Day: October 25, 2013

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Interest Rates

  • How Sensitive we are to Interest Rates: A Scary Picture? http://t.co/gkKi3sSLbs Argues moderate rise in rates inverts banks & governments $$ Oct 25, 2013
  • Fixing Economy As Easy As 1-2-3 http://t.co/sbW97kL2n7 Axel Merk says 2 make policy predictable, let interest rates rise & allow failure $$ Oct 25, 2013
  • Low Rates Bring Bond Bonanza http://t.co/f8gQ0rjcTB Corporations act to lock in cheap long-term financing 2pay dividends & buy back stock $$ Oct 25, 2013
  • Fed QE Taper Seen Delayed to March as Shutdown Bites http://t.co/v2Bo85GP9m Would not b so sure here; this is only a survey of economists $$ Oct 20, 2013
  • The ‘Rate Gap’ Is Rising http://t.co/w9dSYfQCl5 Gap between deposit rates & borrowing rates is higher than it’s been in 32 of last 40 yrs $$ Oct 20, 2013
  • Alan Greenspan: Where the Economy Went Wrong http://t.co/a7t3RGvbSZ Fed does not get they created the housing bubble; learn the bond math $$ Oct 20, 2013
  • Javelin Files 2 Trade Interest-Rate Swaps, Spurring SEF Shift http://t.co/B6KOHsmmpy Smart. Start w/simple liquid derivatives @ exchanges $$ Oct 20, 2013

?PPACA/ Obamacare

 

  • Court could block Obamacare subsidies in 34 states http://t.co/ej65x9fALf Legal challenge could knock out the federal exchanges $$ Oct 25, 2013
  • Botched Launch of Health Site Blamed on Poor Coordination http://t.co/iwH5vsbftX The software developers point the finger at one another $$ Oct 25, 2013
  • Federal Centers 4 Medicare and Medicaid Services acted as its own systems integrator for the site: unusual arrangement 4a complex project.$$ Oct 25, 2013
  • White House Sets Late-November Target for Fixes to Health Site http://t.co/WebNZLBebq UnitedHealth Group Unit Tapped to Oversee Repairs $$ Oct 25, 2013
  • Obama Says Health Care Law More Important Than Website http://t.co/SopPqG99ky If a law can’t b administered properly what good is it? $$ Oct 25, 2013
  • Why Obamacare Is Like Three Mile Island http://t.co/STOU4Ng3KL Problems in overall plan design were foreseeable; not merely and accident $$ Oct 25, 2013
  • Noonan: ObamaCare Takes On Water http://t.co/cpKjIyJZWg Software development is difficult when no single party responsible for everything $$ Oct 25, 2013
  • Contractors See Weeks of Work on Health Site http://t.co/WUoqiaiMtZ Have friends that once worked 4 CGI; to them this is no surprise $$ Oct 22, 2013

Rest of the World

 

  • Top China Banks Triple Debt Write-Offs as Defaults Loom http://t.co/DYNZ8shAV5 They trying to get ahead of the problem, but it’s too big $$ Oct 26, 2013
  • Local Governments Have Borrowed a Pile of Money in Recent Years, Leaving Even Beijing Wondering How Much $$ http://t.co/YZKTKDUjs0 Oct 25, 2013
  • Jail Time No Bar to Tea-Server Turned Top Woman Bureaucrat http://t.co/WKWO4MmPwu While detained, she used the free time 2 read 150 books $$ Oct 25, 2013
  • Yakuza Bosses Whacked by Regulators Freezing AmEx Cards http://t.co/qCKQI7Mo4s Money is often the easiest thing to track; leaves a trail $$ Oct 25, 2013
  • I realize that @Borderscrossed , & I phrased that tweet wrong — the Chinese typically play w/lower risk ventures. This is unusual 4them $$ Oct 25, 2013
  • China Inc. Battles Big Oil for Century?s Biggest Find http://t.co/CCm4QxgpC8 They have capital, but not expertise, & r rolling the dice $$ Oct 25, 2013
  • Obama Joins Putin War as Syria Jihadists Stalk Olympics http://t.co/zxwpTvWiv1 The Winter Olympic games in Sochi could be a real blast $$ 😉 Oct 25, 2013
  • Saudi Women Plan to Hit Roads in New Push for Right to Drive http://t.co/Iu78Zmsxp0 Fear: if they r allowed 2 drive, will drive out of SA $$ Oct 25, 2013
  • 40 Years After Embargo, OPEC Is Over a Barrel http://t.co/6CcliMnOkv Few things r truly certain. Dead Worries: OPEC, Russia, Japan, China $$ Oct 20, 2013
  • The Chinese Characters Dictation Competition Is a Test Few Could Pass http://t.co/5MnpMaMozF Chinese spelling bee w/ideographs; tough $$ Oct 20, 2013

