Month: January 2014

Sorted Weekly Tweets

Sorted Weekly Tweets

Rest of the World

 

  • Iraq Is New Schism for Saudis in Strained Alliance With West http://t.co/WiNnlXIhzI This piles on top of Iran & Syria; Sunni-Shi’a divide $$ Jan 11, 2014
  • Hollande Deplores Magazine Splash of Affair With Actress http://t.co/xVSPTk9f3r Many enjoy scandals, even if they say nothing is wrong $$ Jan 11, 2014
  • Surprise drop in euro zone inflation shows deflation risk http://t.co/BE8iIa4ENn Economic conditions are so weak, should we b surprised $$ Jan 09, 2014
  • Area Evacuated After Fiery Derailment in Canada http://t.co/fYOHtW5ZOy Pipelines are environmentally safer; send the memo to Obama $$ $XLE Jan 09, 2014
  • South Sudan Peace Talks Falter http://t.co/OVw1hj1fuM Africa is essentially tribal, which does not mix well w/democracy, most of the time $$ Jan 09, 2014
  • Good News and Bad News About Global Inequality http://t.co/t01kegmAL3 Many non-economic indicators show inequality is declining $$ Jan 09, 2014
  • Rich Danes Face Benefit Cuts as Universal Welfare Abandoned http://t.co/6k9Y0HJukb Non-universal entitlements tend2get viewed as welfare $$ Jan 08, 2014
  • Bond Tab for Biggest Economies Seen at $7.43T in ?14 http://t.co/Zq3VTSJAKi The debts will roll over, the only question is the yield $$ $TLT Jan 06, 2014
  • Euro Jobless Scourge Seen Defying Leaders? Growth Pledge http://t.co/32L7Hx2qsQ 12%+ unemployment &little improvement, makes US look good $$ Jan 06, 2014
  • Dirtiest Coal?s Rebirth in Europe Flattens Medieval Towns http://t.co/w6KWbpzzLr Trading nuclear power for lignite seems a bad trade $$ Jan 06, 2014
  • Shadow Banking Risks Exposed by Local Debt Audit http://t.co/KzlEW24cbH The problem is that it is tough to count all the opaque debts $$ Jan 06, 2014
  • China?s Runaway Train Is Running Out of Track http://t.co/IAHF6JCUta! The Chinese debt bubble nears its demise, what will Chinese govt do $$ Jan 06, 2014
  • South Sudan Peace Talks Start as Army Pushes Back Rebel Assault http://t.co/aqwnwYxEhX Hard to have peace talks while pushing back rebels $$ Jan 05, 2014

 

Companies & Industries

 

  • Who Wins, Who Loses if the U.S. Starts Exporting Oil? http://t.co/vN2BTl7kwE Missed the effect on the commodity petrochemical industry $$ Jan 11, 2014
  • Dish Seeks to End $2.2B Bid for LightSquared Asset http://t.co/VjxnNgBsTV Ergen wants to end the deal b/c LightSquared missed milestones $$ Jan 11, 2014
  • Target Data Breach Much Worse Than First Thought http://t.co/GnaR3VwHeu 70M customers had home & email addresses & phone #s stolen $TGT $$ Jan 11, 2014
  • Intel Has Its Eyes Fixed on Networking http://t.co/AGlmAad3rY Intel thinks they have 4 openings 4 networks to aid the telecom companies $$ Jan 11, 2014
  • Lenovo Dominated Worst-Ever World PC Market in 2013 http://t.co/GhmqSwuIGf Lenovo has the lead in a big but shrinking business $$ $HPQ $SPT Jan 11, 2014
  • IBM Doubles Down on Watson http://t.co/op7SD7gIiS Watson is a genius, but it takes lots of effort to make the four areas of strength work $$ Jan 11, 2014
  • Wells Fargo Creates SWAT Team to Keep Loans In-House http://t.co/xxyrsqJcr6 Putting loans on the balance sheet? How quaint. $$ FD: + $WFC Jan 09, 2014
  • Americans Are Eating More Velveeta, and Now There’s Not Enough http://t.co/1fqq5dxvgC As a cook, contemplating this makes me queasy $$ $KFT Jan 08, 2014
  • How Companies Face Up to Human Trafficking Risk http://t.co/qE4zzQ8bve Very difficult to get all slave labor out of int’l supply chains $$ Jan 08, 2014
  • Why business schools charge so much and pay their teachers so little http://t.co/dBepTcQ2ba They’re amoral bastards w/a profit motive $$ Jan 11, 2014
  • Bank of America ramps up credit card loans http://t.co/UXRDzeM4Xp If the big banks r starting to open the lending spigots — inflation? $$ Jan 08, 2014

 

US Politics & Policy

 

