Category: Banks

But They are not Actuaries, nor CFAs

But They are not Actuaries, nor CFAs

Posted on by David Merkel

I am grateful that risk managers inside banks have more clout these days. ?That said, I want it to persist, and the best way to do it is to have risk managers beholden to an ethics code, like actuaries or CFAs.

This is valuable, because the risk manager can point to a body of ethics that says to his manager, “I am sorry, but those of my discipline say that this action is unethical,” when line managers complain that the risk manager is killing business by insisting that certain risk standards should be maintained.

Actuarial risk models cover the life of the business, unlike Wall Street models that measured risk in terms of days. ?Cash flows mater, and the ability to meet the demand for cash matters. ?Long-term risk models tend to surface risks better than short-term models because an intelligent businessman can ask what are the odds that we will have a crisis over the duration of our existing business?

Once on a task force of the Society of Actuaries, when discussing non-traditional actuaries going to Wall Street, I said, “Great idea, but the line managers will eventually kill anyone that gets in their way. ?They don’t want people who have an ethics code. ?It inhibits business.” ?After that, there were some nervous chuckles on the phone, and the conversation moved on.

Ethics codes are needed when the disparity of knowledge between the designers and ultimate consumers/investors/regulators is so great that there are many ways that the consumers/investors/regulators could be cheated.

My view is controversial but simple. ?Every professional?in investing and finance needs to have an ethics code, making them more sensitive to their clients. ?The easy solution is that every investment/finance professional needs to hold?a CFA charter. ?The three exams are pretty minimal, and can be passed by most people with some study. ?Give the actuaries a pass, their exams are far harder — far, far, far harder.

But set some boundary for ethics and examinations of competence, to clean up finance and send the flim-flam men to the edges of the market, where they belong.

 

 

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Market Dynamics

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  • Yellen Comments Boost Demand for Treasury Bonds?http://t.co/2lzFhL97br?Carry trade rescued, grows larger 4a later day of reckoning $$ $TLT?May 10, 2014
  • One of the Best Retirement Deals 9 of 10 People Ignore?http://t.co/oYw4xRjEdc?Contribute 2a Roth 401(k) & save big on future taxes $$ $TROW?May 10, 2014
  • NYSE to Curtail Order Types Amid Debate Over Their Fairness?http://t.co/JOlTvX7sie?Will b interesting 2c what they curtail $$ Affects my biz?May 10, 2014
  • What Baby Boomers? Retirement Means For the US Economy?http://t.co/GuECsqqWHA?Cheer up, the US is in better shape than rest of the world $$?May 10, 2014
  • I’m worried about a crisis bigger than 2008: Faber?http://t.co/JwpcvxA53o?”For the next six months, maybe cash is the most attractive.” $$?May 10, 2014
  • When Stocks and Bonds Disagree?http://t.co/BGbY9Y0C2L?@reformedbroker points out anomaly. Bond mkt bigger than stock mkt, should b right $$?May 07, 2014
  • research puzzle pix by tom brakke?http://t.co/xtPUCU7PDj?Bloat, which I would measure by number of days to trade away the portfolio $$ $SPY?May 07, 2014
  • Ten Surefire Trading Rules To Make You Rich?http://t.co/fHqVJkaVuj?@reformedbroker tongue-in-cheek way of telling you what not to do $$ $SPY?May 06, 2014
  • Early Tap of 401(k) Replaces Homes as American Piggy Bank?http://t.co/x16yXooOSx?If you don’t have an “out” door 4 $$, less will go “in”?May 06, 2014
  • The bond market is giving the stock market angst?http://t.co/rfuGqyaPTK?2 many long bond shorts, economic weakness, low govt-measured inf $$?May 06, 2014
  • Free Life-Insurance Offer Scrutinized?http://t.co/EZz4zbJsXS?Nothing is free; this will come out of the life insurer dumb enough 2sell it $$?May 06, 2014
  • Bond Returns Post Global Records as Warnings Go Unheeded?http://t.co/t0aXCtsu8T?Long bond buyers need to fund long liabilities & momentum $$?May 06, 2014
  • Borrowing Cash to Buy Complex Assets Is In Vogue Again?http://t.co/8urmZjge1i?Borrowed $$ is mostly being used 2buy AAA CLOs; 10x lev ~ 8%yd?May 06, 2014
  • Can?t Find Enough 30-Year Treasuries to Buy? Here?s Why?http://t.co/tmFjBQ4emS?Fed buying, also pensions, life insurers & speculators $$?May 05, 2014