US Politics & Economics

 

  • Financial Report of the US Government http://t.co/9rknzA89Te Here’s my piece. The unfunded liabilities of the Fed Govt r ~$78T $$ 5x GDP Oct 26, 2013
  • If you call a crash & you get the reason right, that *is* impressive; timing is always tough. Hint: look for a arb that has gone negative $$ Oct 25, 2013
  • ?Outrageous? tax loopholes in Democrat?s sights http://t.co/ibntGjND15 Every loophole has coalition to block its elimination; won’t work $$ Oct 25, 2013
  • Budget Discord Simmers Among Democrats http://t.co/gdNJqQTXEI Some Liberal Groups, Lawmakers Worry About Cuts 2Entitlements $$ biggest issue Oct 25, 2013
  • Treasuries Lose Cachet on Lowest Foreign Demand Since ?01 http://t.co/0PhlcmXXqv Bondholders have short memories; wouldn’t worry $$ $TLT Oct 25, 2013
  • Hillary Clinton’s 2016 Chances: The Coming Train Wreck http://t.co/JN61FbNNrY Will test whether having a long political resume is good $$ Oct 25, 2013
  • Never believe anything in Washington, DC until it is explicitly denied. The US Government has lied to us in the past $$ Oct 25, 2013
  • The Lessons of Classified Information: From Mossadegh to Snowden http://t.co/Ab7ytJrdRA CIA plot in Iran widely suspected, now confirmed $$ Oct 25, 2013
  • Middle Class Americans Face a Retirement Shutdown; 37% Say ?I?ll Never Retire, But Work Until I?m 2 Sick or Die,? $$ http://t.co/oGDNMful7I Oct 25, 2013
  • Reality is setting in if 37% think they won’t b able to retire. http://t.co/LA9KI4Tvrx Reality will arrive when number is 80% $$ $TLT $SPY Oct 25, 2013
  • Selling the Good Life on the Great Plains http://t.co/fKl4Jh8syI Rural areas pitch the slower pace to city dwellers in order to survive $$ Oct 25, 2013
  • Stanley Druckenmiller: How Washington Really Redistributes Income http://t.co/Cbkv9FyRu9 Baby Boomers suck the blood of those younger $$ Oct 20, 2013
  • Banks Pushed by Regulators Send ?Nastygrams? to Car Dealers http://t.co/W9RC6BJP7x Discrimination in lending is taking heat from the CFPB $$ Oct 20, 2013
  • Two articles on States Clamping Down on Workers as Contractors http://t.co/QQXoTSRZOU & http://t.co/a1OUq8MvNE Develop significant skills $$ Oct 20, 2013

Companies & Industries

 

  • Abby Johnson, the rarely seen face of Fidelity http://t.co/6dJHDIm7ES Wonder if the Washington Post pulled the story under pressure $$ $WPO Oct 25, 2013
  • Might Google Have a Sly Motive Behind Motorola? http://t.co/FwtqFYXYoV Argues that $GOOG bot Motorola 2 poison profits 4 $AAPL & $SSNLF $$ Oct 25, 2013
  • Cruise Prices Sinking: Some Now Cheaper Than Motel 6 http://t.co/dhjvxc8ytS They will leave the light on 4u; the buffet will b open 2 $$ Oct 25, 2013
  • Buffett says he passed on buying Washington Post http://t.co/dvZciwJDJh Definitely one to avoid, or throw in the “too hard” bin $$ $WPO Oct 25, 2013
  • Wal-Mart Now Draws More Solar Power Than 38 US States http://t.co/ysFvCFHWgr Drop the solar subsidies, and see if $WMT would still do it $$ Oct 25, 2013

The Financial Sector

 

