Most books that I don’t ask for are lousy.  This one isn’t, and I love the title, because it indicates the long hard slog that it is to persevere in investing. IT IS A BUSINESS!!  Without hard work it will not yield good results.  Indomitable means persistence, and a lack of persistence will give a bad result.

Steven Sears has been a columnist for Barron’s for many years.  He has read a lot of analyses, and written a lot of columns.  In this book he attempts to explain why many investors are the dumb money that clever investors profit from.  Or, why many investors get sucked dry by brokers, funds with high loads, other illiquid investments, etc.

There is a constant in investing and it frustrates me, because I try to educate retail investors.  People panic as a crisis unfolds, and they sell near the bottom.  Conversely, people buy as a trend nears its peak, because they conclude that they have missed out.

What would it take to educate these people, which are many among us?  Losses for one.  Second, a willingness to read historical finance, which few will do, because it doesn’t seem relevant.  If you will not learn from history, you will not learn.

As is sometimes said, “Wise men learn from the errors of others.  Average men learn from their own errors.  Dumb men never learn.”

Financial markets have more than their share of average and dumb men.  They get fleeced, and rapidly.  That dichotomy is key to investment markets.  Think about it — if you were going into a war, would you spend more to make sure you had the best armaments?  I think you would.  If so, why do you go virtually undefended in contention against Wall Street?

There are two ways to do this.  First, go passive and index.  Safe, reasonable, good.  Second, do a lot of research and find managers that eat their own cooking (like me), and invest with those that have a good long-term track record.  They should be managers with fixed principles regardless of the environment.

What it gets right

More data does not mean things are better.  For most people more data confuses them.  Giving long explanations in prospectuses is a hindrance for most, not an aid.  Maybe there should be a law that says, “Prospectuses can only be 1000 words long.  If you can’t get the risks in that amount of words, you deserve to be sued.”

It takes three years for the average investor to note that the trend has changed.  Is there any surprise then about “dumb money?”  Would it get any better if we told them this?

Quibbles

Ted Benna was a benefits consultant, not a tax consultant (P.5). Maybe they were the same back then.

Regarding Diogenes, he was a skeptic, and did not believe that there were any honest men.  That’s not a bad way to view Wall Street, butthat was not the sense I got from this book.

The author makes a lot out of calender anomalies, bu most of the research I have reviewed does not support them.

He makes a lot of the ISM, but if you aggregate his numbers, they seem higher than market returns have been over the the last 80+ years.  I find the data questionable.  Maybe he didn’t correctly describe what he cited, or maybe those he cited deceived him.

If you can discern consumer spending trends in advance of the market, you will do well, but can you do it?  This is a non-insight.

At the end of the book, page 195, he asks for new relative measures of risk.  If only it were that simple.  We all wish we had those.  They change over time, and asset classes may shift in relative riskiness due to overvaluation.  Oh to have bought bonds in 1987, and in 2000. Oh, to have bought equities in 1982, 1995 and 2003.

Who would benefit from this book: If you ae willing to be patient and following long-term strategies (like me) you might benefit from this book.  It is only meant for those willing to take a long-term view, because it tends to work.  If you want to, you can buy it here: The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.

Full disclosure: This book was sent to me without me asking for 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.

Before I start this piece let me give you a blast from the past, the columnist conversation comment that I most frequently reprint, from this post:

		David Merkel
		Make the Money Sweat, Man! We Got Retirements to Fund, and Little Time to do it!
		3/28/2006 10:23 AM EST

What prompts this post was a bit of research from the estimable Richard Bernstein of Merrill Lynch, where he showed how correlations of returns in risky asset classes have risen over the past six years. (Get your hands on this one if you can.) Commodities, International Stocks, Hedge Funds, and Small Cap Stocks have become more correlated with US Large Cap Stocks over the past five years. With the exception of commodities, the 5-year correlations are over 90%. I would add in other asset classes as well: credit default, emerging markets, junk bonds, low-quality stocks, the toxic waste of Asset- and Mortgage-backed securities, and private equity. Also, all sectors inside the S&P 500 have become more correlated to the S&P 500, with the exception of consumer staples.

In my opinion, this is due to the flood of liquidity seeking high stable returns, which is in turn driven partially by the need to fund the retirements of the baby boomers, and by modern portfolio theory with its mistaken view of risk as variability, rather than probability of loss, and the likely severity thereof. Also, the asset allocators use “brain dead” models that for the most part view the past as prologue, and for the most part project future returns as “the present, but not so much.” Works fine in the middle of a liquidity wave, but lousy at the turning points.

Taking risk to get stable returns is a crowded trade. Asset-specific risk may be lower today in a Modern Portfolio Theory sense. Return variability is low; implied volatilities are for the most part low. But in my opinion, the lack of volatility is hiding an increase in systemic risk. When risky assets have a bad time, they may behave badly as a group.

The only uncorrelated classes at present are cash and bonds (the higher quality the better). If you want diversification in this market, remember fixed income and cash. Oh, and as an aside, think of Municipal bonds, because they are the only fixed income asset class that the flood of foreign liquidity hasn’t touched.

Don’t make aggressive moves rapidly, but my advice is to position your portfolios more conservatively within your risk tolerance.

Position: none

This article is motivated by this article from the estimable Morningstar.  Correlations are high among risk assets; the only place to lower correlations are cash and high quality long debt.  Guess what this period reminds me of?  2006-2008 prior to the crisis.

Now there are differences, though the prime driver is central banking in both cases.  In the earlier period, they were tightening slowly.  The mistake was not tightening rapidly, much earlier.  In this era, the floodgates of monetary excess have been wide open for three years.  The error here is assuming that monetary policy can work miracles when the economy is overlevered from the prior boom.

When the ordinary actors of the economy can’t borrow because they are overindebted, monetary policy has a hard time producing any long-term useful result.   Yes, it can spur a short-term move to risk assets.  It can twist the Treasury curve in the short-run.

This piece isn’t about monetary policy.  It’s about correlations in asset prices.  When risky assets get very correlated with each other, and the only alternative game to play is buying high quality bonds, it is an unstable situation that portends lower risky asset prices.

Color me neutral now, because the supply of cash to invest in high yield bonds, stock IPOs, and private equity is substantial.  But don’t be surprised if asset class performance reverses one year out from now.

China

• China’s first bond default could be good market medicine http://t.co/8ShFniYM Bond trader: “We don’t really have a credit risk culture.” $$ Mar 31, 2012
• Is China’s slowdown worse than previously estimated? http://t.co/CkZw8tLK Could b business conditions that are worst since 2009. $$ Mar 31, 2012
• China Banks Said to Underestimate Local Government Risks http://t.co/qpPicyEe China has a clever bureaucracy; always has; big CYA $$ Mar 25, 2012
• Chinese capitalism is just another knockoff http://t.co/w2hSozQL China is not Capitalist; it rewards Party members, not citizens. $$ Mar 25, 2012
• Debating a “Hard Landing” http://t.co/NMnYk2XX friendly debate – Andrew Batson & Patrick Chovanec over China facing a “hard landing” in 2012 Mar 25, 2012
• I Am Jordan’s Complete Lack of Surprise: Chinese Co’s Forced to Falsify Data http://t.co/BMj7ux0T Command & control economy, not free $$ Mar 25, 2012