  • Taxes Have Congress Avoiding Roads Bill as Money Runs Low http://t.co/x2UDQbheq7 Let the states prioritize their road construction/repair $$ Jan 11, 2014
  • What Liberals Don?t Get About Single Payer http://t.co/MaQQZQh2kM Insurers a small part of costs, Drugs, Medical equipment & Doctors big $$ Jan 11, 2014
  • Christie and the IRS http://t.co/dWHZskMLHU Contrast the Governor’s contrition with Obama’s lack thereof; tho if Christie lied he is dead $$ Jan 11, 2014
  • HARP: How the Mortgage Program Has Panned Out http://t.co/ZDN94uFdsg It does leave the taxpayer w/a contingent liability 4 defaults $$ Jan 11, 2014
  • Puerto Ricans Flock North Away From Battered Economy http://t.co/LhchTMo3Q0 Self-reinforcing cycle as better off Puerto Ricans come to US $$ Jan 11, 2014
  • How the War on Poverty Was Lost http://t.co/uujlzrRkDp Goal was give fellow citizens a fair chance to develop their own capacities $$ #fail Jan 11, 2014
  • Chris Christie Is Not a Bully. These Guys Were http://t.co/pxYg6RBYCs John Adams, RFK, LBJ, Andrew Jackson, Nixon hurt political enemies $$ Jan 11, 2014
  • Millionaires’ Club: For First Time, Most Lawmakers are Worth $1 Million-Plus http://t.co/PMBoM3NyJA A million ain’t worth what it used 2b $$ Jan 11, 2014
  • Clickable Consent at Risk in Internet Privacy Lawsuits http://t.co/KFghV2XJ4s How much do u give away accepting information use policy? $$ Jan 09, 2014
  • Poverty level under Obama breaks 50-year record http://t.co/87feDKj7SN Be sure & give Congress, Bureaucracy & the Federal Reserve blame 2 $$ Jan 09, 2014
  • How Not to Regulate http://t.co/isrkmSd0l4 Good regulations r holistic & ignore special pleading from politically connected entities $$ $SPY Jan 08, 2014
  • Congress Makes NASA Finish Useless $350 Million Structure http://t.co/QlvScdhRab If we can’t make easy cuts, hard cuts will never b made $$ Jan 08, 2014
  • Cull the Stupid Tax Breaks http://t.co/j2UWBPZkwe Mostly we need to eliminate tax breaks that are not generally available to all business $$ Jan 06, 2014
  • Study Shows Fracking Is Bad for Babies http://t.co/i8KWfQpO5t Studies shouldn’t be released until peer review complete; statistics abuse $$ Jan 05, 2014
  • Darrell Issa’s Mischievous Postal Reform Bill http://t.co/YtisT8Yjey Eliminates Saturday delivery to restore COLAs for military retirees $$ Jan 05, 2014

 

US Economics

 

  • Is Jobless Rate Really Falling? http://t.co/pF2yH72N2B I find it dubious that falling labor participation rate is due to natural reasons $$ Jan 11, 2014
  • Payrolls Rise Less Than Forecast; US Jobless Rate at 6.7% http://t.co/ux3LHxbobh We need to have a different H/L #, U-3 is 2 unreliable $$ Jan 11, 2014
  • Highlights From the December Jobs Report http://t.co/3ZGjwho4Pv The December civilian labor force participation rate was a low 62.8% $$ $TLT Jan 11, 2014
  • Best Year Since 2007, Even Better 2014 http://t.co/CKxqxhYHbd Still haven’t made it back to 2000-2007 levels, projects better 2014 $$ Jan 06, 2014
  • What Do You Call 12,000 Economists Trudging Through Snow? http://t.co/xX7zlqcMne Not enough snow 😉 $$ Jan 05, 2014
  • Arthur Laffer Interview http://t.co/pKFx0aTPFV Difficult 2 deal w/a paradigm shift; inflation not realistic during deleveraging $$ Jan 04, 2014

 

Market Impact

 

  • When Does A Bubble Spell Trouble? http://t.co/pq9hFV9ywz Many transformative technologies get overvalued b4 producing real cash returns $$ Jan 11, 2014
  • Looking for Alternatives to Bonds http://t.co/2n1ehNPQgu Until negative part of the credit cycle bites it works; keep one eye on the exit $$ Jan 11, 2014
  • Skagen Says Ignore Wall Street, Bet on Emerging Markets http://t.co/pYIwqoL7kD Alternative POV, but emerging mkts do bad amid $$ tightening Jan 11, 2014
  • 10 Reasons the Gold Bugs Lost Their Shirts http://t.co/MroSlPib0A @ritholtz writes a great piece on investing in an mistitled article $$ Jan 09, 2014
  • Older Americans Shun Retirement at 65 for Risky Startups http://t.co/cvhiw8zRZC I’ve run into these in PE, the desperation can be felt $$ Jan 08, 2014
  • Bull Market Has Years Left for Shaoul on S&P 500 Values http://t.co/pOWNFznDSG Argument is that breadth leads to long market rallies $$ Jan 06, 2014
  • Wall Street’s Reading List http://t.co/jvhIzbPtLC Great list, but add in Michael Pettis’ The Great Rebalancing http://t.co/C4jKcrUNHV $$ Jan 06, 2014

 

Other

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  • Marriage Makes You Rich and Stupid http://t.co/9mIBOTCz44 Another factor here is that the productivity of stay-at-home spouse isn’t taxed $$ Jan 11, 2014
  • The Open-Office Trap http://t.co/nnjZnr8ycb Open offices promote distraction, which reduces productivity; it takes courage to resist it $$ Jan 11, 2014
  • To Stop Procrastinating, Look to Science of Mood Repair http://t.co/Ruw3YnrcvW Just get started, avoid a pity party, look to the future $$ Jan 09, 2014
  • Website helps students find freelance gigs, avoid unpaid internships http://t.co/NYbdKlHHJs Interesting stuff, sent it to my college kids $$ Jan 08, 2014
  • Payout May Come for an ABA Team That Is Long Gone http://t.co/qs8Fb6yl8v Half Billion comes 37 years later 2 owners of marginal ABA team $$ Jan 08, 2014
  • Frigid Air Threatens Coldest US Weather in Two Decades http://t.co/7xtE649g4l Things are extra cold in the Northern Hemisphere on average $$ Jan 06, 2014
  • Noah?s Ark Risks Collapse Without Bond Buyers by February http://t.co/0eBaSP8x1I It would be sad to see Noah’s Ark underwater 😉 $$ Jan 05, 2014
  • The Scandal Bowl: Tar Heels Football, Academic Fraud, and Implicit Racism http://t.co/J2CERTqxYa Phony classes &grades 4 football players $$ Jan 05, 2014

 

Information Security

 

