Productivity increases are only so when they result in an increase of desired consumer goods purchasable at prior prices.

As I commented in my last piece, I’m scraping the bottom of the barrel as I come to the end of this series.  I’ll keep this short.  The concept of hedonics has some value as it tries to adjust price indexes for quality improvements.  Where it goes wrong is equating technical improvement with usefulness.  With products where technology is improving rapidly, often hedonic improvements cannot be measured, because the prior product is no longer being sold.  If it were being sold, it would provide significant information about how much people value product improvements.  As it is, sometimes economists try to estimate improvement in value off of technical improvements.

A computer that is twice as fast, with twice the RAM and twice the storage, is not twice as valuable.  To the degree that hedonics takes shortcuts  to estimate value, it overestimates how much value is added by technological improvement.

Rest of the World

 

  • Chinese Workers at IBM Factory on Strike Amid Company Sale http://t.co/TBE44EtSgI Chinese workers don’t want to work 4a Chinese company $$ Mar 07, 2014
  • China Tropical Island Lures Rich Homebuyers Fleeing Smog http://t.co/SLi78lj115 Wealthy Chinese find ways 2escape pollution others endure $$ Mar 07, 2014
  • China Banks Show Too-Connected-to-Fail Link to Loans http://t.co/XQXaAJNNy5 Wanna join my exclusive club & make lotsa $$ Chinese Ponzi $FXI Mar 07, 2014
  • China Attack Gives Xi Impetus to Tighten Grip on Security http://t.co/eM021jQeQ7 No matter how unfair the Communist Party can’t look weak $$ Mar 07, 2014
  • Cut Off the Russian Oligarchs and They’ll Dump Putin http://t.co/WDCDgEXzfd Argues that economic sanctions would do the job. EU is no go $$ Mar 07, 2014
  • US Fighters Circle Baltics as Putin Fans Fear of Russia http://t.co/XybK3YxHDq This is ticklish, u don’t want to accidentally start a war $$ Mar 07, 2014
  • Merkel Eye 4 Russian Empress Shows Putin Ties Are Complex http://t.co/2HP4i5xNi0 Putin speaks German, Merkel speaks Russian. Cute Couple $$ Mar 06, 2014
  • China heads for 1st corporate bond default http://t.co/gJRnBMVwrE 1st corporate default on public debt in China since the late 1990s.$$ $FXI Mar 06, 2014
  • Crimea Crisis Haunted by Ghosts of Bungled WWI Diplomacy http://t.co/YjrQNqkprD Complexity in foreign relations-> unexpected results $$ $RSX Mar 05, 2014
  • Putin’s Push Into Crimea Shows Cheap Can Get Cheaper in Russia http://t.co/Qwfpzw6zda See what sanctions do 2 banking system $$ Mar 04, 2014
  • China Central Bank’s Move on Yuan Leads to More Cash Flowing Into System http://t.co/LHIfEqUveg Sorcerer’s apprentices find their limits $$ Mar 04, 2014
  • In Crimea’s Capital, Gratitude for a Russian Takeover http://t.co/3HUH1N3N0h 59% Russian, many welcome Russia, as in Georgian invasion $$ Mar 03, 2014
  • Putin’s Gamble: Crimea Land Grab Will Be Met W/Western Inaction http://t.co/TwCab9skoD Confused article thinks sanctions will move Putin $$ Mar 03, 2014
  • Putin Crimea Grab Shows Trail of Warning Signs West Ignored http://t.co/VmsFLmgBxG Putin knows that the West will do nothing $$ $EFA $SPY Mar 03, 2014
  • Oil at $100 Loss Warning Rejected by Norges Bank http://t.co/VhPaLc4zL1 Norway is smart to leave interest rates higher, grow slower $$ $STO Mar 03, 2014

 

 

Companies & Industries

 

  • Safeway to Be Bought by Cerberus’s Albertsons http://t.co/ivygaGRXxr Interesting deal, definitely consolidates supermarkets $KR $SWY $WMT $$ Mar 07, 2014
  • BP Splitter Refinery Seen Skirting US Oil Export Ban http://t.co/pTiND92WZ5 Light processing allows crude 2b exported & refined out of US $$ Mar 07, 2014
  • MIT’s Liquid Metal Stores Solar Power Until After Sundown http://t.co/P0XlvhZL7m New batteries needed to store energy from wind & solar $$ Mar 07, 2014
  • RadioShack’s Store Closings to Break Covenant http://t.co/c1X5mu5erN So $RSH pays a little $$ to break lease terms & reduce expense $SPY Mar 07, 2014
  • Fannie’s Profits May Be Fleeting–Heard on the Street http://t.co/lkAiXTGutW Think $FNMA investors r wrong; belongs 2 the government now $$ Mar 07, 2014
  • Amcol Hot Commodity as Bidding War Escalates http://t.co/biRyucMyqn Unusual bidding war 4 $ACO | Price moving up slowly “nickels & dimes” $$ Mar 07, 2014
  • Behind the $100B Commodity Empire That Few Know http://t.co/2Y1ivuWvXC Pay a visit 2 Mercuria & c how the Crude gets traded moved stored $$ Mar 07, 2014
  • Chevron pizza ‘scandal’ isn’t one in small town http://t.co/XYPNDjI6TM Give $CVX credit, they understood culture of Bobtown, unlike media $$ Mar 07, 2014
  • The DJIA’s 22,000 Point Mistake http://t.co/BgX4W7y8g1 If $IBM had been in the $DJIA 1939-1979, DJIA would be a lot higher today $$ #splits Mar 06, 2014
  • Jain feeds Buffett’s hunger http://t.co/KKuQyWoe7e $BRK-B Article ~5 mos old, highlights what might be a chg in U/W philosophy $$ $KIE $IAK Mar 06, 2014
  • Sons of Ikea’s Kamprad Emerge as New Swedish Billionaires http://t.co/WvH03xylxW Throw enough trusts together &u can hide almost anything $$ Mar 06, 2014
  • The ever-expanding Google juggernaut http://t.co/TgdZrWGEUM $GOOG goes from strength2strength; it passes $XOM to have 2nd highest mkt cap $$ Mar 06, 2014
  • US Oil-Refineries Bulk Up http://t.co/wC1kybHjuQ Annual increase in capacity only 0.5%/yr over the next 5 yrs. Unlikely to change things $$ Mar 03, 2014
  • Wi-Fi Phone Upstarts Lure Penny Pinchers From Verizon http://t.co/xJCplpR9TC Get 90% of what u want for less than half the cost $$ $VZ $T Mar 03, 2014
  • The Housing Market With Nowhere to Go (but Up) http://t.co/3gQqi24Nes San Fran shoots itself in the foot with building restrictions $$ Mar 03, 2014

 

Municipal Finance

 

  • Buffett Says Pension Tapeworm Means 10Yrs of Bad News http://t.co/H8LtRrZueb “greater electorate ignorance of governmental pension costs” $$ Mar 07, 2014
  • Detroit to Pay $77M in Swaps Accord With $UBS & $BAC http://t.co/Jjd6yFmRgw Banks took 70% haircut, makes me think all b/ks w/swaps lose $$ Mar 07, 2014
  • The Ideologue vs. the Children http://t.co/cvIKH9XmmM NY mayor cares more 4 ideology than effective education; Cuomo steps in2 fill void $$ Mar 07, 2014
  • North Carolina Is a Case Study in Jobless-Benefits Cut http://t.co/SjDG0I0BoW Eliminate computers analyzing resumes & this problem dies $$ Mar 04, 2014
  • TARP Funds Demolish Homes in Detroit to Lift Prices http://t.co/mqF4IKgMfN Severely blighted areas benefit from destruction of blight $$ Mar 03, 2014
  • California’s $600B Sinkhole http://t.co/mtTvH4ifwL Pension liabs accrue silently as Brown & legislature dither; bigger problem later $$ $MUB Mar 03, 2014