Market Dynamics

• The Nature of a Crowded Trade http://t.co/sf1phJjP A July 2008 article of mine where I reflected on the high correlations of the prior 3 yrs Mar 31, 2012
• A Market Lacking Diversification http://t.co/khXUVjaL Correlation conditions similar to 2006-2008, only diversifier hi-qual long bonds $$ Mar 31, 2012
• Pension Deficit for 100 US Company Plans Increased 41% in 2011 http://t.co/FdIZTltW Low long hi-qual rates & cruddy returns on risk assets Mar 31, 2012
• 2277 Stocks and Still Not Diversified? http://t.co/iu0Pw8Ty Recommended solution is similar 2a levered version of the Permanent Portfolio $$ Mar 31, 2012
• New from Aleph Blog The Rules, Part XXXI: The offering of liquidity through limit orders is a real service to th… http://t.co/ZiuzWIo5 Mar 30, 2012
• Passive Aggressive: Index-Linked Securities and Individual Investors http://t.co/ZrjMCKCz Curbs stock picking, encourages factor timing $$ Mar 29, 2012
• Bankers are telling corporate clients this is their chance to refinance http://t.co/Eh9tHEX6 The window of cheap junk financing is open $$ Mar 28, 2012
• New from Aleph Blog Replacing Defined Contributions: I think that it is pretty certain that defined contribution… http://t.co/Dis34ql2 Mar 27, 2012
• What Will Replace the 401(k)? http://t.co/miLAuoYc How about DB pensions where it depends on how much the employee kicks in plus match? $$ Mar 27, 2012
• US Stocks Advance Following Bernanke’s Comments http://t.co/D7sORuIU Stox react 2 increases in inflation expectations. TIPS & Bonds fall $$ Mar 26, 2012
• Hedge Funds Capitulating Buy Most Stocks Since 2010 http://t.co/XHwxzxNO Short-term money alert! Will propel mkt 4 a while, then… $$ Mar 26, 2012
• If Bloomberg Business Week is a better magazine than old Businessweek (I think so), what magazine should we use now 4 a dumb $$ indicator? Mar 26, 2012

Asset Management

• Nontraded REITS should be a nonstarter for clients http://t.co/O1ZuMvX8 And here’s one that just announced a 72% loss: http://t.co/la8d29my Mar 31, 2012
• Oaktree IPO Could Pay 2 Founders $117.2M Each http://t.co/Yufla6Jk The Most Important Thing is getting rewarded 4 building AUM $$ Mar 31, 2012
• The Trouble With Exchange Traded Notes http://t.co/ZL7dVpjO Unsecured credit, total return swaps, low level of regulatory protection $$ Mar 31, 2012
• Good 4 all of us RT @frankvoisin: My interview Research Magazine’s April issue: http://t.co/zioono6R Also features @VitaliyK @alephblog $$ Mar 30, 2012
• Bain Gave Staff Way to Swell IRAs by Investing in Deals http://t.co/4LlAExBt Letting employees in on the fun shares the wealth. Good $$ Mar 30, 2012
• Lying By Omission: Mutual Funds, Track Records & Departing Managers http://t.co/4MUyNRYs Track recrds shuld b suspended when critical ppl go Mar 29, 2012
• New from Aleph Blog A Pox on Promoted Stocks (2): By this time, I would think that it would be worth the the tim… http://t.co/DJkH6E4W Mar 28, 2012
• The Measured Approach to Value http://t.co/XiZOUMOn Features investors Vitaliy Katzenelson & Croft-Leominster, & smaller Frank Voisin & me Mar 28, 2012
• GoodHaven Realizes Its Vision http://t.co/zJVmCFMa The CIO of Markel, Tom Gayner showed them favor and invested with them. Good for them. $$ Mar 27, 2012
• What This Industry Needs is a Good Disruption http://t.co/imKDcElR There r a few areas of the financial industry that justify their fees $$ Mar 27, 2012
• Found PDF slide presentation: http://t.co/0GfhME7m The Market for Financial Advice: An Audit Study $$ Worth a read, paper not free @ SSRN Mar 26, 2012
• Treasuries Rise for Fourth Day on Global Growth Concern http://t.co/JYpanHTu Funny how the sentiment has reversed; who is surprised? $$ Mar 25, 2012

Monetary Policy

• @kyles09 No, not a believer in MMT, MMR, or neoclassical macro. 2 much aggregation, not everything happens at once, goods/services central + Mar 30, 2012
• @kyles09 and $$ only facilitates goods/services. Debt is important, but not central, some goods owned outright, w/no liabs. Money is a + Mar 30, 2012
• @kyles09 creation of a culture, not the government, because @ the edges, FX & commodities will crowd out bad currencies. MMT -> inflation $$ Mar 30, 2012
• What Does Bernanke Know? http://t.co/LydpOqk1 Introduces “The Guy Rate” http://t.co/zNVeUYmP Unemployment of older guys has hi costs Mar 29, 2012
• Demand for U.S. Debt Is Not Limitless http://t.co/NWKHcpCD In 2011, the Fed purchased 61% of Treasury issuance. That can’t last. $$ Mar 29, 2012
• Bitter Money Fights Shaped U.S History http://t.co/36jWnkQq Abandoning Gold Helped Dollar Gain Preeminence http://t.co/QbYMkTNL $$ Mar 28, 2012
• For the last tweet, those r2 good articles by Simon Johnson & James Kwak, authors of “13 Bankers” & co-founders of The Baseline Scenario $$ Mar 28, 2012
• Housing bubbles and interest rates http://t.co/9TfzMpt2 Makes my point that asset price levels should be part of monetary policy $$ Mar 31, 2012

Banking & Finance

• FiveBooks Interviews > @Ritholtz on Causes of the Financial Crisis http://t.co/RQQZfHTz Many good perspectives from 6 authors on the crisis Mar 31, 2012
• Geithner’s Math Puzzle Beyond Numbers for DeMarco http://t.co/Eg9BjcgE Principal forgiveness would have moral hazard impacts. $$ Mar 30, 2012
• Why not make LIBOR off of binding offers of the banks to borrow/lend to any of their group $10M short-term unsecured? Avg — LIBOR/LIBID $$ Mar 30, 2012
• Libor Links Deleted as UK Bank Group Backs Away From Rate http://t.co/HOy8TOof British Bankers’ Association distances itself from LIBOR $$ Mar 30, 2012
• Branson’s Virgin Money Seen Disrupting U.K. Retail Banks http://t.co/bPcD8im7 Always been a Branson skeptic; he have audited financials? Mar 30, 2012
• Why not make LIBOR off of binding bids/offers of the banks to borrow/lend to any of their group 10 million dollars sh… http://t.co/wK3HyopV Mar 29, 2012
• Is Hartford Financial’s market exit a death knell for the annuity crowd or just more Hartford haplessness? http://t.co/AUEVqxWQ Both. $$ Mar 29, 2012
• The Birth (and Death) of the Moral Age of Wall Street http://t.co/eStszd7i At one point the moral code of $GS had some meaning, not much now Mar 29, 2012
• @BarbarianCap More subtle than that; for insurance accounting &the concept of release from risk, it is the conservative side of realistic $$ Mar 27, 2012
• A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market http://t.co/WYQGAVVx +1 $$ Mar 26, 2012
• But, disagree. Would b simpler and more effective to disallow repo financiers unrestricted access to collateral even in counterparty default Mar 26, 2012
• Obama Relies on Debt Collectors Profiting From Student Loan Woe http://t.co/pYWwgLq2 How independent debt collectors get people 2 pay $$ Mar 26, 2012
• A Bailout by Another Name http://nyti.ms/GRTNMM GSE writedowns would constitute a direct & sizable gift from taxpayers 2 the largest banks Mar 26, 2012
• Banks’ preemptive strike against Dodd-Frank http://t.co/wjHW0nyv Banks adjusting strategies in order to keep doing as much biz as possible Mar 26, 2012
• MF’s Corzine Ordered Funds Moved to JP Morgan, Memo Says http://t.co/cYaT9sHy The most likely cause may prove to b correct $$ #corzine Mar 26, 2012
• BOE’s Tucker: Rehypothecation Consequences ‘Under the Radar’ http://t.co/0X8ZQMMH Good. Rehypothecation should b reviewed, perhaps limited Mar 26, 2012
• @EpicureanDeal @dsquareddigest I would still lay the blame @ the door of $GS mgmt. Could have grown via retained earnings &stayed private $$ Mar 26, 2012
• @EpicureanDeal @dsquareddigest Also, there r real advantages 2 partnership culture in an investment bank; risk control works a lot better $$ Mar 26, 2012
• The Age of the Shadow Bank Run http://t.co/deJRQGgy Borrow short, lend long; clip a spread. Surprise! During the crisis you lose big! $$ Mar 25, 2012
• The Interest Rate Swaps that Are Bankrupting Local Governments http://t.co/yHQZ1r3u Not true. Gov’ts tried to minimize taxes w/swaps, failed Mar 25, 2012
• Three’s a Crowd http://t.co/KHtbrqpe Disagree w/the conclusion, because $GS did not have to go public; problem is mgmt, not shareholders $$ Mar 25, 2012