  • Security Experts Pull Out of RSA Conference in NSA Protest http://t.co/Cyk8yREEVU & they should, y support those who compromise security? $$ Jan 11, 2014
  • Is the NSA spying on Congress? http://t.co/FIeYlyIVUV Not long, worth a read; NSA responses to Sanders and Grayson indicate yes. $$ Jan 04, 2014

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Wrong

  • Wrong: Federal Probe Targets Banks Over Bonds http://t.co/ODCDpENNQo Vacuous, the bond market requires that you research what u buy $$ $AGG Jan 09, 2014
  • Wrong: Why great CEOs ignore their stock price http://t.co/MrxV9cKI6N Great CEOs use their stock price to guide buybacks & acquisitions $$ Jan 09, 2014
  • Wrong: Is China Losing Hong Kong? http://t.co/ZOtl520jK9 I don’t think the Party cares much over whether those in Hong Kong are happy $$ Jan 06, 2014

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Comments, Replies & Retweets

  • RT @MacFarlaneNews: EPIC FAILURE- U.S. Navy accidentally sends reporter its strategy memo for dodging his FOIA request cc: @gregorykorte ht? Jan 08, 2014
  • RT @OracleofWallSt: @MatthewPhillips Myth: companies investing more cash in buybacks and not reinvesting. This chart debunks this view. htt? Jan 08, 2014
  • @hblodget @MatthewPhillips How much of the cash is collateral for derivatives, and other lending agreements? Different world today. Jan 08, 2014
  • @Mr_Berman Brainy, and cool-looking for his era. We all age. 🙂 Jan 07, 2014
  • I review more books than the above personalities. I nominate The Great Rebalancing by Michael Pettis…. http://t.co/4zknuYQS16 Jan 06, 2014
  • Bitcoin, like a promoted penny stock, is easily manipulated, because there is little intrinsic value http://t.co/5qyxzDVU68 Jan 06, 2014
  • The big question is when deleveraging stops, and individuals and banks start borrowing… http://t.co/ZQLyY5kc4L Jan 04, 2014

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A Preview of the Future in Local Government Financing

A Preview of the Future in Local Government Financing

There are several bad examples in municipal finance — Illinois & Kentucky for example, but the worst is Puerto Rico.? What is one way that you can tell that things are bad?? People are leaving Puerto Rico, and generally they are those that are better off.

Quoting from the article:

Seven years into a grinding downturn, Puerto Rico is experiencing a historic exodus of residents fleeing the island’s battered economy and rampant crime. From 2000 to 2010, a net 288,000 people left for the U.S. mainland, according to the Puerto Rico Institute of Statistics. The pace has accelerated in the past few years as the economic situation has worsened, with a net loss of 54,000 migrants a year in 2011 and 2012 on an island of just over 3.6 million people. Preliminary data for early 2013 suggest the outflow is still strong.

The U.S. territory also is grappling with $70 billion in debt, ratings firms have downgraded its bonds to one notch above junk and investors fear it could default on its obligations.

When more than 1% of your population is leaving annually, you know something is wrong.? My main point here is not criticizing Puerto Rico, though.? It is part of a broader paradigm.? Badly managed states and municipalities will lose businesses and population, making them even less able to service debts.? It is akin to Matthew 25:29:

For to everyone who has, more will be given, and he will have abundance; but from him who does not have, even what he has will be taken away.

Jesus was not speaking about municipal financing, but the similarity is that those who do well will get more, and those that do badly will get less.

Several years ago, I was driving to visit my parents in Wisconsin.? As I headed into Illinois, I saw billboards encouraging businesses to move to Indiana or Wisconsin.? Municipal finance is unstable, because there is the incentive for people and businesses to move to municipalities where taxes are lower, and finances are better-managed.

We will see some states and municipalities fail financially over the next 25 years.? I can’t see how it could be otherwise.? And in the process, municipal bondholders, and pensioners will take losses.

So watch over your municipal bond portfolio, and avoid areas of the US where finances are badly managed.

Why Great CEOs Look at their Stock Price Every Now and Then

Why Great CEOs Look at their Stock Price Every Now and Then

I was doing my daily reading, when I bumped across the article, Why great CEOs ignore their stock price.? Yeah, I know it is the USA Today, so it has to be simplistic.? Most of the article is correct.? I am not in favor of short-termism, and much less managements managing only to maximize their compensation.

Back in July, I wrote a piece called The Stock Price Matters, Regardless.? Though the whole piece is good, let me give you one quotation from it:

If management/board thinks the price of the stock is undervalued, they will be among those buying shares in the secondary market, improving the value of the shares for the remaining shareholders.

If management/board thinks the price of the stock is overvalued, they may look at other companies to buy that are reasonably priced or cheap that will make their firm more useful.? At that point, their stock is a useful currency for acquisitions.

There is a lot of value that can be derived from the current stock price, to a management team that is focused on creating value.? Buying back stock when it is cheap, and issuing stock to strategically acquire companies cheaply are important ways of creating value for shareholders.

Part of the job of an investment analyst is to analyze the management team and see if they are managing for themselves or for shareholders.? If they don’t use free cash flow well, it is not a good company to own.

One more problem of the USA Today article is that most large investments by corporations tend to do badly, whereas small investments tend to do well.? Management teams need to be careful about investing, and ask whether the investments are worth the risk.

Though there are innovative companies that have promising opportunities, such that they do not pay dividends or buy back stock, that’s not true of most corporations — reinvestment opportunities are limited.

It’s wrong to look at a bunch of special companies, and assume that all companies can do the same thing.? What I insist from the companies that I own is that they follow portfolio rule six.

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.

Not all corporate investment is good.? Think of the long-term oriented managements in Japan back in the late ’80s.? At that time I thought, “How can accepting low returns on equity be a bright idea?”? There is always the possibility of wasting money via overinvestment.

