March 2014April 2014Comments
Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions.Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.Weather is always a weak reason for a bad result.  You almost never see anyone claim good weather boosted results.

Didn’t they see today’s weak GDP report?

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated.Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated.No significant change.  What improvement?  Note: this is the one remaining place where they mention the “unemployment rate.” Shh.
Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow.Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow.Shades household spending down, lowers their view on business fixed investment.
Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.No change.  Funny that they don’t call their tapering a “restraint.”
Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.No change.  TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.41%, up 0.15% from March.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.No change. Any time they mention the “statutory mandate,” it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate.The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate.No change.
The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced.The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced.No change.
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.No change.  CPI is at 1.5% now, yoy.
The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.No change.
In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month.Reduces the purchase rate by $5 billion each on Treasuries and MBS.  No big deal.

 

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.No change
The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.No change.  But it has almost no impact on interest rates on the long end, which are rallying into a weakening global economy.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.No change. Useless paragraph.
If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.No change.  Says that purchases will likely continue to decline if the economy continues to improve.
However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.No change.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.No change.
In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.Monetary policy is like jazz; we make it up as we go.  Also note that progress can be expected progress – presumably that means looking at the change in forward expectations for inflation, etc.
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.No change.  Its standards for raising Fed funds are arbitrary.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.No change.
The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.No change.
With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements. That sentence lasted only one month.  Note that the phrase “unemployment rate” is close to being banned by the FOMC.  The dual mandate is not so dual, at least in the old sense.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

 

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.Kocherlakota rejoins the majority, even with no change to the “fifth paragraph” of the March statement.
Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity. Thus ends the lamest vote against an FOMC decision that I have ever seen.  The differences between the last statement’s fifth and sixth paragraphs were minuscule.

Comments

  • Small $10 B/month taper.  Equities and long bonds both rise.  Commodity prices fall.  The FOMC says that any future change to policy is contingent on almost everything.
  • They shaded household spending down, and lowered their view on business fixed investment.  Don’t know they keep an optimistic view of GDP growth, especially amid falling monetary velocity.
  • At least they are abandoning the unemployment rate as their measure of labor conditions.
  • They missed a real opportunity to simplify the statement.  More words obfuscate, they do not clarify.
  • In the past I have said, “When [holding down longer-term rates on the highest-quality debt] doesn’t work, what will they do?  I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.  The Fed is playing with forces bigger than themselves, and it isn’t dawning on them yet.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.  As a result, the FOMC ain’t moving rates up, absent increases in employment, or a US Dollar crisis.  Labor employment is the key metric.
  • GDP growth is not improving much if at all, and much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.

A younger friend of mine sent me an email asking for investment advice.  Here is the redacted version of it:

 

I’m not sure if you are aware of a blog called mrmoneymustache.com. The guy who runs the blog retired in his late twenties just working a software development job. Granted, he was really fortunate to have graduated college and started his career in the dot-com bubble, but he didn’t have a really high-paying job by any means during that time. Anyways, his main strategy was saving 70-80% of his income and investing heavily into Vanguard index funds. He stopped contributing to his 401Ks early on and started putting the rest of his savings into taxable accounts with Vanguard (index funds) in order to retire early and withdraw his 4% from his portfolio every year for living expenses. I think it’s a pretty interesting blog and might be worth checking out if you had the time. I’d be really interested in your general thoughts about him and his blog and if you think he gives wise investing advice.

[Wife] and I both have IRAs ([Wife] has a traditional 401k and I have a Roth). [Wife] actively contributes to her 401k every paycheck and I think it has about $XX in it. I put the max contribution amount into my Roth every year, currently $XXXX, and it is at about $XX. I always hear it’s important to max out your tax deferred and tax free accounts before opening a taxable account. I think we’re at the point where I want to start investing in a taxable account. I like Vanguard and their low expense ratios and I know index funds outperform actively managed funds in the long-term.

 I was thinking about opening a vanguard taxable account and starting off small (5-6k) with my investments into VTSMX and VFWIX with a 50/50 split. Do you think this would be a wise move? I don’t want our money sitting in savings accounts and not even keeping up with inflation. I almost feel like it’s foolish not to invest as much as possible.

Anyways, looking forward to your response and thoughts on MMM and his blog.

Thanks Dave!

First, I want to commend you for making an effort to save and invest early.  Most people don’t do that, and it is a major reason why they never become financially secure.

Second, I want to thank you for introducing me to Mr. Money Mustache.  As one that has sported a full beard for the last 20+ years, I can appreciate the name.  He saved lots of money in his twenties, and invested it in stock index funds at Vanguard.  I am a Vanguard fan also, though I use them less often now, because my stockpicking has done well.

MMM reminds me of a more severe version of Dave Ramsey, minus the Christianity.  If you can deny yourself in the early years, work hard, keep expenses down, and build up a nest egg early, wow, do it.  Most people can’t do that.  You and your wife have already accumulated more than most have at similar ages.  Keep it up.  Having a bias against unnecessary spending is a good thing.  When my kids ask me why we don’t get new cars, I tell them that they run, and I will drive them until the cost of maintaining them is greater then the cost of buying and maintaining another car over the long run.

It is wise to avoid too much debt, and wise to pay it down early.  I have been debt-free for the past 11 years, including the mortgage.  Excluding the mortgage, 22 years.  It changes you, and frees you, because when you don’t have worries over paying debts, you don’t have the same degree of concern of are you going to run into financial trouble.

In inflation-adjusted terms, you are roughly as well-off as my wife and I were when we were your average age.  Good job, and keep it up.

Third, you are young, so investing 50/50 in US/Foreign Total equity index funds from Vanguard is fine, especially the Foreign part of it.  I say that because the US Stock Market is priced to deliver 5.5%/year returns for the next 10 years.  Foreign markets offer more return now.  When MMM was investing his savings the market was priced to earn 9-13% or so per year.

This brings up another point.  I don’t like earning nothing on my money, as it is with most banking and savings accounts, but sometimes that is the best option.  In September of 2000, the US stock market was priced to earn -2%/year returns for the next 10 years.  That was a time to throw stocks out the window.  I didn’t do that, and my value investing made money in 2000 and 2001, though I got whacked hard in 2002.

Not every moment in the market offers the same degree of opportunity to make money.  To the degree that you can, be ready to invest when markets have fallen, and things look bad.  If you want to be clever, after a severe fall invest after the S&P 500 is higher than its 200-day moving average.

But investing regularly to some degree immunizes market environments.  You will invest in good times and bad.  In the end, the discipline will benefit you.  You have saved, invested, and did not panic when things went bad.  You lived to prosper when things went good.

But, you might tilt your US assets to the US value index fund, and if Vanguard has a foreign value index fund, you might do that as well.  Value outperforms over the long haul, so do that if you can.  If small stock valuations weren’t so high now, I would tell you to look for small cap value, but I won’t, it doesn’t make sense now.

Fourth, yes, start the taxable brokerage account with your excess money.  I started mine at age 29, and the economic help it has been to me has been significant.  I would not have been able to start my business in 2010 if I had not done that.  Or survive the low earnings years 2008-2012.

Fifth, all that said, I have one more insight to add.  I’m sure that MMM enjoys his life and works, even though he is “retired.”  The Bible warns us about not wearing ourselves out to get rich, in Proverbs and Ecclesiastes.  Hey, it is nice to live off of a passive income, but the Lord made us to work six days, and rest on the seventh.  Work is an ordinary part of life even if you are managing your assets, and it is to be enjoyed.

What MMM suggests may be harder to bear than many people are capable of bearing.  We should appropriately enjoy life and not be misers.  The Larger Catechism in talking about the Eighth Commandment encourages us to enjoy what God has given us.  As we prosper, we should thank God for it, and enjoy it.

You have a wonderful wife, and that is reward enough.  But save and invest in good times and bad, and it will work out far better for you than those that don’t do so.

I would encourage people to contact their friends that are better off, to give them contacts with their friends that are better off, to see what it takes to earn a superior income.  Yes, there are those that have rich inheritances, but those are a minority among the rich.  Most of the rich are rich because they built something significant.

I am reluctant to hire a person to help me.  But I know many people who know far less about investing, who are making far more than me.  Do I begrudge them that?  No.  I am happy to grow my business slowly, and they hire people to aid in marketing, operations, and investing.