Pensions

• Brazil’s pension system http://t.co/90O97tQ4 They allow people to retire too early & offer too much. More unsustainable than Medicare $$ Mar 30, 2012
• @AlexRubalcava Perhaps a cash balance plan would do that. DB plans are not expensive because of explicit costs. They r expensive b/c + Mar 28, 2012
• @AlexRubalcava during boom times benefits look free and get set too high, leading to high costs in the bust phase & plan terminations. $$ Mar 28, 2012

Politics

• Obama Is a Loser Who Wins, Like FDR in 1936 http://t.co/K0x9go0T Don’t assume a bad economy insures the defeat of Obama. FDR won in ’36 $$ Mar 31, 2012
• The Rejection of Austerity Begins http://t.co/CgWKa9x6 Until failure, ppl vote 4 politicians who promise magic prosperity thru govt fiat $$ Mar 30, 2012
• Germany: The Final Frontier… Whose True Debt/GDP Is Now 140% http://t.co/KgW2d76E When you add up the guarantees, doesn’t look so good. $$ Mar 29, 2012
• Justices Suggest Parts of Health-Care Law May Be Thrown Out http://t.co/cMvKHR20 B best 2 throw the whole law out; let Congress start over Mar 29, 2012
• Contra: Court Can’t Let Broccoli Get in Way of Health Care Law http://t.co/5Yp2o8tB Sup Ct is moving 2 define interstate commerce better Mar 26, 2012
• Death Tax Defying http://t.co/FrkL5yLB Eliminate the estate tax; Tax everyone on unrealized capital gains. $$ Same result. Mar 25, 2012
• Intelligence community can keep data on Americans with no ties to terrorism for up to 5 years http://t.co/PCM7ldiG Stinks; call the ACLU $$ Mar 25, 2012

US Economy

• Why Natural-Gas Prices Could Fade to Red http://t.co/GApb0xie When everyone tries 2 frack @ once, there is too much natgas, price falls Mar 30, 2012
• US coal production declines as industry faces further stress http://t.co/l3WpZtDC Fracking has unpredictable consequences; affects energy $$ Mar 29, 2012
• Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls http://t.co/JsgIdewr In certain locales, & on the low end, there r bidding wars Mar 29, 2012
• The Biggest Bellwether In The World Is Giving Some Ominous Comments About Growth http://t.co/vHWs9lwB $FDX says things r slowing down $$ Mar 29, 2012
• Planned Pipelines to Rival Keystone XL http://t.co/qQZ1Dsj2 Enterprise Products Partners & Enbridge may build competing pipelines $$ Mar 28, 2012
• ‘Pink slime’ producer suspends operations http://t.co/CvptYPhU Goes from 4 factories to 1. 600 people will probably lose their jobs $$ Mar 28, 2012
• @valuewalk @The_Analyst It is better for students to start small businesses. Forget economics, it is a waste. Profit/loss best teacher $$ Mar 27, 2012
• The Economic Surprise Index is now trending down http://t.co/eJCEEdvy @soberlook reminds us that not everything is going well $$ Mar 27, 2012

Miscellaneous

• Like it? I’ve actually bought cars that way! RT @mprobertson: http://t.co/UHdFL0Eu How to buy a car using game theory. very interesting. $$ Mar 31, 2012
• Eating Chocolate Regularly May Make You Leaner, Survey Suggests http://t.co/l8c6MMpA This means one dark chocolate Dove promise/day $$ Mar 27, 2012
• The second most dangerous people in the world are smart people with wrong postulates. Mar 25, 2012
• The most dangerous people in the world are politicians who peddle the views of the smart people with wrong postulates. $$ Mar 25, 2012
• Madoff FBI Files Reveal How He Fooled His Own Employees http://t.co/lmq2AoZG Gives hope to those accused; Madoff controlled data tightly. Mar 25, 2012

I think that it is pretty certain that defined contribution [DC] plans 401(k)s, 403(b)s, 457s, much as they have grown to be dominant, have been a failure.  Many, though not all people like the illusion of control, and seeing their cash balance — makes the pension plan tangible, even if they don’t get what they will really need at retirement.

Pension plan reform has to face three realities.  The first is people don’t know how much to put away for retirement.  I’ll give you a hint: for almost all people, it should be over 10% of your gross pay.  The second is that people don’t know how to invest, so hand it off to advisors who will do it for them, and cheaply.  The third is silent, and leaves a lot of money on the table — most people would be better off taking an annuity from their pension plan than a third party, or trying to manage a lump sum on their own.  This is usually an option only for defined benefit [DB] plans.

On the last point, annuities from insurance companies will almost always be inferior to those from DB plans — the investment policy of the DB plan will likely yield more than the investments of the life insurance company.  The DB plan has more ability to take risk, and its expenses are lower.

And speaking of lower expenses, that’s another reason to replace DC plans.  Not only do DB plans provide better security, they have lower expenses.

But employers don’t want to fund expensive DB plans, particularly in a low interest rate environment.   Fine, that’s not what I am arguing for.  I am suggesting an odd sort of DC plan:

• Participants can contribute what they wish
• Employers can contribute what they wish
• Professionals manage the assets; no asset management by participants.
• During active employment, the cash balance can transfer with a change of employment.
• At retirement, it converts to a DB plan, and an annuity is granted, more generous than could be obtained privately.  The retiree does not get the agony of managing a lump sum.

I think this would lead to much better results for plan participants.  The case would have to be made to participants that they have not done well managing their own funds — they will underperform by less through third party managers.  Also, few are good at managing lump sums for income.

This is the sort of plan that would yield better results for most, given that DB plans are out of favor, and participant-directed DC plans lead to high expense lousy results.  Best to have a hybrid plan.  Trustee-directed DC plan for accumulation.  DB plan for distribution.

That’s how I would structure it at present.  Better ideas are welcomed.  Thoughts?

I have long wanted to see a book that would teach ordinary investors how to avoid being cheated by those that create/sell financial products.  If this book isn’t it, the one that surpasses it will be astounding.  If Wall Street is a show, this book gives you a peek behind the curtain.

This book is really four mini-books in one:

1) How the author became a broker, and the ethical difficulties that were forced on him in the process.

2) The difficulties faced by do-it-yourself  investors, and the benefits of exchange-traded funds [ETFs].

3) On Brokerages, and all their conflicts of interest, culminating in the straight line pitch.

4) Investments to avoid, and advice from the wise.

That it is four in one is not a weakness but a strength.  Wall Street has many ways to skin investors, and each section provides insights that different people will benefit from.  It is a more comprehensive book in its short 240 pages as a result.

On Brokers

The first part of the book describes Wall Street as it was and is, with all of the players and their motives.  Josh spares no one; the tone of the book is cynical, but not unduly so, noting all of the problems with a profane sense of humor.  Some of the funniest bits of the book are recollections of conversations with greedy parties seeing an edge.

There is a certain level of despair for young brokers as they “cold call,” knowing that if they don’t succeed, they will be let go, but driven by the possibility of riches should they succeed.  Those who are successful gain money, prestige, bragging rights, and some level of freedom from tight control.

I have my own experience with this. though mostly on the institutional side where I told such brokers “Why would my client want that?!”  It’s astounding what level of deception those who sell investments will engage in, until they realize you can’t be conned, and then they use your ideas to con others.  (The institutional brokers only make money on transactions; if they know you are smart, they facilitate your ideas at the expense of those less talented.  Ugly, I know, but I didn’t invent this.)

On Do-it-Yourselfers

Now, if you are a total “do-it-yourselfer” like I was in the ’90s, where I researched and bought my own stocks for myself, with some success, this is not for you.  This is for those who research and use mutual funds and ETFs.  It goes into the history and development of asset management fund structures, explaining why they are how they are.

He also describes how the modern era came into existence with discount brokerages in the ’70s, and how during the bull of the ’90 it morphed into anyone can make tons of money, just buy stock!  One thing Josh does not talk a lot about, but was significant, was how when fixed commisions ended, the real reason for maintaining research staffs died.  And, when tick sizes moved from a eighth to a sixteenth to a penny, the reasons for having market makers and specialists dried up.  But you can’t cover everything.

