My boss walked in and said that we needed to terminate our annuity reinsurance treaty with an entity that I will call Bigco (this happened in July).  Senior management had deemed that we should do it, and in days we visited Bigco, assuming that the actuary in question would approve a termination of the treaty where:

  • There was no termination provision.
  • There was a guaranteed minimum return to the reinsurer.
  • The reinsurer had participation in the upside of profits.

Who negotiated such a treaty?  Very one-sided, and Bigco needed to deploy capital, not contract it.

Could a negotiating position be worse?  Yes, it could, just wait.

When we got to Bigco, we talked with the actuary for a little while, and then he handed us over to the head of M&A.  Uh-oh, he sized up the situation perfectly, and denied our request, unless we were willing to pay considerably above book value to repatriate the assets.

We went home depressed, and a few months after that my boss was summarily fired.  In those days, September was the firing time.  You can imagine what that did for morale.  Personally, I expect my boss was fired because he was most similar the the CEO, and had done things well in managing his line of business.

One day the chief actuary came to me and said, “We have to terminate that treaty.”  I explained to him the backstory, that we had offered to buy it back at an ROE of 9%, and Bigco was demanding 6%.  I said to him, “I’ve already compromised the 10% ROE objective of our company, I don’t want to go further.  I’m free to walk away, right, if we can’t get a decent price?”  He said, “No, the deal must be done.  Under no circumstances can you walk away.”

The sad thing was that any termination of the treaty would positively affect management bonuses.  (That was the real target.)

I had a strong sense that I should always serve the ultimate owners of the firm — the dividend receiving policyholders.  But this was at variance from that.

So, with the weakest bargaining hand that I can imagine, I used the following strategy.  I did nothing.  Nothing. Nothing until early December, where I called the M&A guy at Bigco and and told him, “I’ve had a change of heart.  I’ll accept an ROE of 6.9%.  That’s my final offer!”  This was ticklish because I *had* to get the deal done.

He bit on the offer, and I pressed him saying that between this time and the closing, my market value adjustment formula would rule.  He agreed.  (He probably had a profit goal as well, which was what I was counting on.)

But, he didn’t look closely at the Market Value Adjustment formula.  I gave him one that was volatility-loving, that would adjust of the greater of the absolute value of the yield changes in 3-month T-bills or 30-year Treasury Bonds.  Don’t criticize the guy too much, the Federal Reserve fell for the same tactic on GICs they bought from us.

Before the deal closed, the Fed started tightening monetary policy, and the Market Value Adjustment got us out at an ROE of 9.1%.  What a win, and for the policyholders.  Management got more as well, and I got almost nothing.

I took risks trying to do the right thing, praying the God would help me, and in this case, it worked.  Can you be more righteous than your management team?  In most cases, no, but in this case I succeeded.

I would say to all, try to serve the interests of owners rather than management.  Act like an owner, not like a manager hauling down a fat salary.

China

 

  • Chinese Cities Hooked on Land Revenue Fuel Housing Costs http://t.co/8SXwubzUjk Ppl invest in what they think they ctrl; no alternatives $$ Sep 28, 2013
  • Amway Bankrolls Harvard Course For Chinese Cadres http://t.co/XVk5MXV2eh May not b pyramid, but successful sellers mostly recruit sellers $$ Sep 26, 2013
  • Chanos Undeterred by China Growth as O’Neill Bullish http://t.co/xwvC9mOFHa China will become the biggest windshield bugsplat ever seen $$ Sep 25, 2013
  • Party Will Pay the Price for China’s Rebalancing http://t.co/inQ5BHYMdn The Day has arrived: Michael Pettis is on Bloomberg. Go Michael! $$ Sep 25, 2013
  • China’s Generation Winnebago Avoids Traffic in RVs http://t.co/Q8z41qGv1j New Chinese status symbol: RVs. Rest while your driver works $$ Sep 24, 2013
  • China + Gold = 9 Million iPhones Sold http://t.co/DfIAopLDLV Gold may do nothing, but it is beautiful, & beauty drives much marketing $$ Sep 24, 2013
  • Michael Pettis, in his current newsletter, reminds us that loan growth outstrips ability to repay in China, recent “growth” is a fake-out $$ Sep 24, 2013

 

Companies & Industries

 

  • Meet Hummingbird: Google Just Revamped Search To Answer Your Long Questions Better http://t.co/mtAf5pxGIA Improved Search Engine $$ $GOOG Sep 28, 2013
  • JC Penney Is on the Brink http://t.co/UtMX5sa3ZT Now $JCP has liquidity, @ a cost, but can they transform their business model? $$ #unlikely Sep 28, 2013
  • Penney’s Share Offering Prices at a Discount http://t.co/CWVp8dOKln $JCP Danger Will Robinson! Stock price does not hold secondary level $$ Sep 27, 2013
  • Kat Cole, Former Hooters Waitress, Runs Cinnabon’s $1B Empire http://t.co/sOe9WKUB1v Ppl go gaga 4 Classic Roll. 60% more cals vs Big Mac $$ Sep 27, 2013
  • Oaktree group to sell US foreclosed homes http://t.co/dUuGn768TI Too many investors chasing residential RE vs owner occupiers $$ #badsign Sep 24, 2013
  • Meet Prem Watsa: The Man Riding to BlackBerry’s Rescue http://t.co/flg4xn1MkX A case of regret, throwing good $$ after bad $BBRY Sep 24, 2013
  • Banks Prove Safer Than Industrials in Bond Rally http://t.co/B2t3pbaNGd I would b willing 2 overweight industrials now; they r safer $$ Sep 24, 2013
  • Do Amazon’s Lockers Help Retailers? Depends on What They Sell http://t.co/Pbd2cPK6zl Works if $AMZN doesn’t sell what u sell, &vice-versa $$ Sep 23, 2013
  • FireEye Takes Off as Shares Rise 80% in IPO Debut http://t.co/fnY1YkvvD1 Score processes on weirdness, share info globally 2 stop malware $$ Sep 23, 2013

 

 

Rest of the World

 

  • Irish Billionaire Has ‘Boatload’ of Customers for Spanish http://t.co/GhyDzrhkhk Get your own Spanish Villa while supplies last! $$ Sep 27, 2013
  • Debt Disaster Seen Unless VAT Rises to 20% by 2020 http://t.co/fXyeptRNJZ Japan is a bug in search of a windshield; 20% would kill econ $$ Sep 26, 2013
  • Merkel’s Cold Embrace Leaves SPD Wary of Coalition Talks http://t.co/6pCmU9KgCf If SPD doesn’t compromise, cud a minority government form $$ Sep 24, 2013
  • Believing Data Not Required W/GDP Warrants http://t.co/36SKEKLcha Do u think Argentina is fudging GDP #s up? Buy Argentine GDP Warrants $$ Sep 23, 2013
  • For Migrants, New Land of Opportunity Is Mexico http://t.co/jy3XaZeRCA Immigrants r moving to Mexico as the economy deregulates a little $$ Sep 23, 2013
  • Czechs Yearning for Growth Set to Abandon Merkel Path http://t.co/sU8mxocTL7 No natural political coalition 4 austerity, even when right $$ Sep 23, 2013
  • Greece Plans Foreclosures to Meet Bailout Demands http://t.co/W7Ryxvv6J6 Inability 2 foreclose gums up Greece’s financial system $$ Sep 23, 2013

 

Central Banking

 