Guess what? There are relatively few people willing to take the risks of running a big business, and that includes me.  But hiring people and structuring their work increases the productivity of the entrepreneur.  Being an entrepreneur is significant — my Dad was that, but it was a three-man firm, and I asked him when I was sixteen, “Why not set up a second team so that you can do more, given your excellent reputation?”  He told me that he did not want to sacrifice quality.   He did not want to drift into the background, where he could not directly control the quality of his company’s work.

With all of the talk of income inequality, I would urge people to consider two things:

1) You always have the ability to start you own firm, and work for yourself.  How much did it cost me to start my own firm?  Less than $250.  There were other costs after that, but well within my revenues.

2) Structuring of economic activity is important.  Jobs do not appear out of nowhere, aside from useless government jobs.  Private firms must figure out where they need help, and hire accordingly.

The difference between a mediocre CEO and a great one is tremendous.  Don’t begrudge A CEO his pay, unless he is a failure.  CEOs should be paid highly, with the condition that they lose pay if they do badly.

It’s the Tenth Commandment: Do not covet.  When you have a good attitude, which is be happy with the prosperity of others, you yourself will be more happy given what you have.  Don’t give in to envy, it is a cancer that harms your life and happiness.

Finally, recognize the reality: different people produce more value than others and should receive more value as a result.  It is a question of happiness.  People have needs, and who can meet those needs cost-efficiently?

Those who are unemployed, or who complain that they are not paid enough should start their own businesses, so that they can realize how tough it is to run a business.  Jobs aren’t free; they don’t appear magically, and the government rarely creates real jobs.

Don’t think you are paralyzed because you don’t have a job.  Create your own job, by solving a need that others don’t meet.

Finally, let’s get used to the idea that income inequality is normal, and is the result of differing efforts.

  • Some people do more when they are young.
  • Some people network better than others.
  • Those who direct productivity successfully deserve a greater reward.

Intelligent management of businesses does not magically occur.   It takes a concentrated interest in a share of the profits of a business to run the business well.

Don’t talk about income inequality.  Instead, focus on productivity inequality — there are many who are less productive, and deserve less as a result.

Not all work is equal — harder work deserves more pay, and intelligent work deserves yet more pay.

So don’t begrudge inequality in pay — this is what should be.  And to those on the low end:

Put in extra effort to show that you are earnest.  Do your best for the firm.

Learn about areas related to your work, which will make you more valuable to your firm.  Take chances, and learn — it might not be valuable today, but it might eventually be valuable.

I would say to all: work more intelligently.  Where you can be more productive, do that.

Final note: I would encourage employers to look at resumes rather than having computers analyze them.   Human beings will have a better sense on whether a person is well-suited for a job than a mere screening for keywords.  Beyond that, I would say to employers, put yourselves in the shoes of those seeking work.  Would you like to be screened by computers rather than analyzed by a person?

I’m pretty certain most would agree with me that using computers to screen resumes is  a stupid practice.  So if you do that, abandon the practice, it might save time, but it does not improve the hiring process.

18593599Investing is paradoxical, as many that read my blog would know. The market has cycles.  There are overall boom/bust cycles.  There are minor cycles between the major cycles.  Strategies fall in and out of favor.  What is an investor to do?  Even harder, what should one who selects assets managers do?

It is hard to select talented investment managers.  I know this, because I have done it many times in my career.  This book points out the difficulties in selecting managers.  Were the returns due to skill, or did he hit a lucky streak?  If you are looking at the numbers only, it would be hard to tell.  Asking managers detailed qualitative questions could help, as could looking at the current portfolio, and asking:

  1. Does the portfolio fit the stated style of the manager?
  2. Does it fit his description of how he tries to make money?

This book summarizes many issues in picking managers:

  • Strict mandates vs looser mandates
  • The ways in which we deceive ourselves willingly, to believe a nice manager, or con man
  • How hedge funds grew and changed
  • Can managers adapt to new market environments successfully, or should they persist with their model which used to work, but is now out of favor?
  • How do you deal with funds that are too complex for the ordinary retail investor to understand? (I would say avoid them.)

The book includes a chapter on Madoff, and while it doesn’t break new ground, it does point out why custodians and auditors are important.  If there had been an independent custodian, or a real auditor, Madoff’s scam could never have happened.  I also appreciated the reference on page 125 as to the methods that scammers use to gain the confidence of those they scam.  This is one case where bright people get fooled.  I would encourage readers to read “The Big Con,” or even marketing books, to make themselves skeptical.

The book has a firm hand on what leads to risk/return among managers — Concentration, Directionality, Compelexity, Illiquidity, and Leverage.  LTCM is held out as an example of a disaster waiting to occur.

The book explains different types of investors, and why they take the risks they do.  Different investors take different risks.

The author gives his own summary of how to interview fund managers, though I found it to be light.  As a former buy-side analyst, I had to interview CEOs, and while I used a few techniques of the author, there are more techniques that can be used.  I appreciated the allusion to “Colombo,” because purposely dumb questions can reveal the honesty of the one being interviewed, and may reveal details that could not be gotten through a smart question.

At the end, he points out how pension plans will not be likely to meet their return goals.  He is right, and efforts to break that paradigm through allocations to alternative investments are also unlikely to work.  Hedge funds don’t respond well to volatility.

This is a good book, but I have one further main objection.

Quibbles

When the author discusses Simon Lack’s analysis of hedge funds (P 190), he wrongly dismisses the significance of dollar-weighted versus time weighted rates of return.  If a manager’s returns are so volatile that it leads investors to buy high and sell low, that is the manager’s fault.  Good managers limit risk so that their investors don’t panic.  Also, since dollar weighted returns are what investors receive as a whole, that is the actual result of the investing, and is the way that all investment managers should be measured.  And as such, Lack’s arguments are correct.  Investors would have gotten more out of investing in T-bills, which absolutely, would not be much more, but less is less.  Lack is correct, and the author is wrong.

Who would benefit from this book: If you hire mutual fund managers, you could benefit from this great book.  If you want to, you can buy it here: The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice.

Full disclosure: I asked the PR people for a copy of the  book, and they sent it.

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.

Also, it should be noted that value managers have client bases that often invest more in bad times, and take profits in good times, so their dollar-weighted returns are often higher than the time-weighted returns.  Educated, contrarian investors do better.

Before I start this evening, I want to say something about many investment books that I have been reading of late.  In terms of information toward the stated goal of the book, there is often a lot of build up, some of it necessary, some not, some of it interesting, some not, occasionally some unique insights, but most of the time not.  Much of it is filler that could be eliminated.  And, if you eliminated the filler, and boiled down the part of the book that attempts to prove the stated goal, you would have something the size of a long-form blog post.  That’s why there is the filler — you would have a hard time selling a single chapter book, even though that contains the real value of the book, and would save your reader the time of wading through filler material.

Also, when I review books, I read them in entire.  If I don’t read them in entire, I state that plainly at the beginning of the review, along with why I thought I could review the book without reading it.  But after some of the books I have read lately, editing to condense the volume and stick to the topic at hand would be a help.

Finally, if the author doesn’t prove his case in an ironclad way, maybe the book shouldn’t be written.  I often get to the end of a book disappointed, because the author promised a significant result, and did not deliver.

Onto tonight’s topic:

When is the best time to invest?  When everyone else is scared to death of investing.  It’s when friends come up to you and say, “I’m never investing in stocks ever again.”  When the magazine covers proclaim “The Death of Equities,” it is time to invest.

Guess what?  Very few people do invest then.  It’s too painful to contemplate throwing away your money when nothing is going right, and losses are cascading.  Remember, we are not rational, we are mimics.

When do people like to invest?  When it’s popular to do so. When prices have been rising for a while, and the lure of “free money” is in the air.  Books on easy money flipping homes proliferate, and there is a brisk business in seminars teaching an easy road to riches.  It’s that time when people say, “Let the market pay your employees.”

I’ve talked about the fear/greed cycle many times before.  I’ve also talked about time-weighted vs dollar-weighted returns before. I’ve talked about vintage years in lending before, and about absolute return investors before.  I’ve talked about industry rotation before, as well as long-term mean reversion.  These are all manifestations of the same phenomenon in investing — it is best to invest in any given area when few are doing so, and worst to invest when almost all are doing so.

Let me give a bunch of parallel examples to make this clear.

Why do great mutual fund managers cease to be great?  When they are great, they have less money to manage than their ideas could bear managing.  But money follows performance because we are not rational, we mimic.  Eventually enough money comes in  such that the talented investor no longer has good places to put incremental money, and can’t just leave some of the money in cash, or an index fund… from a business angle, it would not fly.

