Month: December 2014

Learning from the Past, Part 1

Learning from the Past, Part 1

Photo Credit: Rob Pym
Photo Credit: Rob Pym

This is another Aleph Blog series of indeterminate length. ?I won’t bleed as much as my friend James Altucher, but I will reveal the?worst investments of my life. ?There have been a lot of them. ?Good investments have more than paid for the losses, but the losses were significant in two ways:

  • The losses were large enough to hurt.
  • Each loss taught me something; usually I did not make the same mistake twice.

After I finish this series, I hope that it can serve as a guide on what to avoid in investing for younger folks, so they don’t repeat my errors. ?Okay, older folks can benefit as well… and maybe along the way, I’ll throw in a few colorful stories of investments that weren’t losses, but still taught me something.

Here we go!

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In the late 1980s, I fell prey to a boiler room scam. ?I was relatively new to investing for myself, though I had paper-traded stocks for years, and was seemingly able to pick good stocks. ?So why did I give in to the slick sales pitch? ?Inexperience, for one, and slack capital for two — in my late 20s?I really did not have a plan for what I wanted to do with my slack capital. ?I had done some investing in the stock market, but made money too quickly, and I feared that the market was once again too high (isn’t it always?).

Regardless, it was pretty dopey, and ended up being a 98% loss. ?A class action suit was created, which after 8 years ended up with nothing for any of the plaintiffs, and as far as I can tell, the lawyers lost money as well, since they were seeking a share of the recovery. ?Somewhat bitter at the end, the law firm closed its last letter saying something to the effect of, “At least we have the satisfaction that all of those that we have sued have lost all of the money that we can find.” ?Cold satisfaction, that.

I can tell you that the experience made me unwilling to transact any personal business over the phone that I did not initiate. ?For long-time readers, this helped lead to my saying,

Don’t buy what someone wants to sell you. ?Instead, research what you need, and buy that.

That’s a good lesson to begin with. ?Till next time.

Out and About with The Aleph Blog

Out and About with The Aleph Blog

1. Recently I appeared on RT Boom/Bust again. ?The interview lasts 6+ minutes. ?Erin Ade and I discussed:

  • Who benefits from lower energy prices.
  • The No-Lose Line for owning bonds,
  • Whether you are compensated for inflation risks in long bonds
  • How much an average person should invest in stocks with any assets that they have after buying their own house.
  • The value of economics, or lack thereof, to investors today.

2. Also, I did an “expert interview” for Mint.com. ?I answered the following questions:

  • What is your most basic advice on investing?
  • What can you tell young people to help them stay financially secure in their futures?
  • How can a potential investor go about finding the best investment professional to work with for his or her individual needs?
  • Please explain how being a good investor and a good businessman go hand in hand.
  • What is your favorite part of your job?
  • You clearly do a lot of reading, as seen from your book reviews. What other genres of books do you enjoy?

3. Finally, Aleph Blog was featured in a list of the Top 100 Insurance Blogs at number 29. ?I find it interesting because my blog has maybe 18% of?posts on insurance topics. ?That said, I have a distinctive voice on insurance, because I will talk about consumer issues, and what are companies that might be worth owning.

Enjoy the overly long infographic.

Top 100 Insurance BlogsAn infographic by the team at Rebates zone

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Redacted Version of the December 2014 FOMC Statement

Redacted Version of the December 2014 FOMC Statement

Photo Credit: International Monetary Fund
Photo Credit: International Monetary Fund
October 2014 December 2014 Comments
Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. No change. This is another overestimate by the FOMC.
Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Shades their view of labor use up a little.? More people working some amount of time, but many discouraged workers, part-time workers, lower paid positions, etc.
Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. No change.

 

Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable. Shades their forward view of inflation down.? TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.07%, down 0.28% from September.
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, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. They are no longer certain that inflation will rise to the levels that they want.
The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely. CPI is at 1.3% now, yoy.? They shade up their view down on inflation?s amount and persistence.
The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Sentence removed.
Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. Sentence removed.
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. Moves this sentence lower in the document.
This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Moves this sentence lower in the document.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, 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. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, 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. Highly accommodative monetary policy is gone ? but a super-low Fed funds rate remains.? Policy normalizes, sort of, but no real change.
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. In other words, we?re on hold until something goes ?Boo!?
The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, 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 sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, 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 real change.
However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated. Tells us what we already knew.
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. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. Sentences moved from higher in the document.
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.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.