One particularly funny part is page 110, with its real-life definitions of fund types.  Josh is at his best in the section where goes after leveraged and inverse ETFs, where a lot of investors lose money because they are meant to track daily performance of indexes, and generally lose money for those that hold them long-term.  He is similarly good when he criticizes the proliferation of ETFs that are too unique, and will never get a broad following.

On Brokerages

Brokers position themselves as experts, when they are really order-takers.  They hire analysts that are not that good on average, and issue more buy than sell opinions, which facilitate the investment banking and trading businesses.  It talks about the stories that brokerages tell in order to captivate people and make them invest.

And then, Josh discloses the “Straight-Line Pitch,” which has been used on many investors to make them invest with the brokerage.  I have to admit, given some of the initial publicity on this point, and my own experience with brokers, I was dubious about this part of the book, and, Josh leaves it to the end — this is the climax!

I was pleasantly surprised, and I would recommend that all investors read chapter 20.  Why?  To immunize yourself from the clever talk that boxes you in as they offer slick answers to your objections.  That is a major reason why I read books on marketing: I can’t be tricked!  (But it does force me to do my own research.)  If you don’t want to be tricked by clever brokers, read chapter 20.  It isn’t necessarily the best chapter of the the book, that will depend on your own needs, but chapter 20 is unique.

Oh, and why have I not experienced this? Being a total do-it-yourselfer, I told brokers that I knew better than they did; it led to some weird conversations as they found I knew more about it than their talking points.

Investments to Avoid — Advice from the Wise

Most bad investments are either volatile or illiquid.  Why do brokers sell illiquid investments?  Because they get high commissions.  Same for insurance agents.

Then there are investments that sneak between the regulatory cracks, like Chinese reverse mergers, Special Purpose Acquisition Corporations, and anything with secondary guarantees, or the sale of options to enhance income.

Ask the broker this: who can I sell this to if I don’t like it someday?  Who makes an active market in this?  Any pause on this, and don’t buy.  No pause, but an answer — write it down, and check it out.

In one sense, part of the answer to the problems this book brings up is to realize there is no urgency.  If it is a good idea today, it will be good a week from now, let me talk with smart friends and figure out if the idea makes sense.

As for advice from the wise, he invites about eight of his friends to opine on a variety of topics.  Most of them are well-known, but at least a few of them are obscure, unless you are in the business.  I found the counsel to be sound, aside from an obscure former actuary who writes on investments.

Quibbles

On page 118, he talks about how Vanguard would have been a natural for the ETF business, and how Bogle delayed them from getting in.  This is true, but Bogle resigned in 1999; I was at a dinner for his retirement in 1998 in Philadelphia, and met him and Brennan, his successor.  The first Vanguard ETF was created in 2001, VTI is the ticker.  Vanguard did not play a large role in ETFs until 2005, but to say they weren’t in the business is not correct.

Also, ETFs are not as good as they seem, because average investors in them trade them wrong, buying high and selling low.  ETFs do not correct for bad investor timing, even if they are lower-cost.

Who would benefit from this book: If you aren’t a total Do-it-Yourselfer in investments, you can benefit from this book, because it will teach you about the motivations of those who try to sell investments to you, and those who manage money for you.  If you want to, you can buy it here: Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments.

Full disclosure: The author is a friend of mine, so I asked for the book.  He said “yes” and he sent it to me.

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.

This is two books in one, and very well done.  The main part of the book explains risk and uncertainty in general terms, such that most people can understand it.  But for those that can deal with complex math, the latter part of the book offers a lot of additional firepower.

Risk is a tough subject because history only vaguely informs you as to how bad things can get.  Past is not prologue.  There are two possibilities, the past contains and event that was so horrible that it can never happen again, or, the past does not tell you how bad things can be.

Market observers took the first view, that the Great Depression could not repeat.  As a result, few prepared for a situation where there was too much debt, and insufficient ability to service it.

The subtitle of the book is rightly “Uncertainty at the Core of Finance.” Not risk, but uncertainty.  The distinct is important, because risks are things that we know some things about the possible economic outcomes, and can control them to a degree.  Uncertainty is where we don’t really understand the dimensions of the outcomes, and have little if any control.

There is fundamental uncertainty to the simplest aspect of finance, money.  Money seems stable enough in the short-run, but every now and then it fails due to hyperinflation, or the slow steady failure in the store of value sense of moderate inflation over long periods.

Wealth itself is uncertain.  Even if you own it free and clear, there’s no way to tell what it will be exchangeable for next year, much less further out.  There are a lot of people who thought they knew what their homes were worth 5-7 years ago that are decidedly disappointed.

Government debt is uncertain, as governments think they can always roll it over, but political and other obstacles can lead to a refusal to pay when debt service becomes high relative to tax revenues.

Banking is uncertain, mainly because of borrowing short to lend long.  If banks limited themselves to facilitating transactions, a lot of the uncertainty would go away.  Banks would be a lot smaller, less profitable, and there would be fewer of them, and the economy would be more stable.  (Entities with longer liability structures, like pension plans, endowments, and life insurers would become the new source of lending. More would be financed through equity.)

Credit is uncertain.  During boom times, corporate bonds behave independently, and diversification evens out results.  As a result, corporate credit seems safer than it really is, and marginal ideas get to borrow.  During bust times, far more corporate debt defaults than would be expected — there’s almost no such thing as an average year.  It’s either feast or famine.

There are things that can be done to try to mitigate uncertainty: credit ratings, or any scoring system for assets, lending at a more senior level, and Value-at-Risk.  Also using more robust assumptions on possible outcomes, which would lead to smaller position sizes, less leverage, or more cash.

The book has a real strength in showing how the the assumption of normally-distributed risks fails dramatically in many cases, and offers alternatives that would work better.  Trouble is, once you realize how volatile the world really is, a lot of strategies either don’t work, or need to be scaled back.

The book praises actuaries as risk managers, with their ethic codes and stress tests, as opposed to quants with Value-at-Risk and no ethics code.  Banks and Wall Street would be better off in the long run hiring actuaries, who think about risk more holistically, and getting rid of the quants in their risk control departments.  Same for the regulators who evaluate banks.

There are other controversial ideas here: is it possible that the strong economic growth of the past is an anomaly?  Is it possible that growth for nations, and the world as a whole follows S-curves, like products and companies?

This is an ambitious book, and I like it a lot because it is willing to cross boundaries and apply the principles in one  area to another that seemingly should not receive it.  I liked it a lot, and would recommend it to many.

Quibbles

On page 17, he thinks of currency as a put option, but I think of it as 0% overnight commercial paper.  On page 37, he confuses Moses and Joseph, having Moses predict the 7 good followed by 7 bad years, when it was Joseph who did that.

Who would benefit from this book: Every financial regulator should have this book.  Every academic burdened by the lies of Modern Portfolio Theory should get this book.  Anyone who fancies himself to be a risk manager should have this book.  Finally, if you want to understand why financial markets are inherently uncertain, this book will teach you well.  If you want to, you can buy it here: Pandora’s Risk: Uncertainty at the Core of Finance (Columbia Business School Publishing).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

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.

When I wrote my piece last night, I did not write it to say one ought to buy and never sell.  In investing, I encourage the concept that one must look to relative valuations and trade assets that are worth less for those that are worth more.  In doing so, one maintains exposure to the overall risk of the markets, but shifts to more promising areas.

But what if valuations get so strained that future returns from most risk assets are tepid?  At that point, buy-and-hold turns into sell-and-wait.  It’s like being a bond manager — if the excess returns are small from taking additional risk, you don’t take additional risk.

I tend to turn over my portfolio once every three years.  That to me is a good tradeoff between holding for a long time and recognizing that opportunity changes over time.  But my trading is driven by analyzing relative opportunity, selling what I think are lower future cash flow streams for larger cash flow streams.  Do I have a crystal ball to tell me which is better?  No, just business judgment.  As Buffett says, “I am a better businessman because I am an investor, and I am a better investor because I am a businessman.”

My business judgment has done well for me over my career, but I don’t pretend that it is infallible, because I make significant mistakes.  Humility is an asset to the investor, because we don’t always know the right course.  That said, let diversification handle uncertainty, and within risky assets trade away less promising assets for those with more promise.

