$” — David_Merkel $$ Aug 20, 2012
  • @ToddSullivan I would try this 4 $AAPL — est mkt size @ maturity, time 2 maturity, value of biz then & discount @ 12% 2 get NPV/sh $$ #swag Aug 20, 2012
  • “Almost no one arrives early to a fad/motif, so investing of this sort is likely to lose.” — David_Merkel $$ Aug 20, 2012
  • Much wisdom from Mr. Berra $$ RT @JATranfo: @AlephBlog As Yogi said, “Making predictions is hard, especially about the future.” Aug 20, 2012
  • “I get surprised by what gets attention when I write. To have two pieces on the top 10 list is…” — David_Merkel $$ Aug 20, 2012
  • RE: @bloombergview Pray tell, what interest does Putin have in liberalizing? Current system favors his retention of p… Aug 20, 2012
  • @geronimo2003 It means that mortgage bonds will lose net demand, but F&F will still gtee conforming MBS. Pvt sector can absorb supply $$ Aug 20, 2012
  • +1 Well done $$ RT @AmityShlaes: Lobsters as metaphor for everything, including Obama trade policy: Aug 19, 2012
  • @StockTwits got the ticker wrong. Mosaic is $MOS , Monsanto is $MON . Both in agriculture… $$ Aug 18, 2012
  • @prchovanec They should listen to Pettis, Walter, & Shih also Aug 18, 2012
  • @prchovanec If they are listening to you, that is good for all of us. $$ Aug 18, 2012

This occurred to me today, and so I want to toss it out as an idea, even if I never get to work with it.  What percentage of stocks are covered by 13F filings?  I bet it is pretty high.

Here’s my idea: using the 13F filings, we segment holders into traders (“weak hands”) and investors (“strong hands”), based off their level of turnover.  If my ideas are right, the stocks held by the “strong hands” investors will do better over time.

For anyone with access to an easily accessible version of a 13F database, this is a project I would be willing to take on.  If you have interest, e-mail me.  Thanks.



YTD Return

Dow Weight

Ratio to Equal Weight


Mkt Cap ($B)

Weight MC

Ratio to Dow Weight

AA Alcoa Inc









AXP American Express Co









BA Boeing Co









BAC Bank of America Corp









CAT Caterpillar Inc









CSCO Cisco Systems Inc









CVX Chevron Corp









DD E. I. du Pont de Nemours and Co









DIS Walt Disney Co









GE General Electric Co









HD Home Depot Inc









HPQ Hewlett-Packard Co









IBM International Business Machines Co…









INTC Intel Corp









JNJ Johnson & Johnson









JPM JPMorgan Chase and Co









KFT Kraft Foods Inc









KO The Coca-Cola Co









MCD McDonald’s Corp


















MRK Merck & Co Inc









MSFT Microsoft Corp









PFE Pfizer Inc









PG Procter & Gamble Co









T AT&T Inc









TRV Travelers Companies Inc









UTX United Technologies Corp









VZ Verizon Communications Inc









WMT Wal-Mart Stores Inc









XOM Exxon Mobil Corp


























As I was considering the Dow Jones Industrial Average, I considered how much influence IBM has relative to an equal-weighted index.  It has 3.48 times more influence that the average.  Then I considered the lack of influence of Bank of America [BAC], whose influence is 86% less than the average.  It may be up 47% YTD, but it budges the index but little despite its large market cap.

Such is life in a price weighted index that was designed to work around 1900. Add up the prices, divide by a number, and there is the index.

Even an equal weighted index would be more realistic.  But what if we created a market cap (actually float) weighted DJIA, like the S&P 500?

At this point, Exxon Mobil would be the heavy hitter, and small Alcoa the baby.  Prediction: Alcoa and The Travelers will leave the Dow, to be replaced by Oracle and Berkshire Hathaway “B” shares.

Wait! Oracle?! Why not Apple or Google?  Their share prices are too high, and the DJIA is too messed up already.  If Bank of America wanted to help the Dow, they would do a 1-10 reverse split, as should Alcoa, should they stay in the Dow.

The DJIA is a historical accident that has more then outlived its 15 minutes of fame.  It does not represent the market as a whole.  The best that Dow Jones News Corp could do is remake it as a megacap market cap weighted index.  Then it might have real punch and validity.  Call it the News Corp Industrial Average [NCIA].  What might that index look like?




Apple Inc.AAPL



Exxon Mobil CorporationXOM



Microsoft CorporationMSFT



Wal-Mart Stores, Inc.WMT



International Business MachineIBM



General Electric CompanyGE



Google IncGOOG



Chevron CorporationCVX



AT&T Inc.T



Berkshire Hathaway Inc.BRK.A



Johnson & JohnsonJNJ



Procter & Gamble Company, ThePG



Wells Fargo & CompanyWFC



Coca-Cola Company, TheKO



Pfizer Inc.PFE



Philip Morris International InPM



Oracle CorporationORCL



JPMorgan Chase & Co.JPM



Merck & Co., Inc.MRK



Intel CorporationINTC



Verizon Communications Inc.VZ



PepsiCo, Inc.PEP


2.07%, Inc.AMZN






Visa IncV



Abbott LaboratoriesABT



Cisco Systems, Inc.CSCO



Schlumberger Limited.SLB



Walt Disney Company, TheDIS



Comcast CorporationCMCSA



Grand Total



What are the new companies? Comcast, Schlumberger,  Abbott Labs, Visa, QUALCOMM, Amazon, Pepsico, Oracle, Philip Morris, Wells Fargo, Berkshire Hathaway, Google, and Apple.

Who leaves? Alcoa, Travelers, United Technologies, 3M, McDonalds, Kraft Foods, Hewlett-Packard, Home Depot, Du Pont, Caterpillar, Bank of America, Boeing and American Express.

Now, that said, give the folks at News Corp Dow Jones some credit.  They created a flawed Behemoth index, but it is the only widely quoted Behemoth index, and my adjustment of it only improves the market capitalization by ~40%.  That said, capitalization-weighting makes it a much more rational index, and so I call upon Dow Jones News Corp to make the changes that the sentimental at Dow Jones never would, and turn the DJIA into the NCI.  Not an average, but a real Behemoth index that measures the performance of the largest companies of the US, which comprise ~30% of the total market capitalization.

There is the challenge, and taking it on will benefit investors for the next 100 years.  Are you man enough to take it on, News Corp?

Full disclosure: Long CSCO, CVX, HPQ, INTC, TRV, WMT, ORCL