I look for intelligence in the management teams in stocks that I own, and am quick to sell those that destroy value through bad investments, or bad buybacks.? I try to think like a businessman in all that I do as an investor.? It leads to good results.? As Buffett said,

?I am a better investor because I am a businessman, and a better businessman because I am an investor.?

Don’t look for simple metrics to analyze investments.? Embrace complexity, and realize that you have to consider how management teams use their free cash, whether to reward investors, or invest for the future, hopefully in productive ways.

Book Review: Banking and Financial Institutions

Book Review: Banking and Financial Institutions

Banking and Financial InstitutionsMany readers ask me for a good book on financial institutions, and this is a good one, if limited to depositary financials, not including insurance companies and asset managers.

This is a comprehensive book for depositary financials, even covering Islamic finance, which I will admit I learned from it.? It is a good thing to understand in depth those with whom you you disagree. Islamic finance imbibes the errors of Aristotle, who deemed money to be sterile.? Why force everyone into a mold where there can’t be loans at interest?? Why restrict that freedom?

But that is a small part of the book.? Most of the book deals with how banks operate.? It is very good at describing how banks create profitable lending, and how they act within regulatory boundaries.

It’s a good book, and I recommend it to all.

Quibbles

That said, there were many small errors in the book, which if the author had been an intelligent bond trader, the errors would not have been in the book.

As an example, on page 32, he called an MBS to be a CDO.? Yes, in an attenuated way that might be so, but for professionals that know the market, we would never phrase it that way.

Who would benefit from this book: Almost anyone will benefit from this book, but those who will benefit most are those who analyze banks.? If you want to, you can buy it here: Banking and Financial Institutions: A Guide for Directors, Investors, and Borrowers (Wiley Finance).

Full disclosure: The publisher sent me the book after he offered me a review copy.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

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

A Note on Commenting at Aleph Blog

A Note on Commenting at Aleph Blog

In general, at Aleph Blog, if you keep your comments clean, even if I disagree with them, they will be published.?? There is one exception to this, that if you accuse me of evil intent, I will ban you from posting comments.

Look, Aleph Blog is free.? I could set up a subscription service but I haven’t, and have no intention of doing so.? I blog for the good of readers.? If you think I am acting out of evil intent, then stop reading me, or, set up your own blog and criticize me.

I have only banned two commenters in seven years at Aleph Blog.? There have been many comments that I have not agreed with, but I allowed to be posted.? There have been many comments that called me stupid.? All of those were posted.? I don’t mind that — call ne stupid as much as you like.

Barry Ritholtz, the leading finance blogger, at his blog, reserves the right to deny anyone the right to comment, and that is fair.? I put forth the effort to create this blog, and as such, I set the rules for commenting.

I rarely deny the ability to comment, but I will do so to the degree that it impugns me, or degrades the blog.

All that said, thank you for the 99%+ that comment here.? I appreciate your comments.

Sorted Weekly Tweets

Sorted Weekly Tweets

Rest of the World

 

  • Aberdeen Buys Thailand?s Stocks Amid Worst First-Day Drop http://t.co/3W6F8v7APS Thailand is worth a look, the Army tends to stabilize $$ Jan 04, 2014
  • Rousseff Buoyed by Rising Poor as Brazil Rating Drop Looms http://t.co/u28ILaBsSe Y I sold all Brazil investments when Dilma was elected $$ Jan 04, 2014
  • Who Needs Bitcoin? Venezuela Has Its ‘Sucre’ http://t.co/mO29dvSb5Q Trade Bolivars @ official rate 4 Sucre 2 Dollars 2 black mkt Bolivars $$ Jan 04, 2014
  • JPMorgan Halts Latvia Dollar Deals After Probes, Group Says http://t.co/hrsCfHXxG1 Latvian banks do $$ laundering w/sloppy investment banks Jan 03, 2014
  • Cheaper Hanoi Pork Shows Crops Ease World Food Cost http://t.co/Lh7AJ0W4jX Bumper grain harvests in the US & India lower world food costs $$ Jan 02, 2014
  • Chinese Banks Eye Global Bond Market http://t.co/NWMZPwzggu B leery of Chinese bank subordinated debt convertible into equity in failure $$ Jan 01, 2014
  • Explaining Hybrid Securities to Chinese Investors http://t.co/PlNYC6iZ55 Think the Chinese will regret this financial innovation in time $$ Jan 01, 2014
  • Unusual Emerging-Market Bond Bet Pays Off http://t.co/9RDw5iKLnl W/lots of liquidity, this was a year 4 the trash 2 fly: Argentina/Greece $$ Jan 01, 2014
  • Israel’s Christian Awakening http://t.co/KnXrPhf9lp Arab Christians find common ground w/Israeli State vs Arab Muslims to defend Israel $$ Jan 01, 2014
  • Bank Borrowing From ECB Jumps http://t.co/LkOcZ9kn4c Every bank likes 2 look liquid at year end 4 the snapshot of its balance sheet $$ Jan 01, 2014
  • The unintended consequences of Abenomics http://t.co/iZkiKE1vWD @soberlook shows us how the poor & elderly r hurt by Abenomics $$ Jan 01, 2014
  • Repeated Liquidity Crunches Beg a Question: Where’d the Money Go? http://t.co/el0ITutTxc Provides liquidity 2 WMP Ponzi schemes of banks $$ Jan 01, 2014
  • The Rise and Fall of a Local Official Obsessed with GDP Growth http://t.co/rDltv3HwiV Statistics stretched2make things look better $$ Jan 01, 2014
  • Argentina?s socioeconomic statistics: Still lying after all these years http://t.co/UUCPLhqOY2 Official statistics r fudged 2help govt $$ Jan 01, 2014
  • Miss Japan Ikumi Yoshimatsu joins battle against mafia in the media http://t.co/riMMv8TSMd Can one beauty take on the Yakuza? She can try $$ Jan 01, 2014
  • It’s Official: Pope Has Not Abolished Sin, Says Vatican http://t.co/WBrqw5HJEn That may be, but he certainly downplays its importance $$ Jan 01, 2014
  • Turkey first of Fed Taper victims as political crisis scares investors http://t.co/wQssI4hIeO monetary policy tightening reveals weakness $$ Jan 01, 2014