 

 

US Politics & Policy

 

  • Private health exchanges begin to shift behavior http://t.co/HbChMXMXJs People tend 2 choose less expensive plans, and then stick w/them $$ Mar 07, 2014
  • Will Obama Ever Enforce His Health Law? http://t.co/zqNln7AR7b Obama won’t stand up for the hard choices his law requires $$ Mar 07, 2014
  • SEC Can Explain Why It’s So Good at Selling Stocks http://t.co/GIj3HzxxKS @matt_levine perhaps it takes a thief 2 catch a thief $$ $TLT $SPY Mar 07, 2014
  • Another Obamacare deadline moved: Non-compliant plans get 2-yr extension http://t.co/6fc8FwM2Wu Signature law survives by non-enforcement $$ Mar 07, 2014
  • How Presidential Budgets Became a Joke http://t.co/uw78mnO8Wb Interesting article on how US budget process has changed over time $$ $TLT Mar 07, 2014
  • Supreme Court Has Some Theories on Market Efficiency http://t.co/OBiMrmVrWs Sadly, mkt efficiency can’t really b tested w/o a model $$ $SPY Mar 06, 2014
  • Insurers’ Obamacare Losses May Reach $5.5B in 2015 http://t.co/cEiFXV7nNp Defective PPACA law increases medical expenses dramatically $$ Mar 06, 2014

 

Market Impact

 

  • Companies Rush to List Shares http://t.co/FZcfw0AGkV Initial Public Offerings Hit Pace Not Seen in Years, similar to 2005-7, <2000 $$ $SPY Mar 07, 2014
  • Buffett Cuts Bond Allocation as $BRK-B Warns on Yields http://t.co/1IlcxihmE7 Can c bond holdings on Sch D: Buffett Buys Boring Bonds $$ Mar 07, 2014
  • That’s a compliment to Mr. Buffett by the way. He keeps his bonds relatively safe to compensate for aggressive alloc 2 stock 4 an insurer $$ Mar 07, 2014
  • The Great Divide over Market Efficiency http://t.co/1vls4pokmn Purists argue ad nauseam & can’t b happy with the idea “mostly efficient” $$ Mar 07, 2014
  • Old Mutual Breathes New Life Into the Multiboutique Model http://t.co/pv0VCH6PGI Still skeptical; $AMG is the model but $PNX failed $$ $XLF Mar 07, 2014
  • High-Grade Firms Dive Into Debt Market http://t.co/Kd9hxJmMSj Whenever there is high issuance of new stocks or bonds, time 2b careful $$ Mar 07, 2014
  • Seth Klarman: Investors Downplaying Risk “Never Turns Out Well” http://t.co/gjgSObhR9m “Markets don’t exist simply to enrich people $$ $QQQ Mar 07, 2014
  • Buffalo Small Cap Tech Fund Tops Ranking with 61% Return http://t.co/KyP5qcKx9E If u r looking 4 aggressive growth funds, many ideas here $$ Mar 07, 2014
  • How to invest like a billionaire http://t.co/8OsYmbDUid Billionaires build corporations; they don’t just trade stocks $$ Mar 06, 2014
  • Deleveraging Is a Drag http://t.co/nCjzfJc4w2 Gary Shilling tells us what factors may lead interest rates to go down further, not up $$ $TLT Mar 05, 2014
  • Buffett’s Book Pick Guides Fuss to Marks Beating Market http://t.co/AyJROYpYov Many investors cut their teeth on The Intelligent Investor $$ Mar 05, 2014
  • Buffett Derivatives: back in black http://t.co/iitbAGrUFQ Keep it simple — @WarrenBuffett won on this trade, add in the float earnings $$ Mar 05, 2014

 

Other

 

  • Fed’s Plosser Asks Central Banks to Get Back to Basics http://t.co/wiUb3CU9qL Slight fed funds rise helps money mkts & metal inventories $$ Mar 07, 2014
  • How the Chevron RICO Ruling Relates to Abortion Clinic Protests http://t.co/URsJ3pAuVl Fascinating analogy, though I think it is flawed $$ Mar 07, 2014
  • 95% of bank ATMs face end of security support http://t.co/WOYOoiB9Kw Bet u never knew that almost all bank ATMs use Windows XP! $$ $XLF $SPY Mar 07, 2014
  • Food Hacks To Change The Way You Eat http://t.co/GEAX14oDjy Cute ideas; I may try a few of them $$ Mar 06, 2014
  • Satoshi Nakamoto’s Modest Lifestyle http://t.co/4UZGSXmyFg & how Leah McGrath Goodman found the Bitcoin founder http://t.co/qAY239pRZ4 $$ Mar 06, 2014
  • Women Could Have Greater Role in Church, Says Pope http://t.co/4RcQVeWZ5Q Making them deacons doesn’t make sense; prelude to priesthood $$ Mar 06, 2014
  • The Computer Mouse Still Roars http://t.co/opGReEejHJ If u want accuracy & speed, nothing beats a mouse, aside from a trackball $$ $LOGI Mar 06, 2014

 

Wrong

 

  • Warren Buffett, Climate-Change Denier http://t.co/A0YFEHjgzk Buffett didn’t deny climate change; just that it had no impact on P&C ins $$ Mar 04, 2014
  • Unlikely: Buffett Power Hunt May Target Wisconsin Energy http://t.co/kmceBMMY4T Don’t think Buffett pays up 4 an earnings yield <6% $$ $WEC Mar 04, 2014
  • Wrong: Insurers will destroy themselves 2nudge us in2 robot utopia http://t.co/pjn4OUNYD3 Systems will never b that good; rates will fall $$ Mar 05, 2014
  • Wrong: The well is running dry for big oil http://t.co/sgzsvu4tkU Article ignores growing demand 4 crude globally, but depletion is big $$ Mar 03, 2014
  • Wrong: Vladimir Putin’s Alternate Reality http://t.co/M1ioKfzqPg Putin saw that the West did nothing when Georgia was invaded, he learned $$ Mar 03, 2014
  • Wrong: Debt alarmist chart. http://t.co/uq0cC33Kel Neglects the entitlement liabilities of the US Government. Wish he gave data source $$ Mar 03, 2014

  

Retweets, Replies & Comments

 

  • RT @footnoted: A bit of hedging in there @vitaliyk my go-to person on Russia/Ukraine situation http://t.co/bUBvcRj2bm Mar 05, 2014
  • @firstadopter Not worth the paper it is written on, not that Ukraine could have maintained nuclear weapons. The US is an unreliable ally. Mar 04, 2014

 

Can contingent claims theory for bond defaults be done on a cash flow/liquidity basis?  KMV-type models seem to fail on severely distressed bonds that have time to breathe and repair.

We’re getting close to the end of this series, and I am scraping the bottom of the barrel.  As with most aspects of life, the best things get done first.  After that diminishing marginal returns kick in.

Here’s the issue.  It’s possible to model credit risk as a put option that the bondholders have sold to the stockholders.  As such, equity implied volatility helps inform us as to how likely default will be.  But implied volatilities are only available for at most two years out, because they don’t commonly trade options longer than that.

Here’s the scenario that I posit: there is a company in lousy shape that looks like a certain bankruptcy candidate, except that there are no significant events requiring liquidity for 3-5 years.  In a case like this, the exercise date of the option to default is so far out, that the company can probably find ways to avoid bankruptcy, but the math may make it look unavoidable.  Remember, the equity has the option to default, but they also control the company until they do default.  Being the equity is valuable, because you control the assets.

