March 2013 – Page 2 – The Aleph Blog

Sorted Weekly Tweets

Posted on 23 March 2013 by David Merkel

Pettis / China

Modified Pettis: Peripheral country depositors will remember Cyprus & it will affect their future credibility w/deposit guarantees $$ Mar 22, 2013
Pettis: the idea that urbanization creates growth may have the causality backwards. It is far more likely that growth causes urbanization $$ Mar 22, 2013
Parsing the Words of the New Premier http://t.co/KggvVUZ0bf Li Keqiang: We need to leave to the market and society what they can do well $$ Mar 22, 2013
Closer Look: Parsing the Words of the New Premier – http://t.co/8LIiTxxqi0 Previous quote taken from Pettis, led me to this article $$ Mar 22, 2013
Li Keqiang: The reform is about curbing government power. As a self-imposed revolution, it will require real sacrifice and will be painful $$ Mar 22, 2013
Pettis: It turns out that we?ve seen record growth in debt. Is it really a surprise then that [China’s] economy is still growing quickly? Mar 22, 2013
Pettis:It isn?t until you write down the debt associated with the second bridge that you end up with a more meaningful measure of GDP. (3/3) Mar 22, 2013
official measures will have them contributing the same amount to GDP, even though the former creates real value & the latter does not (2/2) Mar 22, 2013
Pettis: If you spend $100 million each on two separate bridges, one of which is actively used and the other rarely used, (1/2) Mar 22, 2013
Biggest Solar Collapse in China Imperils $1.28 Billion http://t.co/yYgYpSpjAv Even w/subsidies solar is an inefficient technology $$ #duh Mar 21, 2013

FOMC

FED Optimistic Forecasts… http://t.co/MjilXrTSX1 The FOMC is always overoptimistic; they consider that 2b a part of their jobs $$ Mar 22, 2013
Wrong:US economy needs a third term of Ben Bernanke http://t.co/fStUDLjy7g A lunatic praises a dangerous lunatic leading US 2 Stagflation $$ Mar 22, 2013
That’s all folks! #FOMC $$ Mar 20, 2013
FOMC Central Tendency for Year end Fed Funds forecast: 2013 0.29%, 2014 0.55%, 2015 1.30%, Long run 4.01% $$ #FOMC Who can tell? Mar 20, 2013
FOMC Central Tendency 4 PCE inflation fcst since December 2012: 2013 1.55%, 2014 1.75%, 2015 1.93%, Long run 2.00% $$ #FOMC Way 2 optimistic Mar 20, 2013
FOMC Central Tendency Unemployment rt fcst since December 2012: 2013 7.35%, 2014 6.77%, 2015 6.20%, Long run 5.57% $$ #FOMC Way 2 optimistic Mar 20, 2013
FOMC Central Tendency for real GDP since December 2012: 2013 2.53%, 2014 3.17%, 2015 3.25%, Long run 2.43% $$ #FOMC Too optimistic 2014-5 Mar 20, 2013
FOMC Central Tendency Change in Fed Funds fcst since December 2012: 2013 -0.11%, 2014 -0.05%, 2015 -0.11%, Long run -.03% $$ #FOMC Mar 20, 2013
FOMC Change in Appropriate Timing of Policy Firming fcst since December 2012: 2.49 yrs, which shortens by 3.4 months $$ #FOMC Mar 20, 2013
FOMC Central Tendency Change in PCE inflation fcst since December 2012: 2013 -0.20%, 2014 -0.03%, 2015 -0.01%, Long run no change $$ #FOMC Mar 20, 2013
FOMC Central Tendency Change in Unemployment rate fcst since December 2012: 2013 -0.13%, 2014 -0.15%, 2015 -0.08%, Long run -0.03% $$ #FOMC Mar 20, 2013
FOMC Central Tendency Change in real GDP since December 2012: 2013 -0.10%, 2014 -0.32%, 2015 -0.13%, Long run -0.03% $$ #FOMC Mar 20, 2013
I am shocked that the Fed doesn’t have estimates on deposit insurance subsidies. That’s either a lie, or they should have that estimate $$ Mar 20, 2013
@pdacosta Good questions on Cyprus & deposit insurance subsidies $$ Mar 20, 2013
Go Pedro! Mar 20, 2013
Federal Reserve, Expected to Continue Stimulus, Tries to Reassure Investors http://t.co/DuoAg3hYTv Doing the same, expecting different $$ Mar 20, 2013
Bernanke Tightens Hold on Fed Message Against Hawks http://t.co/JyGTM0gP1f Wondered when this would happen; naive academic focuses power $$ Mar 20, 2013
Insights from Former Fed Chairmen http://t.co/q3RbM7sm9e Greenspan, meh. Volcker says some interesting things regarding removing stimulus $$ Mar 18, 2013
Fed’s Fisher: Too-big-to-fail banks are crony capitalists http://t.co/t65lN4kaaU Break them up & eliminate their funding advantages $$ Mar 16, 2013

Companies & Industries

Proto Labs seeks 1st acquisition shuns 3D printing http://t.co/56KeW8j4In Instead of creating by layers, start w/a block & cut away $$ $PRLB Mar 22, 2013
Old Tech Stocks, New Value: Santoli http://t.co/jfDtkOAwwX Tough part: estimating moat & probability of obsolescence, margin of safety $$ Mar 22, 2013
Health Insurers Warn on Premiums http://t.co/zzZI2s1s2h Wrote about this b4 law was passed. Was accused of bias $$ http://t.co/WCECEQYuns Mar 22, 2013
Plywood Becomes Hot Item in Housing Recovery http://t.co/2LMfLI43L1 4 confirmation, look here: http://t.co/HbnVnGdJmO Plywood on fire $$ Mar 22, 2013
As Crop Prices Surge, Investment Firms and Farmers Vie for Land http://t.co/B1ESXEnefd Presence of a large amount of borrowed $$ = bubble Mar 22, 2013
Intuitive Robosurgery Training Seen Lacking in Lawsuits http://t.co/VgyqOZqLMD Accidents r common & significant training of MDs needed $$ Mar 21, 2013
Gold Giants Shrink to Fit as Paulson Pushes Breakup http://t.co/9yXUb9Z11s Miners tend 2 overpay for marginal mines w/high variable costs $$ Mar 21, 2013
Americans Cut Restaurant Spending as Taxes Bite http://t.co/VAZELXMwM2 Less $$ available for small luxuries like eating out. Mar 20, 2013
Electronic Arts Ousts CEO as New Game Consoles Await http://t.co/QMDjN8uZmN Game systems shift away from use of PCs; $EA doesn’t adjust $$ Mar 19, 2013
Revealed: The Fragility of US Wireless Customer Loyalty http://t.co/j8U5wZ9GvT May be few choices, but wireless customers r not sticky $$ Mar 18, 2013
Corporate Cash Piles Grow to Record $1.45 Trillion, Moody?s Says http://t.co/0M84CE0tRi How much is domestic & not held 4 margin $$ Mar 18, 2013
Intermediate hold co debt has none of the protections of sr unsec parent co debt, or operating subsidiary debt. Not worth risks, avoid $$ Mar 18, 2013
$HRG Announces Debt Offering by F&G Life Hldgs http://t.co/APQvmAECv3 Total desperation w/intermediate holdco debt; Avoid, avoid, avoid $$ Mar 18, 2013
Private Equity?s $36B Retail Bet Not Going So Well http://t.co/xdQ9NzdAPs Retail does not work well w/leverage aside from mortgage debt $$ Mar 16, 2013