 

US Politics & Policy

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  • MIT Economist Seeks Facts in Health-Care Policy Debate http://t.co/yY96lxT5dJ Amy Finkelstein worth watching as she measures healthcare $$ Jan 04, 2014
  • Someone Please Help New York Times With Econ 101 http://t.co/yABRFhpHve I’m sorry @cabaum1 , but there is no hope 4 the NYT, e.g. Krugman $$ Jan 04, 2014
  • America Burning – The Yarnell Hill Fire Tragedy and the Nation’s Wildfire Crisis http://t.co/lE5bjUwbba Volunteer firefighters risk lives $$ Jan 03, 2014
  • Bakken Crude More Dangerous to Ship Than Other Oil http://t.co/v7w5NdaTDu Lighter hydrocarbons tend to b more flammable, need 2 test them $$ Jan 02, 2014
  • If 2013 Was Hard on Obamacare, Just Wait for 2014 http://t.co/VSkDtqznNR An actuarially unsound program will get worse over time $$ #watch Jan 01, 2014
  • Obamacare Enrollments Hit 1.1M W/December Surge http://t.co/cbZ2tjDZmD B interesting 2c how well the policy is liked as taxes/prems go up $$ Jan 01, 2014
  • Americans on Wrong Side of Pay Gap Run Out of Means to Cope http://t.co/ymB8hshL8L Labor is not scarce & QE inflates necessities & stocks $$ Jan 01, 2014
  • TRICKY DICK: Only Nixon less popular than President Obama in Year 5 http://t.co/ingFHQhzjt B interesting 2c if it affects 2014 elections $$ Jan 01, 2014
  • Portfolio Hedging Is Alive and Well Under Volcker http://t.co/72w48Apm4A The “London Whale trade” & things like it r legal w/Volcker Rule $$ Jan 01, 2014
  • Buffett’s year-end bet: Pipelines http://t.co/B4bjfvCNjN Fits in nicely w/Lubrizol & $BRK-B other chemical assets | FD: + $BRK-B & $PSX $$ Dec 31, 2013
  • Icahn to FT: Why Shouldn?t My Board Picks Share in Profits? http://t.co/exjNK6Mbk3 Company Sale not always S/H best interests in long run $$ Dec 31, 2013
  • North Dakota Train Fire Adds Fuel to Keystone XL Debate http://t.co/H60WTHlrB8 Pipelines r more reliable than trains on average $$ $SPY $TLT Dec 31, 2013
  • SEC pushes US insurers for details on ‘captives’ http://t.co/Q0Wiw3otmK Isn’t primarily a GAAP issue, so the SEC is on the wrong track $$ Dec 31, 2013
  • Acquisitions Continue to Support AJG http://t.co/Pb6iGPuMkb Zacks goofs again. Validus $VR isn’t an insurance broker, but a P&C reinsurer $$ Dec 31, 2013

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Companies & Industries

 

  • Can’t Get Tenure? Then Get a Real Job by @asymmetricinfo http://t.co/E5mZEqxexH Professors are in ovversupply, look outside of academia $$ Jan 04, 2014
  • Yet Another Housing Cover Story From Barron’s http://t.co/2hv4FhM5Ft @ritholtz takes under on 5% growth in housing prices 4 next 3 yrs $$ +1 Jan 04, 2014
  • How Wall Street got snowed on weather derivatives http://t.co/3jDAqJ7dCi Weather is different everywhere; bespoke market can’t get volume $$ Jan 04, 2014
  • Cox to Buy Back Stake in AutoTrader http://t.co/R7EAcHANiM Who knew that AutoTrader was worth ~$7B; web middlemen can b worth a lot $$ $PCLN Jan 04, 2014
  • Berkshire Seen Failing Buffett 5-Year Test for First Time http://t.co/HUNer4hK0Y Had 2 happen sometime, amazing it went on4so long $$ $BRK-B Jan 02, 2014
  • Buffett?s Media General Deal Makes a Lot More Financial Sense Now http://t.co/YhI7BhxeFl Buffett has aready made what he put in in equity $$ Jan 02, 2014
  • The first 3D printed organ — a liver — is expected in 2014 http://t.co/jdOdK4MMwH If we can create native organs, impact will be huge $$ Jan 02, 2014
  • Stop Pouting About Tech’s Next Big Thing, It’s Here http://t.co/muEZd8l0lB We still haven’t maxed out utility of smartphones & tablets $$ Jan 02, 2014
  • Hertz Runs Over Activist Shareholders http://t.co/pTPzixT7Lc A strong poison pill; I’m surprised the price of Hertz went up on the news $$ Jan 02, 2014
  • Health: Scientists Look to Improve Cost and Time of Drug Trials http://t.co/xI21QAj5Ln Sounds promising, but will lose double blind rigor $$ Jan 01, 2014
  • Bitcoin Is a High-Tech Dinosaur Soon to Be Extinct http://t.co/OgVFDpcxmZ Bitcoin will die, but it is not right 4 governments 2monopolize $$ Jan 01, 2014
  • Home Prices Back at Peaks in Some Areas http://t.co/Z8WVCyff5i Most of it depends on how well the underlying local economies r doing $$ Jan 01, 2014

