We are talking about positive feedback loops, where computers amplify the actions of humans demanding action now.  Computers, for all of their strengths, are rules based, and we the humans feed them the rules, or the information that allows them to react to data as they emerge.  The rules may be very complex, but they are rules, and do not allow for humans to modify the computer’s reaction to the market on-the-fly.

I’m skeptical that we can stop unusual things from happening resulting from computers trading rapidly by having other computers monitor it.  First, stocks are volatile, and news can break that leads to significant rallies/declines.  Second, part of the difficulty from the “flash crash” was computers getting out of sync with one another.  We can’t guarantee that the regulatory computers might not fall behind the trading computers, and what might happen if the “right” action to slow trading emerges slowly.

Third, one has to recognize that you should only have regulations that are understood easily by participants, and accepted, or else the rules will face a lot of lobbying pushback.

I think that there is little to no gain to the market as a whole from sub-second trading speeds.  I think we could slow down the market, and force a more rational market than what we currently have, by limiting the ability to cancel orders — all orders must be good for at least one second.

Markets need good rules and structure to work well.  Rather than having shadowy computer overlords, which only academics could like, craft a rule that says, “One auction per second.”  Or create a central order book and eliminate alternative venues for execution.  The cost listed in the article is cheap.  I’m agnostic on what the best solution is, but to me, the best solution involves slowing things down, so that information does not cause cascades off of short-term signals.

Even simple rules like, “Stop trading for any company that has dropped/risen by more than 5% on the day for 30 minutes,” would be preferable to any guidance from computers that is less clear.

Rather than using computers and complex reasoning, we need simple rules to slow things down, or…who cares, let errors happen.  I made money on the day of the “flash crash” by buying shares of a company that was solid but temporarily depressed.  Teach people not to use market orders or they could get harmed.

This is the market, after all, and if you are “bellying up to the bar,” you should be ready for the fact that you are outgunned.  You are likely not smarter than all of the resources being deployed against you by hedge funds, high frequency traders, etc.  Secondary markets in equities exist to provide flexibility to holders of the equities, most of whom hold their stocks every day, with only a small fraction trading.  Trading is a sideshow to value creation, which happens in the companies, not the exchanges.

Which makes me take step back and mention that Buffett wouldn’t care if the exchanges were closed for a year, because he buys solid companies.  Suppose for a moment, I had written an article called 391 Auctions, where I would suggest that the markets have one auction each minute, and that all orders must last until the end of the minute, with no cancellations.  (After I wrote, this I changed the article title, so I did do it.)

With 391 auctions per day, who couldn’t think that we were providing enough opportunity for price discovery each day?  Slow things down, and ignore those arguing for technical efficiency versus those arguing for rational markets that allow people to make reasonable decisions in real time.  One auction per minute?  Could work well — watch the bids and asks line up, once per minute.

Markets need structure to work well.  This could be one way of doing it; I am open to other ideas, but letting the computers attempt to do it opaquely seems like a loser to me.  Slowing things down seems like a winner, because secondary trading is a sideshow to the real value creation that happens inside the companies.

• Go Your Own Way: Correlation Breakdown in the Market http://t.co/3Zwpx3kB @japhychron hints at deterioration in US stocks as USD strengthens May 26, 2012
• RE: To me it implies that conservative HY investors are running out of places to put money.  Yellow flag. http://t.co/eUSRq8dY May 25, 2012
• Vanguard Closes High-Yield Fund — ETF Alternatives http://t.co/bMmYUMTC Note: ETFs proposed take more credit risk than Vanguard fund does $$ May 24, 2012
• Vanguard’s high yield fund was fairly conservative; they may feel strain in the size of their positions relative to t… http://t.co/lLJFeiYc May 24, 2012
• RE: They were called the Americus Trusts, sponsored by the Americus Shareowner Service Corp., and they had Scores and… http://t.co/TPNPkL8T May 23, 2012
• Wealthy Americans Turn to Trusts to Shield Assets http://t.co/2rKGuNWb Reasons: taxes, liability, avoid probate. Covetous world $$ May 23, 2012
• You can say that again, momentum is addictive $$ RT @credittrader: lol – never learn – especially when momentum feels so good haha May 23, 2012
• @credittrader I’m well. Fascinating that $JPM didn’t learn from the correlation crisis in 2005; tranche px/corr relationships shift $$ May 23, 2012
• IG CDX diverges from S&P500; JPMorgan advocates mean reversion trade http://t.co/FIsOqhBN Long IG spreads vs HY spreads and equities $$ May 23, 2012
• Kroll Sees Supplanting S&P in Rating Commercial Mortgage Bonds http://t.co/IrzfQ6cH Gratuitous trash talk on competitor S&P from Kroll $$ May 22, 2012
• Treasuries in Longest Winning Streak Since ’98 on Europe http://t.co/EWJkiN5u Everyone knows that Treasury yields can only fall, right? $$ May 20, 2012

Eurozone

• Merkel May Be Persuaded on Euro Debt-Sharing Compromise http://t.co/P3yQaN1K H/L misrepresents Merkel; does not seem likely politically May 25, 2012
• Indeed, why not? RT @TimABRussell: “http://t.co/831diM1O Why not just pick the best person for each position regardless of sex, race, etc? May 25, 2012
• If a man will not respect his “wife” by marrying & staying with her, why should you expect him to respect women in mo… http://t.co/83lvXtu1 May 25, 2012
• Stock Market Performance Versus Dollar http://t.co/mfrXyqvp Difficult for the US stock market to do well when the $$ is strengthening v Euro May 25, 2012
• Slim Family Sees European Crisis as Good Time to Invest http://t.co/XZOgx3xX Buy when there is blood running in the streets $$ #slimchance May 25, 2012
• Europe Girds for Greek Exit http://t.co/HMfsVt86 Two problems: Can’t kick Greece out & Greece can only leave Eurozone by leaving EU $$ May 24, 2012
• Euro-Zone Economic Contraction Deepens http://t.co/b49VctDj Overindebted Eurozone muddles as politics/bureaucracy strangle growth $$ May 24, 2012
• EU Chiefs Clash on Euro Bonds as Crisis Summit Bogs Down http://t.co/S1YnHrbM Fiscal Union requires political union; elephant in room $$ May 24, 2012
• The Seeds of the EU’s Crisis Were Sown 60 Years Ago http://t.co/SsWQUvGa Overly ambitious EU goal of “ever closer union” leads 2 crisis $$ May 24, 2012
• War-Gaming Greek Euro Exit Shows Hazards in 46-Hour Weekend http://t.co/WD7HSbMI Assumes Greek competence & they care about global mkts $$ May 23, 2012
• A Greek Exit Could Make the Euro Area Stronger http://t.co/C7v2mDmM Concludes that a Greek exit would lead the rest 2 pull together $$ May 23, 2012
• Campaign for Joint Euro Bonds Builds http://t.co/xXAvSU73 Will the core Eurozone countries give up resources to bail out the fringe? $$ May 23, 2012
• Europe’s Prisoner’s Dilemma – LTRO Needs to Continue for Years http://t.co/NldAsVL2 Until govt debt is gone from finl sector’s bal sht $$ May 23, 2012
• Germany to Sell Interest-Free Bonds http://t.co/q7ewNqd2 It is good to be king. People give you their money, & they pay for the honor $$ May 22, 2012

US Politics / Economics

• Even with a High Court win, Obamacare won’t work http://t.co/NKhyAe56 Failed ideas @ the states will not add up to a successful Federal plan May 26, 2012
• USDA Is a Tough Collector When Mortgages Go Bad http://t.co/ZX24InYJ Definitely has different goals than most of the govt re mortgages May 26, 2012
• Report: Negative Equity More Widespread Than Previously Thought http://t.co/UkQBpbGY Adds in value of second liens, 31%+ inverted $$ May 24, 2012
• Let Mr. Reid look to his own spending extremism.  As for me, let the tax cuts expire, and automatic cuts happen.  Bet… http://t.co/cabthITQ May 22, 2012
• Shale Glut Means $1-a-Gallon Savings at the Pump http://t.co/RHlFbT3L Liquefied Natgas would shave $1/gal over diesel for trucking $$ May 22, 2012