Cyprus

It?s Up to Putin Now: Cyprus Looks to Russia For Love?and Money http://t.co/CJdlAmyM5A Many Russians would lose $$ in Cypriot Bank default Mar 22, 2013
Just Let the Troubled Banks in Cyprus Fail http://t.co/0lSyyTjWIJ @carney gets it right. Protect small deposits, wipe out equity, etc. $$ Mar 22, 2013
ECB May Cut Emergency Funding to Cypriot Banks after Refusal http://t.co/jssqb7og4u If Cyprus’ banks fail, will anything else fail? $$ Mar 21, 2013
Cyprus banks dwarf economy thanks 2funds from wealthy foreigners http://t.co/GbElR3bcTP Countries w/large financial sectors tend 2b risky $$ Mar 20, 2013
BlackRock CEO Fink Says Cyprus Instability Will Be Resolved http://t.co/E3RYIDQENi The politics r pretty toxic; time 2end euro experiment $$ Mar 20, 2013
Outcry over Cyprus bailout taxing bank accounts http://t.co/kQ7DJgUN7P If it can happen in Cyprus, it can happen where you are too $$ #boo Mar 20, 2013
Daylight robbery in Cyprus will come to haunt EMU http://t.co/HsrbbJUVKk Imagine the US grabbing a portion of bank deposits in 1933 $$ #yuck Mar 20, 2013
Deauville Zombie Strikes as Cyprus Tax Inflames Crisis http://t.co/pkStGZyh5M Hard 2 believe confiscation of deposits wouldn’t lead 2runs $$ Mar 19, 2013
The Cyprus precedent @FelixSalmon http://t.co/EXBLMXj3by Taxing via confiscation doesn’t affect incentives, except the incentive 2 hide $$ Mar 18, 2013
Cyprus: What Were They Thinking? and some other notes http://t.co/LJPQ7FRSaT Try 2tax depositors, esp Russians, trigger a bank run, great $$ Mar 18, 2013
Cypriot authorities in revised deal talks http://t.co/f7NXFf5B9S This is getting desperate. Remember when they said subprime was small? $$ Mar 18, 2013
Dejected official: ?If this is successful then it will be used in the future… If this is not successful then who cares about Cyprus.? $$ Mar 18, 2013
Depositors Pay Price in Cyprus Bailout Deal http://t.co/CssNI6QUXK Imagine waking up one morning & 10% of your bank deposits r gone $$ #augh Mar 16, 2013

Energy

Sierra Club blasts new plan to improve fracking http://t.co/izJx8axguf Really depends on how much CO2 truly affects climate, jury is out $$ Mar 22, 2013
Ethanol Slumps Against Gasoline on Speculation Imports to Climb http://t.co/nFGWml3HBZ Profitable to import Brazilian ethanol caps prices $$ Mar 22, 2013
HEARD ON THE STREET: Chevron, Shell and Big Oil’s Big Divide http://t.co/zcrclj78XS FD: + $CVX | Smart move was focusing on crude oil $$ Mar 20, 2013
Wow, North Dakota, That?s a Lot of Oil http://t.co/NzKU4rhswH Up ~1000% in 10 years, would b more w/better transport (pipelines) $$ Mar 20, 2013
Consumers to Pay $13B Price as Ethanol Upends Refiners http://t.co/qRr3ZnGPnB Ethanol an expensive fuel; we would not use it w/o govt req $$ Mar 19, 2013
Valero Cancels Sale of California Refineries http://t.co/tu1lXOLBe4 Now better 2 retain them, if cheap oil can b sent there via rail $$ $VLO Mar 19, 2013
Suntech Said to Get Default Notice on $541M Unpaid Bonds http://t.co/hiA8ZfvW2K Equity likely 2b wiped out, even w/some willing 2 4bear $$ Mar 17, 2013
Canada Wonders Why Crude Oil Is Coming From Texas http://t.co/aIKRNA7UoT This is the price of not permitting pipelines; US oil by tankers $$ Mar 16, 2013
Three Years After the Spill, BP Gets Bullish http://t.co/owgnHfH9w5 FD: + $BP | Lots of valuable assets, but has the culture changed? $$ Mar 16, 2013

Financial Sector Issues

JP Morgan to Issue Its First Mortgage Bond Since 2007 http://t.co/M38KF7463e Reps & warranties weakened; harder 2 put back 2 originators $$ Mar 21, 2013
?In money management what sells is the illusion of certainty.? http://t.co/iiqXAHTRZ8 @researchpuzzler comments on words of @John_Hempton $$ Mar 22, 2013
SumZero Honors: 14 Top Buyside Analysts http://t.co/cZRnfBQJVd @sumzero does a study of buyside analysts to find the best quietly working $$ Mar 22, 2013
Proxy sites dump 1-click vote button on SEC concerns http://t.co/nycHC62TUa Levels the playing field a little bit; mgmt has 2 much power $$ Mar 21, 2013
Masked by Gibberish, the Risks Run Amok http://t.co/bKvbpCRyvZ Floyd Norris can write me 4 clarity, or read this: http://t.co/bhJwuegzP5 $$ Mar 22, 2013
Buffett Says Bet on Natural Juices of Market http://t.co/gyGA34vVMP USA is the most flexible place in the world, but stocks aren’t cheap $$ Mar 21, 2013
DeMarco pushes for 5-year wind down of GSEs http://t.co/aApiRMzoIK Don’t c how politics work here; pols don’t like 2 give up piggy bank $$ Mar 20, 2013
Could gold be the next Libor scandal? | Business http://t.co/gstTm7EWQA Looks like real trades take place, so it doesn’t seem the same $$ Mar 20, 2013
Workers Saving Too Little to Retire http://t.co/tWMYk3cpg8 I know of few people who save 20% of their incomes over 40 years $$ #prettytough Mar 19, 2013
Stock Bulls Get New Member of Club http://t.co/qEOMyG47WM I dunno, this makes me nervous. But 3% more upside in 2013 is no raving bull $$ Mar 19, 2013
Quantitative easing does little to boost gold prices http://t.co/o42EZUMk3T Gold prices react to inflation adjusted cost of carry $$ Mar 18, 2013
Traders Short Junk-Bond ETFs as Gains Top 100%: Credit Markets http://t.co/4CmFy3ebaC Short interest = 11.5% of total outstanding shares $$ Mar 18, 2013
Wrong: Want to Fix the Deficit? Get Real http://t.co/3fuRoKKw6S Increasing the deficit from here would worsen our long-term problems $$ Mar 16, 2013
Boo! Derivatives, Japan, $$ demise, pension defaults, debt jubilee RT @StockTwits: Zombie Swans from Outer Space http://t.co/jcNoTTzolI #boo Mar 16, 2013
How to Safeguard Your 401(k) http://t.co/HRCNqz1RkJ If plan has annual match, do not count on it. Avoid employer stock; know plan rules $$ Mar 16, 2013
Company Insiders Are Dumping Shares! Or Are They? http://t.co/D5cgLmM902 Best to look at what insiders do, not the large outside holders $$ Mar 16, 2013
If third-party custody fails in any significant way, i.e. bigger than what happened w/MF Global, all public investing will b ruined $$ Mar 16, 2013
Are Your Assets Safe?No Matter What? http://t.co/vWvSVno7JC @jasonzweigwsj talks about custody; strong incentive 4 present system 2 work $$ Mar 16, 2013
Golden State Hits Golden Age Of Bank M&A http://t.co/WLFhPq8jFC Higher capital requirements create demand for banks 2 merge in California $$ Mar 16, 2013

Rest of the World

Is Emerging Market Debt Undervalued? http://t.co/8hSOukeOKf I tend 2 think so, but performance so far this year has been subpar $$ Mar 22, 2013
Bank of Japan vows ‘all means available’ to smash deflation http://t.co/AJ27okuZFZ Difficult 2 have inflation w/shrinking population $$ Mar 22, 2013
BRICs: a Slowing Dilemma http://t.co/furMgL5VTO The BRICs r not a natural group; very different econ, but as GWP growth slows, so do they $$ Mar 21, 2013
RAHN: Where will the next financial crisis begin? http://t.co/x2rBMqCJUG Numerous countries r poised 2 lead global tailspin; I pick EZone $$ Mar 21, 2013
Spanish Banks Cut Developers as Zombies Dying http://t.co/CxRucV5Y7h Bottom not yet found for Spanish Real Estate $$ #bringoutyerdead #thud Mar 21, 2013
Europe?s work is far from over http://t.co/JfIY5PRW4f This is a colossal example of government management of the economy gone awry $$ #endit Mar 20, 2013
Canadian Household – Drowning in Debt http://t.co/XsdSDPBUn8 Canada: poster child 4 Central Bank-induced bubbles, amid good fiscal policy $$ Mar 20, 2013
BRICs Abandoned by Locals as Fund Outflows Reach 1996 High http://t.co/Xv4QZrNmSX Locals r throwing in the towel on stocks; time 2 buy? $$ Mar 16, 2013
Argentina Debates Pope’s Political Past http://t.co/FY25FtCCF2 Probably one where the truth will never b known; hard to fight a dictator $$ Mar 16, 2013