 

Voting against the action was Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Fisher thinks the economy is healthy enough to take some rate hikes.
Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level. Narayana Kocherlakota, who believed that the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target;

 

 

Kocherlakota wants to create another bubble, along with the rest of the doves.
and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements. Plosser wants to say that a shift has happened, when no shift really has happened in policy.? He also thinks they should avoid the idea that the Fed is waiting to do something, suggesting that tightening could come sooner.

 

Comments

  • Pretty much a nothing-burger. Few significant changes, if any.? The only interesting thing is that they have given up on inflation getting anywhere near 2% for now.
  • Despite lower unemployment levels, labor market conditions are still pretty punk. Much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.? Wage growth is weak also.
  • Equities flat and long bonds rise. Commodity prices are flat.? The FOMC says that any future change to policy is contingent on almost everything.
  • Don?t know they keep an optimistic view of GDP growth, especially amid falling monetary velocity.
  • The FOMC chops some ?dead wood? out of its statement. Brief communication is clear communication.? If a sentence doesn?t change often, remove it.
  • 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, labor market indicators, inflation trends, and inflation expectations. As a result, the FOMC ain?t moving rates up, absent improvement in labor market indicators, much higher inflation, or a US Dollar crisis.
On Financial Risk Statements, Part 1

On Financial Risk Statements, Part 1

Photo Credit: Chris Piascik
Photo Credit: Chris Piascik

Most formal statements on financial risk are useless to their users. Why?

  • They are written in a language that average people and many regulators don’t speak.
  • They often don’t define what they are trying to avoid in any significant way.
  • They don’t give the time horizon(s) associated with their assessments.
  • They don’t consider the second-order behavior of parties that are managing assets in areas related to their areas.
  • They don’t consider whether history might be a poor guide for their estimates.
  • They don’t consider the conflicting interests and incentives of the parties that?direct the asset managers, and how their own institutional risks affect their willingness to manage the risks that other parties deem important.
  • They are sometimes based off of a regulatory view of what can/must be stated, rather than an economic view of what should be stated.
  • Occasionally, approximations are used where better calculations could be used. ?It’s amazing how long some calculations designed for the pencil and paper age hang on when we have computers.
  • Also, material contract provisions that are hard to model/explain often get ignored, or get some brief mention in a footnote (or its equivalent).
  • Where complex math is used, there is no simple language to explain the economic sense of it.
  • They are unwilling to consider how volatile financial processes are, believing that the Great Depression, the German Hyperinflation, or something as severe, could never happen again.

(An aside to readers; this was supposed to be a “little piece” when I started, but the more I wrote, the more I realized it would have to be more comprehensive.)

Let me start with a brief story. ?I used to work as an officer of the Pension Division of Provident Mutual, which was the only place I ever worked where analysis of risks came first, and was core to everything else that we did. ?The mathematical modeling that I did in there was some of the best in the industry for that era, and my models helped keep us out of trouble that many other firms fell into. ?It shaped my view of how to manage a financial business to minimize risks first, and then make money.

But what made us proudest of our efforts was a 40-page document written in plain English that ran through the risks that we faced as a division of our company, and how we dealt with them. ?The initial target audience was regulators analyzing the solvency of Provident Mutual, but we used it to demonstrate the quality of what we were doing to clients, wholesalers, internal auditors, rating agencies, credit analysts, and related parties inside Provident Mutual. ?You can’t believe how many people came to us saying, “I get it.” ?Regulators came to us, saying: “We’ve read hundreds of these; this is the first one that was easy to understand.”

The 40-pager was the brainchild of my boss, who was the most intuitive actuary that I have ever known. ?Me? I was maybe the third lead investment risk modeler he had employed, and I learned more than I probably improved matters.

What we did was required by law, but the way we did it, and how we used it was not. ?It combined the best of both rules and principles, going well beyond the minimum of what was required. ?Rather than considering risk control to be something we did at the end to finagle credit analysts, regulators, etc., we took the economic core of the idea and made it the way we did business.