China

• New Signs of Global Slowdown http://t.co/2o4kFRkD Weak Reports in U.S., Europe and China Suggest Economies Are Slipping in Sync $$ May 26, 2012
• @researchpuzzler Pettis is among the best on China. @ritholtz and John Mauldin are good friends. Trends in China r very negative… $$ May 25, 2012
• EM investing: check out the grid http://t.co/dIEGJeJC 3Qs How much electricity do they have? Future development? Probability of success? May 24, 2012
• China flash PMIs point to contraction, again http://t.co/DZGf3ZZS The number for May is 48.7, compared to 49.3 in April. 7th decline. $$ May 24, 2012
• China, North Korea ties hit rough weather http://t.co/r7TlDbux Kim Jong Un needs lessons showing honor2the Suzerain: Chinese Communist Party May 24, 2012
• RE: @SoberLook I’ve heard that Chinese electricity consumption has flatlined.  Another straw in the wind. http://t.co/IqAHJCgo May 21, 2012

Companies

• Facebook Investor Spending Month’s Salary Exposes Hype http://t.co/eGhCiHXq Please. Stox r risky. High expectation stox r veryrisky $$ $FB May 24, 2012
• General Mills Unveils Restructuring, Job Cuts http://t.co/IUHltbai $GIS Budget-conscious US consumers push back against price increases May 23, 2012
• Benihana Agrees to $296 Million Buyout http://t.co/YxJtfun3 Agreed 2b acquired by investment firm Angelo Gordon & Co. for about $296M $$ May 23, 2012
• The Miracle on Wellington Street http://t.co/DUbSY81d Fairfax Financial Holdings’ tricky transaction for 6.6% of Odyssey Re -> legal trouble May 21, 2012
• Barclays to Sell Entire $6.1 Billion BlackRock Investment http://t.co/notUgeFk Basel III rules make it uneconomic to hold as capital $$ May 21, 2012
• Houghton Mifflin Harcourt Publishing Files for Bankruptcy http://t.co/heUuF3gj Bank debt -> New Equity, old Equity -> warrants for 5% $$ May 21, 2012

Financial Sector

• JPMorgan Gave Risk Oversight to Museum Head Who Sat on AIG Board http://t.co/INr9ebI5 No banking experts on $JPM ‘s risk ctrl committee May 25, 2012
• Goldman to JPMorgan Swap Trades Soar on Risks http://t.co/fvSPysAp A cheap-ish option on systemic risk rising. And not in the eurozone! $$ May 25, 2012
• JPMorgan Copper ETF Plan Seen Creating Havoc by Merchant Groups http://t.co/zoJ0BfeM They oppose retail hoarding b/c it hurts them $$ May 24, 2012

Advice Regarding Life

• I Wish I Had Known: Don’t Underestimate Compounding In EVERYTHING http://t.co/mIdFf5Dx People overrate their ability to change habits $$ May 26, 2012
• Compound Experience, Not Just Interest http://t.co/n6CaWLN0 Early behavior influences later behavior, and the options that will be open 2u May 26, 2012

Berkshire Hathaway

• Buffett Says Free News Unsustainable, May Add More Papers http://t.co/medRWMWm Strategy: Buy papers, end free distribution on Internet $$ May 25, 2012
• Buffett’s Idiot Challenge Seized by Jain in Premium Hunt http://t.co/89qcKilo Misses how Jain blew it reinsuring life & LTC from Swiss Re May 23, 2012
• Don’t get me wrong, Ajit Jain knows more about insurance than me; I’m saying he is not perfect; he does not know all insurance equally $$ May 23, 2012

High Frequency Trading

• +1 That would work too RT @merrillmatter: @AlephBlog how about for all orders, one second minimum life May 24, 2012
• Mutual Funds Promised Haven From Speedsters http://t.co/iCFFZXsU I proposed this HFT solution @ BaltimoreCFA 2 1 of those interviewed $$ May 24, 2012

Miscellaneous

• The sex slavery stuff makes me sad/angry. I have daughters. $$ RT @moiracathleen: Brothels on Wheels http://t.co/COBuwJbS @leafjohnson May 25, 2012
• How a bizarre legal case involving a mysterious billionaire could force 1.2M Canadians 2b married, against their will http://t.co/zv7QJBCz May 24, 2012
• Veterans Face Ruin Awaiting Benefits as Wounded Swamp VA http://t.co/W0Ydcu3x Long sad tale: wounded vets not getting enuf disability pay May 24, 2012
• Gold Boom Spreading Mercury as 15 Mln Miners Exposed http://t.co/f7oBSo26 Long fascinating article about mercury poisoning in Colombia $$ May 24, 2012
• Rust-Belt Babushkas Live Alone as Fewer Remain to Marry http://t.co/ASbsIAMg % of US single person households up ~250% since 1940, 8%->27% May 23, 2012
• Private Spacecraft Lifts Off Toward Space Station http://t.co/JlGRR2m0 The sustainable space age has begun, w/private $$ flying rockets May 23, 2012
• Fitch Downgrades Japan http://t.co/rITu0126 Blasts the govt 4 taking a “leisurely” approach2solving country’s spiraling debt problems $$ May 23, 2012
• Is the College Cave Age About to End? http://t.co/ispDBLTX Thinner slices of “deeper” knowledge produce less relevant research & teaching May 21, 2012
• Getting America on a Diet That Works http://t.co/vooh1iNN What’s funny2me is how little agreement there is today on what works in diets $$ May 21, 2012
• +1 Fatal Risk RT @ToddSullivan: AMAZING book…one of my favorites RT @alephblog: Please follow my friend @BoydRoddy, who is new to Twitter May 21, 2012
• Please follow my friend @BoydRoddy, who is new to Twitter. $$ May 21, 2012
• Read my review: ‘The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds’ by Maneet Ahuja via @alephblog http://t.co/kJf89aVT May 21, 2012

But I have my own solution to high frequency trading: revamp all markets such that there is one auction per second in the trading day.  Auctions happen at the top of each second: 9:30:00.000000… 9:30:01.000000… … 16:00:00.000000.  Additionally, orders still standing at the start of any second may not be cancelled for the next second.

Auctions once per second.  Click, click, click, click…  23,401 auctions per day offers more than enough flexibility to buyers and sellers.  No truly economic commerce would be hindered by such an arrangement.

Why would anyone argue with this?  It splits the difference, and brings order to markets where many are presently skeptical of the validity of the markets.

I’m open to other ideas here.  I toss this out as a way of making markets more transparent.  Transparency aids validity, which aids legitimacy, eventually.

• If Greece Quits Euro, Its Ruin Will Be Pointless http://t.co/2DotggME Suggests Greece will face more pain if leaves E-zone than stays $$ May 17, 2012
• Experts Try to Chart Path for Exit From Currency http://t.co/dtIAoo3g Let’s see, where is that manual for unscrambling eggs? Mmm… $$ May 17, 2012
• On the E-zone: the politicians, like sorcerer’s apprentices, thought they could reshape Europe; end up fighting forces beyond their power $$ May 17, 2012
• The Running of the Bank Depositors http://t.co/WC7aN5LP Governments r smaller than economies, which r smaller than cultures $$ #fightgravity May 17, 2012
• Governments are smaller than economies, which are smaller than cultures.  The Eurozone is a huge experiment that igno… http://t.co/YUqGTSLN May 17, 2012
• Greek President Told Banks Anxious as Deposits Pulled http://t.co/mx5626V2 If u thot u faced a conversion 2 new drachmas, ud w/d euros2 $$ May 16, 2012
• ECB Said to Stick to Current Crisis Stance as Tools Reviewed http://t.co/vSKBTnax No worries; ECB policies r meeting the challenge $$ May 16, 2012
• Bet on Greek Bonds Paid Off for ‘Vulture Fund’ http://t.co/nrka09y7 While Greece is in disarray, makes full pmt2 hedge fund Dart Management May 15, 2012
• Lightning Strike Delays Hollande Trip http://t.co/G0hgIGsP Weird, but he gets to Germany anyway to have a disagreement w/Merkel $$ May 15, 2012
• Hazardous Greek-Exit Scenario http://t.co/LZooTMlf WSJ goes through the steps and effects of an orderly Greek exit, should there b1 $$ May 15, 2012
• European Officials Warn Greece http://t.co/WJ4Wmk5B No way to kick Greece out; what do you do if they refuse to pay? $$ #enduredefault May 14, 2012

Rest of the World

• Hugo Chávez’s Enemy No. 1 http://t.co/LtdZXcM7 Henrique Capriles, governor of Miranda state & candidate selected by the united opposition May 19, 2012
• Kolatch Bullish on Argentina’s Debt http://t.co/8dfUoRdv When someone is willing to cheat others, he is more likely to cheat you $$ #FTL May 17, 2012
• Iranian Rapper Fears for His Life After Fatwa http://t.co/AD27SHZY Interesting how killing ceases 2b murder after cleric issues fatwa $$ May 16, 2012