  • Margin Debt Hits New High http://t.co/r0bXQwBs6X Where will additional buying power come to push up stock prices? Only game left is QE? $$ Oct 25, 2013
  • House flipping makes a comeback http://t.co/VAIcl86lQk Speculation returning to housing market; remember, only cash flows matter 4 prices $$ Oct 25, 2013
  • PCAOB Warns on Internal-Control Problems http://t.co/ZKZQwBnICe 15% of Auditors didn’t get enough data on internal control effectiveness $$ Oct 25, 2013
  • Weitz to Yacktman Hold Cash as Managers Find Few Bargains http://t.co/RXFoMbBJfX Not many places 2 compound value w/margin of safety $$ Oct 25, 2013
  • US extends backing for higher-priced mortgages http://t.co/Yk5zHr9CcW Continuing to subsidize overinvestment in residential real estate $$ Oct 25, 2013
  • Buffett Says Gains in Housing Fall Short of Equilibrium http://t.co/aMp5aawapZ Rare wrong Buffett; US overinvests in residential RE $$ Oct 25, 2013
  • Dollar Drops to 8-Month Low as Risk Appetite Swells on Fed Bets http://t.co/KtQDmkS4Yf Fed surprising w/unexpected looseness so $$ falls Oct 20, 2013

Other

 

  • A CIO?s First Task: Understanding the Culture http://t.co/4cg1GdKBZo Understanding the culture is a key to most leadership roles $$ Oct 25, 2013
  • Never Shop in October and Other Secrets From a Retail Guru http://t.co/KoWB9NYsmt Tips on how to avoid how retailers try 2 influence u $$ Oct 25, 2013
  • The Boss Is Watching: Tracking Technology Shakes Up Workplace http://t.co/WDAzYg1MJK Little brother watches 4 employees who shirk $$ Oct 25, 2013
  • Ex-Madoff Employee Tells Jury of ?Cut And Paste? Trades http://t.co/SJCd2TU13b Employees claim they were duped by Madoff. Q: were they? $$ Oct 25, 2013
  • Book Review: ‘Johnny Carson’ by Henry Bushkin http://t.co/OTB8HMQK6e Bombastic Bushkin gets 2 dance on the grave in this tell-all book $$ Oct 20, 2013
  • So You Want to Go to Winemaking School? http://t.co/JdpI5QCE6t Visit the UC-Davis viticultural & oenology program. $$ #wine Oct 20, 2013
  • It isn’t only one of the oldest winemaking programs in the country, but arguably the most prestigious $$ #wine Oct 20, 2013
  • The First Car You Can Build Yourself… in an Hour http://t.co/bZF43gH3ti Pretty cool for a little more than $8000 $$ Ships in a box Oct 20, 2013
  • The Gap Between Schooling and Education http://t.co/zJGqxgkoTT @AnnieLowrey interviews author of forthcoming book: http://t.co/bgftBBsT7d $$ Oct 19, 2013
  • Schools amplify parenting cultures. Motivated parents create good schools; too many top-down demands on schools inhibits true learning $$ Oct 19, 2013

Wrong

  • Wrong: Another billionaire is predicting doom. Ignore him. http://t.co/qh8BBp0izo Rather ignore this writer; doesn’t understand the stats $$ Oct 26, 2013
  • Wrong: Does the United States have $128 trillion in unfunded liabilities? http://t.co/D5Z3dkPICT Writer does not understand the figures $$ Oct 26, 2013
  • Wrong: Stanley Druckenmiller crisis predictions: Anyone can call a bubble years in advance. http://t.co/0W9FhMyHKT But few succeed $$ Oct 25, 2013

Retweets, Replies & Comments

  • I wrote about that more than once @DividendMaster . E.g. http://t.co/SrBiSHsHVZ $$ Oct 25, 2013
  • “They are reinvesting their free cash flow, which is different than profits.?” ? David_Merkel http://t.co/bt0CCZW9zH $$ $AMZN Oct 25, 2013
  • Same Old Amazon: All Sales, No Profit http://t.co/FL6ZbcGh8j $AMZN borrows2fund investment & uses free cashflow, much like private equity $$ Oct 25, 2013
  • RT @JimPethokoukis: 11.2%: What the unemployment rate would be if labor force participation was the same as when the recession started Oct 23, 2013
  • Experian Sold Consumer Data to ID Theft Service http://t.co/tjJbAXXxuN @japhychron yes, significant reason to worry & watch 4 ID theft $$ Oct 22, 2013
Pursue Generational Accounting

Pursue Generational Accounting

Posted on by David Merkel

I am one of the endorsers of the INFORM Act.? I have believed for over 25 years that younger people need to understand the costs that they are undertaking for the comfort of older people.? The government has resisted such clarifying measures because they don’t want younger people to know how badly they are getting hosed.? Since the creation of Social Security and Medicare, each succeeding decade of people has gotten w progressively worse deal.? Young people should know that they are going to get a decidedly negative return out of Medicare, so that they can be politically active to reduce their losses.