US Politics & Policy

Stockton Creditors Face Long Odds to End City Bankruptcy http://t.co/WcEuHjJft1 Think Stockton’s gambit will lose $$ cc: @munilass Mar 22, 2013
Gingrich-Santorum ?Unity Ticket? Almost Toppled Romney http://t.co/8jBjvs868Q G+S-> 0+0 = -1. Romney= -2. All R candidates fatally flawed $$ Mar 22, 2013
Getting the CIA Out of the Drone War http://t.co/kWcxz4mooN It matters less who does it, because there is no moral basis for it $$ #enditnow Mar 22, 2013
Mary Pat Christie Juggles Roles as Political Facilitator http://t.co/04VJb6UcbD Interesting background piece on Chris Christie’s wife $$ Mar 22, 2013
Postal Service Can?t Cut Saturday Delivery, GAO Says http://t.co/3BbcJ1arge Loss of Saturday would b start of end 4 USPS> less relevant $$ Mar 21, 2013
Rotten Tomatoes for a Billion-Dollar Farm Payout http://t.co/8FMfZnvqZC Ag is doing well in the US. Time to shut down much of the Ag Dept $$ Mar 21, 2013
California Nonpartisan Districting Ousts Life Incumbents http://t.co/1edUiXyizM Minimize internal boundaries subject 2 law requirements $$ Mar 20, 2013
Army Carbine Program May Waste $1.8 Billion, Report Finds http://t.co/WQOhHRZ5Mw Another area of DoD waste. Insiders tell me -> lots more $$ Mar 20, 2013
The Smarter Healthcare Consumer Myth http://t.co/BSdzrzQmMu Many underinsured people do not go to see a doctor when they are sick $$ Mar 19, 2013
Puerto Rico slides toward insolvency http://t.co/WaOVo1dWUa Puerto Rico exists to make California look responsible & Illinois honest $$ Mar 18, 2013
Or, as the late Bob Casey (former Governor of PA) once said, “You can’t lose if you are a pro-life Democrat.” $$ Mar 18, 2013
RNC Issues Scathing Analysis of GOP http://t.co/CsROwzkNxT Sounds dumb. Does not grasp the reliance of the GOP on moral issues voters $$ Mar 18, 2013
It’s a Lonely Quest for Land-Tax Fans, But, by George, They Press On http://t.co/yt8tPEVgjV Candidate 4 dustbin of history, dying hard $$ Mar 18, 2013
Republicans Foil What Majority Wants by Gerrymandering http://t.co/h2gMnsO5cp I live in MD, w/Democrat Gerrymander http://t.co/9ORTUnVjo9 $$ Mar 18, 2013
Roadkill May Reach Montana Menus Under Bill Allowing Fare http://t.co/5UsoOXeAsr Interesting 2c differences in state policies 4 roadkill $$ Mar 17, 2013
Obama Will Use Nixon-Era Law to Fight Climate Change http://t.co/HxRrpdoajr Expands National Environmental Policy Act to Climate Change $$ Mar 16, 2013

Other

The Beatles vs. the Taxman: A Former Manager Recalls Yesterday http://t.co/wNikAvMAdh Union of music,culture &finance cc: @reformedbroker $$ Mar 22, 2013
The Odd, Enduring Power of D?rer’s ‘Praying Hands’ http://t.co/QzEQsRYalP An idol 2b destroyed; far better 2 pray, regardless of hands $$ Mar 22, 2013
‘The Croods’: Making the Cartoons Sing http://t.co/Pj50Vytvuo As a musician, I find this article makes me optimistic on popular music $$ Mar 22, 2013
‘BioShock Infinite’: A Videmeogame With a Political Philosophy http://t.co/NzxQqrTXkM Americans r exceptional; doesn’t mean they r good $$ Mar 22, 2013
The Branding of ‘Liger’: Tiger Woods and Lindsey Vonn http://t.co/AW1CGnYHLh Two attractive sports stars dating? A marketing opportunity! $$ Mar 21, 2013
Inside the Art of Handling Negative Online Reviews http://t.co/vzsenUcvjq When negative reviews come, act quickly, it could wipe you out $$ Mar 21, 2013
Silicon Valley looks to Amy Andersen for love, at $50K a pop http://t.co/yVj37tUL9C Awkward men seeking wives need tailored personal help $$ Mar 20, 2013
How To Quarantine Java Like The Disease That It’s Become http://t.co/uhUcbRhFqh Sadly, I have to keep Java 4 my trading platform $$ #poison Mar 19, 2013
Study: Delaying marriage hurts middle-class Americans most http://t.co/ynHKcN4m4x Putting off marriage often means marriages don’t happen $$ Mar 18, 2013
Helmets Preventing Concussion Seen Quashed by NFL-Riddell http://t.co/FF4Gh6Viyn Long story on how conflicts of interest led2 concussions $$ Mar 18, 2013
With Speech, Cardinal Set Path 2 Papacy http://t.co/rDDOXEwCA2 Argued RC Church was 2 introspective, better 2b out doing good, short talk $$ Mar 17, 2013
The New Unmarried Moms http://t.co/1hnxyrE67R Teen pregnancy reduced, childbearing outside wedlock rising among 20-somethings $$ #bad4kids Mar 16, 2013
New York Is Sterilizing Its Rats. Here’s How http://t.co/qryyCDiLoK Tasty stuff for rats that renders them infertile in 4 days $$ #whoknew Mar 16, 2013

Replies & Retweets

Could work $$ RT @steve_hanke: @AlephBlog @carney or try a swap. Here’s how we did it in Latin America: http://t.co/fvT6V6dX9u| #Cyprus Mar 22, 2013
@SconsetCapital In China, if the gov’t builds two bridges in a BOGO deal, I don’t think you’d want the free one 😉 Mar 22, 2013
@Donald_Shekels No, not with the Asian operations Mar 22, 2013
@Donald_Shekels I could have said worse than I did, but I worry about getting sued. Mar 22, 2013
@JPDesloges You are off to a good start at Financial Iceberg. Keep it up. Mar 21, 2013
@agnestcrane Global Inequality is dropping, though. Global wages converging. “Rethinking Comparable Worth” http://t.co/qBWe9kxnim $$ Mar 21, 2013
Get well soon! RT @StockTwits: StockTwits Is presently down. Apologies for the inconvenience. We should be back up shortly. $$ Mar 21, 2013
@exMBB No. But title insurers had a rough time after housing bubble. Fraud drives most title insurance claims. Title insurance is complex Mar 20, 2013
@exMBB It’s all heavily depreciated. Not an issue. Mar 20, 2013
Commented on StockTwits: You’ve got it, Charles. Where IB is good it is very, very good, & where it is bad it is … http://t.co/o4fpUt2j66 Mar 20, 2013
@sleepyhungry It’s like a barrier option. Once it is breached it is over — this is only the 7th time I have done this. U made me smile Mar 20, 2013
Doing what their targets do RT @rcwhalen: Foreclosure Processor Prommis Holdings Files Chapter 11 http://t.co/mE30yP1gtj $$ Mar 19, 2013
But I think he is running out of options $$ $HRG RT @Nonrelatedsense: @AlephBlog continually amazed by Falcone. How does he do it? Mar 18, 2013
Extracts purchase price, retains control, kills bond buyers RT @Nonrelatedsense: continually amazed by Falcone. How does he do it? $$ Mar 18, 2013
I liked the photo RT @fundmyfund: @ritholtz what are you looking at in the new blog photo – a bird, a plane, or superman? Mar 18, 2013
RT @Royal_Arse: Mr. Merkel @AlephBlog is far more diplomatic than I in his tweet regarding pipeline construction. https://t.co/HIE2ngC4A3 Mar 16, 2013
@pdacosta 2 create a synthetic, u need 2 speculators: yield hog who wants a security @ a high yield, & a speculator who wants 2 short it Mar 16, 2013
@pdacosta If that ever had to happen, would b a crisis b/c synthetics r more numerous than organic. They can b & were created @ will. Mar 16, 2013

FWIW

My week on twitter: 54 retweets received, 2 new listings, 31 new followers, 58 mentions. Via: http://t.co/cPSEMLXpb8 Mar 21, 2013
Here’s my NCAA Bracket: http://t.co/ZK22T2bKnV #BlindfoldBracket2013 I’m no great fan of College Basketball, but I gave it a try $$ Mar 20, 2013
David Merkel (AlephBlog) on Twitter http://t.co/PsixuvsqiX Here’s a shout-out to my 7000th Twitter follower, Peter Saris @BMCA2461. Thanks! Mar 20, 2013

I wrote a piece with the same title four months ago, but this one will be different, because I want to focus on individuals, and less on institutions.? During the bull phase of market moves, people are willing to take chances.? That can take several forms:

Being willing to buy speculative companies
Lengthening the time horizon: buy-and-hold.
Committing to debt, or even just lessening cash reserves, to own assets like houses, cars, second homes, boats, furniture, etc.
Being willing to buy illiquid assets like art, private equity, hedge funds, etc.

This applies to institutions as well, because they also give into the boom-bust cycle.? They are willing to speculate in good times, and seek safety in bad times.

But for individuals, time horizons sum up asset behavior whether it is investing or buying consumer durables.? Willingness to part with cash lengthens time horizons.? Those with short time horizons hang onto cash.? But often the same people change from having a long time horizon to a short time horizon and vice-versa, and at the wrong times.