Bond Markets

• US insurers seek $300 mln cat bond cover http://t.co/rNw0b4hu There’s a hard property reinsurance market, so alternatives r attractive $$ May 18, 2012
• Junk-Debt ETFs Set Markets ’Abuzz’ After Record Trades http://t.co/Zzq4BHV2 New ways of putting biggish HY positions on/off quietly $$ May 18, 2012
• @Fullcarry @munilass At least the Treasury yield curve is “out of this world.” Have long Tsys on as a hedge in my bond strat, when2punt? $$ May 17, 2012
• Every two years, the annual shareholder filing for the iShares Trust, which holds the big bond ETFs, doubles in size: now 20MB $$ May 15, 2012
• RT @Munisrgood: @munilass More room to go. If you subscribe to Hoisington’s predictions, (I do to an extent) 30 yr tsy could be 75-100 l … May 15, 2012
• +1 Needle in red zone $$ RT @groditi: HY CEF wavg premium 15%; min -8.27 max 67.3%; +1.1stdevs; sample-size: $11B (40 funds) #YieldChase May 14, 2012
• Euro-Zone Fears Drive Bund Yield to Record Low http://t.co/sNntlOYU Opposite risk: Germany might leave EZone; ECB actions disliked $$ May 14, 2012
• Euro Officials Begin to Weigh Greek Exit as Euro Weakens http://t.co/nERx6dAG Note the shift, indicates the bailouts may b over 4Greece $$ May 14, 2012

Elderly Poverty

• See pg 26 4 details http://t.co/NnS2Jyo2 Figure is low IMO b/c 25% “don’t know” what they have saved. They r prob below $50K, so ~60% <$50K May 17, 2012
• Report says “Overall, slightly more than one-third have saved less than $50,000.” http://t.co/NnS2Jyo2 Still thought the % was higher, ~50% May 17, 2012
• Same here RT @ballenmo: @AlephBlog @fundmyfund 20%? I’m surprised the number is so low. May 17, 2012
• +1 that’s what I think RT @fundmyfund: @AlephBlog 20% of 50 and 60 yr old dont have 50K to their name, not to mention saved for retirement May 17, 2012
• Expected worse RT @MoneyMag_Penny 20% of workers in 50s & 60s have saved less than $50,000 for retirement: Transmerica http://t.co/PqWIm74w May 17, 2012

JP Morgan

• Lawrence Lindsey: Why Washington Hates Jamie Dimon http://t.co/dZEzVnOq Not a diplomat & does not perform kowtows to politicians $$ $JPM May 18, 2012
• For JP Morgan Trader, From ‘Caveman’ to ‘Whale’ http://t.co/U2iXH2uJ It is often dangerous to win, next step is try to win big & fail $$ May 17, 2012
• Romney Vowing Dodd-Frank Repeal Hits JPMorgan Risky Trades http://t.co/Y9aMyHR0 Tough sell; existing law had enuf pwr, but regs didn’t use May 14, 2012
• The core problems with JPMorgan’s failed trades http://t.co/HktxLRnq When that illiquid, putting positions into runoff only solution $$ May 14, 2012
• Dimon Fortress Breached as Push From Hedging to Betting Blows Up http://t.co/Rc5TXU9E $JPM too big relative 2market; hard2mark prices $$ May 14, 2012
• Bank Order Led to Losing Trades http://t.co/00llzrIO $JPM ‘s Efforts2Shield Itself From European Market Fallout Prompted Disastrous Bets May 12, 2012

Buffett & Newspapers

• Why Warren Buffett is buying newspapers http://t.co/a6qVZAet It certainly isn’t for economic reasons; he overpaid, plain & simple. $$ $BRK.B May 18, 2012
• Warren Buffett buys into ‘declining’ newspapers http://t.co/BYmAmiZT $MEG does have TV and data businesses, not sure how much that helps. May 17, 2012
• Berkshire Buys Media General Newspapers for $142 Million http://t.co/ISIniNZG add in a $400 million term loan with an rate of 10.5% $$ May 17, 2012

(As an aside, if you read any of my comments on Buffett, newspapers, and Media General, I made the mistake of think that he had bought Media General, when he bought most of their newspapers, a portion of the company, and lent them $400 million at 10.5% with a first priority of payment in bankruptcy.  Now that I realize my mistake, I can’t say whether Buffett got a good, bad, or indifferent deal.  Apologies for the mistake.)

US Economy

• ‘One Recession Away’ From Next Bull Market – John Mauldin http://t.co/WwOL8nj7 5 min interview, short-term bearish, long-term bullish $$ May 17, 2012
• Paul Krugman’s Simple — or Is It Simplistic? — Reasoning http://t.co/0lmcAVSQ Is there any level of govt spending or debt that is2much? May 17, 2012
• North Dakota Tops US States in Credit Ranking as Florida Rises http://t.co/cttmsatF Amazing what energy & the influx of elderly will do $$ May 17, 2012
• North Dakota Tops Alaska in Oil Output http://t.co/Ulo7jzcU The US potentially has more hydrocarbons than Saudi Arabia. TX, ND, AK $$ May 17, 2012
• RE: @bloombergview The two papers look pretty good, but would the bureaucracy have the guts to rein in a boom based o… http://t.co/mvScOD74 May 16, 2012
• Tom Frost: The Big Danger With Big Banks http://t.co/414ZAkTV Fine, but it was mortgage lending that led the crisis, not invt banking $$ May 16, 2012
• When I used to mix sound, there was a knob on my board called “contour.” That’s what QE is to the Fed.  When I would … http://t.co/DC0O0kjS May 17, 2012
• Midwest Sees a Sand Rush http://t.co/815yYdBQ Fracking Spurs Demand for the Stuff, Sparking a Mining Boom—& Vexing Some #midwestboom $$ May 14, 2012

US Politics, Regulation, and Culture

• SEC Probes Role of Hedge Fund in CDOs http://t.co/wMUFuoPt Don’t forget the blame due the yield hogs 4 their inadequate due diligence $$ May 17, 2012
• Dental Abuse Seen Driven by Private Equity Investments http://t.co/QzEb161T Long article on unscrupulous dentists that harm poor kids 4 $$ May 17, 2012
• The creeping disaster for USPS is that as they cut services, they become irrelevant. The internet changes everything… http://t.co/ION20cep May 17, 2012
• School-Test Backlash Grows http://t.co/RIiaRg1Z Some Parents, Teachers & Boards Rebel, Saying Education Is Being Stifled $$ #room4both May 16, 2012
• Please apply the same logic to the liberal justices of the court, who have flouted the Constitution for far longer. http://t.co/gEsZGazC May 16, 2012
• Jerry Brown vs. Chris Christie http://t.co/T0uyb6iC More states r realizing that the road2fiscal hell is paved w/progressive intentions May 15, 2012
• California Deficit Swells to $16 Billion, Governor Says http://t.co/LJT9Dl1s & http://t.co/2Rg8E98K CA in self-reinforcing neg spiral $$ May 14, 2012
• Obama Hits Romney on Bain as He Raises Wall Street Money http://t.co/09M2hhHK “The pot calls the kettle black.” $$ (has 2ba better phrase) May 14, 2012
• Midnight Was Movie Hour, Nap Time in New York Air Tower http://t.co/cNT0C080 Long piece; parts of the FAA r seriously messed up $$ #unions May 12, 2012
• Trouble in Coal Country for Obama http://t.co/dJoko2Aj If persists, could mean Obama wins popvote, Romney win the election $$ #kingcoal May 12, 2012

Companies

• Tsst… $COP is no longer in the refining biz, it spun of $PSX which is.  FD: +COP, +PSX $$ Oh, and selling the comp… http://t.co/LxFTP91s May 17, 2012
• Facebook ($FB) announces that they will no longer accept General Motors ($GM) cars in exchange 4 advertising exposure $$ #lamejoke May 15, 2012
• Avon Shares Tumble After Coty Pulls Bid http://t.co/SVZ4zZgN Coty might b better off creating the parts of $AVP it wants organically $$ May 15, 2012
• Margin Call: The Most Exposed http://t.co/4v2IsU16 Interesting what CEOs have borrowed against shares of the companies that they run $$ May 15, 2012
• Yahoo CEO’s resignation spotlights tech action http://t.co/mUF19hRa We keep the board of $YHOO around 2make that of $HPQ happy. FD +HPQ May 14, 2012