What I am saying in this piece is that the same ideas should be more actively and fully applied to:

  • Investment prospectuses and reports, and all investment and insurance marketing literature
  • Solvency documents provided to regulators, credit raters, and the general public by banks, insurers, derivative counterparties, etc.
  • Risk disclosures by financial companies, and perhaps non-financials as well, to the degree that financial markets affect their real results.
  • The reports that sell-side analysts write
  • The analyses that those that provide asset allocation advice put out
  • Consumer lending documents, in order to warn people what can happen to them if they aren’t careful
  • Private pension and employee benefit plans, and their evil twins that governments create.

Looks like this will be a mini-series at Aleph Blog, so stay tuned?for part two, where I will begin going through what needs to be corrected, and then how it needs to be applied.

Have Your Cake, Eat It Too, And End Up With Only Crumbs

Have Your Cake, Eat It Too, And End Up With Only Crumbs

Photo Credit: brett jordan
Photo Credit: brett jordan

Beware when the geniuses show up in finance. “I can make your money work harder!” some may say, and the simple-minded say, “Make the money sweat, man! ?We have retirements to fund, and precious little time to do it!”

Those that have read me for a while will know that I am an advocate for simplicity, and against debt. ?Why? ?The two are related because some of us tend toward overconfidence. ?We often overestimate the good the complexity will bring, while underestimating the illiquidity that it will impose on finances. ?We overestimate the value of the goods or assets that we buy, particularly if funded by debt that has no obligation to make any payments in the short run, but a vague possibility of immediate repayment.

The topic of the evening is margin loans, and is prompted by Josh Brown’s article here. ?Margin loans are a means of borrowing against securities in a brokerage account. ?Margin debt can either be for the purpose of buying more securities, or “non-purpose lending,” where the proceeds of the loan are used to buy assets outside of brokerage accounts, or goods,?or?services. ?Josh’s article was about non-purpose lending; this article is applicable to all margin borrowing.

Margin loans seem less burdensome than other types of borrowing because:

  • Interest rates are sometimes low.
  • They are easy to get, if you have liquid securities.
  • They are a quick way of?getting cash.
  • There is almost never any scheduled principal repayment or maturity date for the loan.
  • Interest either quietly accrues, or is paid periodically.
  • You don’t have to liquidate securities to get the cash you think you need.
  • There is no taxable event, at least not immediately.
  • Better than second-lien or unsecured debt in most ways.

But, what does a margin loan say about the borrower?

  • He?needs money now
  • He?doesn’t want to liquidate assets
  • He wants lending terms that are easy in the short run
  • He doesn’t have a lot of liquidity at present.

So what’s the risk??If the ratio of the value of assets in the portfolio versus accrued loan value falls enough, the broker will ask the borrower to either:

  • Pay back some of the loan, or
  • Liquidate some of the assets in the portfolio.

And, if the borrower can’t do that, the broker will liquidate portfolio assets for them to restore the safety of the account for the broker who made the loan.

Now, it’s one thing when there isn’t much margin debt, because the margin debt won’t influence the likelihood or severity of a crisis. ?But when there is a lot of margin debt, that’s a problem. ?As I like to say, markets abhor free riders. ?When there is a lot of liquid/short-dated liabilities financing long-dated assets, it is an unstable situation, inviting, nay, daring the crisis to come. ?And come it will, like a?heat seeking missile.

Before the margin desks must act, some account holders will manage their own risk, bite the bullet, and sell into a falling market, exacerbating the action. ?But when the margin desks act, because asset values have fallen enough, they will mercilessly sell out positions, and force the prices of the assets that they sell lower, lower, lower.

A surfeit of margin debt can turn a low severity crisis into a high severity crisis, both individually and corporately, the same way too much debt applied to housing created the crisis in the housing markets.

I would again encourage you to read Josh’s excellent piece, which includes gems like:

Skeptics from the independent side of the wealth management industry would ask, rhetorically, whether or not most of these loans would be made with such frequency if the advisors themselves were not sharing in the fees. The answer is that, no, of course they wouldn’t.

He is correct that the incentives are perverse for the advisors who receive compensation for encouraging their clients to borrow and take huge risks in the process. ?It’s another reason not to take out those loans.

Remember, Wall Street wants easy profits from margin lending. ?They don’t care if they encourage you to take too much risk, just as they didn’t care if you borrowed too much to buy housing.

The Free Advice that Embraces Humility

Just say no to margin debt. ?Live smaller; enjoy the security of the unlevered life, and be ready for the day when the mass liquidation of margin accounts will offer up the bargains of a lifetime.