Bankruptcy means choking on cash flows out that can’t be made.  Ordinarily, that happens because of interest payments that can’t be made, rather than repayment of principal.  If interest payments can be made, typically principal payments can be refinanced, unless credit gets tight.

The raw math of the contingent claims models do not take account of the clever distressed company manager who finds a way to avoid bankruptcy, driving deals to avoid it.  The more time he has, the more clever he can be.

This is a reason why I distrust simple mathematical models in investing.  The world is more complex than the math will admit.  So be careful applying math to markets.  Think through what the assumptions and models mean, because they may not reflect how people actually work.

 

A letter from a reader:

Dave,

My Mom asked me about 770 accounts (apparently, she wants to open one). I’ve reserched [sic] them, but can’t quite figure out if it’s legit or not. So much, what I’ve found is that it is really some kind of insurance policy, it’s tax free, and it’s not openly advertized [sic].

Do you know anything about these accounts? Are they safe? Are they worth it?

Dear Friend,

We are talking about permanent life insurance here.  I’ve written about this at least once before.  The types of policies they talk about maximize the savings element inherent in permanent life insurance, and minimize the death benefit.  Monies in the insurance policy accrue tax free, and at death they escape estate taxes.  What could be better?

Well, permanent insurance is laden with fees, and agents love to sell it if they can, because the commissions are huge.  Mortality charges are significant as well.  As I often say with this kind of product, insurers love to create complex products because average people can’t tell whether they are getting a good deal or not.  (Hint: usually, you are not getting a good deal.)

Life insurance is a very expensive way to manage assets, between the agents and the operating costs of the company.  At present, insurance company assets yield more than market rates, which gives a subsidy to customers, but the day will come, like the late 70s — early 80s, where it was very much the reverse.

Aside from scamming the tax man, and providing protection to loved ones at your death, life insurance is a lousy vehicle for building wealth.  If you have built wealth already, it is an excellent way to preserve it for your heirs.  But it won’t make you rich, and all of those advertising such accounts and those like them, make huge commissions off of permanent life policies if they are the agent.  They make out far better than you will.

Are they safe?  Yes, life insurance is safe.  Are they worth it?  No.  Not that I am bullish on the stock market now, but under most conditions, the stock market outperforms the returns that insurance companies before expenses, much less after expenses.

This can make a lot of sense if you are rich already, but it will never make you rich.  Having reviewed many of the advertisements for these products, they use a Madoff-like technique that tells you that you are being let in on a secret way of wealth.  It’s all garbage, because permanent life insurance has been around for over 100 years.

Hey, let me tell you a secret.  Did you know that insurance stocks  have outperformed most other industry groups over the last 40-50 years?  Buffett will tell you, insurance is a great business.  Now, maybe I can give this a cryptic name, like a 321 fund, and tell people that owning the 321 fund is a way to wealth.  (Psst… the same is true of the stocks of money managers… they do much better than mutual funds.)

Sadly, you would likely do better with my 321 fund, than the 770 account, especially if it is held within a tax-deferred account.

Be wary of any pitch that is too good to be true.  Don’t buy what someone wants to sell you.  Buy what you have researched and want to buy.  Oh, and buy the 321 fund — really, buy it. 😉  (I feel ashamed.)

Final Note

THERE ARE NO SECRETS IN MONEY MANAGEMENT!  THERE ARE NO SECRETS IN MONEY MANAGEMENT!  THERE ARE NO SECRETS IN MONEY MANAGEMENT!

There is no secret club.  There are no secret formulas. There are a lot of clever lawyers, accountants, and actuaries that the wealthy employ, but for average people, the high fixed costs won’t make it work.

If you want to be wealthy, you have to run your own firm, run it well, providing value to many.  Don’t listen to those who say they have an easy way to wealth.  They are lying, and are looking to make money off of you.  Those who give you free advice are using you in some way.  (Wait, what does that make me to be? Sigh.)

Signing off, your servant David, who does this for his own reasons…

While at RealMoney, I wrote a short series on data-mining.  Copies of the articles are here: (one, two). I enjoyed writing them, and the most pleasant surprise was the favorable email from readers and fellow columnists. As a follow up, on April 13th, 2005, I wrote an article on analyst coverage — and neglect. Today, I am writing the same article but as of today, with even more detail, and comparisons to prior analyses.

As it was, in my Finacorp years, I wrote a similar piece to this but it has been lost; I can’t find a copy of it, and Finacorp is in the ash-heap of financial firms. (Big heap, that.)

For a variety of reasons, sell-side analysts do not cover companies and sectors evenly. For one, they have biases that are related to how the sell-side analyst’s employer makes money. It is my contention that companies with less analyst coverage than would be expected offer an opportunity to profit for investors who are willing to sit down and analyze these lesser-analyzed companies and sectors.

I am a quantitative analyst, but I try to be intellectually honest about my models and not demand more from them than they can deliver. That’s why I have relatively few useful models, maybe a dozen or so, when there are hundreds of models used by quantitative analysts in the aggregate.

 

Why do I use so few? Many quantitative analysts re-analyze (torture) their data too many times, until they find a relationship that fits well. These same analysts then get surprised when the model doesn’t work when applied to the real markets, because of the calculated relationship being a statistical accident, or because of other forms of implementation shortfall — bid-ask spreads, market impact, commissions, etc.

This is one of the main reasons I tend not to trust most of the “advanced” quantitative research coming out of the sell side. Aside from torturing the data until it will confess to anything (re-analyzing), many sell-side quantitative analysts don’t appreciate the statistical limitations of the models they use. For instance, ordinary least squares regression is used properly less than 20% of the time in sell-side research, in my opinion.

 

Sell-side firms make money two ways.They can make via executing trades, so volume is a proxy for profitability.They can make money by helping companies raise capital, and they won’t hire firms that don’t cover them.Thus another proxy for profitability is market capitalization.

 

Thus trading volume and market capitalization are major factors influencing analyst coverage. Aside from that, I found that the sector a company belongs to has an effect on the number of analysts covering it.

 

I limited my inquiry to include companies that had a market capitalization of over $10 million, US companies only, and no ETFs.

 

I used ordinary least squares regression covering a data set of 4,604 companies. The regression explained 82% of the variation in analyst coverage. Each of the Volume and market cap variables used were significantly different from zero at probabilities of less than one in one million. As for the sector variables, they were statistically significant as a group, but not individually.Here’s a list of the variables:

 

Variable

 Coefficients

 Standard Error

 t-Statistic

 Logarithm of 3-month average volume

 0.57

0.04

 15.12

 Logarithm of Market Capitalization

 (2.22)

0.15

(14.69)

 Logarithm of Market Capitalization, squared

 0.36

0.01

 31.42

 Basic Materials

 (0.53)

0.53

 (1.01)

 Capital Goods

 0.39

0.54

 0.74

 Conglomerates

 (0.70)

1.95

 (0.36)

 Consumer Cyclical

 0.08

0.55

 0.14

 Consumer Non-Cyclical

 (1.40)

0.55

 (2.52)

 Energy

 2.56

0.53

 4.87

 Financial

 0.37

0.48

 0.78

 Health Care

 0.05

0.50

 0.11

 Services

 (0.30)

0.49

 (0.61)

 Technology

 0.82

0.49

 1.67

 Transportation

 2.92

0.66

 4.40

 Utilities

 (1.10)

0.60

 (1.82)

 

In short, the variables that I used contained data on market capitalization, volume and market sector.