Lest you think that this does not happen to passive investing, money follows performance there also.  It also happens in open-ended index funds, ETPs, and closed-end funds of any sort (expressed through the premium or discount).

This also applies to quantitative investment strategies — even those with broad themes like momentum and valuation.  Let me illustrate this with a slide from a presentation I have done before a large CFA Society:

Efficient Markets versus Adptive Markets

 

And this applies to lending whether securitized or direct.  When money is being thrown at a sub-asset class, like subprime RMBS in 2006-7, or manufactured housing ABS in 2000-1, the results are bad.  The best results occur when few are lending, and only the best deals are getting done.  But that means that few get those high returns.  That is the nature of the markets.

The same applies to corporate bonds.  It is wise to avoid the area of the market where issuance is well above average.  When I was a corporate bond manager, I sold out my auto bonds, and my questionable telecom bonds, amidst much issuance.  I had many brokers puzzle over why I would not buy their deals, even though they were cheap relative to their ratings.

The same applies to private equity.  When a lot of money is being applied there, it is a time to avoid it.  As it is now, private equity is throwing money at promising companies, many of which hold onto the money for safety purposes, because they don’t have place to invest it.  That doesn’t sound promising for future returns.

Finally, we have a few absolute return investors like Klarman, Grantham, and Buffett.  They are reducing allocations to risk assets, at least in relative terms.  Opportunities are not as great, and so they wait.

Summary

The intelligent investor estimates likely returns, and invests if the returns are worth the risk.  I am reducing my risk positions, slowly, as I see best for my clients and me.

Most profitable investing takes an uncomfortable view versus the consensus, and buys when the market offers good deals.  If there are no good deals, profitable investing sits on cash, and waits for a better day.

From reader after last night’s post.

I hope you are well. I think your blog is fantastic, thanks so much for sharing the time and wisdom for so little 🙂

I was wondering whether you could elaborate a bit more on the bad business models existent in the insurance field. If there would be a simple rule of thumb or similar it would be useful, but I’m guessing it has to be something (difficult  to analyze) like chasing growth when premiums are insufficient, hiding leverage through subsidiaries, etc.

This was your comment:

Now, let me list for you the companies I would avoid on this list: IFT, GLRE, AGO, AEL, CNO, AIG, XL, MBI, LNC, FBL, AHL, ING, AXAHY, AFG, GNW.  That does not mean that I endorse the others.  In general, those that I say to avoid have poor underwriting skills or a bad business model.

(AIG is the biggest position in my portfolio.)

And secondly, I was wondering whether the fact that some are based in Bermuda gives them (or the LT investor) a competitive advantage when it comes to compounding (t)BV over time, because they are paying a lower tax-rate, aren’t they?

[normally, investors have to suffer a double whammy for taxes: the companies they invest in are taxed when they have profits –the US has one of the highest tax rates internationally–; and then they are taxed when realizing the capital gains / receiving dividends. Which led me to think that if one would be investing in Bermuda-based cos. through a ROTH IRA account, he would be avoiding both fronts, right?

Thanks so much for your time David.

I know it was a long email, and I apologize for that, couldn’t make it shorter…

Okay, let me take it piece-by-piece.  I have biases, which I think are well-informed, but they are biases, ways of foreshortening the deluge of data, so that I can avoid making big errors.

1) I don’t believe that financial and mortgage insurers have an actuarially valid business model, and the last crisis proved me right.  Thus I am not interested in AGO and MBI.

2) I don’t believe that long-term care is insurable, and so I am not interested in CNO and GNW.

3) With AIG, I don’t think that all of the reserve strengthenings are done for them.  They have always been aggressive in reserving.  I am not sure that has changed.

4) I think the business that IFT is in is unethical, and difficult if legal.

5) I think the takeover of AHL will fail, and the stock price will fall.

6) I think that many common life insurance reserving practices are liberal, and so I don’t like AEL, LNC, FBL, ING, and AXAHY.

7) With XL, GLRE and AFG, I don’t respect the management.  Maybe with a few more years, that might change.

This explains my views on these companies.  Other questions, let me know.

When I was writing at RealMoney.com, I would often do little posts in the Columnists Conversation, and title them “Notes and Comments,” or something like that.  I don’t normally do that here, but I would like to tie up some loose ends.

1) I received the following e-mail six weeks ago, and I feel it is worthy to be shared with readers:

Hi David,

I follow the Aleph blog from time to time. I run value and special situations oriented hedge fund whose goal is to purchase businesses that sell for at least 50 cents on the dollar. It seems that we are like minded in investment terms. I have an extensive investment checklist which that I believe can add value to investors. It took me a few years and I derived it by reading stacks of annual reports from Buffett, Klarman, etc…

If it adds value to your readers, more than happy to share the 90+item investment checklist.

http://www.brarifunds.com/wp-content/uploads/BIF-Checklist.pdf

Regards,

Pope

Pope Brar, Managing Partner/Founder

Brar Investment Funds

I’ve read through the checklist and it is a good one.  It has all of the elements of my processes (though I am not as rigorous) and much more.  His checklist is worth a read.  Have a look at it.

2) From last night’s post, a reader asked:

Lots of insurers here.  Given your expertise in that area, I’d be curious to know if you think this screen is turning up names that are on the riskier end of the spectrum.

I wrote a seven part series on this, and here are the summary ideas, and the links:

  1. Shrinking the share count
  2. Growing Fully Convertible Book Value per Share
  3. Price Momentum and Mean-Reversion
  4. On Conservative Management & Reserving
  5. Some Things Can’t Be Underwritten
  6. Analyzing Insurance Sub-Industries and the PB-ROE model
  7. Insurance Accounting and Miscellaneous Insurance Insights 

I’ve been decreasing my insurance shareholdings lately because:

  • Pricing is weak for most P&C coverages, and
  • I don’t trust the reserving for secondary guarantees in life and annuity policies.

Here’s the insurance companies from last might’s article in decreasing order of earnings yield:

CompanyTickerIndustryCountryB/PE/PROE
Imperial Holdings, Inc.IFT0709 – Insurance (Life)United States 1.38 37.03 26.83
Greenlight Capital Re, Ltd.GLRE0715 – Insurance (P&C)Cayman Islands 0.90 19.45 21.61
Assured Guaranty Ltd.AGO0715 – Insurance (P&C)Bermuda 1.18 18.59 15.75
American Equity Investment LifAEL0709 – Insurance (Life)United States 0.86 16.77 19.50
Everest Re Group LtdRE0715 – Insurance (P&C)Bermuda 0.88 15.35 17.44
Validus Holdings, Ltd.VR0715 – Insurance (P&C)Bermuda 1.00 13.30 13.30
Axis Capital Holdings LimitedAXS0715 – Insurance (P&C)Bermuda 1.01 13.20 13.07
Endurance Specialty Holdings LENH0715 – Insurance (P&C)Bermuda 1.31 12.55 9.58
CNO Financial Group IncCNO0709 – Insurance (Life)United States 1.29 12.39 9.60
American International Group IAIG0715 – Insurance (P&C)United States 1.34 12.00 8.96
Montpelier Re Holdings Ltd.MRH0715 – Insurance (P&C)Bermuda 0.99 11.83 11.95
Allied World Assurance Co HoldAWH0715 – Insurance (P&C)Switzerland 1.00 11.73 11.73
XL Group plcXL0715 – Insurance (P&C)Ireland 1.12 11.72 10.46
Argo Group International HoldiAGII0715 – Insurance (P&C)Bermuda 1.27 11.55 9.09
Platinum Underwriters HoldingsPTP0715 – Insurance (P&C)Bermuda 1.02 11.25 11.03
Allianz SE (ADR)AZSEY0715 – Insurance (P&C)Germany 0.92 11.08 12.04
ACE LimitedACE0715 – Insurance (P&C)Switzerland 0.84 10.92 13.00
ProAssurance CorporationPRA0715 – Insurance (P&C)United States 0.87 10.86 12.48
MBIA Inc.MBI0715 – Insurance (P&C)United States 1.45 10.86 7.49
National Western Life InsurancNWLI0709 – Insurance (Life)United States 1.63 10.85 6.66
Partnerre LtdPRE0715 – Insurance (P&C)Bermuda 1.23 10.75 8.74
Old Republic International CorORI0715 – Insurance (P&C)United States 0.88 10.53 11.97
Employers Holdings, Inc.EIG0706 – Insurance (A&H)United States 0.93 10.46 11.25
United Fire Group, Inc.UFCS0715 – Insurance (P&C)United States 1.05 10.30 9.81
Maiden Holdings, Ltd.MHLD0715 – Insurance (P&C)Bermuda 0.93 10.11 10.87
EMC Insurance Group Inc.EMCI0715 – Insurance (P&C)United States 1.02 9.88 9.69
Investors Title CompanyITIC0715 – Insurance (P&C)United States 0.86 9.85 11.45
Protective Life Corp.PL0709 – Insurance (Life)United States 0.92 9.76 10.61
Lincoln National CorporationLNC0709 – Insurance (Life)United States 1.07 9.76 9.12
FBL Financial GroupFFG0709 – Insurance (Life)United States 0.96 9.73 10.14
Assurant, Inc.AIZ0709 – Insurance (Life)United States 1.00 9.67 9.67
Kemper CorpKMPR0715 – Insurance (P&C)United States 0.95 9.64 10.15
Aspen Insurance Holdings LimitAHL0715 – Insurance (P&C)Bermuda 1.12 9.61 8.58
Horace Mann Educators CorporatHMN0715 – Insurance (P&C)United States 0.91 9.60 10.55
Unum GroupUNM0709 – Insurance (Life)United States 0.98 9.55 9.74
WellPoint IncWLP0706 – Insurance (A&H)United States 0.89 9.52 10.70
ING Groep NV (ADR)ING0709 – Insurance (Life)Netherlands 1.14 9.46 8.30
Axa SA (ADR)AXAHY0709 – Insurance (Life)France 1.19 9.46 7.95
Hanover Insurance Group, Inc.,THG0715 – Insurance (P&C)United States 0.99 9.44 9.54
Baldwin & Lyons IncBWINB0715 – Insurance (P&C)United States 0.98 9.42 9.61
American Financial Group IncAFG0715 – Insurance (P&C)United States 0.87 9.15 10.52
Alleghany CorporationY0715 – Insurance (P&C)United States 1.01 9.15 9.06
American National Insurance CoANAT0715 – Insurance (P&C)United States 1.40 8.99 6.42
HCC Insurance Holdings, Inc.HCC0715 – Insurance (P&C)United States 0.82 8.92 10.88
Allstate Corporation, TheALL0715 – Insurance (P&C)United States 0.82 8.75 10.67
Symetra Financial CorporationSYA0709 – Insurance (Life)United States 1.23 8.64 7.02
Selective Insurance GroupSIGI0715 – Insurance (P&C)United States 0.90 8.51 9.46
White Mountains Insurance GrouWTM0715 – Insurance (P&C)Bermuda 1.07 8.49 7.93
Fortegra Financial CorpFRF0712 – Insurance (Misc)United States 1.28 8.18 6.39
Cna Financial CorpCNA0715 – Insurance (P&C)United States 1.10 8.15 7.41
Stewart Information Services CSTC0715 – Insurance (P&C)United States 0.83 7.96 9.59
Navigators Group, Inc, TheNAVG0715 – Insurance (P&C)United States 1.09 7.68 7.05
Reinsurance Group of America IRGA0706 – Insurance (A&H)United States 1.08 7.49 6.94
Safety Insurance Group, Inc.SAFT0715 – Insurance (P&C)United States 0.84 7.39 8.80
State Auto Financial CorpSTFC0715 – Insurance (P&C)United States 0.83 6.92 8.34
Genworth Financial IncGNW0709 – Insurance (Life)United States 1.72 6.87 3.99
First American Financial CorpFAF0715 – Insurance (P&C)United States 0.87 6.75 7.76

Now, let me list for you the companies I would avoid on this list: IFT, GLRE, AGO, AEL, CNO, AIG, XL, MBI, LNC, FBL, AHL, ING, AXAHY, AFG, GNW.  That does not mean that I endorse the others.  In general, those that I say to avoid have poor underwriting skills or a bad business model.

3) Another letter from a reader, on a very different topic, the FOMC:

thanks again – I always look forward to this update.

My thoughts are, they are increasing their flexibility in one direction (towards “accommodation”).  While they did move the point about “after the purchase program ends” to a spot perhaps better suited to a discussion of that point, I also took it to mean that there may be less commitment to end QE.  (Although, so long as the deficit keeps declining, they really have no choice but to dial back purchases to keep the supply and the non-Fed demand in line.  This is the overlooked reason, I believe that long rates appear to be moving independently of Fed action.  Their demand is not the only variable).

 Final thought – to what extent do you think that the Fed’s great misunderstanding is their inherent bias towards lowest rates possible under any economic conditions: i.e. for any given level of inflation, that Fed policy is best that reflects the lowest level of non-inflationary interest rates [because this presumably encourages credit expansion and therefore economic growth]?

 To my way of thinking, the difficulty with this is that it assumes that credit always has to expand FASTER than the economy overall.  I don’t mean that credit expansion is not important, it is a big component of growth, just that credit can’t grow faster than income forever and at some point, we have to find a model that enables income to grow fast enough to increase living standards without overleverage.

 To me, this is the central policy challenge of the 21st century, because a) globally, credit has surged relative to national income and has reached a limit, b) populations are aging and must therefore favor lower levels of credit – and consumption – overall and c) the bills associated with 1 and 2 are now coming due.

 The Fed, however, seems stuck on the idea that their job should be to inflate rapid credit expansion regardless of the creditworthiness of the borrowers.  This strikes me as dumb, or perhaps more like wishful thinking that if credit expands, growth will drive incomes higher and somehow these will catch up (with some acceptable lag).

 Notice that no one at the Fed talks about things like the household savings rate any more?  I would be ok with QE if the Fed could explain that they were facilitating an orderly deleveraging: in which case Household Debt/Equity (which indicates potential for end-consumer final demand) would be a better metric than unemployment.

 As it is, I believe that what they are really targeting (large) bank balance sheets, and that QE is really a massive backdoor subsidy to money center banks to guarantee enough operating income to allow them to write off bad loans while increasing capital reserves to comply with Basel III.  (Full disclosure, I have a significant portion of my assets in a large US bank that was trading well below the strike price of the warrants issued against its shares to Berkshire Hathaway at the time I purchased the shares, which bank shall remain nameless).

 Politically, I suppose, saying, “well, we need to ensure banks are profitable so as to ensure the solvency of the payments system” looks disturbingly like a bailout for the 1% and is out of touch with a more populist America.

 Anyway, sorry for the diatribe, but curious to get your thoughts.  I think I am less reflexively sceptical about the efficacy of the Fed’s policy (but I fully agree with your view that they are not supporting employment with it).

 Thanks again for all the work you do.

The central idea I would like to comment on is that incremental easing has had less and less effect on the economy, at least in the short-run.  Aside from energy companies, willingness to invest in the business has been light, while willingness to buy back stock has been high.  That doesn’t produce growth in the economy.

The Fed doesn’t realize that it can’t stimulate the economy at the zero bound.  QE is ineffective, and may become fuel for high inflation if the banks start to lend aggressively.  Inflation is not the goal, and I think many policymakers are confused — the goal is real growth.

We can protect the payments systems by protecting the regulated subsidiaries of banks, and letting the holding companies bear the losses, which is what we failed to do in 2008-2009.

All that said, we have a punk economy, but what will happen if we get a large increase in bank lending, leading to inflation.  What will the Fed do then?

Last night I was at the Towson University International Markets Summit.  I’m grateful to the students for inviting me, as it is an honor.  During the presentation, I mentioned the book “Accounting for Value” by Stephen Penman.  I reviewed the book two years ago.  A great book, and one that should lead readers to modify their views on value investing.

But one aspect of the book was easy to implement, he cited his paper that you can read here, Returns to Buying Earnings and Book Value: Accounting for Growth and Risk.  Buy the stocks that are the cheapest as measured by the highest quintiles of book value to price, and trailing twelve month earnings per share to price.