  • Richard Koo says ‘vicious cycle’ taking hold as Fed faces ‘QE trap’ http://t.co/se3uPY5eP1 Similar to my arguments in Easy in, Hard out $$ Sep 27, 2013
  • Constitutional Money by Richard Timberlake http://t.co/iipZBfnFqm “Treaties may become inapplicable because of changes in circumstances” $$ Sep 25, 2013
  • US Fed Shouldn’t Give Forward Guidance, Former Bank of Israel Head Fischer Says http://t.co/ZzbTLqTEU9 Correct. Fischer 4 Fed Chair $$ Sep 24, 2013
  • Why we listen to former FOMC members who r partisans of the Fed, rather than skeptics of central banking, like James Grant, amazes me $$ Sep 24, 2013
  • Yellen Would Bring Tougher Tone to Fed http://t.co/xoNY2kKWqa Academic economists, like Yellen, do not understand how the economy works $$ Sep 24, 2013

 

Housing/Mortgages

 

  • Mortgage Bonds Without Government Backing Face Tough Time http://t.co/MrtGxmynes Tough 2 mkt private label RMBS, not enough excess spread $$ Sep 28, 2013
  • Subprime bond bounces back, leaving behind a subprime borrower http://t.co/x7KRB8Rp9n Long article about a deadbeat & his subprime loan $$ Sep 27, 2013
  • There have been a scad of articles like this, but the guy did not do “due diligence” on the loan, and did not have to buy the house $$ Sep 27, 2013
  • Home gold rush is over http://t.co/AASXbe14zc Too many investors vs owner occupiers creates an imbalance as smarter players start 2 sell $$ Sep 26, 2013
  • FHA, Facing Losses, Likely to Tap Treasury http://t.co/Hdpqqdplri Shortfall for Fiscal Year Could b at Least $1B, Early Projection Shows $$ Sep 26, 2013

 

Financial Sector

 

  • BATS Prepares to Take On Big Bell Ringers http://t.co/x8PjU05xE9 NYSE + Arca > BATS + Direct Edge > NASDAQ $$ Graph: http://t.co/rDV3hY7uzf Sep 28, 2013
  • Shine a Light on Repo http://t.co/KrF4MtaA7Y Did u know that repos r 96 years old? Learn about obscure corner of the fixed income market $$ Sep 27, 2013
  • The bank that rejects the most mortgages http://t.co/JxD3xhvlY4 $JPM highest rejection rate, $STI lowest, $WFC biggest lender, avg 20.6% $$ Sep 27, 2013
  • Covenant-Lite Loans Need Uniform Definition http://t.co/RbEywreAEC It would help, but there is always nonstandard data in securitizations $$ Sep 26, 2013
  • Wells Fargo: New CLO Regulations May Lead to Issuance Slump http://t.co/FcK5NLQvba Forcing securitizers 2 take first losses ruins profits $$ Sep 24, 2013
  • The VC Secret: 3 Out of 4 Start-Ups Fail http://t.co/jjFrQc9JNP Ratio sounds high, but when VC-backed firm wins, it pays 4a lot of losers $$ Sep 24, 2013
  • That’s the way 2 manage pension assets if u r big enough. In-source, build up expertise, & keep adding smart people 2 addl asset classes $$ Sep 23, 2013
  • In-Sourced, Fully Funded, Public, and American http://t.co/ISUDgDvGhC! South Dakota Retirement System manages 65%-70% of assets in-house $$ Sep 23, 2013
  • America’s latest financial crisis? It’s incredibly personal. http://t.co/yHLcIm7xuR People do NOT understand how to save or handle cash $$ Sep 23, 2013
  • Value Investor Charles de Vaulx On China, Gold, Apple And Berkshire Hathaway http://t.co/4LgwGyzI7g Longish good interview. $$ $STUDY $BRK.B Sep 23, 2013
  • Fidelity sued by employees over its own 401(k) plan http://t.co/yo5h32QQD6 Biting hand that feeds them, they object 2 high fees 4 funds $$ Sep 23, 2013
  • Inside Nasdaq’s succession planning process http://t.co/6uOUsgrpuQ $NDAQ trades at a discount 2 peers; it needs a merger or better mgmt $$ Sep 22, 2013

 

Other

 

  • Billionaires Battle as Bezos-Musk Companies Vie for Launch Pad http://t.co/jEOhw4xXac Fight over a launchpad @ Kennedy Space Center $$ Sep 28, 2013
  • Supersonic Drones Can Outmaneuver Humans. So Why Do We Still Need Pilots? http://t.co/J5N9FhDVbH Pilots fly better in complex situations $$ Sep 28, 2013
  • Postal rate hike proposal faces Senate scrutiny http://t.co/aq7gKcDnm1 First Class would go to 49 cents, as internet slowly eats USPS $$ Sep 26, 2013
  • This Year’s SAT Scores Are Out, and They’re Grim http://t.co/04jtzUJMtL <50% of 2013 graduating seniors got “college-ready” SAT scores $$ Sep 26, 2013
  • Little GAAP Could Drive Accounting Simplification http://t.co/Ti24zRMFY2 If the acctg is 2 complex, biz is probably 2 complex as well $$ Sep 26, 2013
  • Work is not waiting for a job. If you don’t have a job, start your own business. http://t.co/pkUXupCOJg Sep 25, 2013
  • Investors Are Buying High, Yet Again http://t.co/PaTcowZvk8 Opportunities are fewer now, listen to Buffett & Klarman & trim back risk $$ Sep 25, 2013
  • Tweet tips: Most effective calls to action on Twitter http://t.co/PrcHMiNDMc! U could also ask them to favorite your tweet $$ $TWTR Sep 24, 2013
  • Death Dinners at Baby Boomers’ Tables Take on Dying Taboo http://t.co/68nxd534eB Good 2 talk about death, but r u ready 4 the afterlife? $$ Sep 24, 2013
  • Here Are The Best Fundamental Investors To Follow On StockTwits http://t.co/a72aV98KUo A good list of resources & teachers; I’m listed #5 $$ Sep 23, 2013
  • A Backdoor Roth IRA for a High-Income Couple http://t.co/79fYNIF5d6 Invest in regular IRA, convert 2 Roth, repeat process annually $$ Sep 23, 2013

 

PPACA / Obamacare

 

  • Will Obamacare hurt job creation and marriage? http://t.co/n7h7BEkrXK Belief in Obamacare is akin 2 belief in magic; resources r free $$ Sep 27, 2013
  • Prices Set for New Health-Care Exchanges http://t.co/J4VFjvF5HR Younger Buyers May Face Higher Insurance Premiums $$ Obamacare #FTL Sep 26, 2013
  • Best of the Web Today: The Young and the Clueless http://t.co/3GbWYOqipM ObamaCare may work, provided no one responds to its incentives. $$ Sep 26, 2013
  • Young Invincibles Caught in Crossfire Over Obamacare Cost http://t.co/hgyCGtZMaj Note how Obama packs the gallery w/young people $$ Sep 24, 2013

 

Municipal Debt / Detroit

 

  • Stockton to Unveil Plan Including Cuts for Creditors http://t.co/zBj3ngCXMz Trying to preserve pensions may draw lawsuit from bondholders $$ Sep 28, 2013
  • Detroit spent billions extra from pensions http://t.co/UBdb3GaqtI That’s what u get 4 having 1-party rule, w/no 1 to look over shoulder $$ Sep 27, 2013
  • Orr proposes freeze for Detroit pension funds http://t.co/sSFtqADV23 Unions don’t get that they destroyed the finances of Detroit $$ Sep 27, 2013
  • Judge Rules Retiree Health Protected Like Pension http://t.co/xg7bcR28oM! Loopy ruling sets Los Angeles on a course 2 bankruptcy $$ Sep 25, 2013
  • Hands off DIA, pensions, Detroiters say in poll http://t.co/dHmp2qjc5n! Detroit is an example of a complex system self-destructing $$ #dying Sep 23, 2013

 

Energy

 