I encourage you to support the INFORM Act — after all, what should be the problem with telling the American people the truth?

Traveling with David

Traveling with David

Posted on by David Merkel

Sometimes I over-commit my time.? That’s been the last few days.? Recently I went to visit a friend who had lost his job at a large company, to look over his severance papers, and advise him.? He is older, a “minority,” and only been with the firm 5-6 years.

Severance agreements have gotten a lot tighter since the two that I have personally experienced.? Corporations dangle some compensation to eliminate possible future legal costs.? I pointed out to my friend the most likely reasons he might sue, but added two things:

  • The company has a large number of sharp lawyers, so you had better have an open-and-shut case.
  • We’re Christians, so we don’t go to court over small matters.

But what impressed me in reading the agreement was how airtight it was — can’t sue over Federal, State, Local, or common law offenses, or anything else.? Which made me think about another thing… the connection between entrance and exit doors.

In investing, people are more wiling to invest if they can have their money back at any time.? With employment, it is the same — employers are more willing to employ if they can fire people for any reason.

Every protection for those employed makes it harder for those without work to be employed.? This also forces jobs to go underground — if advertising them publicly subjects them to regulation, then the good jobs will be filled via “word-of-mouth.”

This takes me back to the early days of the Reagan Administration.? They deregulated a lot of things, and the economy grew far more rapidly.? We could do the same now, starting with labor and healthcare.

My friend may do fine, but the things that “protected” him at his last job now hinder him in seeking another job.? Better to eliminate the protections, and let people compete based on skill and assiduousness.

Part Two

Then I was a judge in a financial analysis competition at a local college.? The analysis involved a stock that faced a large investment decision, larger than the current enterprise value of the junk-rated company.? Should the hedge fund buy, sell short, or do nothing with the stock?? The simple part of the case study was working through the intricacies of the discounted cash flow model, together with changes to the assumptions about cash flows and the weighted average cost of capital.

What I found interesting was the lack of attention to:

  • Details of the case study — did you even read it?
  • Common sense — we are sorry, but a stock can’t lose 113%.? Perhaps you would like to tell us to short the bonds?
  • Limitations of complex techniques in finance.? Yes, there’s many nifty formulas available to you, but do you understand what they really mean, and what limitations they imply?? When are they not valid?
  • What markets can and can’t do.? No, you can’t do an public issuance of junk debt at the level of current debt.? You can’t do an issuance longer than ten years.? You can’t do one that is really big without changing market pricing (and the answers from the case study had this wrong as well).? Same applies to large secondary IPOs for equity.

Now, I know these are students.? They can’t know what an experienced market professional does.? To their credit, they dug up many bits of useful data that the case study did not contemplate.? But the case study itself should have noted these things, and to that degree I fault Darden for writing up a subpar case study.

The main thing I would say again to the students is to ignore the academic models with their false certainty, and try to understand the qualitative aspects of the business, out of which the quantitative modeling will grow.

When we were done, each of the judges gave comments to the students.? I started off with, “Sorry for being such a hard-nose.”? I got a decent laugh from the students, and then explained to them what I have said to you.

Part Three

That evening I went to a talk by CareFirst on the PPACA/Obamacare.? It was a genuinely useful 20-minute presentation, with one annoying thing: all of the pictures in the slide deck were of healthy smiling people.? If you are healthy, you will pay more, unless you are really poor.? A realistic presentation would have had people that are stoic, sad, or crying, if they are healthy and not poor.

The best part of what CareFirst gave me was premium rates for PPACA.? The lowest level plan would increase my premiums by 50%, and would increase the areas in which I would have to pay.? More expensive in every way.

It is only an affordable care act to those who were previously uninsurable; to those who were insurable it is a tax on your health and income.? In 2016, we will rip it out by its roots, and have people pay for healthcare directly, with no tax deduction for employer-provided healthcare.? That will reduce healthcare spending, and shrink healthcare to a more reasonable part of the economy.

If you want healthcare to be affordable, get the government out of it in entire.

Part Four

Dr. Kathryn Crecelius spoke to the Baltimore CFA Society on Thursday.? She is the Chief Investment Officer of my alma mater, The Johns Hopkins University.? She talked to us about endowment investing.? Very common sense stuff, very well said, and much like you would hear from me.? I found myself nodding through the whole talk.? It was all very much like my last piece on endowment investing.? I learned a lot, which makes me happy, because I always like to learn.

My travels are done for a while.? I like that too, because being home is a happy place.

 

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