An increasing market capitalization tends to attract more analysts. At a market cap of $522 million, market capitalization as a factor adds no net analysts. At the highest market cap in my study, Apple [AAPL] at $469 billion, the model indicates that 11 fewer analysts should cover the company. The smallest companies in my study would have 3.3 fewer analysts as compared with a company with a market cap of $522 million.

 

Market Cap

 Analyst additions

 10.00

 2.30

 30.00

 3.40

100.00

 4.61

300.00

 5.70

522.20

 6.26

 1,000.00

 6.91

 3,000.00

 8.01

10,000.00

 9.21

30,000.00

 10.31

100,000.00

 11.51

300,000.00

 12.61

469,400.30

 13.06

 

The intuitive reasoning behind this is that larger companies do more capital markets transactions. Capital markets transactions are highly profitable for investment banks, so they have analysts cover large companies in the hope that when a company floats more stock or debt, or engages in a merger or acquisition, the company will use that investment bank for the transaction.

 

Investment banks also make some money from trading. Access to sell-side research is sometimes limited to those who do enough commission volume with the investment bank. It’s not surprising that companies with high amounts of turnover in their shares have more analysts covering them. The following table gives a feel for how many additional analysts cover a company relative to its daily trading volume. A simple rule of thumb is that (on average) as trading volume quintuples, a firm gains an additional analyst, and when trading volume falls by 80%, it loses an analyst.

 

Daily Trading Volume (3 mo avg)

Analyst Additions

30.6
101.3
301.9
1002.6
3003.2
1,0003.9
3,0004.5
10,0005.2
30,0005.8
100,0006.5
300,0007.1
1,000,0007.8
3,000,0008.4
4,660,4408.7

 

An additional bit of the intuition for why increased trading volume attracts more analysts is that volume is in one sense a measure of disagreement. Investors disagree about the value of a stock, so one buys what another sells. Sell-side analysts note this as well; stocks with high trading volumes relative to their market capitalizations are controversial stocks, and analysts often want to make their reputation by getting the analysis of a controversial stock right. Or they just might feel forced to cover the stock because it would look funny to omit a controversial company.

Analyst Neglect

The first two variables that I considered, market capitalization and volume, have intuitive stories behind them as to why the level of analysts ordinarily varies. But analyst coverage also varies by industry sector, and the reasons are less intuitive to me there.

 

Please note that my regression had no constant term, so the constant got embedded in the industry factors. Using the Transportation sector as a benchmark makes the analysis easier to explain. Here’s an example: On average, a Utilities company that has the same market cap and trading volume as a Transportation company would attract four fewer analysts.

 

Sector  Addl Analysts  Fewer than Transports
 Transportation 2.92
 Energy 2.56 (0.37)
 Technology 0.82 (2.10)
 Capital Goods 0.39 (2.53)
 Financial 0.37 (2.55)
 Consumer Cyclical 0.08 (2.84)
 Health Care 0.05 (2.87)
 Services (0.30) (3.22)
 Basic Materials (0.53) (3.46)
 Conglomerates (0.70) (3.63)
 Utilities (1.10) (4.02)
 Consumer Non-Cyclical (1.40) (4.32)

 

Why is that? I can think of two reasons. First, the companies in the sectors at the top of my table are perceived to have better growth prospects than those at the bottom. Second, the sectors at the top of the table are more volatile than those toward the bottom (though basic materials would argue against that). As an aside, companies in the conglomerates sector get less coverage because they are hard for a specialist analyst to understand.

 

My summary reason is that “cooler” sectors attract more analysts than duller sectors. To the extent that this is the common factor behind the variation of analyst coverage across sectors, I would argue that sectors toward the bottom of the list are unfairly neglected by analysts and may offer better opportunities for individual investors to profit through analysis of undercovered companies in those sectors.

Malign Neglect

Now, my model did not explain 100% of the variation in analyst coverage. It explained 82%, which leaves 18% unexplained. Some of the unexplained variation is due to the fact that no model can be perfect. But the unexplained variation can be used to reveal the companies that my model predicted most poorly. Why is that useful? If my model approximates “the way the world should be,” then the degree of under- and over-coverage by analysts will reveal where too many or few analysts are looking. The following tables lists the largest company variations between reality and my model, split by market cap group.

 

Behemoth Stocks

 

TickerCompanySectorExcess analysts
BRK.ABerkshire Hathaway Inc.07 – Financial(25.75)
GEGeneral Electric Company02 – Capital Goods(20.47)
XOMExxon Mobil Corporation06 – Energy(19.32)
CVXChevron Corporation06 – Energy(14.64)
PFEPfizer Inc.08 – Health Care(14.57)
MRKMerck & Co., Inc.08 – Health Care(12.76)
GOOGGoogle Inc10 – Technology(11.44)
JNJJohnson & Johnson08 – Health Care(11.39)
MSFTMicrosoft Corporation10 – Technology(10.39)
PMPhilip Morris International In05 – Consumer Non-Cyclical(10.21)

 

Too many

 

TickerCompanySectorExcess analysts
VVisa Inc09 – Services 2.58
DISWalt Disney Company, The09 – Services 2.95
SLBSchlumberger Limited.06 – Energy 4.15
CSCOCisco Systems, Inc.10 – Technology 5.22
QCOMQUALCOMM, Inc.10 – Technology 5.34
ORCLOracle Corporation10 – Technology 5.98
FBFacebook Inc10 – Technology 8.28
AMZNAmazon.com, Inc.09 – Services 9.34
AAPLApple Inc.10 – Technology 10.57
INTCIntel Corporation10 – Technology 11.85

 

Large Cap Stocks

 

TickerCompanySectorExcess analysts
SPGSimon Property Group Inc09 – Services(16.15)
BF.BBrown-Forman Corporation05 – Consumer Non-Cyclical(16.03)
LUKLeucadia National Corp.07 – Financial(15.93)
LLoews Corporation07 – Financial(15.90)
EQREquity Residential09 – Services(15.87)
ARCPAmerican Realty Capital Proper09 – Services(15.75)
IEPIcahn Enterprises LP09 – Services(15.50)
LVNTALiberty Interactive (Ventures09 – Services(15.36)
ABBVAbbVie Inc08 – Health Care(15.01)
GOM CLAlly Financial Inc07 – Financial(14.87)

 

Too Many

 

TickerCompanySectorExcess analysts
UAUnder Armour Inc04 – Consumer Cyclical 16.68
BRCMBroadcom Corporation10 – Technology 17.29
RRCRange Resources Corp.06 – Energy 17.33
SWNSouthwestern Energy Company06 – Energy 17.70
RHTRed Hat Inc10 – Technology 18.08
NTAPNetApp Inc.10 – Technology 19.82
CTXSCitrix Systems, Inc.10 – Technology 19.84
COHCoach, Inc.09 – Services 20.87
VMWVMware, Inc.10 – Technology 21.60
CRMsalesforce.com, inc.10 – Technology 22.64

 

Mid cap stocks

 

TickerCompanySectorExcess analysts
FNMAFederal National Mortgage Assc07 – Financial(13.84)
UHALAMERCO11 – Transportation(12.23)
ORealty Income Corp09 – Services(12.06)
CIMChimera Investment Corporation07 – Financial(11.49)
SLGSL Green Realty Corp09 – Services(11.46)
NRFNorthstar Realty Finance Corp.09 – Services(11.34)
FMCCFederal Home Loan Mortgage Cor07 – Financial(11.14)
EXRExtra Space Storage, Inc.11 – Transportation(10.97)
KMRKinder Morgan Management, LLC06 – Energy(10.94)
CWHCommonWealth REIT09 – Services(10.51)

 

Too Many

 