  • Pipeline Billionaire Ready for Next Round of Deal Making http://t.co/KhTwsdBDRs $ETP CEO thinks there is room to consolidate pipelines $$ Sep 28, 2013
  • Six Myths About Renewable Energy http://t.co/G0dB1SJ2aU Balanced article. 3 myths pro, 3 myths con. It will b a minority of total energy $$ Sep 23, 2013

 

The Economic views of Ray Dalio

 

  • One more note, this slideshow put together from BI moves a lot faster than Dalio’s video or the… http://t.co/ytGIHQEaxP Sep 24, 2013
  • And for those that want to read Ray Dalio’s economic template book, it is free here: http://bwater… http://t.co/f1AVlDufxo Sep 24, 2013

 

US Politics & Policy

 

  • Texas Counties Lead in Job Growth, Lag in Wage Gains http://t.co/XdyNF4ZEJt No surprise, but biz leaves CA & there is high unemployment 2 $$ Sep 27, 2013
  • CHRISTIE KEEPS PENSION PROBE RECORDS FROM PUBLIC VIEW AS GOVERNOR EYES 2ND TERM http://t.co/NmnbLRxRwd! Running mate has pension scandal $$ Sep 24, 2013
  • Open-Government Laws Fuel Hedge-Fund Profits http://t.co/P5vZBpkiDq Hedge funds file FOIA requests 2get FDA reports on drugs, etc. $$ Sep 23, 2013
  • At 77 He Prepares Burgers Earning in Week His Former Hourly Wage http://t.co/jQJaWTiQd3 Example of “failed 2 save” Don’t let it happen 2u $$ Sep 23, 2013
  • Self-Driving Vehicles Progress Faster Than Rules of Road http://t.co/1lFAmdlJKz Regulations, laws, insurance all need 2b revised 4 this $$ Sep 23, 2013
  • The Hidden Classified Briefing Most of Congress Missed http://t.co/eSBnz0uPxd How intelligence gets disseminated w/o getting disseminated $$ Sep 23, 2013
  • How the NFL Fleeces Taxpayers http://t.co/OeG5kRTM2O Longish article on how they get free stadiums, pay no federal or state taxes, etc. $$ Sep 23, 2013
  • Facebook “Likes” Are Now Legally Protected Speech http://t.co/Oi7XQkYVlB Political speech is protected by the 1st Amendment even “like” $$ Sep 22, 2013

 

Wrong

 

  • Over the Top: Jordan R. VanOort Earns Prestigious CFA Designation http://t.co/jRMcdyRq1R CFA designation is good, but prestigious? $$ Sep 28, 2013
  • & really, when there are over 100,000 of us, does receiving your CFA Charter really rate a press release? Tougher to become an Actuary $$ Sep 28, 2013
  • Wrong:Pimco shook hands with Fed – & made a killing http://t.co/gBlELQ6U7p 2 notes: agency MBS r easy 2 understand, & TBA mkt not obscure $$ Sep 27, 2013
  • Point: Fed could have easily done this internally. What! They can’t find any among their 1000s of Ph.D. economists to get simple mkts? $$ Sep 27, 2013
  • It is probable that enough data on what the Fed would do escaped over the transom 2 give PIMCO & the other firms insider info. $$ Sep 27, 2013
  • Wrong: New idiots, same as the… actually these idiots might be worse http://t.co/Xa5jGmbQII US economy grew faster under balanced budgets $$ Sep 27, 2013
  • Wrong: Reduce working week to 30 hours, say economists http://t.co/HiI7Zmhimo More work means more production means more GDP, Consumption $$ Sep 27, 2013
  • Loony: Detroit Union Seeks 2 Revive `13th’ Pension Check Policy http://t.co/Lf5YMVBKxW Practice that continues 4 28Y is a tacit agreement $$ Sep 27, 2013
  • Wishful thinking: Let ObamaCare Collapse http://t.co/n3yNizNAfP Until the US itself fails, no entitlement has ever been eliminated $$ Sep 26, 2013
  • Wrong:Shinzo Abe: Unleashing the Power of ‘Womenomics’ http://t.co/R00AN5pUEH This comes from nation w/a shrinking population. Ridiculous $$ Sep 26, 2013
  • Wrong: How Sensitive Is Public Pension Funding to Investment Returns? http://t.co/hSeoOLsvrc! Should use mkt-based assmptns not historic $$ Sep 25, 2013
  • Wrong: US city, county public pension levels sank in 2012 http://t.co/o2JUwsi5JF! 2 optimistic, b/c risk assets bottomed in late 2002 $$ Sep 25, 2013
  • Wrong: Don’t Be Alarmed by Obamacare’s Failures http://t.co/fS63xQpaaP PPACA doesn’t make actuarial sense, young people won’t participate $$ Sep 24, 2013
  • Wrong: Yellen Isn’t a ‘Knee-Jerk Dove,’ Kroszner Says http://t.co/0aeTM6BIiB Favoring negative interest rates == ‘Knee-Jerk Dove’ $$ Sep 24, 2013

 

 

Replies, Retweets & Comments

 

  • Thanks @TightTalk @BabyFreshNuggz @X9T_Trading for being top new followers in my community this week (insight via http://t.co/sern3wLA13) Sep 27, 2013
  • “Here is part of my solution: accounting for repos should be bifurcated, so that is not treated …” — David_Merkel http://t.co/caWGlbe3eL $$ Sep 27, 2013
  • Loonies, Detroit is dead MT @ToddSullivan: RT @AmyResnick: just wow. Detroit Union Seeks to Revive `13th’ #Pension http://t.co/u3XJAER0bi $$ Sep 27, 2013
  • Believe MT @ReformedBroker: You’re not gonna believe this – but Detroit’s pension doled billions left and right http://t.co/9i5MinpGAX $$ Sep 27, 2013
  • RT @ezraklein: Perhaps if President Obama makes the House GOP 300 sandwiches, they’ll agree to lift the debt ceiling. Sep 27, 2013
  • #FollowFriday Thanks @ReformedBroker @pelias01 @researchpuzzler for being top influencers in my community this week 🙂 Sep 27, 2013
  • ‘ @allstarcharts @jfahmy The 1st discipline of investing/trading is humility; even if you know more, the timing/environment can be tough $$ Sep 27, 2013
  • Commented on StockTwits: I think Watsa can be trusted. Aside from financials in the old days that were dodgy, I th… http://t.co/dJ8g2rVKmK Sep 27, 2013
  • Thanks @abnormalreturns @dpinsen for being top engaged members in my community this week (insight via http://t.co/sern3wLA13) Sep 26, 2013
  • “I never directly pay for research… most of it is freely available on the web. What is not, I…” — David_Merkel http://t.co/EAk37XXNdJ $$ Sep 26, 2013
  • “This is already known by those that study the statistics. Look at year over year figures, you …” — David_Merkel http://t.co/5J46Rm19vo $$ Sep 26, 2013
  • I just left a comment in “We’ve got bubbles, we’ve got troubles – MarketWatch” http://t.co/P11awJw1KQ Sep 26, 2013
  • ‘ @Reddy Cummings is my gerrymandered rep. He is by far one of the most intellectually underpowered members of the House, & that says a lot Sep 25, 2013
  • @moorehn @ReformedBroker @SimoneFoxman @SallyPancakes @kensweet @jennablan They r favorites of mine. $$ Sep 25, 2013
  • Entitlements will have to be reduced; it is only a question of how and when. Druckenmiller’s presentation:… http://t.co/BsA9S78RTI Sep 24, 2013
  • Thanks @MarshaCollier @EdmundSLee @rwohlner for being top new followers in my community this week (insight via http://t.co/sern3wLA13) Sep 24, 2013
  • Thanks @researchpuzzler @pelias01 for being top engaged members in my community this week (insight via http://t.co/sern3wLA13) Sep 23, 2013

 

I’ve received two notes recently on Closed-end Leveraged Muni Bond Funds.  Here’s one:

David,

I have been asked several times about the Blackrock Target Term Municipal Bond Trust (“BTT”).  The appeal is obvious:  at $17, it offers a 7% tax free yield.  A theoretical $25 redemption price in about 15 years adds roughly 2.5% per year to the total return (not tax free, but at least tax deferred).