A reader wrote me, one who works for a prestigious university and he said:

Since 1926, the minimum inflation-adjusted total return of the S&P 500 (or its predecessor index) has been over 4%, annualized, over every 40-year rolling period.  For 20-year periods, the returns are typically either high (say 9%) or low (say 2%).  Thus, the buy-and-hold investor is best off with the 4-decade hold time.  Fortunately, 40 years matches the typical work life of a person, so workers ought to be shoveling retirement money into equities, and leaving there when they retire, if history is any guide.

 Your thoughts?

Yes, so long as your government holds together, over longer periods of time we do better.  But the tough part for retirees is “What is my situation like when I retire?  Yes, I built up a pot of assets, but what will that buy in terms of continuing income, and will that do well against declining purchasing power?”

There is no magic bullet.  I try to solve this by shifting industries over time, aiming at the most promising current opportunities, but not leaving the market in entire.  I limit cash to 20% of the portfolio when valuations are strained for he market as a whole.

Back to the question, yes, I think most people should buy-and-hold, if they can’t analyze the asset markets.  That’s like the Biblical proverb that a fool is counted wise if he is silent.  But for businessmen/investors there are often relative opportunities to do better.  Analyze those opportunities and take the best of them.

Yes, have some exposure to risky assets for your career, but vary the amount of exposure, and where it goes relative to likely opportunity.

I appreciated Jonathan Burton’s piece Speed kills, but so does complacency.  Like me, he is trying to strike a balance between hyper-trading and permafrost.

My mother is a good example here, though she does things differently than I do.  She holds stocks for a decade or so on average, and analyzes to see whether they have long-term prospects.   She buys, holds, and occasionally adjusts.  She spends more time painting, for which she has a degree of reputation.  She beats average asset mangers regularly.

The main idea should be one of relative value: trade to improve.  Look at the underlying cash flow streams if you can, and trade smaller for larger.

Here’s one more tool to help you.  When the amount of money into an asset goes parabolic, it time to leave.  It is rare that large amounts of additional money will yield excess returns.  This simply admits that there are times when it is wise to reduce exposure to risky assets.  just as bond managers look at yield spreads to commit capital, so should investors in risky assets aim for a margin of safety in what they invest.

As a final note, buy-and-hold is a fundamental strategy in investing.  It presumes that you spent the time analyzing whether this asset was undervalued.  If it becomes overvalued, it does not mean you should hold it.  Always look for better relative value.  In the end that leads to better portfolio performance.

There’s this mistaken idea trotting around in the popular media, which usually only shows its face in bear or sideways markets: buy-and-hold investing is dead. This is wrong in several ways:

1) The average investor is horrible at market timing.  They buy high and sell low.  The more volatile the asset subclass the more pronounced this behavior is.  I have witnessed this personally while analyzing the return differences for Bill Miller, Bruce Berkowitz, and the S&P 500 Spider.  There is a profound difference between the returns that a buy-and-hold investor receives, and that which the average investor receives.  The buy-and-hold investor almost always does better; the only exception that may exist are value investors who have learned to resist price trends, painful as that may be.

2) The assets of the market are far less volatile than those that trade them.  Bonds are issued, the grand majority of them mature (pay off).  Stocks are issued, and they pay dividends, get bought out, fail, spin off another company, etc.  Trading activity usually far exceeds the need for financing assets; it becomes a game unto itself, and a zero-to-negative-sum game at that.  When you are playing a game that is overall negative-sum, i.e., the brokers suck cash out of the game proportionate to trading, the better players look for quality assets, and trade less.

3) When a sustained bull market arrives, the other mistake will show up, “Buy-and-hold is the only way to go.”  Risky assets have periods of protracted increases in valuation.  Certainty in the continuation of the process grows as it gets closer to the end of the cycle, when the cash flows of the assets cannot support the cash flows of those who borrowed to buy them.

4) Longer-term investors are often the key to a turnaround in the price of an asset.  Asset prices bottom when longer-term investors see value, and buy-and-hold, waiting out the volatility.  Asset prices crest when long-term investors decide to sell-and-wait, because the prospective returns to a buy-and-hold investor are poor.

This is why the perspective of a value investor can be valuable in approaching markets… are you willing to do a cold hard analysis of the likely cash flows?  You know that it gets harder to maintain high returns on equity [ROEs] as time goes on, and the same for low ROEs — new management arrives, and there is mean-reversion.

Conclusion

Yes, there are clever traders, but by necessity they are few in the market ecosystem, and repeatability is uncertain.  There are far more dumb traders, and repeatability is only limited by their declining capital.  Then there are the value-oriented infrequent traders.  They do best, but second to them are those that buy-and-hold.

In general, the economy rewards those who bear risk over long periods of time.  Thus buy-and-hold does well, usually, over long periods of time.  That time period may be 30-40 years, and may not do well with respect to your retirement date, so take caution, and don’t trust in long-term investing as if it is the force of gravity.  It is more akin to one who realizes the bean farming has become unpopular, and so, he decides to plant beans.  It might not work immediately, but it stands a better chance of working than those who are chasing the current farming fad.

We would all like our practical decisions to go easily, and bear quick positive results.  That’s not reality.  As for me, I needed to decide whether I would:

• borrow against my home at 3% for 15 years.
• liquidate a portion of my taxable brokerage account
• liquidate shares in best private manufacturer of commercial lawn mowers in the world.

I decided on the flexible and probably low-cost solution, selling some of the taxable brokerage account.  I have two accounts, an IRA and the taxable account.  They were invested differently, but my investors get a blend of the two accounts.  I used to put the higher income names into the IRA, while the taxable account would take the lower income names.

That has been changed. Both portfolios have the same proportion of names (companies). In the process, gains have been realized, but not so much as overwhelm the deferred losses of the past.

But for this exercise, one salient result was that both portfolios, which are the model portfolio in aggregate, would become like the model portfolio.   They are now clones of each other, as is true of all client portfolios that I manage.  My promise to clients is that they get what I get, so I create a clone of my portfolio for each client.  It certainly aligns my incentives with theirs.  Even after today, my next-largest client is 20% of my aggregate portfolio.  So, yes, I eat my own cooking, and in general, my cooking has been tasty over the last twelve years, even though the last year has been less than inspiring.

On the bright side, with the market up, it has allowed me to harvest an amount that will take care of my family for a year, while leaving my portfolio up considerably from one year ago.  That helps a lot when revenues from managing money are still light.

Hopefully, within a year, I will have enough clients that my revenues support my family.   We’ll see; but if that doesn’t happen I know there are a number of firms that would like to employ me, so my downside is limited.

One final note: one reason why this was a difficult decision was that the low rates for mortgaging my home were more difficult to obtain while self-employed.  Aside from my investments, I am not earning as much as I used to.  The fixed costs of liquidating part of my portfolio were 6% of the fixed costs of obtaining the mortgage.  Beyond that the question remains as to how well equities will do in the future, a question for which I have no good answer.

I think I made the right move here; I usually do, generally, but we will see whether this was the right decision over the next few years.