 

Market Impact

 

  • Why ‘Wildly Overvalued’ Stocks May Keep Rising http://t.co/wT6vprAEAl @ritholtz Low short rates, steep yield curve good 4 PE multiples $$ Jan 02, 2014
  • Pension Funding Levels Surged in 2013 http://t.co/zOSFbl18vY If a Defined Benefit plan is not fully funded now, likely it never will be $$ Jan 02, 2014
  • Finra to Crack Down on Brokers With High Number of Complaints http://t.co/mCzrlW71Jv If FINRA is prioritizing now, y didn’t they do it b4 $$ Jan 02, 2014
  • Amid Record Rally, Stock Picker Keeps Focus on the Basics http://t.co/pIO25JTQOa Sam Eisenstadt, a Pioneer at Value Line, Remains Bullish $$ Jan 01, 2014
  • Private Equity Enjoys a Record Year http://t.co/eRdqannfjW Firms That Buy & Sell Companies Are Set to Return >$120B to Investors for 2013 $$ Jan 01, 2014
  • Paulson Gets $490 Million as ?Mooch? Rotates to Equities http://t.co/btjTtZ0gIR Not sure y an action of Scarmucci’s firm gets such play $$ Jan 01, 2014
  • Persistence is a Killer http://t.co/U8HtQzBBje @reformedbroker points out how hard it is 2 keep outperforming; as AUM rises harder still $$ Jan 01, 2014
  • Stocks $3.7T Year Beats Bonds Most Ever on Funds http://t.co/2DHvPluCO8 What a year; I’m glad I limit my ability2b bearish w/my portfolio $$ Jan 01, 2014
  • S&P 500 Price to Book Value http://t.co/YGJJ7aDpjz Worth a look- P/B is around 2.7 at present up from 1.8 at the beginning of 2009 $$ $SPY Jan 01, 2014
  • Guess which hedge funds beat the roaring S&P 500? http://t.co/9286hLNy40 Robbins, Paulson, Loeb, Peltz, Tepper, Pucillo $$ $SPY Dec 31, 2013

 

Other

 

  • Green Bay Cold Threatens to Outfreeze NFL Ice Bowl Record http://t.co/aEZ7QK3JEA Cheeseheads will watch&freeze as 49ers go to their knees $$ Jan 04, 2014
  • Plosser: May Need to Employ Aggressive Tightening Campaign http://t.co/hIdwcS1ijH Fed doesn’t know what will happen & can’t control it $$ Jan 04, 2014
  • Auburn-Alabama: Inside the Greatest Play of All http://t.co/NK5tiEQTV4 Interesting details on the strategies employed by the two coaches $$ Jan 04, 2014
  • Business Buzzwords Generator http://t.co/e8E1MBN1ph Generate random buzzword phrases for cheap fun $$ Jan 02, 2014
  • Which Buzzwords Would U Ban? http://t.co/TswImvO8mc Going Forward, Low-Hanging Fruit, Disrupt, Epic, Incentivize, Game Change, Reach Out $$ Jan 02, 2014
  • Apple, Jacob Appelbaum and the National Security Agency http://t.co/vJrTmaKlHm Scary article & video of NSA projects by a security expert $$ Jan 02, 2014
  • Scott Yancey – FREE Live Real Estate Income Event http://t.co/85hnNPy2PP For losers only; learn how to attempt flipping property & lose $$ Jan 01, 2014
  • The Ride-Sharing, Handbag-Borrowing Productivity Revival http://t.co/E7orfPRiAW The internet allows people 2 share capital goods easily $$ Jan 01, 2014
  • Say Goodbye to the Same Old Steakhouse http://t.co/5A6cjn4E4L That most hidebound of dining institutions is long overdue for an update $$ Jan 01, 2014
  • 2014 Resolution: This Year, I Will Blog http://t.co/UuaIej3QIw Easy 2 say, hard 2do. Tonight, Aleph Blog will give pointers on how 2do it $$ Jan 01, 2014
  • 2013 Year in Review by David Collum http://t.co/PF4HnO2aWA “Austerity is not a policy; it is a consequence of bad policy” Bad year 4 him $$ Dec 31, 2013

 

Wolf of Wall Street

 

  • How the “Wolf of Wall Street” Is Still Screwing His Real-Life Victims http://t.co/ziYCK3MAoY 20% restitution made to victims. Not enough $$ Jan 01, 2014
  • An Open Letter to the Makers of The Wolf of Wall Street, and the Wolf Himself http://t.co/8PnIZp2Azy Daughter of a scammer critcizes film $$ Jan 01, 2014
  • Daughter of the Boiler Room http://t.co/7ajMRjN2mv What would it b like2b daughter of Jordan Belfort’s associate? Lots of $$ -> lots of debt Jan 01, 2014
  • My ?Wolf of Wall Street? Review http://t.co/sFFcCqeGte @reformedbroker validates much of the tale from his own early experiences $$ Jan 01, 2014

 

Wrong

?

  • Wrong: The Pope Is Right: Inequality Is Unjust http://t.co/0ZelLyi3V6 God is Sovereign & gives different people differing abilities $$ Jan 04, 2014
  • Wrong: Homebuyers Missing Housing Rebound Depend on Yellen http://t.co/uNmbAFB3S5 Too optimistic; Fed no longer controls long rates $$ $TLT Jan 03, 2014
  • Wrong: In Search of the Perfect Portfolio http://t.co/dOil5koE8p A fool’s errand. Environments change & no simple universal method $$ Jan 01, 2014

?

?