The delicious perversity of markets — they incline you to do the wrong thing at the wrong time.? Have I been taken by this?? Yes, but not as much as many, because I don’t trade much.

Optimism creates long time horizons; it simplifies thinking.? “Let the market pay your people.”? “Cash is trash.”

Pessimism creates short time horizons; it simplifies thinking.”I’m going to stick with my money market fund.”? “I will keep my savings in gold.” “I will buy long Treasuries because I want cash flows that are certain out in the future.”

Time horizons are a symptom of the bull/bear cycle.? During bull phases, people commit capital for long time periods.? During Bear phases, periods shorten to the degree that many hold only cash.

To some academics this will seem unreasonable.? People are rational, aren’t they?? They don’t regularly make bad decisions, do they?? Sorry, but with economics, the answers are no and no.? The assumption that people are rational is not proven.? A far better assumption is that people try to justify themselves, whether they succeed or not.? Winners proclaim their brilliance.? Losers blame the umpire.

Yes, people regularly make bad decisions, and those brighter than them sporadically benefit.? It is hard to buy at the bottom, but a few do.? It is hard to sell at the top but a few do.? Note: those “few” are not the same people, because native bullishness or bearishness overcomes.? No one consistently gets out at the top, and in at the bottom.? But many get out at the bottom, and in at the top.? That is the way the markets work.

You might argue that this increases inequality and is not fair.? I’m sorry, but this is fair because people misjudge the underlying businesses, and they don’t keep adequate cash around as a margin of safety.? The equity market is only for those who keep an adequate reserve of safe assets around.? It is too dangerous for anyone else.

Stocks do not reward people year after year.? It comes in fits and spurts.? That is as it should be, and get used to it.? Those who don’t have long time horizons should reduce the amount of stocks they hold, unless valuations are low, and that’s not true now.

This is a time to be cautious, and reduce exposure to risky assets.? Given the global troubles, be wary, because little things like Cyprus could prove as small as subprime, which was declared “well-contained” by someone who didn’t know which end was up, and still does not.

A Bond Deal Requiring Caution

Posted on 21 March 2013 by David Merkel

Recently, a company for which I once managed bond money announced a bond offering.? An odd bond offering that I would not buy regardless of pricing.You might say, “No such thing as bad assets, only bad prices.”? Mostly I believe that, but not here.? There are some assets you should not want to take the chance on.? This is one of them.

Here is the biggest weakness: you are lending to an intermediate holding company.? When I was a bond manager, I would lend to the uppermost holding company, knowing that the stockholders did not want to hand their profitable company over to me.? I would also lend to subsidiaries that I knew a parent company would not want to lose.? But I would not lend to intermediate holding companies — owned by the parent, and owning a subsidiary not directly responsible for the debt.

I inherited such a debt in the portfolio, and it took me months to sell it at a halfway decent level.

Here is the second weakness: they will take two-thirds of the proceeds, and give it to the life insurance subsidiary in exchange for a surplus note, with similar terms compared to the note sold.? Surplus notes are weak, because state insurance departments can forbid payment of interest and principal.? The ability to repay the bond is weak.? The subsidiary borrowing does not have any significant cash flow to repay, aside from dividends from its insurance subsidiary.

Third, I do not appreciate the affiliated reinsurance.? That is just a scam, with no economic difference to the enterprise as a whole.

Fourth, I do not appreciate reinsurance recoverables larger than common equity.? There is some credit risk there… how much do you rely on your reinsurers to pay claims in full?? The operating insurance subsidiaries look like they are adequately capitalized, but with that level of reinsurance, you really can’t tell for sure.

Also, some of the reinsurance agreements are specifically targeted to eliminate pesky reserves that make Statutory (regulatory) accounting more conservative than GAAP.? That’s not all that unusual with financial reinsurance, but it does lessen future statutory cash flow, which is what is needed to service the debt.

Fifth, 25% of the offering will be paid as a dividend to the parent company, which further weakens ability to repay.

Sixth, there are related party transactions within the Harbinger Group.? Harbinger Group has been through tough times and liquidity is tight.? You only do moves like this when things are desperate. Reminds me of Southmark.? The operating insurance subsidiaries have made loans to EXCO Resources, a Harbinger subsidiary, buys asset-backed securities that other Harbinger subsidaries originate, and has a large reinsurance agreement with a Harbinger subsidiary in the Cayman Islands.? I respect most reinsurers in Bermuda.? Other foreign domiciles like Ireland, Cayman Islands, etc., are more questionable.? Regulation is more lax.

Seventh, Here are some of the points from the risk factors:

Our Reinsurers, Including Wilton Re, Could Fail To Meet Assumed Obligations, Increase Rates, Or Be Subject To Adverse Developments That Could Materially Adversely Affect Our Business, Financial Condition And Results Of Operations.

Our insurance subsidiaries cede material amounts of insurance and transfer related assets and certain liabilities to other insurance companies through reinsurance. For example, a material amount of liabilities were transferred to Wilton Re pursuant to the Wilton Transaction in 2011. See ?Business?The Fidelity & Guaranty Acquisition?Wilton Transaction? below. However, notwithstanding the transfer of related assets and certain liabilities, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed. Accordingly, we bear credit risk with respect to our reinsurers, including our reinsurance arrangements with Wilton Re. The failure, insolvency, inability or unwillingness of Wilton Re or other reinsurers to pay under the terms of reinsurance agreements with us could materially adversely affect our business, financial condition and results of operations.

As noted above, reinsurance is a source of credit risk, and is a type of leverage.? Companies that use a lot of it are less strong than they seem.

Our Insurance Subsidiaries? Ability To Grow Depends In Large Part Upon The Continued Availability Of Capital.

Our insurance subsidiaries? long-term strategic capital requirements will depend on many factors, including their accumulated statutory earnings and the relationship between their statutory capital and surplus and various elements of required capital. To support their long-term capital requirements, we and our insurance subsidiaries may need to increase or maintain their statutory capital and surplus through financings, which could include debt, equity, financing arrangements or other surplus relief transactions. Adverse market conditions have affected and continue to affect the availability and cost of capital from external sources. We and HGI are not obligated, and may choose or be unable, to provide financing or make any capital contribution to our insurance subsidiaries. Consequently, financings, if available at all, may be available only on terms that are not favorable to us or our insurance subsidiaries. If our insurance subsidiaries cannot maintain adequate capital, they may be required to limit growth in sales of new policies, and such action could materially adversely affect our business, operations and financial condition.

There is kind of a pathology to insurance companies that rely on reinsurance for capital.? It fronts expected statutory profits from the future, reducing future statutory income, but increases capital.? It’s kind of an addiction.

We Operate In A Highly Competitive Industry, Which Could Limit Our Ability To Gain Or Maintain Our Position In The Industry And Could Materially Adversely Affect Our Business, Financial Condition And Results Of Operations.

We operate in a highly competitive industry. We encounter significant competition in all of our product lines from other insurance companies, many of which have greater financial resources and higher financial strength ratings than us and which may have a greater market share, offer a broader range of products, services or features, assume a greater level of risk, have lower operating or financing costs, or have different profitability expectations than us. Competition could result in, among other things, lower sales or higher lapses of existing products.

They are up against much stronger competition with better balance sheets.? In a crisis, they would have less flexibility, and have a harder time raising capital than most competitors.

The Issuer Is A Holding Company And Its Only Material Assets Are Its Equity Interests In FGLIC. As A Consequence, Its Ability To Satisfy Its Obligations Under The Senior Notes Will Depend On The Ability Of FGLIC To Pay Dividends To The Issuer, Which Is Restricted By Law.

The issuer is a holding company with limited business operations of its own. Its primary subsidiaries are insurance subsidiaries that own substantially all of its assets and conduct substantially all of its operations. Accordingly, the repayment of interest and principal on the senior notes by the issuer is dependent, to a significant extent, on the generation of cash flow by its subsidiaries and their ability to make such cash available to the issuer, by dividend or otherwise. The issuer?s subsidiaries may not be able to, or may not be permitted to, make distributions to enable it to make payments in respect of the senior notes. Each subsidiary is a distinct legal entity and legal and contractual restrictions may limit the issuer?s ability to obtain cash from its subsidiaries. While the indenture governing the senior notes will limit the ability of the issuer?s subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to the issuer, these limitations are subject to certain qualifications and exceptions. If sources of funds or cash from the issuer?s subsidiaries are not adequate, we may be unable to satisfy our obligations with respect to the senior notes without financial support from the issuer?s parent, which is under no obligation to provide such support.