Miscellaneous

• Paper Plane Champ Watches His Record Fly, Fly Away http://t.co/zdPMR62e Division of labor in design & tossing-> paper airplane record $$ May 18, 2012
• @ReformedBroker You really had lunch w/Mauldin? Cool, I know he is friends w/ @ritholtz ; I just reviewed his recent “Little Book.” $$ May 17, 2012
• When people get 2 deep into a sliver of knowledge, they get dumb RT @jasonzweigwsj: is your sense of self an illusion? http://t.co/PHUXLmdB May 17, 2012
• 5. They sometimes bring specialized knowledge of the topic at hand. 6. They tend to write for users, not reviewers o… http://t.co/T3oElbxQ May 17, 2012
• Going for Gold—or Whatever http://t.co/F6kSto8O Secret to an Aging Olympian’s Endurance: Don’t Let Training Get in the Way of Fun $$ May 16, 2012
• When you show up DD, you usually make me smile $$ RT @DoubleDeuce: Wisdom: “try to convince, don’t gripe” by @AlephBlog http://t.co/kDwSKgYJ May 15, 2012
• ‘Trigger-Happy’ Investors Boost IPO Insurance Through Litigation http://t.co/GQKdNia3 Looks like Errors & Omissions coverage applied 2IPOs May 14, 2012

Now, I don’t have a Facebook account, and I have no intent of getting one.  But I must have been thinking about Facebook as an investment, because I asked him, “What about something like Facebook then?  Doesn’t that have value?  It’s profitable, and current estimates say it might be worth $25-50 billion dollars.”  He replied that Facebook was emblematic of what was wrong with our economy, because it doesn’t produce anything, and consumes a lot of productive time in the process.  I had to call the meeting back to order, so I had to leave it there.

Today, with the Facebook IPO, I heard on the radio a number of times, “We don’t make anything anymore.”  From politicians, “We need manufacturing jobs.”  When Governor Martin O’Malley spoke to the Baltimore CFA Society two weeks ago, he sounded the theme of manufacturing jobs as well.  Afterward, I spoke with a Deputy Secretary at the Maryland Department of Business & Economic Development, and in passing mentioned that I owned part of a manufacturer operating in Maryland.  He asked me for the name, and when I mentioned it, he said, ‘I visited there two weeks ago.  Great firm!”

I know it is a great firm, but I also know that it costs Maryland and the Federal Government to encourage manufacturing.  I see the pro-rata deductions on my personal taxes, and wonder at why we care so much about manufacturing.

When I go places with my kids, I sometimes point out to them business parks where light industrial work goes on.  We are very good today at hiding where things get made, and so people think that factories don’t exist.  We have ordinances on noise, pollution, etc., and most of these entities have moved outside the big cities where the land values are cheaper.

So part of my answer here is that we are still making things here in America.  We just don’t notice it.

America is an amazing place.  The breadth of resources that can be extracted, the crops that are grown, the amazing division of labor, the level of technological innovation, and the relative degree of freedom to pursue any of these is astounding.

We make a lot of things.  We just do it with far fewer people than we used to.

And that is the great increase in manufacturing productivity. We don’t need as many people to makes things as we used to.  That’s a good thing, so people can be released to more productive uses.

Labor productivity is a squishy thing, though.  Measuring labor productivity in manufacturing is relatively easy, because the output and its value is easily measured.

With services, the same calculation can be done: output/revenue per worker, but it doesn’t have the same punch, because goods produced have mostly the same quality, but the quality of services varies widely.

But maybe we can look at this a different way.  Even though it is not easily measurable, what if the right thing to value is not production, but happiness, health, or freedom?

Services provide value, or people would not pay for them.  Facebook exists because it allows people flexibility and facility of communicating with many people.  It makes money from ads that are targeted off of data collected from users.

Many people like using Facebook.  It is a large part of their lives.  For most it is not a part of their work, but a part of their recreation.  Recreation is valuable, and people use their extra time as suits them best.  Keeping “friends” informed on what you are doing and thinking has subjective value to those who do it.

Services make life easier, and sometimes make manufacturing more productive.  The consultant that reviews a factory’s activities, and submits a report to enhance productivity did not make anything, but made producing things less expensive.

Having more people employed in services is not a weakness.  As productivity increases, we need fewer people for extraction and production, and this is true globally.  Manufacturing employment is falling globally.  So is agricultural employment.  As a result, we have many people available to tailor services that make our lives richer.  We don’t just need goods; we need help.  In that way, the service economy is not a waste, but closer to what we need than “goods.”

I know this is not erudite, complete, whatever.  I am comfortable (absent major war), that the “lack of manufacturing” in America is not true, and even if true, is not a problem.  So relax, and enjoy the good life you have in America, with all the help that is available at a price.

That said I feel more sorry for younger workers who have to pay high amounts into Social Security/Medicare, and they will not get out of program what they put in.  There’s a longish article here, excerpting from a recently released book on the topic.  In general, the older you are, the sweeter the deal was for those who received payments from Social Security, at least until 2026 when benefits will be cut by 25%, or taxes raised.

What this means is that in aggregate, Americans don’t save enough, particularly the Baby Boomers, of which I am one, but not a negligent one.

We are heading for elderly poverty/work for a large portion of Americans.  I suspect that many older people will continue to work, solving their problem but taking jobs from those who are younger.

This should be no surprise.  Incomes should be declining for lower skilled people in the US, because there are more people who can do that work abroad.  My advice to all readers is to make sure you cannot be obsoleted by foreigners.

One more note: don’t expect the asset markets to bail you out.  Returns to financial assets will do poorly as so many begin to sell them to pay for living expenses, whether directly as individuals, or indirectly as defined benefit plans pay retirement benefits.

This is on top of the problem that when high-quality long interest rates are so low, it is typically a bad time to try to make money in financial assets, because returns on risky assets are typically only 0-2% percent higher than the yield on long BBB/Baa debt over the long run.

All for now…

• Lousy fiscal policy — way too much borrowing by the government
• Lousy monetary policy — way too much expansion of the monetary base, and for little good reason, and funding the deficits of the government as a result…
• Negative real interest rates on Treasuries 15 years out; that is financial repression, and that can’t happen without the Treasury and Fed conspiring to do so.
• Low equity market valuations, but only because profit margins are abnormally high.  There are reasons to think that profit margins will not mean-revert this time, because the increase in the global capitalist labor pool is depressing wages.  Wages may remain low for a longer time than many expect.  Sorry to the laborers, but there are more of you than the globe can accommodate.  Thus I remain agnostic on high profit margins; let’s revisit the issue when wage rates rise.

Personally, I think that the fiscal multiplier is negative.  Spend money on government projects, many of which do not build value for the economy, and the economy grows slower or shrinks.

We would do better with austerity.  The economy would grow faster with a balanced budget, and a sense that government was not out of control.  Shrinking the bureaucracy and its rules, would allow the economy to grow faster.  Delegate more responsibilities to the states, particularly regulation of financial companies.  Relatively few insurers fail, which are state-regulated.  Many banks fail, which are federally regulated.  It is far easier to co-opt a single federal regulator than many state regulators.  Best yet, split all of the too big to fail banks into 51 entities, divided into the states and DC.  No more interstate branching — that’s the real problem, not Glass-Steagall.

Limiting banking to states keeps it small, Glass-Steagall tinkers at the edges, but if banks are kept small by limiting their size by states, like insurers, they won’t become systemic problems.  Simple, huh?

Much like the AT&T breakup, I think a breakup of interstate banking would be good for the US economy.  It would unleash competition in financial services, and would eliminate systemic risk in the financial economy.  And once banking regulation is returned to the states, like insurance, we can eliminate the Fed, which has been a poor regulator of banks, and a bad manager of monetary policy.  Go back to a gold standard, or at worst a currency board.  Get money out of the hands of the government, who diverts much of the economics back to themselves.