Finance Business

• Breaking Ranks: Former Broker Turns Bomb Thrower http://t.co/q1vpz9dh @reformedbroker interview previews his book: http://t.co/Yigg2sEE $$ Feb 24, 2012
• Why CLO managers continue to struggle http://t.co/a13j8jVG Low issuance, warehousing is tough, need more subordination, fewer senior buyers Feb 24, 2012
• My Favorite Quote from Baupost’s 2011 Annual Letter http://t.co/VOvbqab3 DIstressed bond mgrs get itchy in bull phase & buy new junk @ par Feb 24, 2012
• SEC IFRS Plan Endorsement http://t.co/8xguvs2G IFRS is not worth giving up comparability or sovereignty for. Project is a total loser. $$ Feb 24, 2012
• Very cool, congrats RT @Finovate: @AlphaClone to offer Alternative Alpha ETF from U.S. Bancorp http://t.co/srufb3qd Feb 23, 2012
• SEC May Ticket Speeding Traders http://t.co/oNCbF7pa Worthy of an experiment like the kind they did to study the “uptick rule” $$ Feb 23, 2012
• AQR’s Aaron Brown on Red-Blooded Risk http://t.co/ZM7hn5P4 When I was a bond mgr, could sense some aspects of risk listening 2 broker’s tone Feb 23, 2012
• The Volcker Rule is not going to bring your house back http://t.co/ADKMABfE Prop trading was not a leading cause of the financial crisis. $$ Feb 23, 2012
• Pimco Said to Quit Mortgage Bond Group http://t.co/YsQZs1IE Feels wrong parties (their clients) r paying 4 bad servicing,instead of banks Feb 23, 2012
•  If you want, I can dig up an old research piece on analyst coverage — there are basically 3 factors that explain 70… http://t.co/tBinshJJ Feb 21, 2012
• Stressed VAR is still a “protractor in the jungle” http://t.co/GRGgwvsd Risk management sh/not b done w/central measures but stress tests $$ Feb 21, 2012
• How One Company Teaches Employees the ABCs of Finance http://t.co/fqO19foq More companies should do this, they would b more profitable. $$ Feb 18, 2012
• Gross Fund at 66% Premium Shows Pimco Allure in Quest for Yield http://t.co/LY8Rv4SS Yield illusion distracts many investors. Avoid it. $$ Feb 17, 2012
• Read:Which three of DOL’s new 401(k) rules represent the biggest land mines for financial advisors and plan sponsors? http://t.co/ZVoMPmQu Feb 15, 2012
• The 400% Man http://t.co/nrRhYIZl Wish I could meet some of his disappointed investors who came to kick the tires and were disappointed. Feb 15, 2012
• Contra:Foot-Dragging on IFRS Decision Could Strip SEC of Power http://t.co/VNUFhWD5 The US could lose representation on IASB. Good, drop out Feb 14, 2012
• Notes from iGlobal’s Global Distressed Investing Summit: Part 2 http://t.co/9iOty0Iz Leveraged loan market seems to be in decent shape $$ Feb 14, 2012
• Pimco: $25 Billion Foreclosure Deal to Hit Pensions Harder Than Banks http://t.co/DKFtMI9B Gives MBS buyers a reason 2 sue originators $$ Feb 13, 2012
• Missing at MF: $1.6 Billion http://t.co/QSUMYbNO Included for the 1st time is roughly $700 million in client money residing in the UK $$ Feb 13, 2012
• Stockbrokers: A Guide to Private Placement Due Diligence http://t.co/tbwtu6Jy Illiquid investments are ways to cheat average people. $$ Feb 11, 2012
• Why illiquid? Can’t recover the commission otherwise.  Can deceive people that their investment is worth more than it… http://t.co/cYjvUhWx Feb 11, 2012

Market Strategy

• Jim Stack was right, and he’s still bullish http://t.co/GfEqtTKl Basically a forward P/E plus momentum argument, & lack of sharp falls $$ Feb 24, 2012
• S&P 500 Gets 9% Cheaper on Record Profits http://t.co/DWPGz5Y2 Makes a P/E argument; profit mrgns will eventually revert, may take a while Feb 23, 2012
• The dangers of dividend-paying stocks http://t.co/FymTmAAi Hint: they are stocks. No maturity date, no certain cash flow, low BK priority $$ Feb 23, 2012
• Falkenblog: Low Vol Commodity Timing Strategy http://t.co/M4FFRoCx Low volatility seems to work in a large number of areas, this is one $$ Feb 23, 2012
• Retro Investing—Look Back to Get Ahead http://t.co/vYiPCu9J The 50s, w/post-WWII financial repression, recurs as a current investing meme $$ Feb 22, 2012
• The Intelligent Investor: Are Index Funds Messing Up the Markets? http://t.co/VAoFtksw May also be traders following each other $$ Feb 21, 2012
• If history is any indication, high dividend stock outperformance should continue http://t.co/C5GaWmW8 Uses 40s & 50s as analogy $$ Feb 20, 2012
• Breakout or consolidation? http://t.co/GTSkBjIT Many market seem to be at inflection points. Which way will they go? Wildcards: EZone, China Feb 20, 2012
• RE: @alea_ Interesting analysis.  I would be wary of teasing too much out of the cluster analysis of sector correlati… http://t.co/zirdOJ8v Feb 18, 2012
• MORGAN STANLEY: January Exhibited This Tell-Tale Sign Of A Market Top http://t.co/IQqidpUE When everything rises at once, look out! $$ Feb 18, 2012
• Apple Stock May Not Be as Cheap as It Looks http://t.co/2dgfjfPq Earnings quality has declined, and so has the PE multiple $$ Feb 18, 2012
• @ampressman Common summary stat 4 acctg quality 4 $AAPL Net Operating Accruals / Assets, has been deteriorating 4 last 7 years + Feb 18, 2012
• @ampressman $AAPL acctg used to be very conservative, now modestly liberal by that statistic. It’s a bad direction, not a bad position, yet Feb 18, 2012
• Should the Rich Invest Like Colleges? http://t.co/M9OaPEPA Better question: what are your goals? Do you have an infinite horizon? $$ Feb 18, 2012
• High Yield Bonds as Equity Indicator | The Reformed Broker http://t.co/OXUtZrWG Meet my friends & former colleagues Ed Meigs & Sean Slein $$ Feb 17, 2012
• When Earnings Slow, Focus on Big Cap, Quality http://t.co/zjD3RPKA High quality is the place to be at present, credit cycle shifting some $$ Feb 16, 2012
• A Lesser Known Indicator http://t.co/8oivTJFl Cash enters market through IPOs, employee grants, & exits through cash buyouts, buybacks $$ Feb 16, 2012
• Parabolas have 2 end somewhere $$ RT @ReformedBroker: $AAPL sold off because people were getting impatient with how slowly it was moving up. Feb 15, 2012
• FPA Capital’s Bryan Beats Peers Embracing Oil Volatility http://t.co/7ebuGmrb A clever focus on absolute retruns, w/a long horizon $$ Feb 15, 2012
• Paulson Gives Activism a Go http://t.co/dkHb3cht Not as easy as it looks w/ $HIG. Acctg may not fairly capture variable liabilities $$ Feb 15, 2012
• RE: @SoberLook DB hedges its bets.  Average years rarely happen in high yield, they are either good or bad. http://t.co/0C51uulu Feb 14, 2012
• THE 1987 MYTH…. http://t.co/mHSU4nM3 “Illusion of stability within disequilibrium” Very well said, in one short phrase. $$ Feb 14, 2012
• America Inc. Faces Margin Stall http://t.co/RbqvqbT9 US companies have begun to see rising costs eat into the bottom line. Finally. $$ Feb 13, 2012
• Hulbert: Insiders Selling at Heavy Pace http://t.co/qOPk2cbY Just another straw blowing in the wind, but insiders usually have good sense $$ Feb 10, 2012

Greece

• Greek PSI outcomes tree: credit event probability at 93% http://t.co/jcLBc04c Clever grraphic shows high likelihood of Gk CDS triggering. $$ Feb 23, 2012
• The market is now pricing in Greek sovereign CDS trigger http://t.co/w5vJ42Fa Upfront prices for Greek CDS moving up $$ Feb 22, 2012
• Despite Pact, Unease Lingers for Greece http://t.co/Urp7mmag “Many Problems Remain Even Under Best-Case Scenarios” Shrink, shrink… $$ Feb 22, 2012
• Greek Rescue Is Not the End of the Story http://t.co/IOCVcCTb Won’t save Greece on its own & there r other fringe nations 2 deal with $$ Feb 20, 2012
• ECB Greek Plan May Hurt Bondholders While Triggering Debt Swaps http://t.co/Aya9urfV ECB may get better treaqtment than private holders $$ Feb 20, 2012
• So, what would your plan for Greece be? http://t.co/SAd2f28O Play the game, and let Keynes sneer @ u as u attempt 2 solve the impossible $$ Feb 18, 2012
• Greek Economy Shrinking Rapidly http://t.co/VzXi375M And it may shrink more rapidly depending on what the rest of Europe does $$ Feb 14, 2012