TickerCompanySectorExcess analysts
AEOAmerican Eagle Outfitters09 – Services 17.00
DRIDarden Restaurants, Inc.09 – Services 17.40
RVBDRiverbed Technology, Inc.10 – Technology 17.50
CMAComerica Incorporated07 – Financial 17.74
GPNGlobal Payments Inc07 – Financial 18.30
WLLWhiting Petroleum Corp06 – Energy 19.67
DODiamond Offshore Drilling Inc06 – Energy 21.57
URBNUrban Outfitters, Inc.09 – Services 24.06
RDCRowan Companies PLC06 – Energy 24.48
ANFAbercrombie & Fitch Co.09 – Services 26.02

 

 

Small cap stocks

 

TickerCompanySectorExcess analysts
BALTBaltic Trading Ltd11 – Transportation (7.96)
ERAEra Group Inc11 – Transportation (7.45)
PBTPermian Basin Royalty Trust06 – Energy (7.42)
SDRSandRidge Mississippian Trust06 – Energy (7.18)
PHOTGrowlife Inc02 – Capital Goods (6.79)
SBRSabine Royalty Trust06 – Energy (6.74)
CAKCAMAC Energy Inc06 – Energy (6.64)
FITXCreative Edge Nutrition Inc09 – Services (6.57)
BLTABaltia Air Lines Inc11 – Transportation (6.53)
VHCVirnetX Holding Corporation10 – Technology (6.49)

 

Too many

 

TickerCompanySectorExcess analysts
WLTWalter Energy, Inc.06 – Energy 12.19
ANGIAngie’s List Inc10 – Technology 12.31
FRANFrancesca’s Holdings Corp09 – Services 12.58
ZUMZZumiez Inc.09 – Services 13.49
GDPGoodrich Petroleum Corp06 – Energy 15.02
DNDNDendreon Corporation08 – Health Care 15.89
ACIArch Coal Inc06 – Energy 16.04
HEROHercules Offshore, Inc.06 – Energy 16.19
AREXApproach Resources Inc.06 – Energy 17.64
AROAeropostale Inc09 – Services 20.80

 

Microcap Stocks

 

TickerCompanySectorExcess analysts
SGLBSigma Labs Inc06 – Energy (6.18)
AEGYAlternative Energy Partners In10 – Technology (5.97)
WPWRWell Power Inc06 – Energy (5.83)
TTDZTriton Distribution Systems In10 – Technology (5.53)
SFRXSeafarer Exploration Corp11 – Transportation (5.15)
PTRCPetro River Oil Corp06 – Energy (4.99)
UTRMUnited Treatment CentersInc08 – Health Care (4.82)
BIELBioelectronics Corp08 – Health Care (4.80)
DEWMDewmar International BMC Inc01 – Basic Materials (4.74)
FEECFar East Energy Corp06 – Energy (4.61)

 

Too many

 

TickerCompanySectorExcess analysts
PRSSCafePress Inc09 – Services 3.99
SANWS&W Seed Company05 – Consumer Non-Cyclical 4.03
KIORKiOR Inc01 – Basic Materials 4.06
PRXGPernix Group Inc02 – Capital Goods 4.08
EYNONEntergy New Orleans, Inc.12 – Utilities 4.17
PARFParadise, Inc.05 – Consumer Non-Cyclical 4.40
SUMRSummer Infant, Inc.05 – Consumer Non-Cyclical 4.52
LANDGladstone Land Corp05 – Consumer Non-Cyclical 4.57
JRCCJames River Coal Company06 – Energy 6.38
GNKGenco Shipping & Trading Limit11 – Transportation 7.11

My advice to readers is to consider buying companies that have fewer analysts studying them than the model would indicate.  This method is certainly not perfect but it does point out spots where Wall Street is not focusing its efforts, and might provide some opportunities.

 

 

Full disclosure: long BRK/B & CVX

In his annual report, though not his more well-known letter, Buffett talked about intrinsic value.  It was on pages 107-108, and here it is:

Now let’s focus on a term that I mentioned earlier and that you will encounter in future annual reports.

Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.

The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover – and this would apply even to Charlie and me – will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value.  What our annual reports do supply, though, are the facts that we ourselves use to calculate this value.

Meanwhile, we regularly report our per-share book value, an easily calculable number, though one of limited use. The limitations do not arise from our holdings of marketable securities, which are carried on our books at their current prices. Rather the inadequacies of book value have to do with the companies we control, whose values as stated on our books may be far different from their intrinsic values.

The disparity can go in either direction. For example, in 1964 we could state with certitude that Berkshire’s per-share book value was $19.46. However, that figure considerably overstated the company’s intrinsic value, since all of the company’s resources were tied up in a sub-profitable textile business. Our textile assets had neither going-concern nor liquidation values equal to their carrying values. Today, however, Berkshire’s situation is reversed: Now, our book value far understates Berkshire’s intrinsic value, a point true because many of the businesses we control are worth much more than their carrying value.

Inadequate though they are in telling the story, we give you Berkshire’s book-value figures because they today serve as a rough, albeit significantly understated, tracking measure for Berkshire’s intrinsic value. In other words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.

You can gain some insight into the differences between book value and intrinsic value by looking at one form of investment, a college education. Think of the education’s cost as its “book value.” If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job. 

For this exercise, we will ignore the important non-economic benefits of an education and focus strictly on its economic value. First, we must estimate the earnings that the graduate will receive over his lifetime and subtract from that figure an estimate of what he would have earned had he lacked his education. That gives us an excess earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. The dollar result equals the intrinsic economic value of the education.

Some graduates will find that the book value of their education exceeds its intrinsic value, which means that whoever paid for the education didn’t get his money’s worth. In other cases, the intrinsic value of an education will far exceed its book value, a result that proves capital was wisely deployed. In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value.

There are two problems with intrinsic value:

  1. We don’t really know what future free cash flow will be, nor the willingness and ability of management to use it wisely.
  2. We really don’t know what the cost of capital is for a firm, particularly not the cost of equity.

With simple firms, we can try to do a sum-of-the-parts analysis off of comparable companies — but often the differences are significant.  It’s not easy.

Buffett has drawn a line in the sand, and that line has held so far — he buys back shares when the price drops below 1.2x book value.  At present, that is his proxy for what I suspect is his minimum view of what BRK is worth.

This offers an experimental way of attempting to estimate intrinsic value, that is, if you are the CEO or CFO.  Set up a valuation metric off of book or sales, since they don’t move as much as earnings, and then offer to buy back shares at a multiple of the metric that you think represents intrinsic value.

If you don’t buy many shares, you might want to move the multiple up.  If shares come flooding in, move the multiple down. Oops, did I forget to mention “be conservative initially?”

I think Buffett is setting an example to other management teams on how to run an intelligent buyback.  The main principle is this: buy back shares during a panic, or during a malaise that does not reflect future prospects.  Don’t buy back shares all of the time.  Wait for bargains to buy back shares.

If you set the barrier on when you buy shares such that it happens a few times a year, and cash levels never get too low, you’ve probably set up a good buyback plan, and as a bonus, you have a decent conservative idea of what the intrinsic value is for your stock.

I think it would make a lot of sense for CEOs and CFOs to imitate Buffett, and make their buybacks contingent on a certain multiple of book value or sales.  Adapt the level to demand, and be conservative — it is far better to not make so much money, than to give away give away value by overpaying for your stock.  You can always buy back more stock later; you can’t un-buy stock.

The side benefit of an exercise like this to a corporation is that it will understand its cost of capital well, and will be all the more able to make intelligent decisions on mergers and acquisitions, stock buybacks and issuance.