All wonderful stuff.  What I do not understand is the leverage via Tender Option Bonds.  I realize TOB’s equate to borrow short/lend long, which has obvious risks, but the range of outcomes and probabilities is beyond me.

Can you shed some light on this?

And here is the other:

What about the closed end funds of Eaton Vance that are trading at a discount to their nav? I’m thinking specifically of the muni one EIV?

Also do you know the statistics of how many munis go to maturity vs getting called in 10 years?

Thank you for all you do to educate your reader!

I responded to the latter:

http://funds.eatonvance.com/Municipal-Bond-Fund-II-EIV.php

With CEFs, I look at the fund’s website, which I note above. This funds has a lot interest rate sensitivity, and a lot of oddball credits, many of which are insured to AA. Remember that many guarantors failed in the last crisis. The question is economic necessity of existence for each creditor, which would take a lot more work to determine.

I don’t have any data on calls, but given the falling rate environment, most healthy credits that could call, did call. It would be stupid not to call.

But with respect to the former:

You can get the basic data on BTT here:

https://www2.blackrock.com/webcore/litService/search/getDocument.seam?contentId=1111182509&Venue=PUB_IND&Source=WSOD

The levered fund duration is astounding at 17.5 years.  A 30-year Treasury does not have that level of interest rate sensitivity.  The question to you is what is your time horizon?  Can you buy and hold, and if you do, will inflation and defaults eat you up?

I am not inclined to buy either EIV or BTT.  Municipal finance is not what it used to be, and players should recognize the weakened position of municipal borrowers.  The rating agencies are looking through the rear-view mirror to rate munis.

No, things are not as bad as Meredith Whitney posited, but they are bad, and the understatement of employee benefit liabilities are significant.

On tender option bonds, you have it basically right, and there is not much more to it than what you said, but here is the full treatment from Nuveen.

Here’s the trouble with muni bond portfolios: to get a great yield you have to take a lot of the following risks:

  • Liquidity
  • Credit
  • Guarantor
  • Leverage
  • Duration

These are not trivial risks, and so I am unlikely to invest in high yielding municipal bond Closed End Funds.

I appreciate the companies in my portfolio that don’t say much.  They just do their work, and don’t advertise it.

There is a bias among promotional companies, that one must promote the company in every press release.  I disagree.

Just be honest.  If you don’t have anything significant to say, don’t say it.  Spend your time on growing the business, rather than advertising accomplishments.

Truth: I would prefer that companies simply issue a 10-Q or 10-K, and do not hold a conference call for analysts.  Just give us the data, and let us analyze it.

Let the analysts do their work, and don’t answer their phone calls.  Create a genuine level playing field where no one gets to talk with management unless everyone is invited to listen.

I realize this is radical, but I am trying to be genuinely fair, which does not happen often on Wall Street.

I wrote the following at RealMoney on 4/10/2007

I’ve written two columns already about “spring cleaning” a portfolio, walking you first through the criteria I use when reshaping my holdings and then through the stocks and decisions those criteria pointed to. But there’s one aspect I didn’t cover: What’s the best way to size positions for a long-only equity portfolio?

In order to answer this question, I use the Kelly criterion (popularized in the excellent book Fortune’s Formula), which says that a position size should be equal to (edge/odds). Edge is the excess return that you expect to earn on average. Odds describes the likelihood of winning. A 50/50 bet makes odds equal to 1.

There is added complexity in applying this to stocks, because in gambling, each game is (mostly) uncorrelated with the last one. In investing, if you have a number of investments going at the same time, they are to some degree correlated with one another.

That’s particularly true for me, because I concentrate sectors. I believe that my portfolio acts more like a portfolio with half the number of positions because of the correlatedness of the various names in the portfolio. Thus, the 35 names in my portfolio behave more like 18 uncorrelated names.

The Kelly criterion applied to stock investing would recommend a fixed-weight portfolio. Optimally, you would rebalance daily to those fixed weights. But two factors interfere: First, there are costs to trading, and second, momentum tends to persist in the short run.

To me, those realities mean that you can have fixed weights, but that you set a band around those fixed weights for rebalancing. I use a 20% band, but the more I think about it, the band should be smaller, maybe 10%. My portfolio has gotten bigger over the past few years, and trading costs are a smaller-percentage cost factor. I’ll stick with 20% for now. It has served me well, but I will re-evaluate this.

I firmly believe that my eight rules tilt the odds in my favor. What are they?

  1. Industries are under-analyzed relative to the market on the whole and relative to individual companies. Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries where the trends are not fully discounted.
  2. Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean a low price-to-earnings ratio, low price-to-book value ratio, low price-to-sales ratio, low price-to-cash flow from operating activities, low price-to-free cash flow or low enterprise value-to-EBITDA.
  3. Stick with higher-quality companies for a given industry.
  4. Purchase companies appropriately sized to serve their market niches.
  5. Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.
  6. Analyze the use of cash flow by management to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.
  7. Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.
  8. Make changes to the portfolio three or four times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.

I need to calculate what I think my edge is. My procedure will be messy and somewhat ad hoc, but I would rather be approximately right than precisely wrong. How much is each rule worth?

The offensive rules are 1, 2, 7 and 8. Each of those generates roughly 2% of alpha annually. The defensive rules are 3, 4, 5 and 6. Each of those generates roughly 0.5% of alpha annually. Now, that would be an alpha of 10% annually for a portfolio that followed all those rules perfectly. My alpha over the last six years and seven months has been greater than that, but I will chalk up the overage to happenstance. Maybe more should go to happenstance, but I will discuss that below.

If my edge is 10% per year, what are my odds? I have long maintained that the idea I believe is best probably is as good as my 35th idea. Too many portfolio managers naively believe that they can identify their best ideas, when there are so many unknowns to an outside, passive, minority investor. My methods work on average, over the intermediate term. Most of my investments work if I give them two to three years to develop. Time is usually on my side with my methods. That would imply that my odds might be 50/50, or 1:1. That’s a coin flip, but one that, repeated often enough, leads to an extra 10% per year. Using the straight Kelly formula, that would mean I should have 10 positions; 10% divided by 1 is 10%, and for each position to be 10% of my portfolio, that would mean 10 positions. But I own 35 positions. What do I do?

As I mentioned above, because I concentrate industries, my 35 stocks behave more like 18. An equal-weight 18-stock portfolio has weights of 5.5%, and that’s still not 10%. Again, what do I do?

Good investing is based on humility, a willingness to accept that there are many things that you don’t know and that many successes may not be due to skill. Many who use the Kelly criterion decide to go “half Kelly” and cut position size in half because it also cuts volatility in half — but it also diminishes the expected returns by 25%. It’s a humble way to go.

Another way to think about it is that with quantitative investing, when you find a good strategy and have vetted it though back-testing, typically the alpha achieved when the strategy goes live is half of what the model would have predicted.  Though I have already given my edge a haircut, perhaps more of the success needs to be attributed to happenstance.

Whether due to happenstance or conservatism on my part, cutting the 5.5% in half leads to positions of 2.8% in size. How many equal-weighted positions is that? 36. That’s about what I have, and when conditions are bullish, I contract the number down to 30. When conditions are bearish, I hold up to 40 positions. Most of the time, I keep it at 35. That keeps me disciplined, which is a virtue that yields dividends in its own right.