If you have margin loans out now, start planning to reduce them (before you have to). ?You’ve had a nice bull market, don’t spoil it by staying levered until the bear market comes to make you return your?assets to their rightful owners.

Wisdom is almost always on the side of humility, so simplify your life and finances while conditions favor doing so. ?If you must borrow, do it in a way where you won’t run much risk of losing control of your finances.

And after all that… enjoy your sleep, even amid crises.

Should Jim Cramer Sell TheStreet or Quit CNBC?

Should Jim Cramer Sell TheStreet or Quit CNBC?

Photo Credit: Penn State
Photo Credit: Penn State

Like my friend Josh Brown does, I often don’t know where I will end when I start writing… I know I have something to say, given my own time writing for RealMoney.com, and now having publicly written on financial matters for over eleven years, with?thanks to Jim Cramer, who gave me my start.

Recently, a 9% holder of TheStreet sent a letter to Jim, asking him to either sell off TheStreet in an auction or leave CNBC and rebuild the value of TheStreet. ?The Stock rose roughly 7% on the news. ?Personally, I don’t think it should have budged. ?Here’s why:

1)?What is a perpetual money-loser worth? ?TheStreet hasn’t earned significant money since 2007.

2) What is TheStreet worth in an auction? ?The complainant says:

Despite these improvements TST trades at an enterprise value to 2015 estimated revenues of 1.3. This compares to BC Partners Limited?s acquisition of Mergermarket Group at three times revenue. Morningstar Inc. (?MORN? ? $65.97) trades at 3.4 times 2015 consensus revenue estimate. Allegedly, BoardEx competitor Relationship Science recently raised capital at a $300 million valuation compared with its purported $5 million revenue for 2013.

TheStreet is not comparable to these in my opinion. ?I’ll use Morningstar as my example: it is a comprehensive site offering a wide amount of data about investments, and relatively light on opinions. ?Where it speaks, it is authoritative, and it has a relatively sticky following, making their revenues more valuable than that of TheStreet. ?Let’s be real… would you buy TheStreet at the same enterprise value to sales ratio as Morningstar?

3) Selling investment opinions is a very competitive business, with low barriers to entry. ?If a party is any good at marketing it, and wants to sell a newsletter, there are a lot of people who will buy, as noted later by the complainant:

We estimate that 41,500 customers pay roughly $350 per annum ($14.5 million in totum) for your newsletters. This is nothing to scoff at but a fraction of the 400,000 to 500,000 subscribers enjoyed, by (we believe) The Motley Fool Stock Advisor and Stansberry & Associates Investment Research ? two wildly more profitable competitors which charge similar prices. (We estimate that each of these competitors yield $25 to $45 million of pre-tax earnings for their private owners.) Given the strength of your brand, it both amazes and frustrates that subscriptions to your products are so paltry. Were you to de-couple from CNBC (where you are understandably prohibited from promoting PLUS) I would hope, nay expect, that subscriptions of PLUS would treble.

I don’t like market newsletters generally, but I know there are a lot of people who would rather pay for opinions than money management services. ?I often get requests to start a newsletter, but I don’t respect the concept. ?My detailed ideas are for my clients; that’s the business that I am in.

Jim’s newsletter has been out for a long time. ?Of those that buy newsletters, most would be familiar with Cramer, and know that the newsletter?exists. ?Even if Cramer came back to TheStreet full-time, I doubt it would get that much more in subscriptions.

4) Also, auctioning off a Cramer-less TheStreet would likely flop. ?There would be few if any buyers for?a such a company that had lost its main writer.

5) Then there is the complainant’s appeal to Cramer as to his legacy:

You are 59. When you lie upon your deathbed, how will you reflect upon on your legacy? Once a $70 stock, TST is now $2.20. You have done well, but how has the common shareholder done?

I have a little insight here. ?A little less than twelve years ago, I was invited by my Merrill coverage to come to an institutional investor conference where Cramer would be the unscripted keynote speaker. ?It was a great talk, and?at the end of it, as Cramer left, I figured out where I likely needed to be if I wanted a word with him. ?Sure enough, he came my way, and I identified myself to him as the guy who had been writing to him on bonds for the past four years. ?He remembered me and greeted me warmly. ?I told him that I was going to work at a hedge fund. ?He?congratulated me, and said that it was where all the smart guys were going. ?And then he said something to the effect of:

I wish I were still running a hedge fund. ?I really loved that.