I ran this analysis for all US-traded stocks with over $100 million of market capitalization.  Here are the results:

CompanyTickerIndustryCountryB/PE/P
Petrobras Argentina SA ADRPZE0606 – Oil & Gas – IntegratedArgentina

1.26

7.95

Pampa Energia S.A. (ADR)PAM1203 – Electric UtilitiesArgentina

0.83

11.41

OMV AG (ADR)OMVKY0609 – Oil & Gas OperationsAustria

1.13

11.33

Validus Holdings, Ltd.VR0709 – Insurance (Life)Bermuda

1

13.3

Everest Re Group LtdRE0715 – Insurance (Property & Casualty)Bermuda

0.88

15.35

Maiden Holdings, Ltd.MHLD0715 – Insurance (Property & Casualty)Bermuda

0.93

10.11

Montpelier Re Holdings Ltd.MRH0715 – Insurance (Property & Casualty)Bermuda

0.99

11.83

Axis Capital Holdings LimitedAXS0715 – Insurance (Property & Casualty)Bermuda

1.01

13.2

Platinum Underwriters HoldingsPTP0715 – Insurance (Property & Casualty)Bermuda

1.02

11.25

White Mountains Insurance GrouWTM0715 – Insurance (Property & Casualty)Bermuda

1.07

8.49

Aspen Insurance Holdings LimitAHL0715 – Insurance (Property & Casualty)Bermuda

1.12

9.61

Assured Guaranty Ltd.AGO0715 – Insurance (Property & Casualty)Bermuda

1.18

18.59

Partnerre LtdPRE0715 – Insurance (Property & Casualty)Bermuda

1.23

10.75

Argo Group International HoldiAGII0715 – Insurance (Property & Casualty)Bermuda

1.27

11.55

Endurance Specialty Holdings LENH0715 – Insurance (Property & Casualty)Bermuda

1.31

12.55

Gerdau SA (ADR)GGB0121 – Iron & SteelBrazil

1.32

6.84

Gafisa SA (ADR)GFA0215 – Construction ServicesBrazil

2.04

15.52

Petroleo Brasileiro PetrobrasPBR0606 – Oil & Gas – IntegratedBrazil

1.67

13.2

Telefonica Brasil SA (ADR)VIV0915 – Communications ServicesBrazil

0.85

7.58

Companhia de Saneamento BasicoSBS1209 – Water UtilitiesBrazil

0.89

8.57

Endeavour Silver CorpEXK0118 – Gold & SilverCanada

0.89

9.9

Teck Resources Ltd (USA)TCK0124 – Metal MiningCanada

1.33

6.84

TransGlobe Energy CorporationTGA0609 – Oil & Gas OperationsCanada

0.85

10.03

Granite Real Estate InvestmentGRP.U0933 – Real Estate OperationsCanada

0.87

7.53

Brookfield Office Properties IBPO0933 – Real Estate OperationsCanada

1.08

10.08

Boardwalk REIT (USA)BOWFF0933 – Real Estate OperationsCanada

1.14

11.54

Greenlight Capital Re, Ltd.GLRE0715 – Insurance (Property & Casualty)Cayman Islands