Eurozone

• ECB’s Mario Draghi magic corrupts bond markets http://t.co/r0ZCmYpb Banks become dependent on ECB, bank bondholders more subordinated $$ Feb 24, 2012
• European Banks May Tap ECB for $629 Billion Cash http://t.co/Re5TjLR5 “There is a ‘lose-lose’ air around the ECB’s auction next week,” $$ Feb 24, 2012
• The Eurozone should be prepared for a new government in France http://t.co/qGFPC20S And that govt will be more hostile to current actions $$ Feb 22, 2012
• Spain Sinks Deeper Into Periphery on Debt Rise http://t.co/wkuef6tS As debts grow higher, the probability of escape gets lower. $$ Feb 22, 2012
• Iron Lady Merkel Bucks German Street on Greek Aid http://t.co/Wc95xI47 Strategy working 4 now, but what if colleagues lose their seats? $$ Feb 20, 2012
• Moody’s Cuts European Sovereigns http://t.co/GvJuES7t Spain, Italy, Portugal, Slovakia, Slovenia & Malta all cut. France & UK -> neg outlook Feb 15, 2012
• Unlisted in euroland http://t.co/AQQrJMUf Didn’t catch this in Jan. Private bonds can offered 2 ECB as collateral; helps French banks $$ Feb 13, 2012

The Well-off Fringe Nations

• Icelandic Anger Brings Debt Forgiveness http://t.co/P4BH8HKN If the debt problem is not severe, austerity. If it is severe (Iceland) default Feb 22, 2012
• Nordic Currencies Stung in Crisis http://t.co/teorxG1P Much of the world, looking for a store of value, drive fringe currencies up $$ Feb 21, 2012
• Canada housing market: poised 4 ‘severe correction,’ George Athanassakos says http://t.co/05kaVIAD Canada is used to the boom/bust cycle $$ Feb 21, 2012
• @joshuademasi You’re right, but most of the fringe currencies are facing the same dilemma; who to favor, consumers vs exporters, etc… $$ Feb 21, 2012
• Israel Safest as Investors Discount War Threat http://t.co/3oXTlILj Well-capitalized banks & balanced economy w/much high tech $$ #warrisk Feb 20, 2012
• A hedge fund bets big on a Canadian mega quarry http://t.co/k7OZBC9u Property rights r tough here. What if an existing farmer tried this? $$ Feb 18, 2012
• Australia’s Gillard Urged to Increase Mortgage Purchases http://t.co/ylsCuvq4 A mistake, far better to let the market fail. $$ Feb 17, 2012
• You’re right, reminds me of an old piece I wrote: http://t.co/XkgO7z7A Thanks $$ RT @joshuademasi: The 5 stages of USD grieving ! Feb 15, 2012
• Norway’s Rate Policy Dilemma Pits Household Debt Against Krone ‘Headache’ http://t.co/Ud4FCOsI Cut rates, asset bubble grows, Krone weakens Feb 15, 2012

China

• Plan B for China’s Wealthy: Moving to the U.S., Europe http://t.co/X9jRPy6q Wealthy Chinese know their govt, thus the need for flight $$ Feb 22, 2012
• China’s FDI and Trade Outlook Horrible Says Commerce Spokesperson http://t.co/LIlvmxIL Hard 4 Comm Party 2command domestic consumption up $$ Feb 18, 2012
• ‘Mother of all bubbles’ will pop China stocks: GMO http://t.co/OMENKZOI Low prob: China successfully navigating soft landing out of a bubble Feb 18, 2012
• China’s excess exports turn negative http://t.co/CiLgTKqC Key Q: how will China grow its economy by stimulating domestic consumption? $$ #uh Feb 18, 2012
• Too many bearish on China, but I’m bearish also.  What to do? Seek out China bulls.  If their arguments sound dumb, d… http://t.co/vrhUIdsh Feb 17, 2012
• The Silent Victims of the U.S.-China Currency War http://t.co/6DXAnE3m Smaller nations get caught in crossfire of competitive devaluation $$ Feb 17, 2012
• China’s Military Spending to Double by 2015 http://t.co/5Va8kiLr I think it take some losses before DC takes this seriously. $$ Feb 17, 2012
• China’s Tenuous Hold on Peace http://t.co/dOFr68tL Tibet is restive, China blames its problems on the economic mismanagement of foreigners Feb 14, 2012
• Glimpses of a Chinese Town Under Lockdown http://t.co/AFoW0zsM some reporters managed to get there to document the heavy security presence Feb 14, 2012
• Liu Mingkang Outlines the Reforms China needs to Undertake http://t.co/L0cXMoIf Will the communist party willingly reduce its power in China Feb 13, 2012

Japan

• Japanese Equities Herald Return to Inflation http://t.co/rxlt5OhI If Japan bond market breaks, ructions will be felt the world over. $$ Feb 23, 2012
• Energy imports will pressure Japan’s trade deficit http://t.co/lieDm3T4 But, Japan has a current account surplus from its net foreign assets Feb 23, 2012
• Japan Suggests No Quick G-20 Deal on IMF Funding http://t.co/RZYF5EB2 non-European members of the IMF waiting on the Europeans to act $$ Feb 22, 2012
• Tokyo Small-Caps Set for Longest Win Streak http://t.co/mD3ySrzh Unnoticed but true, look @ this CEF: http://t.co/VcdMQDxL FD: long $JOF Feb 22, 2012
• Yen Slumps After Japan Expands Bond Buying http://t.co/L6yImwzC Competitive currency devaluations driving Forex $$ #beggarthyneighbor Feb 15, 2012

Iran

• Japan Refiners Said to Stall on Iran Deals http://t.co/uEq1DYtb Life is harder on those that need Iranian oil, like India, China, Japan $$ Feb 21, 2012
• Iran Says It Loaded Locally Made Fuel to Nuke http://t.co/6HkMaEFj Not sure I believe this, but if it’s true, the Israelis will know $$ Feb 15, 2012
• Iran presses ahead with dollar attack http://t.co/Hd4Qtnvz Unlikely to work, but it’s all they can do w/oil transport shut down $$ Feb 14, 2012
• Letter Writers Break Iranian Taboo http://t.co/M3NMfmk1 They are so desperate that they write the Ayatollah and criticize conditions. $$ Feb 14, 2012
• Iran Sanctions Tighten as Shippers Stop Loading http://t.co/ubEtI6om Risk goes up, shipping insurance premiums rise, shipping stops $$ Feb 13, 2012

Rest of the World

• Record Redemptions Loom Amid Akbank $1.3 Billion Loan Talks http://t.co/x5iDTSwE Never knew Turkish firms financed w/so much Short debt $$ Feb 18, 2012
• Chavez Missing $10 Billion a Month by Curbing State Oil Investment http://t.co/uTG1Z8d8 PDVSA falls behind Pemex? How low can you go? $$ Feb 15, 2012
• Chávez Opposition Faces Hard Election http://t.co/YBWi9PaW Chavez controls media & oil wealth; tough for Capriles, but he can still win. Feb 14, 2012
• Gunfights in Saudi Arabia Show Spread of Tensions http://t.co/dNxhg2ij Shia in Saudi Arabia fight the govt. Biggest split in Mideast $$ Feb 14, 2012
• The Real Reasons the Rich Are Moving Cash to the Caymans http://t.co/gh7d85ZA Litigation risk, and US political risk; diversify yr govts Feb 13, 2012