Comments, Replies & Retweets

 

  • @groditi For you, I think it would be worth $50+ to review what someone who used 2do it at Credit Suisse thinks. Get the company to pay $$ Jan 03, 2014
  • Commented on StockTwits: First time I have heard of Perceptron, thanks for introducing me to it. No, I don’t know… http://t.co/d2EtHTLFFi Jan 03, 2014
  • Commented on StockTwits: Also be aware that distributions from $AMLP have been somewhat irregular in the past:… http://t.co/Utul6cspT6 Jan 01, 2014
  • Commented on StockTwits: Just be aware that you have a concentrated position in an income vehicle. If interest ra… http://t.co/RDgBeiecyq Jan 01, 2014
  • Commented on StockTwits: What proportion of your investable assets is held in it? http://t.co/x6MUov551z Jan 01, 2014
  • @maoxian @randomroger But I’m glad you like it. I got the idea from @historysquared but realized it could be better 4 readers if I sorted Dec 31, 2013
  • @maoxian @randomroger I use “Allmytweets” http://t.co/xiSnKRldBe & since I do it weekly, search the word “sorted” to find where I left off Dec 31, 2013
  • @dpinsen @PortfolioArmor Go for it! Dec 28, 2013
Book Review: Rule Based Investing

Book Review: Rule Based Investing

Everyone would like a “money machine.”? Follow simple rules, and “Wow, this makes money.”? This is that kind of book but it has better foundations than most in its class.

The book examines three types of investing, most of which are foreign to average investors.? Most investors don’t invest in equity by shorting it, and most investors are not currency traders.

But that is what the book encourages.? I’m going to digress here, because I have to explain some salient matters, and say what I think, so that my later critique makes sense.

Volatility and credit are cousins.? After all when markets go nuts, and everything is in disarray, those that have been trying to borrow at low interest in one currency, and invest at higher interest in another currency get hosed.? Why?? Because in volatile times, the riskier currencies face capital flight versus safer currencies that have the confidence of the markets.

All of the methods mentioned in this book as a result are making bets on volatility/credit, and try to control the bet by monitoring implied volatility, credit spreads, and momentum.? They limit when they are in the market and when they are out.

I don’t have a problem with the theory here, but with the ability of average people to carry it out.? This book would be good for quantitative hedge fund managers; I am less certain about individuals here.

As an aside, what the book describes is how PIMCO has done so well at bond investing over its history — shorting volatility to pick up yield.

But the main criticism is this: the author optimized the book to fit her full data set.? When you read the last chapter, and see that you could have earned 30%+/year for 13 years, if you were as clever as the author, you should think, “Yes, if I had 20/20 foresight.”? The methods will not do as well in prospect as in retrospect.

Quibbles

There is little that I disagree with in the book on a theoretical basis.? Where I differ comes in two areas: individual investors will not have the fortitude to carry out what is a complex method of investment.? Secondly, when enough hedge fund money adopts these strategies, the pricing in the market will shift, and the hedge funds will no longer have easy money.

Who would benefit from this book:?If you are willing to do the work of a volatility-selling hedge fund manager, this is the book for you. ?If you want to, you can buy it here: Rule Based Investing.

Full disclosure: The publisher sent me the book after he offered me a review copy.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

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

 

On Understanding and Valuing Financial Companies

On Understanding and Valuing Financial Companies

I have readers all over the world.? Here is an example:

Hi Dave

I am a 25 year old from Pretoria, South Africa. I have been reading your blog for around 2 years and I thoroughly enjoy it (especially the book reviews). I might not agree with a few things you say, but it is rare that I don’t learn something while reading your work. I love how your personality shines through in your writing…a personality based on God.

I have had this fascination with finance and investing since I ran into a popular finance magazine here in South Africa around 2008 while stile in university. Since then I have been reading everything I could on business, investing and finance. I am also about to start training with a large wealth management firm in south africa to be 1 of their financial advisors. Training I am wholeheartedly looking forward to.

In all my reading, there is something I still struggle to wrap my head around, and that’s how to value Financial companies. You are undoubtedly the most informed person on financial company investing nd financials that I read. Hence my email: I was wondering if you could suggest a few readings for me to tuck into (preferably books) as I have found most of the things I have read only scratch the surface. Reading with maths that is not too elaborate.

I hope I am not asking too much.? Thank you in advance for any suggestions you might have, and I hope you keep up the good work on your blog.

Financial companies are difficult for several reasons:

1) The cash flow statement has almost no meaning.

2) It is very hard to know how much capital is needed to keep things going.? That data gets disclosed to the regulators, and not directly to stockholders.

3) It is difficult to know the riskiness of the assets that a financial company holds.

4) With complex financials, it is difficult to tell what the “run on the bank” risk is.

I will be reviewing a book on banks this month, but I have run into few books in my life analyzing financials.? It is a real hole in the investment literature.

Financial companies are valued off of their net worth, and their expected path of earnings.? Earnings retained, rather than paid out in dividends, or used to buy back stock, adds to net worth, and is new capital that can be used for growth.

The capital of financial companies can be divided in two: that which is required by the regulators for solvency purposes, and that which is free for deployment into new business.? With banks, look at the call reports to analyze the capital needs of subsidiaries.? With insurers, get the statutory reports.

To the extent you can, analyze the quality of assets owned.? Also analyze when liabilities may require cash, particularly if assets are financed by repurchase agreements.

Now over the last seven years, I have written a lot on financials, particularly insurers.? Here are the articles at my blog that would deserve attention:

A Summary of my Writings on Analyzing Insurance Stocks

A compendium of the best articles written prior to mid-2010.

Then there was the Flavors of Insurance Series.? In 12 parts, it went through the entire insurance space, explaining what make each area different.

Thinking about the Insurance Industry

Describes the changes that have happened since the financial crisis.? Bad financial models have been destroyed.

On Life Insurance and Life Reinsurance

Explains how life insurance is saturated but reinsurance is not.