That’s what I do. But what should you, my reader, do?

I encourage you to calculate your edge.

Look at your annualized returns over the past few years, and compare them with the index that you want to beat. Take the  excess (assuming there is one), and cut it in half. Some things went well for you that are not attributable to your skill.

I encourage you to calculate yours odds.

Look at your trading. Divide it into two categories, winners and losers. How often do you win (relative to the index)? When you win (vs. the index), how much do you win on average? When you lose (vs. the index), how much do you lose on average? (Make sure you use your annualized results for this exercise.)

If you consistently lose vs. the index, I’d buy the index instead of continuing to lose capital trying to do it myself. If you beat the index, then work out the calculation that I went through for my portfolio. Take into account your conservatism, but even if you are aggressive, I strongly discourage you from using portfolio weights higher than the full Kelly criterion; it’s too dangerous.

In general, I believe skilled investors with moderately sized portfolios are best served by diversification equal to what I use.  On the raw Kelly criterion, it’s equivalent to saying that one has an alpha between 2.5% and 3.3%. Hey, that’s hot stuff!  Most mutual fund managers would kill for those returns.

In summary, size your positions inversely to your expected alpha. To the extent that you are less certain of your skills, expand the number of your positions.

I really enjoyed answering the “Ask Our Pros” questions at RealMoney.  I answered the following on May 11th, 2005, and would add in Jeff Gundlach and Ed Meigs as active managers:

Ask Our Pros is a service we provide to RealMoney subscribers that enables them to get answers to their investment questions from our contributors. To ask a question, you must be a RealMoney subscriber.  Please click here for information about a free trial.

Reader:

Can someone explain bonds, tax-free vs. taxable? What are some of the strategies that you use to purchase bonds, and what percentage of your portfolio typically should be in bond funds?

— A.A.

David Merkel:

Here is my simple advice for retail bond buyers:

Bonds are promises, from various entities, to pay back the money that you lent, plus interest. Most bonds are taxable. A few, like U.S. Treasury bonds, are exempt from state taxes, while many of the bonds of municipalities are exempt from federal taxes, state taxes (usually if the municipality is in your state) and city taxes (usually if it’s the city you live in).

With respect to taxability, what is best to buy depends on your marginal tax bracket. The higher your tax bracket, in general, the more municipal bonds can help. Beyond that, it is worthwhile to compare the after-tax yields on taxable and nontaxable bonds with equivalent risk. (As always, please be sure to check with a qualified tax professional for advice on your specific information.)

Now for the controversial bits. In general, I don’t recommend that individuals buy individual bonds, unless you are buying Treasury bonds and are following a simple strategy like a ladder.

A ladder is a set of bonds that mature sequentially. Say the ladder is five years long; each fifth of the bond money would be invested one, two, three, four and five years out. Each year, you would take the money from the maturing bond and buy a new bond five years out. Many bond managers pooh-pooh ladders because they think they can beat the performance of a ladder. But a ladder is the most robust bond strategy out there, period. I believe it gives the best return for the risk, particularly given the possibility of shifts in inflation, yield-curve twists, etc. But a bond manager can’t get paid for running a ladder.

There are other reasons for avoiding individual bonds: Bond dealers often rip off retail investors. I have stories, but they’ll have to wait for another day. Liquidity for retail investors is generally poor. Most of the bonds pitched to retail investors will be new issues, which aren’t necessarily the best bonds to buy; they just happen to be the bonds most available at a given moment. This is particularly true of municipal bonds. If you don’t believe me, read Joe Mysak’s column on Bloomberg for a while. The municipal market is a place you don’t want to go without an adviser.

Another reason you don’t want to buy bonds, single-issuer bond trusts or preferred stocks on your own is that many of them have funny features that make the yield look really good, but the bonds can be called away in low interest rate environments, leaving you to reinvest in that low interest rate environment. One dirty secret of bonds is that the excess yield inherent in callable bonds and residential mortgage-backed securities on average does not compensate for the call risk. Only a few experts win that game, and you likely are not one of them.

Finally, my word on bond funds: There are very few managers worth paying up for. Maybe Dan Fuss at Loomis Sayles, Bill Gross at Pimco and a few other, more obscure managers that I am less certain are worth paying up for. The only guarantee in bond funds is that low expenses win in the long run, so I’d go to Vanguard. Performance advantages are fleeting, and tend to revert to the mean, but expense advantages are permanent. Vanguard’s bond funds usually are in the top half each year; repeating that for 10 years makes them top decile.

So don’t take the hard road. I’d go to Vanguard and use their Total Bond Market index fund. Utterly unsexy, but a winner. The only place where Vanguard lacks is international bond funds; it has none. For that, if I want diversity, I go to T. Rowe Price, or buy a closed-end fund that doesn’t hedge currencies at a discount.

How much to invest in bonds? Consult your financial planner. This factor varies so much, it’s all over the map. The right proportion of bond investment depends on market conditions, investment horizon, your personal life factors, wealth level, risk aversion, etc. My experience is that most people are unbalanced in their asset mixes — too much is in stocks or too much is in bonds. The best default mix might be Ben Graham’s 50/50, or the pension mix of 60% stocks, 40% bonds. These are both very robust strategies, but again, what is best for you depends on your personal situation.

I have to say, from the business side of the desk, I really loved managing a multibillion-dollar bond portfolio. I really did well at it, but the best part about it was interacting with my brokers, who all were stupendous to work with. I find that running equities is antiseptic, particularly as an analyst who has an exceptionally competent trader to execute his decisions. Running bonds is colorful because of the human interaction and all of the games that can arise from that. I learned how to haggle in the bond market, and for a nerd like me, becoming good at that was a surprise. Would I want to manage bonds again? Yes. It was fun.

This was written on July 16, 2004. I republish it now because it cannot be found on RealMoney’s website.  If you subscribe to RealMoney, demand that you can see my old posts.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-==-=-=-=-=-==-==—
Tighter corporate spreads imply stronger profits and free cash flow at debt-issuing corporations. But there is another factor at play here that is less known outside of the corporate market.

There are two distinctly different ways to analyze corporate bonds. The first way is the old standard, which relies on fundamental analysis of a company’s financial statements. The second way relies on contingent claims theory (options theory, Merton’s model) and relies primarily on market-oriented variables, such as stock prices and option volatility.

The basic idea behind the latter method is that the unsecured debt of a firm can be viewed as having sold a put option to the equity owners. In an insolvency, the most the equity owners can lose is their investment. The unsecured bondholders (in a simple two asset class capital structure) are the new “de facto” equity holders of the firm. That equity interest is most often worth far less than the original debt. Recoveries are usually 40% or so of the original principal.

Under contingent claims theory, spreads should narrow when equity prices rise, and when implied volatility of equity options falls. Both of these make the implied put option of the equity holders less valuable. Equity holders do not want to give the bondholders a firm that is worth more, or more stable.

So what’s the point? Over the last seven years, more and more managers of corporate credit risk use contingent claims models. Some use them exclusively, others use them in tandem with traditional models. They have a big enough influence on the corporate bond market that they often drive the level of spreads. Because of this, the decline in implied volatility for the indices and individual companies has been a major factor in the spread compression that has gone on. I would say that the decline in implied volatility, and deleveraging, has had a larger impact than improving profitability on spreads.

One of the constants in investing is that investment theories are disbelieved, prosper, bloom, overshoot,  die, and repeat.  So is the only constant change?  That’s not my view.

There are valid theories on investing, and they work on average.  If you pursue them consistently, you will do well.  If you pursue them after failure, you can do better still.