0.9

19.45

Sinopec Shanghai PetrochemicalSHI0103 – Chemical ManufacturingChina

1.52

11

Yongye International, IncYONG0103 – Chemical ManufacturingChina

1.65

43.36

China XD Plastics Co LtdCXDC0109 – Containters & PackagingChina

1.13

22.71

Lihua International IncLIWA0127 – Misc. Fabricated ProductsChina

2.31

41.21

Xinyuan Real Estate Co., Ltd.XIN0215 – Construction ServicesChina

5.22

42.83

China Automotive Systems, Inc.CAAS0415 – Auto & Truck PartsChina

0.99

11.04

China Petroleum & Chemical CorSNP0609 – Oil & Gas OperationsChina

0.87

10.11

Concord Medical Services HldgCCM0806 – Healthcare FacilitiesChina

3.06

12.45

China Telecom Corporation LimiCHA0915 – Communications ServicesChina

1.17

7.03

Xueda Education Group (ADR)XUE0969 – SchoolsChina

0.84

6.63

Changyou.Com Ltd (ADR)CYOU1018 – Computer ServicesChina

1.23

20.92

Nam Tai Electronics, Inc.NTE1024 – Electronic Instruments & ControlsChina

1.11

21.58

Jinpan International LimitedJST1024 – Electronic Instruments & ControlsChina

1.7

13.36

Semiconductor Manufacturing InSMI1033 – SemiconductorsChina

0.96

8.06

China Eastern Airlines Corp. LCEA1106 – AirlineChina

1.05

12.11

China Southern Airlines Co LtdZNH1106 – AirlineChina

1.7

13.19

Guangshen Railway Co. Ltd (ADRGSH1112 – RailroadsChina

1.34

6.64

Axa SA (ADR)AXAHY0709 – Insurance (Life)France

1.19

9.46

Volkswagen AG (ADR)VLKAY0412 – Auto & Truck ManufacturersGermany

0.94

9.73

Allianz SE (ADR)AZSEY0715 – Insurance (Property & Casualty)Germany

0.92

11.08

E.ON SE (ADR)EONGY1203 – Electric UtilitiesGermany

1.28

8.17

National Bank of Greece (ADR)NBG0727 – Regional BanksGreece

2

131.03

Capital Product Partners L.P.CPLP1118 – Water TransportationGreece

0.83

10.36

Safe Bulkers, Inc.SB1118 – Water TransportationGreece

0.83

11.99

StealthGas Inc.GASS1118 – Water TransportationGreece

1.32

9.08

Navios Maritime Holdings Inc.NM1118 – Water TransportationGreece

1.32

13.4

Sun Hung Kai Properties LimiteSUHJY0215 – Construction ServicesHong Kong

1.44

15.22

Hysan Development Company LimiHYSNY0215 – Construction ServicesHong Kong

1.66

20.18

Tai Cheung Holdings Ltd (ADR)TAICY0215 – Construction ServicesHong Kong

2.11

34.38

Le Gaga Holdings Ltd ADRGAGA0509 – CropsHong Kong

1.55

14.63

Bank of East Asia Ltd. (ADR),BKEAY0727 – Regional BanksHong Kong

0.85

8.78

Iao Kun Group Holding Co LtdIKGH0912 – Casinos & GamingHong Kong

1.36

12.89

Cheung Kong (Holdings) LimitedCHEUY0933 – Real Estate OperationsHong Kong

1.16

11.07

Seaspan CorporationSSW1118 – Water TransportationHong Kong

1.05

15.2

Magyar Telekom Tavkozlesi NyrtMYTAY0915 – Communications ServicesHungary

1.34

6.66

XL Group plcXL0715 – Insurance (Property & Casualty)Ireland

1.12

11.72

Fly Leasing Ltd(ADR)FLY0939 – Rental & LeasingIreland

1.3

17.39

Ellomay Capital Ltd.ELLO1033 – SemiconductorsIsrael

0.93

10.95

FUJIFILM Holdings Corp. (ADR)FUJIY0112 – Fabricated Plastic & RubberJapan

1.55

6.64

Kobe Steel, Ltd. (ADR)KBSTY0121 – Iron & SteelJapan

1.47

14.7

Mitsui & Co Ltd (ADR)MITSY0218 – Misc. Capital GoodsJapan

1.33

13.26

Wacoal Holdings Corporation (AWACLY0403 – Apparel/AccessoriesJapan

1.45

7.14

Toyota Motor Corp (ADR)TM0412 – Auto & Truck ManufacturersJapan

0.82

10.5

Honda Motor Co Ltd (ADR)HMC0412 – Auto & Truck ManufacturersJapan

0.92

7.61

Nissan Motor Co., Ltd. (ADR)NSANY0412 – Auto & Truck ManufacturersJapan

1.11

10.04

Nomura Holdings, Inc. (ADR)NMR0718 – Investment ServicesJapan

1.09

10.18

Mizuho Financial Group Inc. (AMFG0727 – Regional BanksJapan

1.13

14.9

Sumitomo Mitsui Financial Grp,SMFG0727 – Regional BanksJapan

1.28

16.67

Mitsubishi UFJ Financial GroupMTU0727 – Regional BanksJapan

1.53

13.67

Nippon Telegraph & Telephone CNTT0915 – Communications ServicesJapan

1.39

8.93

ORIX Corporation (ADR)IX0939 – Rental & LeasingJapan

0.98

7.59

Ternium S.A. (ADR)TX0121 – Iron & SteelLuxembourg

0.89

7.61

ING Groep NV (ADR)ING0709 – Insurance (Life)Netherlands

1.14

9.46

VimpelCom Ltd (ADR)VIP0915 – Communications ServicesNetherlands

0.93

13.67

ASM International NV (ADR)ASMI1033 – SemiconductorsNetherlands

1.01

74.95

Petroleum Geo-Services ASA (ADPGSVY0612 – Oil Well Services & EquipmentNorway

0.81

9.85

Banco Latinoamericano Comerc EBLX0727 – Regional BanksPanama

0.85

8.39

Compania de Minas BuenaventuraBVN0118 – Gold & SilverPeru

1.18

10.05

OFG BancorpOFG0727 – Regional BanksPuerto Rico

0.93

11.04

Popular IncBPOP0727 – Regional BanksPuerto Rico

1.52

19.77

Triple-S Management Corp.GTS0806 – Healthcare FacilitiesPuerto Rico

1.79

12.52

LUKOIL (ADR)LUKOY0606 – Oil & Gas – IntegratedRussian Federation

1.91

19.08

China Yuchai International LimCYD0218 – Misc. Capital GoodsSingapore

1.2

15.34

Net 1 UEPS Technologies IncUEPS0703 – Consumer Financial ServicesSouth Africa

0.91

6.79

POSCO (ADR)PKX0121 – Iron & SteelSouth Korea

1.72

6.97

Shinhan Financial Group Co., LSHG0727 – Regional BanksSouth Korea

1.24

8.42

Woori Finance Holdings Co., LtWF0727 – Regional BanksSouth Korea

1.91

9.86

SK Telecom Co., Ltd. (ADR)SKM0915 – Communications ServicesSouth Korea

0.89

11.87

Repsol SA (ADR)REPYY0606 – Oil & Gas – IntegratedSpain

1.06

7.93

Transocean LTDRIG0612 – Oil Well Services & EquipmentSwitzerland

1.14

9.54

ACE LimitedACE0715 – Insurance (Property & Casualty)Switzerland

0.84

10.92

Allied World Assurance Co HoldAWH0715 – Insurance (Property & Casualty)Switzerland

1

11.73

United Microelectronics Corp (UMC1033 – SemiconductorsTaiwan

1.3

8.02

Silicon Motion Technology CorpSIMO1033 – SemiconductorsTaiwan

1.96

19.74

BP plc (ADR)BP0606 – Oil & Gas – IntegratedUnited Kingdom

0.85

15.1

Noble Corporation PLCNE0612 – Oil Well Services & EquipmentUnited Kingdom

1.08

10.05

Subsea 7 SA (ADR)SUBCY0612 – Oil Well Services & EquipmentUnited Kingdom

1.09

7.02

ENSCO PLCESV0612 – Oil Well Services & EquipmentUnited Kingdom

1.11

12.2

Rowan Companies PLCRDC0612 – Oil Well Services & EquipmentUnited Kingdom

1.3

6.71

HSBC Holdings plc (ADR)HSBC0727 – Regional BanksUnited Kingdom

0.94

8.09

Vodafone Group Plc (ADR)VOD0915 – Communications ServicesUnited Kingdom

1.47

31.68

J Sainsbury plc (ADR)JSAIY0957 – Retail (Grocery)United Kingdom

0.96

10.57

Global Ship Lease, Inc.GSL1118 – Water TransportationUnited Kingdom

2.11

16.62

Cliffs Natural Resources IncCLF0124 – Metal MiningUnited States

1.87

12.76

M.D.C. Holdings, Inc.MDC0215 – Construction ServicesUnited States

0.91

23.28

M/I Homes IncMHO0215 – Construction ServicesUnited States

0.92

27.21

URS CorpURS0215 – Construction ServicesUnited States

1.16

7.02

Mestek, Inc.MCCK0218 – Misc. Capital GoodsUnited States

0.98

11.53

General Motors CompanyGM0412 – Auto & Truck ManufacturersUnited States

0.83

7.98

Rocky Brands IncRCKY0418 – FootwearUnited States

1.21

6.82

Johnson Outdoors Inc.JOUT0430 – Recreational ProductsUnited States

0.87

7.83

LeapFrog Enterprises, Inc.LF0430 – Recreational ProductsUnited States

0.89

17.58

Yasheng GroupHERB0509 – CropsUnited States

11.77

70.4

Seaboard CorporationSEB0515 – Food ProcessingUnited States

0.82

6.77

John B. Sanfilippo & Son, Inc.JBSS0515 – Food ProcessingUnited States

0.84

8.55

Omega Protein CorporationOME0515 – Food ProcessingUnited States

1.01

12.24

Ennis, Inc.EBF0518 – Office SuppliesUnited States

0.92

8.43

ACCO Brands CorporationACCO0518 – Office SuppliesUnited States

1.01

11.07

Universal CorpUVV0524 – TobaccoUnited States

0.93

10.8

Hess Corp.HES0609 – Oil & Gas OperationsUnited States

0.86

12.86

Approach Resources Inc.AREX0609 – Oil & Gas OperationsUnited States

0.93

9.48

Equal Energy Ltd. (USA)EQU0609 – Oil & Gas OperationsUnited States

0.96

9.38

Sandridge Mississippian TrustSDT0609 – Oil & Gas OperationsUnited States

1.49

63.59

PHI Inc.PHII0612 – Oil Well Services & EquipmentUnited States

0.85

8.96

Medallion Financial CorpTAXI0703 – Consumer Financial ServicesUnited States

0.94

9.13

CIT Group Inc.CIT0703 – Consumer Financial ServicesUnited States

0.96

7.26

Goldman Sachs Group IncGS0703 – Consumer Financial ServicesUnited States

0.97

10.16

Ellington Financial LLCEFC0703 – Consumer Financial ServicesUnited States

1.04

13.7

Walter Investment Management CWAC0703 – Consumer Financial ServicesUnited States

1.11

23.94

Chimera Investment CorporationCIM0703 – Consumer Financial ServicesUnited States

1.12

11.58

PHH CorporationPHH0703 – Consumer Financial ServicesUnited States

1.19

9.68

EZCORP IncEZPW0703 – Consumer Financial ServicesUnited States

1.58

7.55

WellPoint IncWLP0706 – Insurance (Accident & Health)United States

0.89

9.52

Employers Holdings, Inc.EIG0706 – Insurance (Accident & Health)United States

0.93

10.46

Reinsurance Group of America IRGA0706 – Insurance (Accident & Health)United States

1.08

7.49

American Equity Investment LifAEL0709 – Insurance (Life)United States

0.86

16.77

Protective Life Corp.PL0709 – Insurance (Life)United States

0.92

9.76

FBL Financial GroupFFG0709 – Insurance (Life)United States

0.96

9.73

Unum GroupUNM0709 – Insurance (Life)United States

0.98

9.55

Assurant, Inc.AIZ0709 – Insurance (Life)United States

1

9.67

Lincoln National CorporationLNC0709 – Insurance (Life)United States

1.07

9.76

Symetra Financial CorporationSYA0709 – Insurance (Life)United States

1.23

8.64

CNO Financial Group IncCNO0709 – Insurance (Life)United States

1.29

12.39

Imperial Holdings, Inc.IFT0709 – Insurance (Life)United States

1.38

37.03

National Western Life InsurancNWLI0709 – Insurance (Life)United States

1.63

10.85

Genworth Financial IncGNW0709 – Insurance (Life)United States

1.72

6.87

Fortegra Financial CorpFRF0712 – Insurance (Miscellaneous)United States

1.28

8.18

Allstate Corporation, TheALL0715 – Insurance (Property & Casualty)United States

0.82

8.75

HCC Insurance Holdings, Inc.HCC0715 – Insurance (Property & Casualty)United States

0.82

8.92

State Auto Financial CorpSTFC0715 – Insurance (Property & Casualty)United States

0.83

6.92

Stewart Information Services CSTC0715 – Insurance (Property & Casualty)United States

0.83

7.96

Safety Insurance Group, Inc.SAFT0715 – Insurance (Property & Casualty)United States

0.84

7.39

Investors Title CompanyITIC0715 – Insurance (Property & Casualty)United States

0.86

9.85

First American Financial CorpFAF0715 – Insurance (Property & Casualty)United States

0.87

6.75

American Financial Group IncAFG0715 – Insurance (Property & Casualty)United States

0.87

9.15

ProAssurance CorporationPRA0715 – Insurance (Property & Casualty)United States

0.87

10.86

Old Republic International CorORI0715 – Insurance (Property & Casualty)United States

0.88

10.53

Selective Insurance GroupSIGI0715 – Insurance (Property & Casualty)United States

0.9

8.51

Horace Mann Educators CorporatHMN0715 – Insurance (Property & Casualty)United States