Full Disclosure: Long BRK/B for clients and me

I’m going to try to take this topically.  Here goes:

On Acquisitions

Buffett still has a strong desire for more acquisitions.  After $18B to buy 52.6% of Heinz (counting in the low strike warrants), and all of NV Energy through MidAmerican, there were additional bolt-on acquisitions $3.1B after additional payments of $3.5B to buy the rest of Marmon  and Iscar.  After all that, the cash level at BRK was virtually unchanged from the beginning of 2013.

He might like to own far more of Heinz in the future:

Though the Heinz acquisition has some similarities to a “private equity” transaction, there is a crucial difference: Berkshire never intends to sell a share of the company. What we would like, rather, is to buy more, and that could happen: Certain 3G investors may sell some or all of their shares in the future, and we might increase our ownership at such times. Berkshire and 3G could also decide at some point that it would be mutually beneficial if we were to exchange some of our preferred for common shares (at an equity valuation appropriate to the time).

And he might want to buy more utilities:

NV Energy, purchased for $5.6 billion by MidAmerican Energy, our utility subsidiary, supplies electricity to about 88% of Nevada’s population. This acquisition fits nicely into our existing electric-utility operation and offers many possibilities for large investments in renewable energy. NV Energy will not be MidAmerican’s last major acquisition.

The Powerhouse Five

MidAmerican is one of our “Powerhouse Five” – a collection of large non-insurance businesses that, in aggregate, had a record $10.8 billion of pre-tax earnings in 2013, up $758 million from 2012. The other companies in this sainted group are BNSF, Iscar, Lubrizol and Marmon.

If you look at BRK earnings now, leaving aside derivatives, one-third of earnings come from insurance, and the rest stems from the industrial & utility enterprises.  [Note: Buffett uses the word “sainted” which he used in the 1980s to describe a group of much smaller private companies that he owned in full then.  He doesn’t mean holy, but leading and valuable.  They are driving the economics of BRK.

None of the Powerhouse Five did badly in 2013, though Marmon was a little weak.  It’s difficult to find any part of BRK that did badly in 2013.  BNSF was particularly impressive, and I am glad that I thought it was a good move when Buffett bought it, because too many criticized it at the time.

As an aside, it’s interesting how much MidAmerican is pouring onto wind and solar power.

Debt

I’ve always thought Buffett was clever with debt issues.  He never guarantees the debt when he takes over a company.  He is willing to live with the complexity of subsidiary debt issues.  But hear these quotations from the Annual Report:

  • Berkshire does not guarantee any debt or other borrowings of BNSF, MidAmerican or their subsidiaries.
  • BNSF’s borrowings are primarily unsecured.
  • All, or substantially all, of the assets of certain MidAmerican subsidiaries are, or may be, pledged or encumbered to support or otherwise secure the debt. These borrowing arrangements generally contain various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios.
  • The borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, are fully and unconditionally guaranteed by Berkshire. 

Buffett only guarantees the debt of a small finance subsidiary, and nothing more.  The rest of the debt is non-recourse to BRK, and so bondholders take their chances on a subsidiary failing.

Derivatives

Our credit default contracts generated pre-tax losses of $213 million in 2013, which was due to increases in estimated liabilities of a municipality issuer contract that relates to more than 500 municipal debt issues. Our credit default contract exposures associated with corporate issuers expired in December 2013. There were no losses paid in 2013. Our remaining credit default derivative contract exposures are currently limited to the municipality issuer contract.

The equity puts are way out of the money, and only municipal issues remain among his fixed income derivatives.  BRK “made” $4B on the derivative positions in 2013, something that will be impossible to repeat.

Give Buffett credit, though, because he structured some clever trades that have made a lot of money.  Value investing won vs option pricing.  At present, the future performance of the derivatives is close to immaterial, unless we have significant municipal defaults.

Insurance

A few qualitative notes: Buffett mentions that GEICO has passed Allstate to become #2 in Auto insurance.  He later mentions State Farm (#1 in Auto, I think the first time he has mentioned it):

Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous in most years that it causes the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. For example, State Farm, by far the country’s largest insurer and a well-managed company besides, incurred an underwriting loss in nine of the twelve years ending in 2012 (the latest year for which their financials are available, as I write this). Competitive dynamics almost guarantee that the insurance industry – despite the float income all companies enjoy – will continue its dismal record of earning subnormal returns as compared to other businesses.

But after mentioning State Farm’s abysmal underwriting, though Buffett doesn’t say it is such, he mentions how well BRK has done:

As noted in the first section of this report, we have now operated at an underwriting profit for eleven
consecutive years, our pre-tax gain for the period having totaled $22 billion. Looking ahead, I believe we will
continue to underwrite profitably in most years. Doing so is the daily focus of all of our insurance managers who
know that while float is valuable, it can be drowned by poor underwriting results.

BRK had a light year for catastrophes, which inflated their income somewhat.  It also seems that they put the poor deal that they did with Swiss Re behind them.

Buffett also talked about the “float” growing — assets held for future payment where no interest has to be paid.  It’s $70B+ now.  More on that later.

Buffett also trumpeted a move into Specialty Insurance.  He poached a team from AIG in 2013 to start this.  Specialty Insurance means niche markets with very careful underwriting guidelines.  I’m sure that Berkshire will do this well.

Finally, the insurers have good underwriting and reserving.  BRK still has a underwriting profit over the past eleven years, and they continue to release reserves from prior year claims.

The Structure of Berkshire Hathaway [BRK]

Though insurance no longer provides the majority of income for BRK, it is crucial to BRK’s functioning.  The insurance companies own almost of the industrial and utility enterprises.  BRK has little in fixed income and cash vs insurance reserves.  Buffett says:

 

Payments of dividends by our insurance subsidiaries are restricted by insurance statutes and regulations. Without prior regulatory approval, our principal insurance subsidiaries may declare up to approximately $13 billion as ordinary dividends before the end of 2014.

 

There is a rule of thumb in P&C insurance.  Claim reserves are funded by high quality bonds of equivalent length  Unearned premiums are funded by short-term debt like commercial paper.  Surplus funds are invested in risk assets, like equities.

With BRK, more is invested in risk assets than the rule of thumb would allow.  I’m not sure how the Risk-based Capital formulas allow this.  Other insurance companies can’t do this.

Notes

Buffett uses his private investments in real estate investing to show the difference between private & public investing.  This explains why we should be slow to trade.  He also says:

Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.

And as such, an investor in that state of ignorance should index.

Other Notes

Those who want to ask questions at Buffett’s annual meeting should send questions to: Carol Loomis, of Fortune, who may be e-mailed at cloomis@fortunemail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com; and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com.

Some have complained about a lack of transparency at BRK, and I have to disagree.  BRK is a collection of small and large businesses.  The annual report adequately talks about all of BRK, but gives less time to smaller issues.  BRK is the fifth largest company by market cap, and Buffett reveals more of his intentions then most CEOs.

I have more to say regarding Intrinsic Value & Compounding, but that will have to wait.