How many times have you seen articles on investing entitled “The Death of ____.” (fill in the blank)  Strategies trend.  There is an underlying kernel of validity; it makes economic sense, and has worked in the past.  But any strategy can be overplayed, even my favorite strategy, value investing.  My style of value investing tries to adjust for that, but it is not perfect there.  (And to tell the truth, September has been a bad month for me, though 2013 has been a very good year.)

So what are valid strategies?

  • Value
  • Price Momentum
  • Long-term mean reversion
  • Insider Buying
  • Neglect (Low volume relative to market cap)
  • Accounting Quality (Net Operating Accruals)
  • Low Equity Price Volatility (which isn’t working now, because it became too popular)
  • Shrinking Assets
  • Shrinking Shares (Buybacks)
  • High Gross Margins as a Fraction of Assets (“Quality,” a quantitative measure of moats.)

This list is not exhaustive, but it is what I use.  The main idea here is to be aware of what is out of fashion, and to be ready to invest when that which drives a strategy to be out of fashion stops getting worse.

So, don’t lose confidence in winning strategies.  Rather, trade out of winning strategies when they are too good, and revisit them when you see the “The Death of ____” articles, or things like them.  This can apply to sectors and industries as well.  Be willing to pick over industries that have underperformed, and buy strong companies that can survive the downturn.  As I have said before, failures occur in weak industries, and after they do, the remaining companies gain pricing power, and thus you invest in survivors.

Value investing is emotionally hard.  You have to be willing to take short-term pain in the interests of long-term gain, if there is a sufficient margin of safety.  No strategy works every month or year.  Returns from valid strategies are most often lumpy.  The markets are almost always lumpy.

Prepare yourself for volatility.  It is the norm of the market.  Focus on what you can control — margin of safety.  By doing that you will be ready for most of the vicissitudes of the market, which stem from companies taking too much credit or operating risk.

Finally, don’t give up.  Most people who give up do so at a time where stock investments are about to turn.  It’s one of those informal indicators to me, when I hear people giving up on an asset class.  It makes me want to look at the despised asset class, and see what bargains might be available.

Remember, valid strategies work on average, but they don’t work every month or year.  Drawdowns shake out the weak-minded, and boost the performance of value investors willing to buy stocks when times are pessimistic.

With my experience in insurance there are yet two additional ways to fix money market funds under stress.

  • You can do a distribution in kind, where one withdrawing under stress gets pro-rata the securities held by the money market fund.  Then they can figure out what to do with the securities that are under stress.
  • You could send the money market fund into windout — taking the fund cash flows pro-rata, and sending the cash to clients as they emerge.

Though I think my earlier thoughts on how to fix money market funds are better that current proposals, these ideas will still work well.

I would recommend doing either of the above two strategies if there is a significant credit event, and there was a demand for withdrawals at par.  These strategies would eliminate the fund, unlike my earlier strategy, but would hand over the the remaining assets equitably, which could be reinvested in other money market funds.  And again, with my strategies, there is no need for bailouts.

Personally, if those managing money market funds were smart, they would go for my original proposal, because it allows them to manage the assets for best returns, but with no risk that they could lose their franchise, or suffer having to hold capital or have an openly disclosed NAV.

I think of my original proposal as the best compromise position for the SEC & money market funds.  No one will be perfectly happy with it, but that is the sign of good laws — they split the difference.

Monetary Policy

 

  • Buffett Calls Fed History’s Greatest Hedge Fund http://t.co/vToZwL7D21 Buffett great on practical business economics, lousy on politics $$ Sep 21, 2013
  • Bernanke Faith in Housing Seen Shaken in Bonds http://t.co/F0xtRsM13v The Fed never had control of the long end of the yield curve $$ #barmy Sep 20, 2013
  • The Fed has lost all credibility http://t.co/NhXbQjxiNa For an institution that values clear communications, things have been murky $$ Sep 19, 2013
  • Excellent question on financial regulation from the lady from the American Banker. $$ Sep 18, 2013
  • Good question from @pdacosta on the labor force participation rate and unemployment. $$ #Fed Sep 18, 2013
  • Less Tapering Becomes Tightening Credit No Matter What Fed Says http://t.co/rQMp900dxA Q: what total pkg does 2 forward rate expectations $$ Sep 17, 2013

 

 

Janet Yellen (we get what we deserve)

 

  • White Houses Urges Democratic Senators to Defend Yellen http://t.co/pBd1U1dz7u She seems like a lock: to QE Infinity & Beyond! $$ #FTL Sep 21, 2013
  • Yellen Chances Grow as Obama Aides Test Senate Support http://t.co/kbDdWmlX4L “She will make Bernanke look like a hawk.” Marc Faber $$ Sep 19, 2013
  • White House official says Yellen front runner for Fed chair http://t.co/wGor8xIJoI This is to make us oppose the uber-dove #anyonebutyellen Sep 19, 2013
  • Yellen No Lock for Fed Chair Despite Summers Exit http://t.co/ycEBcedvTe “This was an unprecedented struggle for leadership of the Fed.” $$ Sep 17, 2013
  • Yellen Now Front-Runner for Fed Chief http://t.co/H4xh8vmot1 Yellen means no change from the current failed policies $$ #anyonebutyellen Sep 17, 2013
  • Fed Leader Doubt Erodes Low-Rate Message as QE Taper Looms http://t.co/CgyxacYaap Can’t appoint Yellen now, lest it look like a loss $$ Sep 16, 2013
  • Why Larry Summers Bailed on the Fed http://t.co/lVn10kgYIL Bring on Don Kohn, better still, bring on that monetary dissident John Taylor $$ Sep 16, 2013

 

Rest of the World

 

  • Bermuda’s Search for New Wealth http://t.co/LPMJJvD6QE I like Bermuda a lot, & learned a lot here. No paparazzi, much privacy $$ #humble Sep 20, 2013
  • Rebel-on-Rebel Violence Seizes Syria http://t.co/LsZUvpQTuo Two player games r easy; Three-or-more player games r tough & confusing $$ Sep 20, 2013
  • What Happens When the US Isn’t the Biggest Gas Guzzler? http://t.co/pl8X9TkOUM 1 reason y I am long energy stocks: rising global demand $$ Sep 20, 2013
  • Olympic Athletes in Tokyo Risk Hottest Weather in 120 Years http://t.co/4E9MnDTzv5 Same for FIFA in Qatar, but humidity in Tokyo is a factor Sep 19, 2013
  • Why Even the Worst Bloggers Are Making Us Smarter http://t.co/PhztCBG6kP It is amazing how many people are writing their ideas on the web Sep 19, 2013
  • China’s Choking Cities Means Job Cuts at Steel Town: Commodities http://t.co/3Xmz1Z7zqh China has over-invested in heavy industry #japan1989 Sep 19, 2013
  • In Post-Tsunami Japan, Homeowners Pull Away From Grid http://t.co/kPUIVdYq8b Power is now less reliable, some move to solar & fuel cells Sep 19, 2013
  • What Egypt Wants: Cheaper Bread http://t.co/S8NE6Zo8JU Demand for Subsidized Food Vexed Ousted President and Pressures Interim Government Sep 19, 2013
  • Obama Rifts With Allies on Summers-Syria Limit Debt Dealing http://t.co/M8f1f1fPm6 Weakened by bad choices but he is the President! $$ Sep 18, 2013
  • How Did Advanced Economies Get in So Much Debt? http://t.co/QGF1acUQf8 They absorbed bad private debts, rather than letting them fail $$ Sep 18, 2013
  • On Putin, his NYT editorial: http://t.co/eb45qkGBq1 Peggy Noonan responds: http://t.co/qwFRsk83cR Avoid interfering in foreign wars $$ Sep 18, 2013
  • Canadian Household – Drowning in Debt http://t.co/hJz8057OMF Total Canadian Household Debt-to-Income Ratio Rises to Record 165.6% @ 6/13 $$ Sep 17, 2013
  • $$ @paulvieira Point taken. Q: If someone bot an avg house in Canada 2 rent it out, would he make money; if arb is neg, Canada faces probs Sep 17, 2013
  • Eleven Countries with Soaring Inflation http://t.co/xl6Ivzr5bx Soaring means >6%/yr; leading the parade are Venezuela, Argentina & Egypt $$ Sep 17, 2013
  • Political Risk: What Should Investors Know About China’s Interest In Peru? http://t.co/85wGZJ1x3W Biz in Peru means negotiate w/locals $$ Sep 17, 2013
  • Smallest Ships Profitable Again as Logs Feed China Boom http://t.co/YsPOJMW9ul Chinese demand for wood raises freight 4 small ships $$ Sep 17, 2013
  • Vladimir Putin, the Richest Man on Earth http://t.co/bpLFDXtPWw Who needs wealth when you control a country? Putin makes his cronies rich $$ Sep 17, 2013
  • China Reins in Popular Voices With New Microblog Controls http://t.co/0tlX38uI1q The internet is a threat & an aid 2 every government $$ Sep 17, 2013
  • No Confidence in China Markets Inflates Housing Bubble http://t.co/G8qgXC8OEW Distrust other assets leads Chinese 2 invest in real estate $$ Sep 17, 2013
  • Germany’s Migrating Seniors http://t.co/Bhsqr6TePo Good care cheap, but you have to move 2 Poland to get it. Solves some old age problems $$ Sep 17, 2013
  • Germans Export Grandma to Poland as Costs, Care Converge http://t.co/e9w45mHkQe But where will the Poles export their Grandmas? $$ #long Sep 17, 2013