On Complexity in Financials, and Insurers Specifically

Explains why complex financials are usually a bad investment.

Investing In P&C Insurers

Once you understand the model, many are simple companies, and easy to invest in.

Evaluating Regulated Financials

An attempt to explain to college students why financials are different from other companies.

On Insurance Investing

This seven-part series explained a wide number of factors in analyzing insurance stock investing.

Penny Wise, Pound Foolish

On some of the pathologies inside badly-run insurance firms.

Two Insurance Questions

On reserving and valuation questions.

On the Designation of Systemically Important Financial Institutions

Why Insurers, no matter how large, should not be considered a threat to systemic risk.? (Please ignore AIG — no other insurer was a major party in derivatives.)? Also see: On Risk-Based Liquidity, and Financial Regulation

On Captive Insurers

Explains some of the nuances of statutory reserving/capital, and why some insurers want to fuddle it.

Classic: Financials are Different

A piece from 2006 at RealMoney, describing how financials are different from industrial stocks.

That should give you a start.? There aren’t many books dealing with the intricacies of financial companies, and of what few there are they are written by the big four auditors, or the rating agencies, for their own purposes.? I don’t own any of them.

But what I have written, from that you can benefit.

Advice For Would-be Bloggers

Advice For Would-be Bloggers

Today I read the following article 2014 Resolution: This Year, I Will Blog.? Good article, and it features useful advice from Susan Weiner, who writes the blog Investment Writing.? I think highly of Susan, and we are having her come speak to the Baltimore CFA Society on March 24th.? Writing is not so well-learned among many investment analysts, and employers of analysts would like to see better quality writing out of their employees.

But in response to the blogging article, I would like to give a few tips on blogging.? Most of these won’t be very profound, but there is basic “blocking and tackling” to do if you want to be a good blogger.

1) Choose the periodicity of your blogging.? Will it be multiple times per day, once a day, a few times per week, once a week, a few times a month, or monthly?? I think that is the limit in terms of keeping the attention of readers — you can’t blog less than monthly.

Now, the less frequently you blog, the higher the quality has to be.? Length is not an issue here.? Post length is not correlated with quality.? Make your thoughts and words count.? There is no prize for number of words.? There are only prizes for value added.

One more thing: once you choose how often you want to blog, stick with it.? Regularity is needed to establish an audience.

2) Define the area in which you want to blog.? What is your differential insight?? Where are your thoughts strongest versus the consensus?? There are relatively few bloggers that can cover a wide area.? (And as one that does cover a wide area, it means that posts covering different areas may not interest some of your readers.)

3) Start small.? You don’t have to write masterpieces from day one.? Commenting on articles that you excerpt can be a great way to begin.

Another great way is to start assembling linkfests a la Abnormal Returns.? You will not likely do better than Tadas, but I have seen many small linkfests that are worth reading.

4) Ask who your target audience is.? Are you aiming at professionals, intelligent amateurs, or Joe Lunchpail?? Then tailor your language to fit the audience, as well as your choice of topics.

Also remember that other bloggers and journalists may link to you, so consider what your extended audience might be like.? (I’ve seen my articles translated into so many languages that I have lost count.? I never thought that would happen.)

5) Get ready to be hurt.? The internet is a cruel place, and there is all manner of anonymous backbiting that goes on.? But there are way to minimize it:

  • Have a comments policy, and block people from commenting who violate it.
  • Be humble in your writing; more attacks come to those who are brash.
  • Double-check what you say before clicking “publish.”
  • When you are wrong, own up to it.? That establishes credibility, it does not destroy it.
  • Avoid profanity.? Bloggers that use profanity attract a bad crowd of commenters.

6) Reach out to other bloggers.? Link to good stuff from other bloggers, and when you write something good, send a copy to bloggers you respect (not too often).? Respect the time of leading bloggers, and only send the best.

7) Use Twitter, LinkedIn, and Facebook to expand your distribution.?? Social media can enhance your influence; just be sure not to annoy your readers.

8 ) Be ready for the long haul.? Don’t enter into this unless you are thinking of doing this for years.? Of the major bloggers I knew back in 2007 when I started Aleph Blog, most of them are still in the game, and they are still hot stuff.? But I have seen many promising bloggers put out a few significant posts and fold.? It is like what Jesus said [Luke 14:28-33]:

For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it??lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him,?saying, ?This man began to build and was not able to finish???Or what king, going to make war against another king, does not sit down first and consider whether he is able with ten thousand to meet him who comes against him with twenty thousand??Or else, while the other is still a great way off, he sends a delegation and asks conditions of peace. So likewise, whoever of you does not forsake all that he has cannot be My disciple.

Think about what it will cost you to blog before you start doing it.? Figure out what you can sustainably do without destroying important relationships that you have.? Blogging is about consistency, not occasional genius.

9) Don’t worry about your writing skills.? They will improve over time.? Oh, if you could read the turgid stuff that I wrote thirty years ago.? Between a writing Nazi who was my boss at AIG, and writing for RealMoney, my writing style improved dramatically as an adult.? Hint: Flesch Test your writing, and use the grammar and spelling checkers within Microsoft Word.? Aim for language that high schoolers should be able to read.

10) Every time you write, look into your heart and ask what you feel strongest about.? Then write about it, and be bold (yet still humble).? (Catch the balance.)

Summary

Blogging is not easy, but it is rewarding.? It may help you build a business.? It may gain new friends for you.

You won’t be perfect from the start, but aim for continuous improvement.? Aim to be “good enough,” and improve from there.

If you try and need advice, feel free to e-mail me.? I will try to aid you in what limited time I have.? After all, I write long blog posts once a day on average.

May you prosper more than me, and achieve far more.? May I see your name five years from now, a star, and say, “I knew him when…”

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