And at that point, the crowd caught up, and that was the end of my time with him. ?But when I got home that night, I sent him an e-mail telling him that life is too short, do what you love. ?Go back to the hedge fund and write more occasionally for the rest of us. ?His reply was brief as usual, and if my memory is any good it was something like:

Can’t do that. ?Gotta get the price of theStreet.com over the IPO price.

Even at the time, that made me blink. ?Make the stock rise by more than a factor of 10? ?That would be Herculean at minimum.

But, that gives you an insight into Cramer’s mind at one point. ?He’s already thought along those lines. ?He’s no dummy. ?He knows how difficult it would be — and he has pursued that effort for a number of years. ?My sense is that he has given up, or maybe something close to that. ?The price of TheStreet has been remarkably stable for the past five years, despite all efforts made…

6) But does Cramer have no legacy from TheStreet? ?I would argue he does. ?He enriched the investment writing world in two ways: he created a bunch of young savvy journalists that occupy many places in the broader investment journalism world, and he encouraged a lot of clever investors to write for him.

We are all better off as a result of both of these, even if the benefits never went to shareholders. ?It’s a tough business, and even the best enterprises have a hard time making money at it.

7) Perhaps the complainant needs to be reminded of one of Marty Whitman’s principles on value investing: “Something off the top.” ?Control of a company is a valuable thing, and one of the reasons is that a closely-held company does not merely pay the controlling owner dividends, they often receive something off the top. ?That is true of Cramer here, with a salary of $3.5 million/year. ?Why should he relinquish that? ?In his mind, he may think that he has tried to turn it around for years to no avail. ?If the company is not likely to ever get back to a significantly higher price, why should he knock himself out on a hopeless mission that he has already tried?

8?) So, with that, let the complainant contact his fellow shareholders and ask for help. ?I’m not sure they will agree with the prescription, though they might like to see some actions taken. ?Personally, I can’t get excited about it; I would be inclined to pass, and quietly sell my shares into the current strength generated by the complainant.

Full disclosure: no positions in any companies mentioned here, and as they used to say at TheStreet, I am?writing about a microcap stock, so they would typically not allow articles on it without a big warning, if at all. ?To make it plain: don’t buy any TST shares as a result of what I wrote here. ?Thanks.

Two Notes: Crude Oil & Bonds

Two Notes: Crude Oil & Bonds

Photo Credit: S@Z
Photo Credit: S@Z

I’ve been busier than ever of late — not much time to blog. Thus, a few notes:

1) Often the rate of change in a price can tell you something, particularly if the good in question is widely traded/held by a wide number of parties with different interests. ?In this case, I am talking about crude oil prices, and the related set of prices that are cousins.

Overall demand for crude hasn’t shifted, and neither has supply. ?Yes, there has been some buildup of inventories, and some key global players refuse to cut production in response to lower prices. ?But the sharpness of the price move feels more like some large player(s) who were relying on a higher oil price finally hit their “stop loss” point, and their risk control desk is closing out the trade.

I could be wrong here, but paper barrels of oil trade more rapidly than physical shifts in net demand, and risk control and margin desks will force moves that are non-economic. ?Wait. ?Surviving is?economic, even at the cost of forgoing potential profits.

We’ll see how this shakes out over the next few months. ?There’s a lot of pain for pure play producers, and those that aid them. ?I particularly wonder at governments that rely on crude exports to support their budgets… they may not cut, but what will they do, if they don’t have reserves? ?Cuts will have to come from economic players initially. ?It make take a revolt to affect non-economic governmental entities.

All that said, sharp price moves tend to mean-revert, slow moves tend to persist, so be wary of too much bearishness here.

2) An article in yesterday’s Wall Street Journal was entitled?Bond Funds Load Up on Cash. ?This qualifies for the “Dog Bites Man” award, as it puts forth the conventional wisdom that interest rates must rise soon.

That drum has been banged so frequently that it is wearing out. ?We’re not seeing the pickup in lending necessary to convince us that the economy needs higher real interest rates so that more savings would be available to be lent out.

Also, some managers may be running a barbell, holding more cash and long debt, and not so many intermediate securities. ?This would be logical, because a barbelled portfolio does better in volatile markets — it’s ready for inflation and deflation, while giving up yield should times remain stable.

All for now. ?Maybe when my busy time is done, I’ll write about it.

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