 

US Politics & Policy

 

  • Benghazi investigators gave Hillary Clinton heads-up on findings http://t.co/6Oimx1LhSx Mrs. Clinton appointed 80% of the review board $$ Sep 21, 2013
  • Weeds amidst the ivy |http://t.co/nvMFuNioFN A long & relatively thorough analysis of for-profit colleges & how they milk student loans $$ Sep 21, 2013
  • House GOP Ties Government Funding to Health Law http://t.co/rcNBBl2c6m This is a Q of short- vs long-run. Balancing budget best 4long-run $$ Sep 20, 2013
  • Big Insurers Skip Health Exchanges http://t.co/JWvGJSYVdQ Y deal w/ markets that attract sick people w/limits on underwriting & pricing? $$ Sep 20, 2013
  • What caused the financial crisis? The Big Lie goes viral http://t.co/1qFMg1BYGo The crisis was not merely caused by bad regulation Sep 19, 2013
  • The Queen Mary of macro trends: Rising rates http://t.co/OSgaYzIQkg Less certain than article says, as the economy weakens, no loan growth Sep 19, 2013
  • Walgreen will drop its traditional health insurance and instead give its 160,000 workers payments 2buy plans http://t.co/dpvbC8IigC via @WSJ Sep 19, 2013
  • National pension group challenges Pew’s work http://t.co/iiZROFHzRy! Cash balance plans give lower benefits, but maybe that’s affordable Sep 19, 2013
  • Puerto Rico can only cover 11.2% of pension costs http://t.co/wdnQJFniEF! Puerto Rico exists 2 make Illinois think it is prudent $$ Sep 19, 2013
  • Obama Feels a Pinch From Congressional Democrats http://t.co/d78z6b9a2c Obama gets constrained by the Left as much as the Right $$ Sep 18, 2013
  • Republicans Weigh Defunding Health Law, Avoiding Shutdown http://t.co/cbiqo2vBoW Ignore the economists, they don’t know anything, & cut! $$ Sep 18, 2013
  • Republican Newcomer Influence in Congress Risks Shutdown http://t.co/dtdHcg59po 3-player games r much less stable then 2-player games. $$ Sep 18, 2013
  • The Financial States of America http://t.co/xGQ8c6uajo Clever infographic; click a state 2c how it ranks; click on categories 4 diff maps $$ Sep 17, 2013
  • States With The Most Zombie Homes http://t.co/Dj6hphkUrM >20% of foreclosed homes vacant: Indiana, Nevada, Georgia, Florida, MD, AZ, SC $$ Sep 17, 2013
  • Heroin Pushed on Chicago by Cartel Fueling Gang Murders http://t.co/GmuhpbSxIk Getting a receipt from the Indiana police 4 forfeited cash $$ Sep 17, 2013
  • Armed EPA raid in Alaska sheds light on 70 fed agencies w/armed divisions http://t.co/90YKg3TWB2 Interesting how many have police units $$ Sep 16, 2013
  • Obama stands firm on refusal to negotiate over US debt ceiling http://t.co/kUDp9Q4ZL2 Nothing bad happened from sequester; do it again $$ Sep 16, 2013
  • How the SOPA law got defeated politically http://t.co/X3ZJiTiJ48 Creation of a website to highlight & affect legislative markups was key $$ Sep 16, 2013
  • Health Law Faces Skepticism http://t.co/AYf9IjdUL9 Complex laws typically don’t work well; Obamacare/PPACA is the epitome of complexity $$ Sep 16, 2013

Market Impact

 

  • The Long, Sorry Tale of Pension Promises http://t.co/6Pi2V0yiPA It started w/accounting rules allowing2much flexibility4funding/valuation $$ Sep 21, 2013
  • ING CEO Says Stress Tests Without Safety Net Bring Risks http://t.co/Bi7IKXvuYK If u fail the stress test, y would anyone recapitalize u $$ Sep 21, 2013
  • Challenging the Imperial Boardroom http://t.co/VW6IrzKIF9 @Carl_C_Icahn argues 4 mgmt transparency, competence, & shareholder orientation $$ Sep 20, 2013
  • Money Market Funds Ready for Battle with Regulators http://t.co/1VIxWqfVLE Floating NAVs will kill money market funds; better solutions $$ Sep 20, 2013
  • Banks’ $10B Sweet Spot Sets Off Buying Spree for Lenders http://t.co/2oDNEEqEdY Bank capital rules r helping create medium-large banks $$ Sep 20, 2013
  • Avoid ‘Dividend Yield Traps’, Look To Releveraging Stocks http://t.co/0k3Qs4mJHx 2 risks: higher bond yields compete; free cash flow 2low $$ Sep 20, 2013
  • Longevity-Proof Your Future http://t.co/0MB5S7Yx5S The main point is that you need to save. Beyond that, invest well, but savings r capital Sep 19, 2013
  • Novogratz to Burbank See Stocks Surviving First Fed Taper http://t.co/Xeig2UVtvT So what? We already know “Three steps and a stumble.” Sep 19, 2013
  • How Social Responsible Investing Can Be Irresponsible — Pension Fund To Sell Energy Stocks? http://t.co/JE6g2S8hHC Vacuous city council Sep 19, 2013
  • Remembering the families at the center of the financial crisis http://t.co/ICSLkY2TcD If finances were related 2 finance/housing it hurt $$ Sep 19, 2013
  • Judge Dismisses Bank Lawsuit Over Mortgage Foreclosures http://t.co/aJ5VmA64x2 Richmond needs supermajority 2 use eminent domain $$ Sep 17, 2013
  • Dr Copper & his funny friends disagree tremendously with SP500 level http://t.co/uNpdfvlbC9 On the divergence of stocks & commodities $$ Sep 16, 2013
  • Is Fiscal Austerity Good for the Economy? http://t.co/gQif4JHXqc “austerity is costly in the short run, it can provide long-run benefits” $$ Sep 16, 2013
  • Gross’s Trade Sours as Bonds Lose Faith in Fed Guidance http://t.co/YGZgvVries Depends on level of future GDP growth, keep watching $$ Sep 16, 2013
  • Montepeque of Platts Caught in Battle Over Oil Assessments http://t.co/4o0wvVyCEz All human systems r gamed, just a question of how much $$ Sep 16, 2013
  • Wall Street trading in US fuel credits hurts consumers http://t.co/8hZ8shAIJJ Very difficult 2manipulate prices in long run: sup/dem chgs $$ Sep 16, 2013
  • Uh oh. People buying houses fear rising prices http://t.co/FWAAeHwKdz Bubbles persist until financing costs more than implied rents $$ Sep 16, 2013