Full disclosure: Long BRK/B for myself and clients

Bitcoin

 

  • Mt Gox: The brief reign of bitcoin’s top exchange http://t.co/9jSwvxrzOJ What happens when u neglect basic acctg & programming controls Mar 01, 2014
  • Bitcoin Exchange Mt. Gox Files for Bankruptcy Protection http://t.co/aobpHTmsYi B wary of opaque transaction systems, clever may steal $$ Mar 01, 2014
  • Where Did the Bitcoins Go? The Mt. Gox Shutdown, Explained http://t.co/0OkksL8TPG Currencies can’t exist apart from legal systems $$ $BTCUSD Feb 26, 2014
  • The Bitcoin Collective Delusion http://t.co/t51GGmuWbw Inevitable that gov’ts get involved in currencies & trade 4 punishment of fraud $$ Feb 26, 2014

 

Companies & Industries

 

  • Wall Street Hates JPMorgan Fee 4 $1T Junk Loans http://t.co/laoAXelOIr It is a private market; if the distortions r bad enuf, biz will leave Mar 01, 2014
  • Line Builds $15B Value With Teddy Bears, Wicked Witches http://t.co/ccGFjIVQsQ Freemium model applied to Asian messaging, watch 4 IPO Mar 01, 2014
  • Old Mutual Plans IPO of US Unit After Profit Increases http://t.co/a28VUvS23r The final reconciliation of a decade-plus of mis-investment $$ Feb 28, 2014
  • Oil Giants Sell Pipelines as Shale Strength Drives Deals http://t.co/OBVZ66Tm5y They expect oil prices 2rise as they c cheap oil scarcity $$ Feb 28, 2014
  • Dream of US Oil Independence Slams Against Shale Costs http://t.co/eFRnOdt0aX If debt funds a large part of drilling, time 2b nervous $$ Feb 28, 2014
  • $MSFT ‘s Culture Is Like ‘ $IBM Circa 1990,’ New Chairman Says http://t.co/gzy5NzCaAX Use MSFT Office/Windows Cash Cow 2build new biz $$ Feb 27, 2014
  • What is ‘Forbes’ worth? http://t.co/mHpDgpfkpi The Internet chgs everything; formerly important publications get digitally hollowed out $$ Feb 26, 2014
  • Rolls-Royce Drone Ships Challenge $375B Industry http://t.co/CCC9L0rynT Problems here r considerable- control in bad weather, piracy, etc $$ Feb 26, 2014
  • US Issues Emergency Testing Order To Crude Oil Rail Shippers http://t.co/bU5AuY7Ixd Reasonable precautions 4 general safety $$ $UNP $CSX Feb 26, 2014
  • Japan Post Prepares for IPO http://t.co/yE7k137VjT Lotsa assets, but the Q is what can be done w/them. Fuzzy situation w/no hurry $$ $EWJ Feb 26, 2014
  • Zuckerberg Dines With Phone Frenemies Fretting Over Profits http://t.co/NMga2US13J Monet 2b made in solving mobile payments problem $$ $FB Feb 26, 2014
  • Rising Premiums May Hit Small Firms http://t.co/nBA1wjigHP The lies told by the administration regarding cost control r astounding $$ Feb 26, 2014
  • Saudi’s Allure Undimmed for Bechtel to DaVita Amid Fallout http://t.co/ikppxlukf3 Someone has 2 buy from the US; $DTA helps w/diabetes $$ Feb 26, 2014
  • $BAC Reaches Deal With Buffett on Preferred Stake http://t.co/bLpgqOMJzT Buffett gets better call protection, divs can b waived in crisis $$ Feb 26, 2014
  • Woes of Megacity Driving Signal Dawn of ‘Peak Car’ Era http://t.co/npHTO6NtcJ It may take ~10 yrs, this will right itself, w/fewer cars $$ Feb 26, 2014
  • Google Buses Fuel Inequality Debate as Boom Inflates Rents http://t.co/CaQ4msqBnW I f you can’t afford living in San Francisco, move out $$ Feb 26, 2014
  • How ARM Holdings Dominates the Chip World http://t.co/CCFJDitgh1 $ARMH vs $INTC – 2 clever approaches that r utterly different. Who wins? $$ Feb 26, 2014
  • Health Law Already Has Impact on Bottom Lines http://t.co/o4k5u6uWgB Fitting that health insurers r getting hosed 4 cooperating w/Obama $$ Feb 26, 2014
  • Repsol Agrees to $5B Deal W/Argentina on $YPF http://t.co/piwKwxqS70 $REP decides half a loaf is better than none, nondefaultable bonds $$ Feb 26, 2014

Rest of the World

 

  • China’s Yuan Slides Against US Dollar http://t.co/VLBVTrLPEf The Yuan is still a rigged market, we need 2c it float to ascertain value $$ Mar 01, 2014
  • Bulgaria’s Currency Board versus Ukraine’s Chaos http://t.co/w1lAYExWuF A currency that is anchored leads 2 better results in many ways $$ Feb 28, 2014
  • China’s Central Bank Engineered Yuan’s Decline http://t.co/WmwpCa0H4L It remains 2b seen where the yuan will trade when it freely floats $$ Feb 28, 2014
  • War Crimes Evident in South Sudan, Human Rights Watch Says http://t.co/1AfsvPMYmG Easiest way 2 call off dogs of war is not 2 loose them $$ Feb 27, 2014
  • Abe’s Southeast Asia Push Adds to US Ties Amid China Rift http://t.co/3BDgdNznN4 Example of entangling alliances: Will US defend Asia? $$ Feb 26, 2014
  • Ortega’s Zara Fashions Tax Avoidance by Shifting Profits to Alps http://t.co/RGBMJ4Xmzc Govts have an interest in unifying tax policy $$ Feb 26, 2014
  • Crisis Gauge Rises to Record High as Swaps Avoided http://t.co/hLKrltiEVk Chinese corp spreads widening, same for their TED spread $$ $FXI Feb 26, 2014
  • Investors Mount Attack on Norway in $20B Oil, Gas Row http://t.co/VOPMQgMZKE Norway becomes less predictable, may chase developers away $$ Feb 26, 2014
  • Ukraine Pledges to Protect Deposits as Kiev Rally Called http://t.co/iMGsdLODA2 Must ring hollow in Cyprus as EU moves 2 support Ukraine $$ Feb 26, 2014

 

US Politics & Policy

 

  • How ADA, a Chemical Used in Rubber, Got Into 500 Food Products http://t.co/moZqNNco85 Just because it’s not natural doesn’t mean it’s bad $$ Mar 01, 2014
  • Federal audit calls new school lunch rules a failure http://t.co/RyEd0JpP7j Missing middle ground where kids get yummy nutritious food $$ Mar 01, 2014
  • Study Finds SEC Staff Sold Shares B4 Cases Made Public http://t.co/8xRzyCfIgx SEC staffers don’t know what 2 buy, they know what 2 sell $$ Feb 28, 2014
  • GOP Targets Hillary Clinton With Obamacare Attacks http://t.co/QKlHYwHUeG It is fair to ask her what she would do differently than Obama $$ Feb 27, 2014
  • Here’s How Much People Are Actually Paying for Health Insurance http://t.co/AeC4xs3y2d Interesting, not sure what to make of it $$ Feb 27, 2014
  • Busted State Obamacare Websites Haven’t Caught Up to Healthcare gov http://t.co/LLee1ovP2y OR, MA & OR r worse than Fed’l website 4 PPACA $$ Feb 27, 2014
  • What Does Eric Schneiderman Know That the Rest of Us Don’t? http://t.co/aI4Crec3EZ Oversteps his bounds, but gets sellside firms 2 stop $$ Feb 27, 2014
  • Dave Camp: How to Fix Our Appalling Tax Code http://t.co/lx4VM2kHNz Complex tax codes allow the wealthy 2 eliminate taxes that poor can’t $$ Feb 26, 2014
  • When the Minimum Wage Goes Up, the Menu Price Also Rises http://t.co/ukEWzIjoje The pain has 2go somewhere, including reducing employment $$ Feb 26, 2014
  • America’s 10-Year Experiment in Broadband Investment Has Failed http://t.co/hjGuuu7JA0 We need to free up competition in the “last mile” $$ Feb 26, 2014
  • How Dodd-Frank Might Kill the CLO Market http://t.co/ztV9PMdums & we won’t miss it, b/c securitized credit is not accounted 4 properly $$ Feb 26, 2014
  • High-Priced Hydrogen Cars to Challenge Electrics http://t.co/3akLFwjJuG Hydrogen is not the solution, it is just fossil fuels in disguise $$ Feb 26, 2014
  • Truth About Hydrogen Power http://t.co/McG32mWHyT Old article, explains y hydrogen is no panacea b/c it takes fossil energy 2 produce it $$ Feb 26, 2014
  • The same is true of fusion power. The costs of creating Tritium at a scale needed to power a city would be astounding. $$ Feb 26, 2014
  • A Surprise Guest at the SEC’s Annual Gathering http://t.co/R15fMul7CU @mcuban shows what a measured & classy guy he can b @ SEC meeting $$ Feb 22, 2014