• Danske Bank’s Patience With Moody’s Evaporates http://t.co/eGbf3kV5 Questions over willingness of Denmark to provide support in a crisis. May 11, 2012
• CIC Stops Buying Europe Government Debt on Crisis Concern http://t.co/dljk9Tau Overblown; China will return to funding the Eurozone $$ May 10, 2012
• Greeks May Hold $510 Billion Trump Card in Renegotiation http://t.co/P7U4LSpG Depends on how well Core EZone banks have divested Greece $$ May 10, 2012
• Spanish Banks Erode Creditors With ECB Loans http://t.co/HaEx3bgT Better collateral highly encumbered; Unsec debts implicitly subord 2 ECB May 10, 2012
• Greece Euro-Exit Debate Goes Public http://t.co/0xOgsa7G Core Eurozone wrestles w/how to kick Greece out, even though they can’t. $$ May 10, 2012
• How a Radical Greek Rescue Plan Fell Short http://t.co/Ds0589IG Greece is failing as a culture due2 corruption; no rescue would work $$ May 10, 2012
• Denmark’s Banks Endure Writedown Shock Delaying Recovery http://t.co/A2Vdpymn Good sign on Denmark; take pain early -> in good shape $$ May 10, 2012
• Greek Election Surprise Rejects ‘Barbarism’ of Bailout Austerity http://t.co/oX0nt5SF Growth is magic, magic I tell u! Just invoke it! $$ May 08, 2012
• Merkozy End Means Franco-German Gulf; Greek Voters Rebel http://t.co/iCd0Cs6l Loss of Sarkozy may not b bad, but Greek paralysis will b $$ May 08, 2012
• Francois Hollande has ten weeks to avert a French bond crisis http://t.co/3SEAWJB5 When few adults r in the room the children run wild $$ May 08, 2012
• Challenge to Austerity, And Germany, Is Sharpened http://t.co/BWbgQJ85 The odds have risen that Germany will leave the Eurozone $$ May 08, 2012
• Obvious but it needs 2b said $$ RT @Hawk100Clemens: Mauldin tells #CFA12 every monetary union in history has failed. May 07, 2012
• France faces 40pc house price slump http://t.co/nPuMaVnJ If French banks have trouble now, just wait until the bad mortgage debt hits $$ May 06, 2012

JP Morgan

• What Beached the London Whale? Credit Indices http://t.co/JKFxfaMb Crosshedging long credit risk by buying protection on an index? $$ May 11, 2012
• J.P. Morgan Trades In Its Crown http://t.co/QUJ6hmoA That goes for firms and CEOs as well: $JPM and Jamie Dimon will not get free passes May 11, 2012
• Drew Built 30-Yr JPMorgan Career Embracing Risk http://t.co/uocyyVC1 Lifetime 2build reputation; few years 2destroy it; revealed: 1 day $$ May 11, 2012
• And the best way to reduce risk is to lower leverage & raise cash $$ RT @marydchilds: “The best way to hedge something is to get rid of it.” May 11, 2012

Facebook

• Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO http://t.co/kL1VQYXU Cuts down on the tax bill; discount prior 2 IPO $$ May 11, 2012
• Facebook IPO Said to Get Weaker-Than-Forecast Demand http://t.co/ktK5Bgun $FB faces slowing revenue growth, order books 4 IPO go slack $$ May 11, 2012

Miscellaneous

• Google’s Brin Makes Strides in Hunt for Parkinson’s Cure http://t.co/YvL4LUNA He may get it one day; his Mother already has Parkinson’s $$ May 11, 2012
• And also for those who call vegetables “veggies?” RT @jasonWSJ: Can we impose a $40 fine on dudes who refer to sandwiches as “sammies”? May 10, 2012
• Firefox browser group irked with Microsoft, Windows 8 http://t.co/tBZ9GFuw Only Internet Explorer runs on Windows 8; expect some lawsuits $$ May 10, 2012
• Aluminum Buyers in Japan to Pay Record Fee on Supply Drop http://t.co/7AVU1knI Smelting capacity reduced, China buys more, Japan pays up May 10, 2012
• @RobTheStreet A lot depends on the definition of marriage, Would you allow people to marry inanimate objects, animals, or multiple parties? May 09, 2012
• Brookstone to sell Lilliputian portable power chargers, this year http://t.co/FnSvdfOw Impressive technology if it works. $$ May 08, 2012
• Economy Reshapes Wisconsin Recall Vote http://t.co/G0OetHhV My wife and father were forced in2 unions by collectivist brutes. Go Walker! May 08, 2012
• Father’s Shadow as Transit Leader Hard to Evade for Shuster http://t.co/0FAZUqd4 Bud Shuster is a jerk, forcing us through Breezewood $$ May 08, 2012
• Kellogg’s Kashi Targeted as Web Food Fighting Escalates http://t.co/BNhf5294 We need 2 send a lot of people back 4 science reeducation May 08, 2012

Rest of the World

• Sony, Panasonic Fall to 30-Year Lows as TV Losses Mount http://t.co/Euo37RLQ Sold Panasonic after reviewing uneconomic “green” agenda $$ May 11, 2012
• Kim Jong Un Bashes ‘Pathetic’ North Korea Fun Park http://t.co/gb4S9HBc He should know; he lived outside NK, where there is real fun $$ May 10, 2012
• Sukhoi SuperJet Disappears During Indonesia Demo Flight http://t.co/0JrxAkAw Another sign of degraded Russian abilities in aerospace $$ May 10, 2012
• Bad H/L: Shooting to Kill Pirates Risks Blackwater Moment http://t.co/laW55VEo Correct H/L: Hiring Armed Guards protects cargoes &crews $$ May 10, 2012
• Drug-Defying Germs From India Speed Post-Antibiotic Era http://t.co/XGeno5mf Long. Scariest article of the day; wash your hands w/soap $$ May 08, 2012
• Israel Pyramid Rules Turn Insurers Into Buyout Targets http://t.co/4tXBqehx Interesting:

Israel is limiting holding company levels to 3 $$ May 10, 2012

• UK Pay Protests Oust Aviva Chief http://t.co/WKVdmQGM I remember when they overpaid for Amerus Life in the US; sign of bad management $$ May 10, 2012

Energy

• RT @merrillmatter: @AlephBlog Methinks we’ll need to see some epic blowouts in natgas space (ha ha) before supply/demand can come back i … May 10, 2012
• Chesapeake Deals Carry $1.4 Billion in Undisclosed Liability http://t.co/UFohsseZ $CHK May b worth a look when things stop getting worse May 10, 2012
• When the Exxon way stops working http://t.co/BgN2zLO6 $XOM learns 2b more cooperative w/foreign countries where it wants 2 explore 4 oil $$ May 08, 2012
• Argentina Taps Ex-Schlumberger Executive Galuccio to Run YPF http://t.co/j5P1oyoS Possibly a good choice to run the purloined company $$ May 08, 2012

Fixed Income

• Still time to make money in Treasury bonds http://t.co/ABl43gzM The depressionary bull case 4 long T-bonds; D. Rosenberg & Lacy Hunt $$ May 10, 2012
• Why Emerging Market Corporate Bond ETFs are Hot http://t.co/tWvz0sif High USD yield, but be wary. Laws governing creditor rights vary $$ May 10, 2012
• In other words, the 30-year Tsy sold well today b/c some seek Depression insurance & others hedge convexity or immunize long liabilities $$ May 10, 2012
• Treasuries Pare Losses as Europe Concern Aids Sale http://t.co/C7jytF08 Investors make sure they get income 4 30-yrs & $$ back when old May 10, 2012
• S&P Warns Of $46T Perfect Credit Storm http://t.co/jZTbvy42 If companies have adequate cash flows from operations, this is not an issue. May 10, 2012

Canada

• In Canada, Alternate Currency Keeps Traction With Fans http://t.co/ePyXRH1f Paper Money, Issued by Canadian Tire, Is Popular Way 2Pay $$ May 11, 2012
• Revisit after their housing bubble pops RT @vgmac: There is a lot of love for Canada’s banking system here at the Chicago Fed conferences $$ May 10, 2012
• @vgmac Then again, at the first Treasury/blogger summit I told them they should imitate the Canadian regulators and central bankers. #canada May 10, 2012
• Canada Housing Bubble Concern Shown in Insurer Query http://t.co/kGHcqgDE Should the Canadian govt try2exit the mortgage insurance biz? $$ May 10, 2012
• CMHC Says Capital Levels “Double” OSFI Requirements http://t.co/R4p5TuBO F&F also had capital far higher than their disaster level $$ May 08, 2012

Cisco Systems

• Cisco shares drop on tech spending worries http://t.co/06maBaX4 Global economic weakness feeds into tech firms that sell much abroad $$ May 10, 2012
• @ampressman Cramer said something like, “It’s not a growth company if they have to talk about the economy, weather, industry factors, etc.” May 10, 2012
• @ampressman $AAPL is a growth company, at least for now, $CSCO was a growth company somewhere in the last 15 years… May 10, 2012