Federal Reserve / Monetary Policy / Fiscal Policy

• Those believing the Fed is on hold for the next 3 years will be in for a rude awakening http://t.co/VYggm431 FF futures & TIPS betray mkt $$ Feb 24, 2012
• Exported Inflation to Return Home, but When and in What Form http://t.co/UHT61w4Y The Fed will find it hard to shrink its balance sheet $$ Feb 24, 2012
• Healthcare expenses will overwhelm the US federal budget http://t.co/lLUABMYy Suspect a deal will b driven 2 reduce benefits somehow $$ Feb 23, 2012
• “Fiat Money and Collective Corruption” http://t.co/lRAa2xnG Hard money would help, the bigger problem is light regulation of banks/credit $$ Feb 23, 2012
• Fed Writes Sweeping Rules From Behind Closed Doors http://t.co/UtozNgly Q: Why? 2 avoid bank influence, or 2 hide bank influence? $$ Feb 21, 2012
• The Race To Debase In All Its Glory http://t.co/rPtS9EqD Balance sheets of major central banks expand rapidly $$ #racetothebottom Feb 21, 2012
• Wealthy Enriched by Double-Dipping U.S. Plan http://t.co/YtGTfakC Long article describing unethical use of SBA $$ . #eliminatetheSBA Feb 21, 2012
• Over-regulated America http://t.co/uMKtg2W0 The home of laissez-faire is being suffocated by excessive and badly written regulation $$ Feb 18, 2012
• Geithner: GOP Walked Away From Tax Overhaul – Bloomberg http://t.co/yupPqVeO Articles like this indicate another stalemate in the making $$ Feb 17, 2012
• Potomac Divide Shows Foreclosures Thru Courts Slow Home-Price Recovery http://t.co/kilW75GM MD has slow foreclosures, housing mkt lags VA Feb 16, 2012
• Sober Look: Regulate it all, ask questions later http://t.co/qnpfakfJ New regulations reduce the liquidity of the corporate bond market $$ Feb 16, 2012
• FHA is almost broke. What will DC do when it goes critical? RT @HousingWire: FHA defaults up for ninth straight month http://t.co/TSZFHCeD Feb 15, 2012
• Pentagon May Oust Troops Involuntarily to Meet Reductions in Budget Plan http://t.co/VnY4At7J Tough time 2b let go if you r a veteran $$ Feb 14, 2012
• What a surprise! $$ RT @pdacosta: Bernanke’s big housing speech makes no mention of the Fed’s regulatory laxity in run-up to the crisis. Feb 10, 2012

Bonds

• Contra: Should Mortgage Rates Even Be Lower? http://t.co/lODEFb1P Mortgages do not price off of Tsys, but swaps and bank bond yields $$ Feb 22, 2012
• Wall Street Crowds Into Trader Joe’s http://t.co/dHZT83VK CMBS mkt getting heated; loans linked 2 retail rose to 45% 4 bonds sold in 2011 Feb 22, 2012
•  Have a lot of friends who have lost a lot of money waiting for $TLT to break. FD: long TLT http://t.co/Lw6Rqn02 Feb 21, 2012
• A $360 trillion confidence trick http://t.co/Kar0f3Cz I have argued that LIBOR should be based off of binding offers to borrow/lend $$ Feb 14, 2012
• http://t.co/VOIG2gUk W/TIPS NY Fed concentrates on the long on-the-run & nearby, w/nominals opposite. Makes implied inflation look higher $$ Feb 10, 2012

Muni Bonds

• Stockton, CA, to Weigh First Steps Toward Bankruptcy http://t.co/d2lsCmx8 Start of negotiations to reduce emplyee pensions & healthcare $$ Feb 24, 2012
• Good piece, thx RT @munilass: Evaluating Chapter 9 Bankruptcy for City of Detroit: Reality Check or Turnaround Option? http://t.co/PxWo5qHA Feb 21, 2012
• Yes. http://t.co/4DUVVTKi $$ RT @BarbarianCap: @munilass isn’t this the muni book that @AlephBlog reviewed very favorably a few days ago? Feb 20, 2012

Pensions

• New Rules Wreak Havoc forRetirement-Plan Sponsors http://t.co/HzHWTTtL I would expect rules to be modified, else headaches 4 DC plans $$ Feb 24, 2012
• @BarbarianCap Looking at the RFP, that is one of the few things *not* under consideration, pity too, because it is more important. #DumbOCPP Feb 23, 2012
• @BarbarianCap The audit is a test of methods and data, not assumptions. That’s actually pretty normal unless you an assumptions outlier $$ Feb 23, 2012
• @BarbarianCap I’ve said it many times b4, if life insurers have 2b conservative in accounting, DB plans s/b more so, but they r less so $$ Feb 23, 2012
• @BarbarianCap Some cases, deals will be driven to reduce benefits, depends on state/muni laws, Ch 9 allowable; not protected by ERISA/PBGC Feb 23, 2012

Stocks

• The Capabilities Premium in M&A http://t.co/9CdZIugk Long piece that explains why some mergers work; they aid organic growth & r small $$ Feb 22, 2012
• Elemental to Raise $1.7 Billion Next Year to Mine Potash http://t.co/w7GNsA2H Potash pricing has been volatile lately, cross-currents $$ Feb 22, 2012
• Gamestop to J.C. Penney Shut Facebook Stores: Retail http://t.co/zSui0fCf $FB may have a more difficult time w/retail than some expect $$ Feb 20, 2012
• Hewlett-Packard’s Message: We’ve Been Here All Along http://t.co/vU8piGMt Note: long $HPQ . HPQ definitely sounds more certain now. $$ Feb 16, 2012
• Icahn Pushing CVR’s Sale Means $1 Billion Gain for Shareholders http://t.co/TfBKGErf What refiner wants more capacity now & fertilizer? $$ Feb 16, 2012
• Hedge Funds Switch Positions, While Paulson Switches Investing Style http://t.co/MznmLhci Issue w/ $HIG is value of Variable product biz $$ Feb 15, 2012

Miscellaneous

• The Control Revolution And Its Discontents http://t.co/FY4XgPde There is a “sweet spot” for market efficiency, too much & things get chaotic Feb 24, 2012
• The Decline In Inventory Right Now is NOT a Good Sign http://t.co/Ra1Iz65H Fall in seller confidence & decline in new distressed inventory Feb 23, 2012
• Spring Lambing in UK Turns Deadly as New Virus Kills Young http://t.co/PrO4neT1 Infects pregnant sheep, cows and goats, 5% infection rate Feb 22, 2012
• Midwest Farmland Prices Update for the Year 2011 http://t.co/se9DbEgB Good discussion after a good article; things r getting a little bubbly Feb 22, 2012
• Finding Treasures Among Insurer’s Wreckage http://t.co/jiFZiydE Never bot Atl Mutual’s Surplus Notes, but historical curiosities, wow $$ Feb 18, 2012
• @StockTwits Insurance is boring, but antiquities at the oldest companies are fascinating. Wonder what Nationwide did w/Provident Mutuals? $$ Feb 18, 2012
• @StockTwits I would hold meetings every now and then in Provident Mutual’s underused antiquities room; would start good conversations $$ Feb 18, 2012
• Why Is Violent Crime Declining in US Cities? http://t.co/SLgD8bEL & http://t.co/RRRI2m8X Smarter law enforcement makes DC safer. Wow! $$ Feb 18, 2012
• Thanks, liked it. RT @onwrdnupwrd: you will like this one from this weeks economist http://t.co/DMqhgXBB Feb 18, 2012
• Interracial Marriages in US Reach a Record http://t.co/RJjWnTso Interesting that it is more prevalent with college educated people. $$ Feb 18, 2012
• Harvard Mapping My DNA Turns Scary http://t.co/m5stl0d2 Journalist learns hard things about his DNA. Would he be better off not knowing? $$ Feb 18, 2012
• Groupthink: The brainstorming myth http://t.co/7VBlhzKC People do better solving problems on their own, and sharing ideas w/the group $$ Feb 18, 2012
• Fear, Submission, and Authoritarianism; a Disturbing Trend http://t.co/0lb32tOw Negative social mood leads to loss of liberties $$ Feb 16, 2012
• Santorum’s Electability Pitch Undermined by 2006 Senate Re-Election Loss – Bloomberg http://t.co/8xglQQPJ Shouldn’t be an issue, here’s why: Feb 15, 2012
• As the late Bob Casey said, “You can’t lose if you are a pro-life Democrat.” This is true, and it is why Santorum lost to his son. $$ Feb 15, 2012
• Cracking the Long-Jump Code http://t.co/MN9d9EdJ Fascinating science applied; the key seems 2b2 jump higher, not just longer $$ Feb 15, 2012
• The Best Foods for Thought, Literally http://t.co/tMyLW9E2 Perhaps the Mediterranean diet can aid brain function, or a lowcal diet $$ Feb 14, 2012
• Contra: Almost Half the Price of Oil is Speculative Premium http://t.co/z8t51JOl It should be impossible to so overprice such a large mkt $$ Feb 14, 2012
• The Hunt Brothers thought they could corner a much smaller silver market, and were not able to do it.  The oil compan… http://t.co/MLYVH5w3 Feb 14, 2012
• So, What’s Your Algorithm? http://t.co/lC4voWCI Being able 2 crunch large amounts of data can lead to more objective decisions $$ #ornot Feb 13, 2012