(snip)

The issuer intends to use $195.0 million of the proceeds from the senior notes to purchase a surplus note from FGLIC. The interest rate and tenor of the surplus note will be substantially similar to those of the senior notes.

As pointed out above, owners of this bond would be lending to an empty shell from which it will be difficult to extract value if there is financial stress.

We And Our Subsidiaries May Be Able To Incur Substantially More Debt And Other Obligations.

We May Not Be Able To Generate Sufficient Cash To Service All Of Our Obligations, Including The Senior Notes, And May Be Forced To Take Other Actions To Satisfy Our Obligations, Which May Not Be Successful.

The Senior Notes Will Not Be Secured And Will Be Effectively Subordinated To Future Secured Debt To The Extent Of The Value Of The Assets Securing Such Debt.

The Issuer May Not Be Able To Repurchase The Senior Notes Upon A Change Of Control, And Holders Of The Senior Notes May Not Be Able To Determine When A Change Of Control Giving Rise To Their Right To Have The Senior Notes Repurchased Has Occurred Following A Sale Of ?Substantially All? Of Our Assets.

Our Principal Shareholder?s Interests May Conflict With Yours.

Lest this post go from “too long” to “way too long,” I am summarizing off of the headings of five more risk factors.? The first three show the weakness of the position of the holders of the notes, in that you can be diluted or subordinated.?? The fourth shows how the notes themselves would complicate a sale of insurance subsidiary assets.

The fifth tells you that Phil Falcone has different interests than you.? If things go well, he may do very well, while you get repaid early because of call provisions, and must reinvest.? If things go badly, recoveries on a bond like this could be very low.? When surplus notes stop paying interest and principal, they trade near zero if it looks permanent.? Remember, the Maryland Insurance Administration has every reason to be conservative about making surplus note payments if the operating insurance subsidiary is under financial stress.

Eighth, if it’s not obvious get, I eschew complexity in debt agreements.? I’m not crazy about:

Reserving on indexed and variable products
Complexity of financial operations
Liabilities that can run easily — I don’t have the data for that, so I don’t know how big that is, I would have to look at the Statutory books to know for sure.
Deferred tax assets as a part of Statutory Capital — again, I would have to look at the Statutory books to know for sure.

Ninth and Last, the covenants protecting the notes are weak, and exceptionally verbose.? I have a rule that the longer and more detailed covenants are, the less protection they usually give note owners.? It’s kind of like Proverbs 10:19, “In the multitude of words sin is not lacking, But he who restrains his lips is wise.”

For a corporate bond prospectus, this one is really long, ~320 pages, longer than some securitizations that I used to buy as a mortgage bond manager.? I assume that most of the investor interest here would be institutional, but if you give your broker some discretion over an account in which he purchases individual bonds, you might ask him to avoid this deal.? It will be a tempting bond to buy, because it will come with a fat yield in this yield-starved environment, if the deal gets completed.

As one friend of mine once said to me, “This bond deal is horrid, but it has one sweet YTNJ.”

Me: “YTNJ? Haven’t heard that one.”

Friend: “Yield to next job.”

Be like Will Rogers, the return of the money is more important than the return on the money.? Be wise, stay safe.

PS — The opinions of Moody’s & Fitch

Redacted Version of the March 2013 FOMC Statement

Posted on 20 March 2013 by David Merkel

Comments

Notable: they mention that fiscal policy is less accommodative.? Also, some new language leaves room for policy gradualism.
Not so notable: they shade up their views on GDP and employment, and shade down their views on global financial market stability.
I really think the FOMC lives in a fantasy world.? The economy is not improving materially, and inflation is rising. Note that the CPI is close their 2.5% line in the sand.? TIPS-implied inflation 1X1 (one year ahead for one year) is 2.32%, and 5X5 is around 2.86% annualized.
Current proposed policy is an exercise in wishful thinking.? Monetary policy does not work in reducing unemployment, and I think we should end the charade.
In my opinion, I don?t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself. When this policy doesn?t work, what will they do?
Also, the investment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.

Question for Dr. Bernanke

Ever liability is someone else’s asset.? Aren’t you doing nothing by trying to hold long term interest rates lower?

Post 2100

Posted on 20 March 2013 by David Merkel

Every 100 or so posts, I take a step back, and think about blogging itself.? Tonight I want to talk about advertising in blogging.

I now get about 75 requests per month asking:

Can I do a guest post at your blog? (There have never been guest posts, ever)
I want to place link ads at your blog (I tell them it has to be labelled advertising, I will not let my readers be deceived.? They go away.)
Some other advertising that I find objectionable for other reasons.

I write this blog to give something back to society in general.? My reputation is worth more to me than making money.? If I did not care about my reputation and wanted to make money, I would write a newsletter.? I’m a good enough writer, and clever enough with statistics that I could easily dupe people and make a lot of money, but I belong to Jesus Christ.? I can’t engage in the implicit fraud that many newsletter writers do.

I sometimes send the above cartoon to the advertisers. Most think it is a funny rejection notice. ? I’ve worked hard to create a blog with credibility.? I will not sell it out for a few measly bucks on advertising, or allow for posts from substandard writers.? I won’t even do it for writers better than me.? This is my blog; it reflects me, with all the warts and wrinkles.

I know that I am an acquired taste, and that many things I write are not congenial to all of my readers, because I write about too many areas.? But I write to give something back, and fight against those who try to cheat investors, even if the thief is our government.

But thanks to all that read me.? I am grateful that you peel off time for me.? I don”t deserve it, but I will do my best for you.

Your friend,

David

On the CFA Institute’s “Future of Finance”

Posted on 19 March 2013 by David Merkel

All hail the CFA Institute.? They are trying to inject more ethics into the market through their “Future of Finance” initiative.? I largely agree, but think they are overly optimistic in some areas.

Here are their basic ideas: http://www.cfainstitute.org/learning/future/about/Pages/statement_of_investor_rights.aspx

Here are their dreams: http://www.cfainstitute.org/about/vision/serve/Documents/integrity_list.pdf

My main problems are with the dreams.? Yes, I eventually want every investor to work with someone who has a fiduciary interest in his well-being.? But many people don’t want to take the time to find the people who have their best interests at heart.? There are many things we can overcome, but we cannot overcome the laziness of investors, both retail and professional.? This laziness is part of the nature of man; a few cure it through consistent effort, but most don’t.

To that end, some blame belongs to the unintelligent investors who barge into a market without sufficient knowledge.? That’s how it should be, because in many areas of business those that try to compete with insufficient knowledge lose vitality because they don’t know the basics of the business.

You can’t protect people from stupidity.?? Fraud is another matter.? Deception is different from dumb agreement.

But here is my main challenge to the CFA Institute: where do your ethics come from? Why are they right?? Are they God-given, or merely an agreement among men?

This matters a great deal, because if it is merely an agreement among men, many men will say, “So what! Why should I listen to you?”? If they are God-given, even if men argue with them, the answer comes back from God, “You are a sinner in many ways, including this.? When will you humble yourself to me, and trust in the sacrifice of my Son, which was the largest event in history?”

Ethics aren’t neutral; people disagree about what is right and wrong to a high degree.? Even in finance, there are considerable disagreements in what is the correct behavior:

Active vs Passive mangement
Value vs Growth
Does Technical Analysis work?? (Is there truly a single discipline there?? I don’t think so.)

That’s a considerable reason why it would be difficult to enforce the views of the CFA Institute over the markets.? There is no commonly agreed-upon view of how the markets work.? The views of the academics are ridiculous, and do not reflect market realities. But many asset allocators trust them, even though their results are poor.

Don’t get me wrong, I largely favor what the CFA Institute is proposing.? I just think it will be hard to turn it into public policy because of the large disagreements over how finance actually works.? Also, the degree to which neglectful parties buy into the markets through the persuasion of sellers, because they won’t look out for their own best interests directly.

So, look at what the CFA Institute is up to.? They are part of the “White Hats” in the market, like me, who argue for the good of investors.? My only difference with them is that their model of the market is not fully accurate.? Nor do they understand how men can err, even with detailed ethics codes.

Regarding RealMoney

Posted on 16 March 201317 March 2013 by David Merkel

I have some happy news regarding my writings at RealMoney.? Between readers who kept copies of what I wrote, and TheStreet.com republishing at the free site some of my best? pieces, I have regained one-third of the writings that are lost.

Now, if there are other readers who saved some of my RealMoney writings, please send them to me.? As it is, I will start republishing the two dozen classics that I have recovered starting next week.

And, I will ask TheStreet.com if there is any way to recover the old posts… if you have some influence there, let me know.? Thanks.