Delta Air Lines

• Buy Delta Air Lines: Trainer Refinery Purchase & Improving Financials Will Lift The Stock http://t.co/W7YeEmgb Poorly reasoned thesis $$ May 08, 2012
• Remember when $DD bot Conoco? There would b synergies in petrochemicals. $DD bot it at the peak, spit it out at the bottom $$ #limitscope May 08, 2012
• $DAL substitutes risk in jet fuel pricing 4 risks in crude oil, gasoline, heating oil prices, & operational risk in a biz it doesn’t know $$ May 08, 2012
• @The_Analyst Agreed, though enough capacity has come out of the industry through mergers that they might finally c some pricing power $$ May 08, 2012

US Housing

• 5 Pitfalls of Home Refinancing http://t.co/ZxGUF3HM Longer maturity, Closing costs, Contract terms, Hidden fees, Appraisals $$ May 10, 2012
• Look Who’s Pushing Homeowners Off the Foreclosure Cliff http://t.co/T6CBkUAt Mtge docs exist to protect the lender’s property interest $$ May 08, 2012
• RE: @bloombergview Read any mortgage contract; it exists to protect the rights of lenders, including protecting the m… http://t.co/ob9eIcBt May 08, 2012
• No Repeating Slowdown Seen by U.S. With Banks to Housing http://t.co/A0LNwrjh While hi % of mtges r underwater, finl stress will remain $$ May 08, 2012
• Pimco Housing Bear Kiesel Says It’s Time to Start Buying http://t.co/f3zaBNZA He assumes dark supply will hang on for higher prices. $$ May 06, 2012

US Regulation

• Maybe to be perfectly fair, the government releases the data on a website at midnight ET, long before the US markets … http://t.co/9Zqniljs May 10, 2012
• A Jury of Peers for Broker Disputes http://t.co/5Ly14oKJ The playing field may be more even now; odds r still stacked against investors May 10, 2012
• Congress Seeks Postal Overhaul While Making It Impossible http://t.co/lvcEBxmw The real danger is after reduction, PS is less relevant $$ May 10, 2012
• US Millionaires Told Go Away as Tax Evasion Rule Looms http://t.co/Tx6lr1Bl Fewer foreign banks will accept accts w/US citizens/firms $$ May 10, 2012

Berkshire Hathaway

• Biggest Buffett Targets Seen Spanning Deere to Henkel http://t.co/dLbp9pic Muses about what Buffett would buy 2 eclipse BNSF $$ May 08, 2012
• +1 RT @Kevin_Holloway: Good read on possibilities of recent $BRK.B purchases among some other gd thoughts by @AlephBlog http://t.co/xkN8SlXu May 08, 2012
• Deep in the Insurance Weeds at Berkshire Hathaway http://t.co/GkH9oWBo This helps explain the life reinsurance losses at $BRKB. LTC $$ May 08, 2012
• Buffett understands tech. But he searches for revenue streams that can’t easily be obsoleted. $AAPL & $GOOG could be … http://t.co/VyOnKUTy May 07, 2012

Market Dynamics

• World’s Simplest Stock Valuation Measure http://t.co/OvmQTmHs Growth Rate/2 + 8 = PE Ratio; @eddyelfenbein & his conservative PE formula $$ May 10, 2012
• Dole Food Breakup Seen Bearing Fruit With 58% Return http://t.co/C4SvaNvw Can $DOLE become a high margin biz, & pay down debt? $$ May 10, 2012

Financial Sector

• What about front-running? $$ RT @abnormalreturns: @MebFaber: Nail in the Mutual Fund Coffin (NAV Based ETF Trading) http://t.co/SZ3CbIY3 May 08, 2012
• BTW, for those holding dividend funds, back in 1994, stock managers following a yield strategy got crushed. $$ #annushorribilisforbonds May 08, 2012
• The Dangers of Dividend Funds http://t.co/5WSdEFwN Dividend funds may b safer than other stock funds, r still stock funds w/real risk $$ May 08, 2012
• True 4 many $$ RT @ReformedBroker: “Daddy, what do you do at your job?” http://t.co/mxrcVyhm May 08, 2012
• BofA’s New Black-Belt Data Chief Targets Blinding Gaps http://t.co/P60yhtAk Merger integration didn’t happen in $BAC ‘s IT areas $$ #mess May 08, 2012
• Billion-Dollar Traders Quit Wall Street for Hedge Funds http://t.co/2yFJ2JXr Volcker Rule reducing dealer-driven market liquidity $$ May 08, 2012
• Flash-Crash Story Looks More Like a Fairy Tale http://t.co/0mBQDGKZ Still a mystery; but4any self-feeding panic, players leaning wrong way May 08, 2012
• Almost Half of Finance Graduates Seek New Jobs, PwC Says http://t.co/YUuH9KJl The bubble in financial jobs has popped, decamp 2 other inds May 08, 2012
• “Where is Everybody?” http://t.co/7YPOcMUb Little retail participation is bullish; it means that only the relatively smart $$ is playing May 08, 2012
• 50 Ways to Restore Trust in the Investment Industry http://t.co/VHhllKyp The CFA Institute gathers opinions from members on cleaning up $$ May 08, 2012
• RE: @bloombergview Equity is more expensive than other types of bank capital; raising the cost of capital means fewer… http://t.co/qPvVygll May 07, 2012
• Heat’s on Triparty Repos http://t.co/7Jk7DrTS Fed Is Pressing Big Players to Reduce Exposures to $1.7 Trillion Market $$ May 06, 2012

Company Specific

• How Hewlett-Packard lost its way http://t.co/pA683e3H Very long & ugly article about board & mgmt dysfunction @ $HPQ. FD: +$HPQ 4 me&clients May 08, 2012
• A Real Concern For Apple’s Stock: Telecom Carriers Threaten to Kill Subsidies on Phones http://t.co/JlQwSDAq Interesting thesis $$ May 08, 2012
• AMR Said to Seek More Overseas Flights as Suitor Circles http://t.co/eUHdHju4 $LCC wins more backing, could allow filing another plan $$ May 08, 2012

Politics

• Exodus From Tiburon to Texarkana Is Exaggerated http://t.co/nsyd3QjF Truth is, people & firms r sticky, until they finally get fed up! $$ May 10, 2012
• If we do not discipline ourselves, the bond market will discipline us $$ RT @carney: Why the left will keeping winning. http://t.co/kJcfgEt4 May 08, 2012
• Too bad, we need a better opponent to Obama $$ RT @BloombergNews: Breaking: Santorum Endorses Former Rival Romney as Republican Nominee May 08, 2012
• Don’t Worry (About GDP), Be Happy http://t.co/BaSDMbTM GDP approximates economic growth; more subjective progress measures r ridiculous May 08, 2012
• @justinwolfers Last thing we need on the Fed is another neoclassical Ph. D. economist. Let’s try some brainy generalists, value investors $$ May 07, 2012
• @GaelicTorus @justinwolfers All I am saying is value investors understand how the economy works better than neoclassical economists do $$ May 07, 2012
• Disabled Americans Shrink Size of U.S. Labor Force http://t.co/NX6ZzCjK I still resent former neighbor on SSD, putting Xmas lights on roof May 06, 2012
• But are they ending with an accrual basis surplus, not just a cash surplus? That’s the question. http://t.co/uGa7WX14 May 06, 2012

The Education of a Corporate Bond Manager, Part VII

On the value of credit analysts.

The Education of a Corporate Bond Manager, Part VIII

On price discovery in dealer markets, and auctions gone wrong.  I never knew that I could haggle so well.

The Education of a Corporate Bond Manager, Part IX

On the vagaries of bulge-bracket brokers, and how a good reputation helps on Wall Street.

The Education of a Corporate Bond Manager, Part X

On how we almost did a CDO, and how it fell apart.  Also, how to make money in the bond market when you reach the risk limits.

The Education of a Corporate Bond Manager, Part XI

On my biggest mistakes in managing bonds.  Also, on aggressive life insurance managements.

The Education of a Corporate Bond Manager, Part XII (The End)

On bond technical analysis, and how to deal with a rapidly growing client.   Also, the end of my time as a bond manager, and the parties that came as a result.   Oh, and putting your subordinates first.

Queasing over Quantitative Easing

Queasing over Quantitative Easing, Redux

Queasing over Quantitative Easing, Part III

Queasing over Quantitative Easing, Part IV

Queasing over Quantitative Easing, Part V

Queasing over Quantitative Easing, Part VI

The problems with the Fed’s seemingly “free lunch”strategy.  Pushes up asset prices and commodity prices, benefiting the rich versus the poor.