0.91

9.6

Kemper CorpKMPR0715 – Insurance (Property & Casualty)United States

0.95

9.64

Baldwin & Lyons IncBWINB0715 – Insurance (Property & Casualty)United States

0.98

9.42

Hanover Insurance Group, Inc.,THG0715 – Insurance (Property & Casualty)United States

0.99

9.44

Alleghany CorporationY0715 – Insurance (Property & Casualty)United States

1.01

9.15

EMC Insurance Group Inc.EMCI0715 – Insurance (Property & Casualty)United States

1.02

9.88

United Fire Group, Inc.UFCS0715 – Insurance (Property & Casualty)United States

1.05

10.3

Navigators Group, Inc, TheNAVG0715 – Insurance (Property & Casualty)United States

1.09

7.68

Cna Financial CorpCNA0715 – Insurance (Property & Casualty)United States

1.1

8.15

American International Group IAIG0715 – Insurance (Property & Casualty)United States

1.34

12

American National Insurance CoANAT0715 – Insurance (Property & Casualty)United States

1.4

8.99

MBIA Inc.MBI0715 – Insurance (Property & Casualty)United States

1.45

10.86

FBR & CoFBRC0718 – Investment ServicesUnited States

1.03

29.21

KKR Financial Holdings LLCKFN0718 – Investment ServicesUnited States

1.05

11.24

NASDAQ OMX Group, Inc.NDAQ0718 – Investment ServicesUnited States

1.13

6.66

Piper Jaffray CompaniesPJC0718 – Investment ServicesUnited States

1.17

7.42

Primus Guaranty, Ltd.PRSG0718 – Investment ServicesUnited States

1.25

50.12

Arlington Asset Investment CorAI0718 – Investment ServicesUnited States

1.28

11.6

Oppenheimer Holdings Inc. (USAOPY0718 – Investment ServicesUnited States

1.34

6.71

CIFC CorpCIFC0718 – Investment ServicesUnited States

1.73

9.51

JPMorgan Chase & Co.JPM0724 – Money Center BanksUnited States

0.98

7.39

First National Bank AlaskaFBAK0727 – Regional BanksUnited States

0.81

6.61

Old National BancorpONB0727 – Regional BanksUnited States

0.81

7

Sandy Spring Bancorp Inc.SASR0727 – Regional BanksUnited States

0.81

7.28

TowneBankTOWN0727 – Regional BanksUnited States

0.81

7.52

Fidelity Southern CorporationLION0727 – Regional BanksUnited States

0.81

10.35

Central Pacific Financial CorpCPF0727 – Regional BanksUnited States

0.81

21.18

Cascade BancorpCACB0727 – Regional BanksUnited States

0.81

22.18

LCNB Corp.LCNB0727 – Regional BanksUnited States

0.82

6.69

S & T Bancorp IncSTBA0727 – Regional BanksUnited States

0.83

7.38

Great Southern Bancorp, Inc.GSBC0727 – Regional BanksUnited States

0.83

8.55

ESB Financial CorporationESBF0727 – Regional BanksUnited States

0.84

6.88

WesBanco, Inc.WSBC0727 – Regional BanksUnited States

0.84

7.15

Trustmark CorpTRMK0727 – Regional BanksUnited States

0.84

7.28

KeyCorpKEY0727 – Regional BanksUnited States

0.84

7.3

MidWestOne Financial Group, InMOFG0727 – Regional BanksUnited States

0.84

8.77

Bar Harbor BanksharesBHB0727 – Regional BanksUnited States

0.84

9.1

Seacoast Banking Corporation oSBCF0727 – Regional BanksUnited States

0.84

21.31

First Bancorp IncFNLC0727 – Regional BanksUnited States

0.85

7.39

Mercantile Bank Corp.MBWM0727 – Regional BanksUnited States

0.85

9.45

Heritage Financial Group IncHBOS0727 – Regional BanksUnited States

0.86

7.23

MainSource Financial Group IncMSFG0727 – Regional BanksUnited States

0.86

7.33

Norwood Financial CorporationNWFL0727 – Regional BanksUnited States

0.86

7.9

Fulton Financial CorpFULT0727 – Regional BanksUnited States

0.87

6.82

Pulaski Financial CorpPULB0727 – Regional BanksUnited States

0.88

6.85

Washington Federal Inc.WAFD0727 – Regional BanksUnited States

0.88

6.87

International Bancshares CorpIBOC0727 – Regional BanksUnited States

0.89

7.93

Lakeland Bancorp, Inc.LBAI0727 – Regional BanksUnited States

0.9

6.84

Northrim BanCorp, Inc.NRIM0727 – Regional BanksUnited States

0.9

7.67

BCB Bancorp, Inc.BCBP0727 – Regional BanksUnited States

0.9

7.91

ACNB CorporationACNB0727 – Regional BanksUnited States

0.9

8.14

Intermountain Community BancorIMCB0727 – Regional BanksUnited States

0.9

9.74

First Financial CorpTHFF0727 – Regional BanksUnited States

0.91

7.44

Farmers & Merchants Bancorp InFMAO0727 – Regional BanksUnited States

0.91

7.8

Southeastern Bank Financial CoSBFC0727 – Regional BanksUnited States

0.91

11.29

Isabella Bank CorpISBA0727 – Regional BanksUnited States

0.92

6.95

First Merchants CorporationFRME0727 – Regional BanksUnited States

0.93

6.76

Wintrust Financial CorpWTFC0727 – Regional BanksUnited States

0.93

7.12

First Citizens BancShares Inc.FCNCA0727 – Regional BanksUnited States

0.94

7.57

Firstbank CorporationFBMI0727 – Regional BanksUnited States

0.94

8.03

Century Bancorp, Inc.CNBKA0727 – Regional BanksUnited States

0.95

10.72

Central Valley Community BancoCVCY0727 – Regional BanksUnited States

0.96

6.62

PNC Financial Services Group IPNC0727 – Regional BanksUnited States

0.96

8.94

American National BankShares IAMNB0727 – Regional BanksUnited States

0.96

9.01

Capital One Financial Corp.COF0727 – Regional BanksUnited States

0.97

9.95

Provident Financial Services,PFS0727 – Regional BanksUnited States

0.99

6.92

NASB Financial, Inc.NASB0727 – Regional BanksUnited States

0.99

11

Flagstar Bancorp IncFBC0727 – Regional BanksUnited States

1.01

21.87

First Defiance FinancialFDEF0727 – Regional BanksUnited States

1.02

8.35

MidSouth Bancorp, Inc.MSL0727 – Regional BanksUnited States

1.03

6.96

C&F Financial CorpCFFI0727 – Regional BanksUnited States

1.04

13.4

First Community Bancshares IncFCBC0727 – Regional BanksUnited States

1.05

7.25

Provident Financial Holdings,PROV0727 – Regional BanksUnited States

1.05

8.78

Chemung Financial Corp.CHMG0727 – Regional BanksUnited States

1.06

6.7

Territorial Bancorp IncTBNK0727 – Regional BanksUnited States

1.08

7.23

Berkshire Hills Bancorp, Inc.BHLB0727 – Regional BanksUnited States

1.09

6.61

Regions Financial CorporationRF0727 – Regional BanksUnited States

1.09

7.73

Old Second Bancorp Inc.OSBC0727 – Regional BanksUnited States

1.1

113.32

Farmers Capital Bank CorpFFKT0727 – Regional BanksUnited States

1.14

7.7

Premier Financial Bancorp, IncPFBI0727 – Regional BanksUnited States

1.18

10.46

FIRST FINANCIAL NORTHWEST, INCFFNW0727 – Regional BanksUnited States

1.18

14.46

Intervest Bancshares CorpIBCA0727 – Regional BanksUnited States

1.19

8.37

MBT Financial Corp.MBTF0727 – Regional BanksUnited States

1.23

28.89

New Hampshire Thrift BancshareNHTB0727 – Regional BanksUnited States

1.26

7.66

MVB Financial CorpMVBF0727 – Regional BanksUnited States

1.29

10.03

Citigroup IncC0727 – Regional BanksUnited States

1.3

8.73

Susquehanna Bancshares IncSUSQ0727 – Regional BanksUnited States

1.31

8.42

QCR Holdings, Inc.QCRH0727 – Regional BanksUnited States

1.44

12.41

First Niagara Financial GroupFNFG0727 – Regional BanksUnited States

1.45

8.28

First Citizens Bancorporation,FCBN0727 – Regional BanksUnited States

1.5

9.95

Farmers & Merchants Bank (LongFMBL0909 – Business ServicesUnited States

0.98

8.05

Kelly Services, Inc.KELYA0909 – Business ServicesUnited States

1.02

7.21

Lakes Entertainment, Inc.LACO0912 – Casinos & GamingUnited States

1.01

14.29

Black Box CorporationBBOX0915 – Communications ServicesUnited States

1.38

7.36

Iridium Communications Inc.IRDM0915 – Communications ServicesUnited States

1.72

10.16

Courier CorporationCRRC0927 – Printing & PublishingUnited States

0.86

6.72

CSS Industries IncCSS0927 – Printing & PublishingUnited States

1.08

7.53

Blackstone Mortgage Trust IncBXMT0933 – Real Estate OperationsUnited States

0.87

145.18

New York Mortgage Trust IncNYMT0933 – Real Estate OperationsUnited States

0.88

14.44

PennyMac Mortgage Investment TPMT0933 – Real Estate OperationsUnited States

0.89

13.15

Starwood Property Trust, Inc.STWD0933 – Real Estate OperationsUnited States