Trust & Growth

Posted on 16 March 201317 March 2013 by David Merkel

I read John Mauldin’s newsletters.? In the most recent one, he published what Dylan Grice said about trust in economics.? It reflects my own views, so I want to quote the the piece a little bit, and add my own thoughts.

Of the many elemental flaws in macroeconomic practice is the true observation that the economic variables in which we might be most interested happen to be those which lend themselves least to measurement. Thus, the statistics which we take for granted and band around freely with each other measuring such ostensibly simple concepts as inflation, wealth, capital and debt, in fact involve all sorts of hidden assumptions, short-cuts and qualifications. So many, indeed, as to render reliance on them without respect for their limitations a very dangerous thing to do. As an example, consider the damage caused by banks to themselves and others by mistaking price volatility (measurable) with risk (unmeasurable). Yet faith in false precision seems to us to be one of the many imperfections our species is cursed with.

?One such ?unmeasurable? increasingly occupying us here at Edelweiss is that upon which all economic activity is based: trust. Trust between individuals, between strangers, between organizations… trust in what people read, and even people?s trust in themselves. Let?s spend a few moments elaborating on this.

?

First, we must understand the profound importance of exchange. To do this, simply look around you. You might see a computer monitor, a coffee mug, a telephone, a radio, an iPad, a magazine, whatever it is.? Now ask yourself how much of that stuff you?d be able to make for yourself. The answer is almost certainly none. So where did it all come from? Strangers, basically. You don?t know them and they don?t know you. In fact virtually none of us know each other. Nevertheless, strangers somehow pooled their skills, their experience and their expertise so as to conceive, design, manufacture and distribute whatever you are looking at right now so that it could be right there right now. And what makes it possible for you to have it? Exchange. To be able to consume the skills of these strangers, you must sell yours.? Everyone enters into the same bargain on some level and in fact, the whole economy is nothing more than an anonymous labor exchange. Beholding the rich tapestry this exchange weaves and its bounty of accumulated capital, prosperity and civilization is a marvelous thing.

Trust is core to all economic activity.? You only want to act if you think you will not be cheated.? Poor societies are often characterized by a lack of trust, which hampers exchange, and hampers credit as well.? To the degree that you doubt that you will be rewarded for the fruits of your labor, you will face frictional costs in doing business, and you might reduce your business in areas that don’t seem to be worth the risk.

Lying & cheating raises the costs for businessmen, which leads them to reduce activity by spending effort on fraud prevention, or raise prices to cover costs from fraud.? That reduces total economic activity — as prices rise, quantity falls.

But there is another more pervasive way to reduce trust.? It is to move the economic goalposts by changing the value of money.? Why does the Fed think it is doing something good by manipulating interest rates?? First, most central bank governors have not done it well.? They ease far too much, and tighten far too little.? They don’t take away the punchbowl when needed, or to the degree needed when the party gets hopping.

The result is too much debt, and an eventual liquidity trap which we are now in, and which the present Fed intensifies.? From Grice:

So now we know we have a slightly better understanding of who pays: whoever is furthest away from the newly created money. And we have a better understanding of how they pay: through a reduction in their own spending power. The problem is that while they will be acutely aware of the reduction in their own spending power, they will be less aware of why their spending power has declined. So if they find groceries becoming more expensive they blame the retailers for raising prices; if they find petrol unaffordable, they blame the oil companies; if they find rents too expensive they blame landlords, and soon. So now we see the mechanism by which debasing money debases trust. The unaware victims of this accidental redistribution don?t know who the enemy is, so they create an enemy.

The actions of the Fed are not costless, they take purchasing power away from others.? Further, the Fed will find it exceptionally difficult to remove policy accommodation when the time comes to do so.? Why?

It is a constant that the more the Fed eases, the worse the adjustment is when the tightening comes.? This one will be a Lollapalooza.? I have often said that Fed tightening cycles end when something blows up.? But what happens if something significant blows up early in their tightening cycle, and inflation is still running hot?? Or that interest rates have risen enough that there is no way that the US Government can ever repay their debts?

This is the second aspect of trust.? What is my money worth?? Why do we have these worthless bureaucrats with bad economic theories trying to manipulate our actions, when they lead us into overindebtedness?? Yes, in the short-run it looked good, BUT WHO IS LOOKING OUT FOR THE LONG RUN! Where, pray tell, are the statesmen looking out for our long-term well-being?? Ron Paul has retired.? Tom Coburn acts in the shadows.? Rand Paul is new… is there anyone else thinking long-term?? I see little of it in DC, in either party.

Few want to take the political & economic pain necessary to reduce debts and liabilities that we will not be able to pay.? And as such, businessmen limit their activities, because they don’t see benefits to taking risk in an abnormal environment., and growth reduces.

As I said to a friend today:

We live in unusual times.? Long-term valuation measures are flashing red.? Some short-term measures are flashing green.? Marginal productivity of capital is declining, and so firms use excess cash and borrowing capacity to pay dividends and buy back stock, because profitable organic growth opportunities are few.? That is not a great environment to be long stock.?

Further harming the environment is the tight coupling of government policies on monetary policy and the deficit.? Thus, even with bonds, I?m playing it relatively safe.? To me, this is mostly a time to preserve capital.

Economic growth requires trust in society.? Without trust, there is no growth.? That means policies and laws have to be long-term & dependable.? When things change too much, economic actors slow down, because it takes time to work through change.? (And that’s another reason why the PPACA will be a job-killer, and slow down the economy.? It is too big, too complex, too burdensome — it was not designed to extend healthcare, but to destroy the relatively good pre-existing private system.)

I am not surprised that growth has slowed; I am surprised that markets are as high as they are.? When the Fed finally overreaches their abilities, we will painfully learn the governments and central banks are not omnipotent, and that they more often hinder our prosperity than not.

Linear Thinking in a Chaotic World

Posted on 15 March 2013 by David Merkel

If some is good, then more is better.? That’s the way simpleminded people think.

Think of alcohol.? A little is good, but past a certain point, more is bad.

I think about central banking the same way.? Until recently, quantitative easing seemed to stimulate the economy, but each increasing dose has done less.? The last one seemed not to work at all, and long rates rose amid buying of bonds by the Fed.

The same applies to running deficits.? Perhaps the Keynesian solution works when there is adequate borrowing capacity in the private sector, but when many cannot borrow more, running high deficits may scare businessmen and consumers, because they wonder whether the system is stable or not, how the books will eventually balance, etc.? Inflation, deflation, higher taxes, currency depreciation… there are so many possibilities.

The leaders in simple-mindedness are Ben Bernanke, and Shinzo Abe of Japan.? Add in George Bush, Jr., and Barack Obama — deficits don’t matter.? They are like Fat Freddy with a hammer; every problem looks like a nail, and he will whack it with his hammer.? BAM!? It’s better, right?

Economies are complex because people are complex, and groups of people are even more complex.? The simplistic tools of neoclassical macroeconomics do not work in situations where there is too much debt, but the ideologues display confidence to the watching world.

When this pattern breaks it will be ugly, and I don’t know when or how it will be ugly.? It all depends on whether policymakers move to inflate or deflate.? You might say, “Of course they will inflate.”? Many thought that in the Great Depression, and they were wrong.

My main point here is that we all know less than we think about the future.? We have no idea as to what might finally derail the policy monoculture of the dominant nations — large deficits and loose monetary policy, but it will derail, and how it will resolve is a mystery.

So diversify your asset allocation into things that benefit from inflation and deflation — maybe you will keep something after the crisis hits.? After all, the looser monetary policy is, the worse the adjustment when the tightening comes, and monetary policy has never been looser than this since 1790.