The Economic Geography of Publicly-Traded Companies in the United States by Sector

The Economic Geography of Publicly-Traded Companies in the United States by Sector (II)

Shows what US states have diversified vs concentrated economies by sector, and what states dominate each sector.

Portfolio Rule One

Industries are under-analyzed, relative to the market on the whole, and relative to individual companies. Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries, where the trends are not fully discounted.

Portfolio Rule Two

Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean low P/E, low P/B, low P/S, low P/CFO, low P/FCF, or low EV/EBITDA.

Portfolio Rule Three

Stick with higher quality companies for a given industry.

Portfolio Rule Four

Purchase companies appropriately sized to serve their market niches.

Portfolio Rule Five

Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.

Portfolio Rule Six

Analyze the use of cash flow by management, to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.

Portfolio Rule Seven

Of Investment Earnings Assumptions and Century Bonds

If we could turn back the clock 65 or so years and set up a more conservative method of accounting for pension liabilities, we would be much better off today.

Who Dares Oppose a Boom?

This piece won a small prize, and in turn, I received three speaking engagements.

Fairness Versus Economics

Fairness Versus Economics (2)

People care more about fairness than improving their own economic/social position.

Earnings Estimates as a Control Mechanism, Flawed as they are

Earnings Estimates as a Control Mechanism, Flawed as they are, Redux

Earnings estimates have their problems, but they exist to give us a flawed method of estimating the future performance of companies.

-==-=-=-=-=–=-=

That’s all for now.  Never thought I would do so many long series when I started blogging.

• On Paradigm Shifts http://t.co/h68quEDX Hunter takes us through mental exercises 2 make us intelligently contrarian. “Invert, Always Invert” May 02, 2012
• Hedgers’ net short position vanishes in US oil http://t.co/X0hLOWGB Commercial interests do not fear lower prices, could be bullish 4 crude May 02, 2012
• There’s Plenty of Money for Junk http://t.co/vXML0Bao Presently the credit cycle is virtuous; vicious part is coming, but no appt set $$ May 02, 2012
• Bad Models Mistook Housing Bust for Dot-Com Bubble http://t.co/IxC8m2mk Busts of assets that are heavily levered harder than unlevered $$ May 02, 2012
• Best U.S. Real Estate With Self-Storage http://t.co/mxyHdK2U Self storage a winner in the past, may not do so well in the future; hi vals May 02, 2012
• Marginal oil production costs are heading towards $100/barrel http://t.co/G2zNB5JS Same as my reasoning on high crude prices $$ May 02, 2012
• Four-percent rule a relic, advisers say http://t.co/PrdHQy48 Better rule: 10y Tsy yield plus 0% if bearish, 1% if neutral, 2% if bullish $$ May 01, 2012
• The remarkable resurgence in synthetic credit tranches http://t.co/1iIZ8ous Increases in the notional amounts of several corp bond swaps May 01, 2012
• Contra: Black Scholes & the formula of doom http://t.co/flVNsYMx Debt levels & Asset-Liab mismatch largest causes of crisis not BS model Apr 30, 2012
• Energy’s Pain is Consumer Discretionary’s Gain http://t.co/lM7UW0T7 I have been on the wrong side of this trade. Sigh. $$ Apr 30, 2012
• Notes from the DoubleLine Lunch with Jeffrey Gundlach, Spring 2012 http://t.co/KDiqA5Sp Gives a good overview, w/a large topping of snark $$ Apr 30, 2012

China

• China’s Auditing Train Wreck http://t.co/UeIZtw06 Any Chinese firm listed in the US, the auditors should be subject to SEC scrutiny. $$ May 05, 2012
• China bear Pettis says world coming around to his view http://t.co/lo1nGc7e Pettis isn’t a bear but a realist; invt-led growth overplayd $$ May 04, 2012
• The Family and Corruption http://t.co/R4NwZ6od Family ties & group affiliation dominate economic/political power among Chinese Communists $$ May 04, 2012
• Who is Fu? Chinese exile is ‘God’s double agent’ http://t.co/plyQhwtg Story of a Chinese Pastor in US & escape of Chen Guangcheng $$ May 02, 2012
• Microblogs Survive Real-Name Rules–So Far http://t.co/5UItJjwj Even the CCP would have a hard time shutting down their Twitter-apps $$ May 02, 2012
• Beijing’s secret: It’s not really loosening http://t.co/3RPhAOwH There is not enough demand in China 2 pay all of the high prices. $$ May 02, 2012
• China’s Left Behind Children http://t.co/OL0gmSFE Economic growth that separates parents from children imposes significant costs on China $$ May 02, 2012
• China Closes Unirule Website http://t.co/ItkW0p0A Founder receives award from Cato Institute; China government shuts down his website $$ May 02, 2012
• China’s property boom has peaked, forever http://t.co/aLC2U8F8 Amount of deadweight in China property is so large that prices have peaked $$ Apr 29, 2012

Financial Services

• Caution: Contents May Be Hot http://t.co/cp9yjbH3 I worry about ETF slippage from bad creation/redemption unit design & bad trading by users May 04, 2012
• Well, That Was Awkward… http://t.co/zS5f6zAI Bank Chiefs’ Regulatory Concerns Met With Official Silence; maybe regulators getting fed up May 04, 2012
• A talent shortage looms as the industry booms http://t.co/QGLZzzg7 Financial planners getting old/retiring faster than the Baby Boomers $$ May 04, 2012
• 2nd attempt2 automate bond trading 1st failed RT @BloombergNews: Goldman preps trading system for corporate bonds | http://t.co/NceasmN7 May 04, 2012
• Mortgage Rates in US for 30-Year Loans Fall to Record Low http://t.co/LPolAP5Q Mtge rates b nimble, MR b quick, MR go under limbo stick $$ May 04, 2012
• Spending A Year On An M&A Bidding War Is Apparently Overrated http://t.co/tKguPYGy It’s well-known that scale acquirers underperform $$ May 04, 2012
• Every liability has an asset, but not every asset has a liability. Some are owned outright. http://t.co/fB3ARju7 May 03, 2012
• Canadians Dominate World’s 10 Strongest Banks http://t.co/qj6TOgA3 Ask again after their housing bubble pops, same 4 other fringe nations May 03, 2012
• Pimco’s latest ETF shields against price spikes http://t.co/TmOrCIj2 I wonder if active ETFs will have more performance slippage. $$ May 02, 2012
• Hedge Funds Hurt by Volatility http://t.co/ogoL62qT Hedge funds r vehicles that do better when credit spreads r tightening $$ May 01, 2012
• Bond Market Is Creating A New Galaxy for Trading http://t.co/YgvNwz1j Dealer inventories thin; trading costs rise; electronic mkts start May 01, 2012
• US banks still cutting commercial real estate exposure http://t.co/qsqIMRph Banks still rotating out @ an almost constant rate since 2009 $$ Apr 30, 2012
• Largest U.S. Banks Resist Federal Reserve’s Credit Limits http://t.co/JndcrvWI Big banks need 2b broken up or shrunk; they don’t accept it Apr 29, 2012

US Fiscal/Regulatory Policy

• CEOs rank Texas tops for business, California worst http://t.co/jWEIGP89 8th year in a row for this survey; high taxes/regs annoy CEOs $$ May 04, 2012
• Exposing the Medicare Double Count http://t.co/HIVIx3lJ Same $$ being spent twice, must borrow the difference. May 02, 2012
• Coburn: `We Ought to Totally Revamp Our Tax Code’ http://t.co/71WquMIf Very similar to my proposals; simplify code eliminate deductions $$ May 02, 2012
• U.S. Considers Notes That Float http://t.co/jynXGcYG Intermediate-dated Tsy floaters would trade above par, neg yields like TIPS $$ May 01, 2012
• Trying to Shed Student Debt http://t.co/0GmvckOn Lawmakers Rethink Bankruptcy-Law Ban on Walking Away From Education Loans $$ #slavery Apr 30, 2012
• Can the US Economy Recover Without a Housing Recovery? http://t.co/Tqy4l8J3 It will probably have to try w/o housing’s assistance $$ Apr 30, 2012
• Central Bank paper suggests house prices have ‘over-corrected’ http://t.co/KDrXCkzy Have Irish housing prices overshot? Tough 2 say. $$ Apr 30, 2012
• http://t.co/KbnUO93s Treasury floaters could b issued @ premium 2 par 2 inflation speculators allowing the Tsy 2 finance @ negative rates Apr 30, 2012
• U.S. Perfecting Formula for Budget Failure, Says Bowles http://t.co/vlLQzZ8q It’s nice 2b a part of a nation that is a global leader $$ Apr 30, 2012
• Will TARP Make a Profit? That’s the Wrong Question http://t.co/MZBHaO51 Conflicting govt goals make policy hard 2 implement & interpret $$ Apr 30, 2012
• You will buy more Govvies, or else http://t.co/DLrnyb9u Financial Repression, Quantitative Easing, Debt Monetization, Hyperinflation $$ Apr 30, 2012
• On Student Loans, Accounting Gimmicks, Electric Cars, FX and a note on SS http://t.co/2BCB9nAi Hodgepodge of insight from @brucekrasting $$ Apr 30, 2012
• “The Treasury should be issuing 100 year or perpetual bonds until the market can’t stand it anymore to lock in these … http://t.co/gXMUXW4C Apr 30, 2012
• The floating YTMs will probably be negative, as interest rate speculators will pay more than par for the floating rat… http://t.co/OSmE7QuJ Apr 30, 2012