 

Companies & Industries

 

  • Twitter announces IPO: The Pricing Game begins http://t.co/GlR7MWJz4X Daring Damodaran gives a value 4 $TWTR w/out having any financials $$ Sep 21, 2013
  • Secret Rocks and Gem Hunters http://t.co/4Dpm6jGavk Colored gems r like small cap stocks, they r unique & illiquid mkts w/odd characters $$ Sep 20, 2013
  • Companies Seize on Rate Reprieve to Issue Bonds http://t.co/qQJzknEqhp Many think rates will go higher, & so they issue debt now $$ Sep 20, 2013
  • Google May Stop Using ‘Cookies’ to Track Web Users http://t.co/MgvZtEHo1Q Could concentrate marketing power in hands of a few companies $$ Sep 20, 2013
  • How ‘Cord Never’ Generation Poses Sales Drag for Pay TV http://t.co/10M73Td7jL Once you get used to not paying for your video, u don’t pay Sep 19, 2013
  • Verizon Pays $5.1 Billion in Extra Interest http://t.co/om7PsDAwzO That was the price of getting a big deal done in the short-run. Sep 19, 2013
  • Companies are increasingly choosing to generate their own power, delivering a jolt to utilities http://t.co/brVyNOWokp Disintermediation Sep 19, 2013
  • For TV Shows, It’s a Seller’s Market http://t.co/eja7JEhl1t Producers have many more outlets for content & networks must pay up 4 content $$ Sep 18, 2013
  • Capstone Metering Provides Smart Water Management Solution, Powered By Verizon Wireless Network http://t.co/0xd77Bnz0q fascinating tech $$ Sep 17, 2013
  • Berkshire Billionaire Found With More Shares Than Gates http://t.co/wqoceUXHJW Tales of old buyers of $BRK.A & cpmny sellers taking stock $$ Sep 17, 2013
  • Retailer REI Ends Era of Many Happy Returns http://t.co/0xDYFXDV95 Abuse leads REI to end returns on items bought more than one year ago $$ Sep 16, 2013
  • Wildcatter Hunch Unlocks $1.5T Oil Offshore US http://t.co/4lTsK10aj0 Longish story of how a hunch led2 deepwater drilling, amid failures $$ Sep 16, 2013
  • How Did Wal-Mart’s IPhone Discount Defeat Apple’s Price Controls? http://t.co/F3ZuYFvbWM $WMT takes a low margin on sales of $AAPL phones $$ Sep 16, 2013
  • Home, Sweet (Crude) Home in Fort McMurray, Alberta http://t.co/GpuUq289T8 Economies based on resource extraction flourish 4 a time & die $$ Sep 16, 2013

 

Economics

 

  • Women Waiting Tables Provide Most of Female Gains in US http://t.co/eoetZdyRAi Not so much demand 4 workers w/degrees in certain majors $$ Sep 20, 2013
  • Martin Feldstein: How to Create a Real Economic Stimulus http://t.co/bH2e2Z67mb Suggests mild entitlement reform; we need retirement @ 72 $$ Sep 17, 2013
  • Want Marital Bliss? Pool Your Money http://t.co/mJQb3XEkZn The more things r shared in marriage the better/tighter the bond becomes $$ Sep 17, 2013
  • Mysterious Disappearance of James Duesenberry http://t.co/LD3GfjTyka Old article on relative income hypothesis. Ppl r envious not greedy $$ Sep 16, 2013
  • Explanation of the discrepancy is that poverty is relative. Ppl r not maximizers & economists resist this b/c the pretty math falls apart $$ Sep 16, 2013
  • & if the pretty math falls apart, economists can’t publish & there goes their jobs. That is y they would rather hang onto a wrong theory $$ Sep 16, 2013

 

Other

 

  • The Time a Cleveland Newspaper Divulged Manhattan Project http://t.co/mFDKvhJTlW Fascinating tale; clever reporter http://t.co/o5CzDU61nL $$ Sep 21, 2013
  • Our Chat With Jeremy Grantham http://t.co/FSlADefGi0 In general, need 4 technological change has driven technological change; we will win $$ Sep 21, 2013
  • Marc Faber’s Biggest Mistake http://t.co/Dui1ZehA09 Really pretty minor. Interesting guy who gets things right, but speaks bearish Sep 21, 2013
  • Pope Warns Church Focusing Too Much on Divisive Issues http://t.co/2yEMa3O89I More than other Popes, this one is a slave2 liberal opinion $$ Sep 20, 2013
  • How a 91-Year-Old Geek Helped Keep the Aged Independent http://t.co/GD1AmUK6OQ Small cheap sensors monitor oldsters, watching their needs Sep 19, 2013
  • Say Goodbye to the Password http://t.co/pTnQ4ng2Xn New technology aims to offer security that is more convenient and more effective $$ Sep 18, 2013
  • Veggie-Heavy Stress Reduction Regimen Shown to Modify Cell Aging http://t.co/b3KNrSOdSY Cooking from scratch improves your life & health $$ Sep 17, 2013
  • Jonathan Jacobs: As Education Declines, So Does Civic Culture http://t.co/tk7WHue1mS Biggest complaint about new analysts: can’t write $$ Sep 17, 2013
  • Gonorrhea Among Drug-Resisting Germs Sickening Millions http://t.co/Fbgw14Q4ZQ Add C. difficile & E. coli; resistance 2 antibiotics grows $$ Sep 17, 2013
  • Twitter Co-Founder Evan Williams Lays Out His Plan For The Future Of Media http://t.co/e7nv4u8Z0T Need the equivalent of @abnormalreturns $$ Sep 16, 2013
  • Google’s Boss and a Princeton Professor Agree: College Is a Dinosaur http://t.co/ffUTIQFxdV True, but what do we do 2prove knowledge then $$ Sep 16, 2013

 

Replies, Retweets, & Comments

  • Thanks @MarshaCollier @EdmundSLee for being top new followers in my community this week 🙂 | insight by http://t.co/sern3wLA13 Sep 20, 2013
  • #FollowFriday Thanks @ReformedBroker @pelias01 @researchpuzzler for being top influencers in my community this week 🙂 Sep 20, 2013
  • @dpinsen I almost never read fiction. Sep 20, 2013
  • RT @interfluidity: the Fed has learned the trick about stretching your feet out beyond the covers then pulling them back in to feel warm. Sep 19, 2013
  • RT @BloombergNews: Sold for sex at puberty is village girls’ fate in wealthier India | http://t.co/oZsp9d2LcV Saddest article I have read Sep 19, 2013
  • @ppearlman Congratulations, Phil. One of my favorite websites is going to get better still. Sep 17, 2013
  • $$ @joebrusuelas Wrong. Yellen is an imitation of the policies of Bernanke & QE. They don’t work. Summers — rejection of the Rubin clique. Sep 17, 2013
  • @rj_trades Worked 4 me. Don’t know what’s wrong… Sep 16, 2013