Sorted Weekly Tweets

Posted on 15 March 2013 by David Merkel

US Politics & Economic Policy

Employers Blast Fees From New Health Law http://t.co/FfuBRO2HQp Phases in the added costs of covering sick people previously uninsured $$ Mar 15, 2013
Conservative Groups Warn GOP Lawmakers About Deals With Obama http://t.co/vui4GOINCw If this were a 2-player game, would have been solved $$ Mar 15, 2013
Gundlach: Investors are asking the Wrong Question http://t.co/xA1UgvCica ht: @ReformedBroker QE as a permanent affair w/which we have 2 live Mar 15, 2013
New Group Pushes Corporate-Tax Overhaul http://t.co/P3dwgqQON6 Trying 2 End Double Taxation of foreign profits. Hasn’t worked so far $$ Mar 14, 2013
The Almighty Dollar Is Back http://t.co/F3iP3Zblyk Skeptical. Waiting for the Fed to announce increase of QE to send the $$ back down Mar 14, 2013
GIs Fighting Nazis Last Time Factory Workers Toiled Longer http://t.co/pVMlMGFRQ0 This is optimistic for new hiring $$ Mar 14, 2013
Grand Bargain Taxes, Entitlements Cuts Await Deal Makers http://t.co/gJZ2c4Uc17 My sense is that we r heading 4 another deadlock $$ Mar 14, 2013
Refusal to Expand Medicaid May Cost Employers $1 Billion http://t.co/kpxJmCeZvT Pressure is going to grow to eliminate PPACA & Medicaid $$ Mar 14, 2013
US Growth = Inventories http://t.co/dOIp5n9sPH Much of the presumed growth in the US is just rebuilding of inventories to a peak level $$ Mar 12, 2013
GOP Budget Establishes Contrast With Democrats http://t.co/ocLQndOvsP No chance of it being passed, but gives an idea of where 2 sides r $$ Mar 12, 2013
SEC Charges Illinois Over Pension Funding http://t.co/MxEF6hPYPy This is how it should be. No one gets punished in the slightest. $$ Mar 12, 2013
Note from last tweet: a lot of ppl want to punish bankers, what about state officials who lie – they r much bigger, where is the outcry? $$ Mar 12, 2013
Fed mulls putting a ‘not for sale’ sign on its assets http://t.co/uZAcaHmLeO A sign of weakness from the Fed; they know they r trapped $$ Mar 10, 2013

Roman Catholic Church

Jesuits Had Past Struggles With Popes http://t.co/P8Vy8YEifr In the RC church, they have top liberation theologians &their top opposition $$ Mar 14, 2013
Ten things you probably didn?t know about the Jesuits http://t.co/tFijZNMkV9 If the Church have defined anything to be black… amazing $$ Mar 14, 2013
The sins of the Argentine church http://t.co/FTzKlsq1I7 New Pope may have been complicit w/Military Dictators killing their enemies. $$ Mar 14, 2013
The Changing Church http://t.co/mDPol6orR5 Interesting 2c change in locations of Cardinals. Size of RC church overstated, many not active $$ Mar 14, 2013
How Is the Pope Elected? http://t.co/j8p5L9dB5I A little late, but I thought this was an interesting infographic on papal elections $$ Mar 14, 2013
African Catholics Look to Black Pope to Safeguard Tradition http://t.co/vxZrJJDgvv US Media does not get how traditional most Catholics r $$ Mar 13, 2013
Black Smoke Signals No New Pope http://t.co/9qp8nzlbRb More & less unity in RCC than commonly thought. More: Europe, Less: elsewhere $$ Mar 12, 2013

Financial Markets

To all of the fixed income followers out there: someone asked me today to recommend good bond blogs. What would you recommend? Mar 15, 2013
Highest Bond Yield at Auction in a Year Could Be Sign of Things to Come http://t.co/fShhD5iAlp Or it could be a buying opportunity $$ Mar 15, 2013
$OAK Founder Knows How to Get an Edge in Investing http://t.co/TaRQSiK5gI “Experience is what u get when u didn’t get what u wanted.” $$ Mar 14, 2013
Smallcap Stock Volatility Index Hits All-Time Low http://t.co/l6tCXV7VS4 Complacency is the rule of the the day among small cap stocks $$ Mar 14, 2013
5 ways Warren Buffett invests that you don?t http://t.co/AeCs8fqe6g Good job describing what parts of Buffett’s strategies can b mimicked $$ Mar 14, 2013
Team Alpha Retirement Portfolio: Dividend Investing Vs. Annuity Purchasing http://t.co/HNHqI40vDP Example of y I don’t read Seeking Alpha $$ Mar 14, 2013
New Carlyle Group Fund Lowers Bar for Investors http://t.co/xiCTwy07Zk As @reformedbroker aptly put it, “Muppet Bait” Avoid. Avoid. $$ Mar 14, 2013
Fidelity to Expand ETF Relationship With BlackRock http://t.co/d4PIiCb7oh Fidelity says “Me 2,” by partnering with $BLK . No value added $$ Mar 14, 2013
moving down-market http://t.co/qP0YSWKubG @researchpuzzler has it right, inviting small accounts in means opportunities r getting worse $$ Mar 14, 2013
Historical S&P 500 Price to Sales (P/S) Chart http://t.co/dm2ZhDDgtE Useful little chart – around avg now, but profit margins r a record $$ Mar 13, 2013
SP500 Bull and Bear Factors – Not so Fun Damentals! http://t.co/5OjwvLbLPw Bull factors: QE, Buybacks, Yen. Bear: Econ data, Earnings mo $$ Mar 13, 2013
Gold Sales From Soros Reveal 12-Yr Bull Run Decay http://t.co/ze7DSsdIkN Makes me want 2 do a piece on $$ weighted vs time weighted on $GLD Mar 13, 2013
Why (Most) People Hate Good Financial News http://t.co/PZcf1usKD1 Regret is a strong force in psyche of amateur investors: missing out $$ Mar 12, 2013
How Much Of The Stock Market?s Growth Is Caused By Its Shrinking? http://t.co/Kfxipqvr1Y I would be skeptical here; capital changes weak $$ Mar 12, 2013
Securities Lending: Worth The ?Risk? http://t.co/AZxSKFzM2T When done right, sec lending is almost free money, the risks r low. $$ Mar 12, 2013
New ETF Underway for Distressed Debt http://t.co/Wp3ZPwaZqj Bad idea. Creating indexes for distressed bonds will be hard, Won’t attract $$ Mar 12, 2013
Firms Send Record Cash Back to Investors http://t.co/n0vNv0ppei A sign of economic weakness; there are few places to invest for growth $$ Mar 10, 2013

Wrong

Wrong: Amazon Preparing Bid For Barnes And Noble? http://t.co/qYB3yE6u8U Combination would not be allowed by the FTC $$ Mar 13, 2013
Wrong: Why Insurers May Be Unprepared for the Next Big Storm http://t.co/WuJIpvtVBj Most P&C insurers have more than adequate reserves $$ Mar 13, 2013
Wrong: The US can?t afford a Chinese economic collapse http://t.co/9vskptvxvx We can afford it; China won’t affect much in the US $$ Mar 12, 2013

Rest of the World

China s Next Potential Bubble: Hello, Anybody Home? http://t.co/IstgcTQZCN Trapped. Potential sellers need prices 2 stay high, buyers low $$ Mar 15, 2013
Embrace consumption, IMF’s Zhu urges China http://t.co/TAc5toyktZ Easier said than done. Party not ready to give people more freedom. $$ Mar 15, 2013
Nordic Testicular Cancer Mystery Prompts Chemicals Probe http://t.co/LqwH8klTLq Interesting, might be a combo of genetics & environment $$ Mar 15, 2013
Jeffrey ??s Japan Stocks http://t.co/lvhM6LFXAv?s-japan-stocks/?utm_source=dlvr.it&utm_medium=twitter Weak yen drives Japan stocks up $$ Mar 15, 2013
Recent cyberattacks could be part of a Chinese military strategy started nearly 20 years ago http://t.co/NxZ99g2ZKo Explains what is up now Mar 14, 2013
Brazil?s Richest Family Forging $13 Billion Niobium Dream http://t.co/2MHbOkhHPd Stronger flexible steel from a Brazilian tech company $$ Mar 14, 2013
Even Berlusconi Can?t Slow Bulls Boosting Euro View http://t.co/PV2mGvfHRr Great 4 core Eurozone, bad news 4 the fringe Eurozone $$ Mar 13, 2013
Chinese inflation hits 10-month high http://t.co/rGZJHoZsqj The end of the cycle comes when Chinese inflation gets out of control $$ Mar 13, 2013
Snow Causes European Travel Chaos http://t.co/tz3afCLET9 That’s one thing about weather & climate, constantly changing & always will $$ Mar 13, 2013
Should You Bond With Azerbaijan? http://t.co/gpE429eGa8? by @jasonzweigwsj | Emerging market govts are better run than developed govts $$ Mar 12, 2013
Norway Fund Flees Currencies Tainted by Stimulus Addiction http://t.co/X7YasIGkKn Rational response2 depreciating currencies: hail Norway $$ Mar 12, 2013