Eurozone

• The euro crisis just got a whole lot worse http://t.co/XSqmQnGv Election of Hollande may lead2 Euozone policy paralysis; growth v austerity May 04, 2012
• Making eurozonians, or not http://t.co/JmuO5OXC The Eurozone was never a natural place to set up a shared currency. $$ May 04, 2012
• Madness in Spain Lingers as Ireland Chases Recovery http://t.co/BXdYSX5e Ireland may b rebounding, as Spain’s slump deepens #austerity $$ May 02, 2012
• Why the New York Times’s Paul Krugman is clueless about the European economic crisis http://t.co/xMuzZXC7 Aside frm Ireland no austerity yet May 02, 2012
• Core infection and eurozone PMIs http://t.co/xr97yPgD Core of the EZone sluggish @ a time when it can least afford it $$ #depressionary May 02, 2012
• ECB Measures Pushing Domestic Bonds Into Domestic Banks, Planting Seeds for Euro Disintegration http://t.co/HAITJJnX Yeh, this da future $$ May 02, 2012
• The rise in the Eurozone money supply has not improved credit conditions http://t.co/rYazqcuP Euro M3 diverges from bank loans $$ May 01, 2012
• The ECB lending to periphery governments via “backdoor SMP” http://t.co/uQeG2QQK How to stuff the ECB full of Eurofringe debt, c/o LTRO $$ May 01, 2012

Rest of the World

• Brazil: cutting at any cost? http://t.co/mh3vN1Te Pushes up asset & price inflation, as currency held down 2aid exporters; unsustainable $$ May 04, 2012
• Turkey Credit Rating Outlook Cut by S&P on Worsening Trade http://t.co/pFDzEhZl Wide current account def & hi external financing needs $$ May 02, 2012
• Once poster child of crisis, Iceland recovers http://t.co/Sgr2wTGl Letting banks fail & stiffing foreign creditors -> winning solution $$ May 02, 2012
• Which emerging economies are at greatest risk of overheating? http://t.co/olHdiYRE A gauge from the Economist on which Em Mkts r2 hot $$ Apr 29, 2012

Company News

• Buffett’s CTB Adds Chicken Eviscerators in Dutch Purchase http://t.co/K6Q3NGt2 Buffett’s firm is no chicken; it has a lot of guts! $$ May 04, 2012
• Sorry, really sorry… May 04, 2012
• Ackman Rejects Canadian Pacific Deal Ruling Out CEO Pick http://t.co/KYe970NJ Pick is former CEO of $CP rival $CNI – Bad blood; good CEO May 02, 2012
• Impressive work Mr. Einhorn. The analyst that wrote up the question deserves praise; if you did that… http://t.co/tSTWxqBa May 01, 2012
• Phillips 66 aims to run more shale oil http://t.co/tC7NBfLO LD: + $COP $PSX First day of trading for the new $PSX. Combo up 2%+ so far $$ May 01, 2012
• Value investing does not mean cheap. It means margin of safety. Cemex does not have that. Look at the debt. $CX $$ http://t.co/ydklVkth May 01, 2012
• Falcone Agrees To Step Aside http://t.co/bYgLxMMV “a final agreement may not be reached, and a bankruptcy filing was still possible” $$ Apr 30, 2012
• Delta to buy US refinery for $150 million http://t.co/IsK9xsDu If zero is dumb & 100 is very dumb, this one scores in the 90s. $$ Apr 30, 2012
• Discuss “At $1.7 billion, Nook is worth more than Barnes http://t.co/xOz6skwP Spin off Nook 2 create value $$ $BKS $AMZN #interneteatsbooks Apr 30, 2012
• @ampressman Would it have been value-enhancing to $BKS 2 sell the whole Nook unit 2 $MSFT, in your opinion? $$ Apr 30, 2012

Statistical Analysis

• trading-and-the-null-hypothesis http://t.co/QpYutOTb Problem:No academic journal wants2 publish studies with ‘no result’ as their conclusion May 04, 2012
• . @thenumb47 Allows for too much of a specification search; would be good to require disclosure of everything tried but not published $$ May 03, 2012
• Have to allow for accidents! RT @incakolanews: just scrub the word “validate” and I think you have a great idea May 03, 2012
• Thus my proposal for economists: come up w/research idea: goes 2a database. Randomly assigned economist will analyze & trash/validate it $$ May 03, 2012
• Unlike double-blind studies, raw statistical research allows health analysts to inject their own bias into the analysis, as economists do $$ May 03, 2012
• Analytical Trend Troubles Scientists http://t.co/bzcAIpHG Health researchers using statistics like economists find ambiguous results $$ May 03, 2012

Miscellaneous

• 14 Lessons From Benjamin Franklin About Getting What You Want In Life http://t.co/BWAjCz1l Advice from 1 of the wealthiest men of America $$ May 04, 2012
• Is Wall Street Meeting God’s Expectations? http://t.co/5H5j2QGG Many Christians misuse the Bible; almost all non-Christians misuse it $$ May 03, 2012
• What would Jesus trade? http://t.co/Dkrfwt9k Many Christians misuse the Bible; almost all non-Christians misuse it; another example $$ May 03, 2012
• And in a more honest way than Google RT @SconsetCapital: Long good, short evil. May 03, 2012
• Apparel-Swapping Millennials Eschew Stores and Malls http://t.co/B7jq2dcY “Is that a new outfit?” “Well, it’s new to me!” An odd trend $$ May 03, 2012
• @TheStalwart Kasriel was different enough that he will be missed, kind of like the sound of one hand clapping $$ #littledoghasbuddhanature May 01, 2012
• The record 4 tallest bldg s/b based on weighted average height; weighting based on cross-sectional area @ height http://t.co/03HNZ0BB $$ Apr 30, 2012
• So if you have something thin at the top, it wouldn’t count 4 much. A rectangular parallpiped would get full credit 4 height $$ #usingmath Apr 30, 2012
• That would work, simpler than mine $$ RT @Pollack7: @AlephBlog Meh.Highest continuous occupancy floor. Apr 30, 2012
• As the smartest boss I ever had said “Make bets, but never bet the franchise.” http://t.co/qWdHX3BS Apr 30, 2012

Monetary Policy

• Bernanke Charts New Mission For Fed: Financial Stability http://t.co/6RrWEQws Fed has a hard enuf time w/a double mandate, triple will b wrs May 02, 2012
• Then again, if focusing on financial stability forces the Fed to be more restrained in its monetary policy, that would be good. $$ May 02, 2012
• Bernanke: Be Humble! http://t.co/6icSHD1K The picture says it: http://t.co/OqOflqsI Humility in BB’s view: leaving monetary policy loose $$ May 01, 2012
• My Speech Delivered at the New York Federal Reserve Bank http://t.co/DbAhOdQR An Austrian let loose amid the marble palace in NYC?! Wow. $$ Apr 29, 2012

US Politics

• Renewed Hope that Jon Corzine, President Obama’s Top Tier Campaign Bundler, Will Face Criminal Charges http://t.co/wCLrXFve J. Tavakoli $$ May 01, 2012
• Occupy Wall Street Plans Global Protests in Resurgence http://t.co/0FLjKfiJ #OWS won’t b effective until they organize as a 3rd party $$ + May 01, 2012
• Or, organize to influence the Democrats the way the t-party does the Republicans. #OWS is irrelevant until then, b/c it doesn’t do anything May 01, 2012
• Is that a bailout in your pocket? http://t.co/8xwW4Cbi Boyazny, panel’s populist, replied that the credit markets had become “undemocratic” May 01, 2012