 

US Economics & Monetary Policy

 

  • Foreclosures Climaxing in New York-New Jersey Market: Mortgages http://t.co/NPQeYY7Rc3 Judicial foreclosure states catching up rest of US $$ Feb 26, 2014
  • Home Prices in 2013 Notch Biggest Annual Gain Since 2005 http://t.co/FjTjdA7YcU Demand from investors pads purchases, rates higher now $$ Feb 26, 2014
  • America’s Hottest Housing Market Has Suddenly Cooled Down http://t.co/00uIJ4gSo3 Phoenix RE rises out of ashes on speculative demand $$ $Z Feb 26, 2014
  • March 4 Hearing for Three Fed Nominees http://t.co/McV2Tt7p29 One bullet & 2 blanks in the gun. Stanley Fischer will bring some wisdom $$ Feb 26, 2014
  • Fed Crisis Transcripts Highlight Futility of FSOC Crystal Balls http://t.co/XComU1xA5K Bureaucrats can’t/won’t predict disaster coming $$ Feb 26, 2014
  • The Fed knows less than average http://t.co/cnA4nBBwU0 & http://t.co/5wG84hxPGi & http://t.co/C5y3re8ajV 2008 Transcripts show clueless $$ Feb 26, 2014
  • How to Profit from the Yellen Fed http://t.co/4oAiBUdXDr Yellen is core 2 the M.O. of the Fed, it’s like jazz, they make it up as they go $$ Feb 26, 2014

 

 

Market Impact

 

  • Banks Averting Bond Losses With Accounting Twist http://t.co/VC83ByMGNC Switching bonds from available 4 sale 2 held 2 maturity $$ Feb 26, 2014
  • The switch limits flexibility b/c u can’t change back w/o poss changing all back; also doesn’t change economics, moves losses 2 future $$ Feb 26, 2014
  • Greed Turning Losers to Leaders in Russell 1000 Index http://t.co/vpGTVXkD9t Could this b a harbinger of a change in the markets? $$ $SPY Feb 26, 2014
  • Outcome or process — what investment focus succeeds over time? http://t.co/edXLqAX9pg @Ritholtz tells us to focus on process not results $$ Feb 26, 2014
  • Social psychology: Market madness http://t.co/BtaVXAYWYZ This is y the 1st priority of investment is risk control; can’t sleep @ night $$ Feb 26, 2014
  • 10 Value Investing Blogs You’d Be Crazy Not To Follow http://t.co/mt8tZkGRAq Happy 2b featured among this great group of blogs $$ Thanks! Feb 26, 2014

 

Other Business

 

  • Harvard Brainpower Joins MIT Fueling Boston Sports Teams’

Titles http://t.co/OZNC8wCIJi Bright guys using math2analyze sports in Beantown $$ Feb 28, 2014

  • Big Data Comes to the Farm, Sowing Mistrust http://t.co/ayBsxp8qAt Farmers worry that data used to help them will b used against them too $$ Feb 28, 2014
  • Corporate Economists Are Hot Again http://t.co/DUn5O7Idjz An alternative would b actuaries, they r usually better at practical models $$ Feb 27, 2014
  • Dwindling Midwest High School Grads Spur College Hunt http://t.co/iVURNV69EU Demographics now fight against colleges, many weak will die $$ Feb 26, 2014
  • The Joy and Freedom of Working Until Death http://t.co/wkGRoRSJIg Find something that u enjoy doing that supports u & yours well forever $$ Feb 26, 2014

 

Medical

 

  • Dad May Join Two Moms for Disease-Free Designer Babies http://t.co/yiXUO0sLok Designer babies:many embryos die in order 2 produce 1 child $$ Feb 26, 2014
  • Your Heart May Be Older Than You Are http://t.co/46PbtkWQ7h Cute way 2 get people to take care of themselves; may have false negatives $$ Feb 26, 2014
  • Mystery Medical Symptoms Hit a Surprising Number of Patients http://t.co/6DoJnAjt6w Stress can trigger pains; this teaches stress control $$ Feb 26, 2014

 

Pimco & Bill Gross

  • Pimco’s Gross: ‘U don’t always produce productive family by sweet talking&always being inclusive’ http://t.co/sjKnhN76jh Allianz happy w/him Mar 01, 2014
  • Counterpoint: It’s time for Bill Gross 2 retire http://t.co/UB1ikZhTlI Everybody Should Get Off Bill Gross’s Back http://t.co/hbbAYRXuBN $$ Feb 26, 2014
  • Inside the Showdown Atop Pimco, the World’s Biggest Bond Firm http://t.co/kVtk8Zf5d8 Gross developed the theories guide Pimco & he stays $$ Feb 26, 2014

 

Wrong

  • Wrong: Templeton Braving China’s Housing Bubble http://t.co/rjVSQUXoAe China looks like Japan in 1989, or the developed world in 2007 #avoid Mar 01, 2014
  • Wrong: NASA Scientists Discover 715 New Planets http://t.co/6KhRpp2Y5A Life is finely tuned on Earth +/- 10% in size of Earth -> no life $$ Feb 27, 2014
  • Wrong: Fed s Tarullo Eyes New Tools to Limit Interest Rate Risk http://t.co/fA4l6omDVi Dreams 2 undo effects of bad policy w/o undoing it $$ Feb 26, 2014
  • Wrong: It Takes How Much Water to Grow an Almond?! http://t.co/u8kpW7kJFj Misses the idea that water does get reused many times: rain $$ Feb 26, 2014
  • Wrong: Can Amazon Dominate in Insurance, Too? http://t.co/zAP8GkunSx Except 4 simple products, Insurance is too complex 4 people to pull $$ Feb 24, 2014

 

Comments, Replies & Retweets

  • @jasonzweigwsj @AlexRubalcava I wrote an article on the problems w/zero cost investing recently http://t.co/ALu1ijgVev “sand in the gears” Mar 01, 2014
  • RT @AlexRubalcava: Zero commission stock trading sounds like a product tailor made to amplify investors’ behavioral finance mistakes. Mar 01, 2014
  • “Currencies & trade cannot exist in a vacuum apart from legal systems, because fraud is a crime…” — David_Merkel http://t.co/7fJX26SEyP $$ Feb 26, 2014
  • ‘ @GSElevator Tattletale Exposed (He Was Not in the Goldman Elevator) http://t.co/S1NVy13sZn I don’t get out much, 1st I’ve heard of this $$ Feb 26, 2014
  • “Regarding First Data, many might think it quite desirable to step out of the spotlight @ $JPM &…” — David_Merkel http://t.co/COHGctym2A $$ Feb 26, 2014
  • . @dpinsen The ancient retirement tripod of course http://t.co/k06EUCbHa1 unless the modern one works. $$ Feb 26, 2014
  • @dpinsen That was icky, and more… gotta go wash my brain out… brrr. Feb 22, 2014