Banks

JP Morgan’s Jamie Dimon showed too much hubris and too little humility http://t.co/4feQB2Q6Jx @moorehn highlights cultural problem @ $JPM $$ Mar 15, 2013
Bubble Exchange: Technology vs Financials http://t.co/BJKoaFfjdo Suggests that financials, not tech, will do better in the future $$ Mar 15, 2013
EU Said to Plan Concession on Tax Credits as Bank Capital http://t.co/Ss3J4KBGbv Deferred Tax Assets should not be allowed as capital $$ Mar 15, 2013
Deferred Tax Assets r only valuable if a company makes $$ in the future, which for a bank in distress is less likely; should not b capital Mar 15, 2013
Beware of a New Banking Bubble http://t.co/gr5c2S9NaI Three recent deals involved premiums of 32% to 83% above tangible book value $$ #fire Mar 14, 2013
Fisher and Rosenblum: How to Shrink the TBTF Banks http://t.co/pNfzML2A22 Could work, roll back safety net, keep pieces small, holdcos fail Mar 14, 2013
5 Big Questions for the Future of Retail Banking http://t.co/sCKi6QjfCu Branches buy/sell, online/mobile, layoffs, interest margins down $$ Mar 14, 2013

Companies & Industries

Lawmakers Examine Ethanol Credits’ Affect on Gas Prices http://t.co/5RHXnKcuFG Wasteful program doesn’t aid conservation adds 2 pollution $$ Mar 15, 2013
5 beloved tech products that were sentenced to death http://t.co/bg4S90UHlZ Impending death of Google Reader makes writer wax nostalgic $$ Mar 15, 2013
Google and Bing Say the Future of Search Is Conversational http://t.co/mx2gfh6oSr Software improves ability 2 understand contextual data $$ Mar 15, 2013
Herbalife short-seller sues banks, Icahn over alleged fraud http://t.co/NaL4X9aXW3 Losing investor throws good $$ after bad, will not win Mar 14, 2013
Evolv, Making Hourly Workers More Profitable, Lands $15 Million http://t.co/DDEyoCk7Ay Improves retention of the employees u want 2 keep $$ Mar 14, 2013
Lincoln?s Cooper Shuns Shoot-For-Moon Funds After Goldman http://t.co/7PdLGT5TGb This does not make me feel better about $LNC. Avoid. $$ Mar 14, 2013
How Benjamin Franklin Invented the Mail-Order Business http://t.co/TC6DmWsZck A look at the precursors to mail-order retail. Interesting $$ Mar 14, 2013
Lego Builds New Billionaires as Toymaker Topples Mattel http://t.co/jxkqNatzZk Family controls 75% of the operation through Kirkbi A/S $$ Mar 14, 2013
8 Megatrends Defining the Oil & Gas Industry http://t.co/Taz5Dsujwh Nationalization, Ending subsidies, Green, New frontiers, LNG, M&A $$ &c Mar 14, 2013
Blackstone Said to Get $2.1 Billion Loan for Home Purchases http://t.co/qDg7DrSBGk I’m skeptical, don’t think renting homes is scalable $$ Mar 14, 2013
Many hospitals, doctors offer cash discount for medical bills http://t.co/ckLOHxh1TH ht: @dpinsen | Sometimes ucan pay less w/o insurance $$ Mar 13, 2013
Gas Rigs Drop to Fewest Since 1999 as Drilling Declines http://t.co/b3YztqbTqs Almost like the old days when they would flare off natgas $$ Mar 13, 2013
Starr Proceeds With Fight Over $AIG Rescue http://t.co/WPNIOyib7B I don’t think he will win, but Greenberg will get his day in court $$ Mar 13, 2013
Beating The Downturn By Degrees http://t.co/9BT69ix6Fs Good summary article on the for-profit educators $$ Mar 13, 2013
Liberal-Arts Colleges Dangle Deals to Woo Students http://t.co/v3Qd07x8AD Pay for 4 years & never have 2 pay again; u *can* finish 4 free $$ Mar 13, 2013
InTrade Online Betting Site Shuts Down Abruptly http://t.co/Rb0Ppald2u A long shot from the start, current bettors may b stuck w/the loss $$ Mar 12, 2013
Green Cars Have a Dirty Little Secret http://t.co/wk5UfvYiYn Producing and charging electric cars means heavy carbon-dioxide emissions. $$ Mar 12, 2013
Uninsured Americans Get Hit With Biggest Hospital Bills http://t.co/6QeybZMIz8 First value of insurance is buying power lowering prices $$ Mar 12, 2013

Other

Jim Gaffigan Is the King of (Clean) Comedy http://t.co/RhUM30krSU Heartening 2c clean humor getting attention; certainly harder 2 do $$ Mar 15, 2013
The Bearded Man http://t.co/ub5n07UjFZ I’m no trendsetter. If you’re out of fashion long enough, eventually u accidentally get in fashion $$ Mar 15, 2013
Does money taint the sharing economy? http://t.co/yTjd3w8ThO If you want an organization to last, there must be a profit margin $$ Mar 15, 2013
Scientists find how deadly new virus infects human cells http://t.co/YLfoqPbvJ1 Disease is similar to SARS. Infected 15, killed 9 $$ Mar 14, 2013
Former Ravens May Outnumber Ravens http://t.co/SIxpATVmC6 Noticed in Baltimore; curse of the Joe Flacco contract; less $$ for rest of team Mar 14, 2013

Retweets & Replies

‘ @tradewins @moorehn The problems are concealing data from the regulators, & Dimon perhaps concealing what he truly knew at the time $$ Mar 16, 2013
@TWealthMgmt Yeah, they are good, & I mentioned them. Seems many bond blogs have folded; they had a finite maturity 😉 Mar 15, 2013
@nelson3748 Railroads r scarce; impossible to replicate; has a big moat w/pricing power; trucking has no moat; scale is needed Mar 14, 2013
I just left a comment in “5 ways Warren Buffett invests that you don?t – Jonathan Burton’s Life Savings – MarketWat?” http://t.co/2tjAaDwkV7 Mar 14, 2013
Yes, but the nice thing about Pi day is that it has been a round RT @EddyElfenbein: Celebrating Pi Day seems so irrational. Mar 14, 2013
@EliHoffmann Don’t get me wrong I *like* dividends & have for a long time. They r more frail than the new advocates assume Mar 14, 2013
@EliHoffmann There r other things he got wrong re insurance, but the faith in dividends is naive. They get cut in bad periods like the ’70s Mar 14, 2013
@EliHoffmann Annuities r guaranteed by state guarantee funds Mar 14, 2013
@DavidSchawel Thanks, but r u bullish on it or neutral? Mar 14, 2013
@DavidSchawel How successful? Mar 14, 2013
No RT @pdacosta: VZ president says Chavez, now close to Christ, had a hand in choice of South American pope http://t.co/WYR2izYIsk Mar 14, 2013
“Pretty cool. Billy Joel took a chance on the student, and it was beautiful. Kid had moxie.” ? David_Merkel http://t.co/YBUfXDNSGH $$ Mar 14, 2013
UCan say that again RT @ReformedBroker:Muppet Bait MT @researchpuzzler:Don’t miss your chance 2 play w/big boys of PE http://t.co/5fg2tLPXS3 Mar 14, 2013
Listening to broadcasters in Rome, it reminds me of the Super Bowl when the power went out; gotta say something, but not much to say… $$ Mar 13, 2013
. @scott_matagrano Also, $AIG’s domestic life companies were BK until rescued b/c of sec lending… long story: http://t.co/EmnSclWqVS $$ Mar 13, 2013
@scott_matagrano Not *quite* riskless. There were some bond trades I could not execute b/c we could not get the shares back. Mar 13, 2013
@merrillmatter I don’t but some of my clients do. Mar 13, 2013
@ReformedBroker Hey Josh, where is that indicator now? Mar 12, 2013
@weelifeworkplay Saw that, but property tends not to vary in value as much as currencies do. Owning land tends to preserve value, mostly $$ Mar 12, 2013
@prchovanec In a word, overvalued. P/E measurements of value fluctuate too much b/c earnings varies more than sales or book $$ Mar 12, 2013
@exMBB I avoid life companies that primarily write variable business; the accounting quality is poor. No opinion on $PNX $$ Mar 12, 2013
@SagittaCapital I’m afraid that one is a ‘No.” I don’t have a lot to say there. Mar 12, 2013
@60Minutes @sherylsandberg That’s dumb. It could just be rudeness, or ego, and the same applies to boys. Will to power <> leadership $$ Mar 11, 2013
@prchovanec P/E is more significant in the short-run. CAPE10 & Q-ratio more significant in the long run. $$ Mar 10, 2013

FWIW

My week on twitter: 48 retweets received, 11 new listings, 51 new followers, 55 mentions. Via: http://t.co/cPSEMLXpb8 Mar 14, 2013

Month: March 2013

Sorted Weekly Tweets

On Time Horizons

A Bond Deal Requiring Caution

Redacted Version of the March 2013 FOMC Statement

Post 2100

On the CFA Institute’s “Future of Finance”

Regarding RealMoney

Trust & Growth

Linear Thinking in a Chaotic World

Sorted Weekly Tweets