0.94

7.84

Capstead Mortgage CorporationCMO0933 – Real Estate OperationsUnited States

0.99

7.31

Dynex Capital IncDX0933 – Real Estate OperationsUnited States

1.02

12.82

Two Harbors Investment CorpTWO0933 – Real Estate OperationsUnited States

1.04

16.24

American Capital Agency Corp.AGNC0933 – Real Estate OperationsUnited States

1.05

14.81

Apollo Commercial Real Est. FiARI0933 – Real Estate OperationsUnited States

1.09

7.4

MFA Financial, Inc.MFA0933 – Real Estate OperationsUnited States

1.09

9.89

Anworth Mortgage Asset CorporaANH0933 – Real Estate OperationsUnited States

1.1

9.07

Resource Capital Corp.RSO0933 – Real Estate OperationsUnited States

1.16

9.91

Rent-A-Center IncRCII0939 – Rental & LeasingUnited States

0.97

8.84

Willis Lease Finance CorporatiWLFC0939 – Rental & LeasingUnited States

1.31

9.51

Biglari Holdings IncBH0942 – RestaurantsUnited States

0.83

23.81

Rick’s Cabaret Int’l, IncRICK0942 – RestaurantsUnited States

0.92

8.66

PCM IncPCMI0948 – Retail (Catalog & Mail Order)United States

1.09

7.11

Trans World Entertainment CorpTWMC0963 – Retail (Specialty Non-Apparel)United States

1.68

7.37

TravelCenters of America LLCTA0963 – Retail (Specialty Non-Apparel)United States

1.76

7.55

Tech Data CorpTECD0966 – Retail (Technology)United States

0.87

7.43

hhgregg, Inc.HGG0966 – Retail (Technology)United States

1.32

6.67

Ingram Micro Inc.IM1015 – Computer PeripheralsUnited States

0.84

6.68

Key Tronic CorporationKTCC1015 – Computer PeripheralsUnited States

0.93

9.42

Xerox CorpXRX1018 – Computer ServicesUnited States

0.89

8.31

VOXX International CorpVOXX1024 – Electronic Instruments & ControlsUnited States

1.57

10.96

OmniVision Technologies, Inc.OVTI1033 – SemiconductorsUnited States

0.91

8.46

Benchmark Electronics, Inc.BHE1033 – SemiconductorsUnited States

1

9

JetBlue Airways CorporationJBLU1106 – AirlineUnited States

0.85

6.84

Republic Airways Holdings Inc.RJET1106 – AirlineUnited States

1.42

12.1

SkyWest, Inc.SKYW1106 – AirlineUnited States

2.19

8.93

Atlas Air Worldwide Holdings,AAWW1109 – Misc. TransportationUnited States

1.49

10.44

International Shipholding CorpISH1118 – Water TransportationUnited States

1.67

7.41

Gas Natural IncEGAS1206 – Natural Gas UtilitiesUnited States

0.89

6.75

What are my surprises here?

  • My but there are a lot of foreign companies in this list, far more as a percentage than the 3575 total companies I started with.  It seems that foreign companies are cheap.
  • Now, that said, accounting standards are tighter in the US than elsewhere, and particularly, be careful on Chinese companies.  Many of them are scams.
  • There are a lot of financial companies listed.  I would note that earnings quality for financial companies is often poor, so don’t go “hog wild” buying financial companies.

All that said, this could be a good list for starting due diligence, and I will use at least some of this in my next selection of companies for my clients.

What’s that, you say?  Do I and my clients own any of these firms?  Yes we do.  Of the 38 stocks in my portfolio, 11 of them pass this screen, and here is the summary:

Full Disclosure: Long ENH, SNP, GTS, LUKOY, BP, ESV, RGA, AIZ, NWLI, IM, XRX

Are index funds that are capitalization-weighted the best funds to invest in?  No.  So why do we talk about index funds so much?  Because they represent the average dollar in the market.  In principle, everyone could invest in a comprehensive index fund, and there would be no effects on the market.

But indexes can be enhanced.  Tilt your investments to:

  • Avoid the biggest firms, their growth opportunities are limited.
  • Buy cheap stocks, they out-earn growthier stocks, and have fewer disappointments
  • Buy quality stocks, again, fewer disappointments.
  • Buy stocks that have been running, they tend to do well in the future.
  • Buy stocks with conservative accounting, they tend to outperform.

But the moment you do that, you are an active manager, because not everyone can do what you are doing.  Also, each of the anomalies I have indirectly referenced can occasionally be overvalued.  As an example, the biggest stocks presently look cheap compared to smaller stocks.

Trying to create “smart beta” is interesting, but let’s just call it enhanced indexing.  And if too many people try to do enhanced indexing, guess what?  Those stocks will become overvalued, and will eventually sag, badly.

There is no magic bullet in investing.  There is the work of evaluating valuations versus future prospects, and that is a challenging task.

If you want average performance, which is better than most get, buy a broad index fund with low fees and hold it.  If you want better performance, tilt your portfolio to reflect factors that usually outperform.  If you want still better performance, ask what factors are overvalued, and remove them from your portfolio.

As for me, I am happy buying safe and cheap stocks and holding them for three years or so.  I’m happy with my picks, and so I adjust my portfolio in small ways quarterly.  No need to over-trade.  I just keep following my strategy.

103729This is a hard book to review. I have respect for the author, and most of his opinions.  But extraordinary claims require extraordinary proof.  There is evidence here, but not extraordinary proof.  I agree that we are in a bad spot, and that there is reason to be cautious.  To claim that the current international monetary system will disappear by 2020 or so requires more than the book delivers.

Let me begin by saying the book is worth buying.  It will make you think.  Thinking is a valuable exercise in which few engage.  Most of us imitate, which is far easier to do than thinking, and usually saves time on common issues.

The author focuses on the weaknesses of US economic policy, but is less critical of bad economic policies being pursued around the world, with the poster children being Japan, China, and the EU.  The US has its problems, but also its unique strengths.  Though I am a critic of US economic policy, we are better off than most other large nations.

One criticism of the book is that it is not focused.  Make your case, and don’t go down many “rabbit trails.”  That said, the rabbit trails are interesting, and you will learn a lot from them, though they don’t support the central thesis of the book.  I think the book needed a better editor, because a tighter book would have made the case better.

Here’s the main difficulty: Okay, so the US Dollar is not a great store of value.  Imagine another nation who wants a better store of value, who lets their currency rise, and their politically powerful exporters scream.  Who will likely win?  The exporters.  At least, that has been the way it has worked for the last 30 years.

In order for a gold-backed currency to be introduced, there will be sacrifices, and under most conditions, it will produce some deflation.  It is not at all certain that the nation(s) that might do this will take the short-term punishment.  Our world is geared toward short-termism, and it harms us all.

Quibbles

The book is far too kind to the IMF, an incompetent institution, and far too kind to China, which faces a collapse in its financial system far more quickly then the US will see.

The book is also too kind to the EU, which continues the experiment of monetary union without political union, which has never worked  before on a large scale.

Who would benefit from this book: Anyone could benefit from this great book.  If you want to, you can buy it here:The Death of Money: The Coming Collapse of the International Monetary System.

Full disclosure: I asked the PR people for a copy of the  book, and they sent it.

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.