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Banks

 

  • Covered Bond Talks Intensify as Bank Liquidity Rules in Play?http://t.co/aM7LuzeXIK?Denmark needs bank capital concessions 4covered bonds $$?May 10, 2014
  • Bitcoin Breakthroughs Studied by Banks the Currency Is Out to Replace?http://t.co/Frls6s04am?May not be a currency, but a payment system $$?May 10, 2014
  • JPMorgan Joins Wells Fargo in Rolling Out Jumbo Offerings?http://t.co/9mJFfYArs2?High end of residential housing market is hot $$ $JPM $WFC?May 10, 2014
  • Fed 2 Bank Giants: Don’t Get Bigger Via Mergers?http://t.co/fjw4dDAAIZ?Have >10% of total financial system liabs can’t merge $$ $BAC $C $JPM?May 10, 2014
  • The Real Reason Big Banks Stay Big?http://t.co/GRvSHhDAUx?The larger the bank, the larger the management pay packets $$ $C $BAC $WFC $JPM?May 06, 2014

 

Rest of the World

 

  • Russian Aggression Prompts Finnish-Swedish Military Pact?http://t.co/K9amWYRP0F?It’s not an expansion of NATO yet, but reaction 2 Russia $$?May 10, 2014
  • China Property Slump Adds Danger to Local Finances?http://t.co/WXdGmStbU5?Local govts rely on selling property 4 revenue; now what to do? $$?May 10, 2014
  • Ukraine’s Arms Industry Is Both Prize and Problem for Putin?http://t.co/1RNJMzBvQ6?Has many arms joint ventures w/ Ukraine $$ #irony $MACRO?May 10, 2014
  • Panama Can School US on Immigration?http://t.co/2UYhldzlPJ?”Panama is the kind of country the US once was: quick to embrace workers.” $$?May 10, 2014
  • Draghi?s Euro Angst Rising as Rally to $1.40 Pummels?http://t.co/nLzHP74nYE?What will he do? Sell Euros & buy Dollars? Has 2 many $$ now.?May 10, 2014
  • Accident Leads to Scrutiny of Oil Sand Production?http://t.co/DHVJukJNVR?Little damage, but made regulators think of other bad scenarios $$?May 06, 2014
  • British Coins Pass Test in 800-Year-Old Ritual?http://t.co/GKfA1KhXKO?Trial of the Pyx, 1 of Britain?s oldest&strangest legal procedures $$?May 06, 2014

 

Global Economy

 

  • US Ready to Join 6-Nation Tax Alliance?http://t.co/PVRpUJ1ShZ?Members Will Share Information 2Fight Multinational Corporate Tax Avoidance $$?May 10, 2014
  • Ron Wyden: We Must Stop Driving Businesses Out of the Country?http://t.co/ypwwGbrWlM?Cutting corporate taxes to 24% would be a start $$ $SPY?May 10, 2014
  • Corporate Tax Planners Vexed by New International Tax Guidelines?http://t.co/LcCyHgfDc7?If elites agree, can limit tax leakages 2 havens $$?May 10, 2014
  • Decoding Dollar Turns Into Wall Street?s Parlor Game?http://t.co/PeI1wrlq4v?Bad speculation on strengthening $$ fails, trade gets reversed?May 10, 2014
  • World Economy Stabilizes in Great Moderation 2.0?http://t.co/yCIRqXpF9h?Really seems 2 early 2b trotting out an idea like this $$ $SPY $TLT?May 10, 2014
  • How Russia Inc. Moves Billions Offshore & a Handful of Tax Havens May Hold Key to Sanctions?http://t.co/ylIL6w66EF?Expropriation risk $$?May 05, 2014
  • Tax Break ?Blarney?: U.S. Companies Beat the System With Irish Addresses?http://t.co/Ia2cM1brCS?Maybe a “Value Added Tax” could fix this $$?May 05, 2014

 

Companies & Industries

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  • Fat-Destroying Machine Doubted by Stock Traders?http://t.co/2Klv4c4ozG?$ELOS uses ultrasound 2 heat up & destroy fat cells. Does it work? $$?May 10, 2014
  • Son Makes $58B on Alibaba With Buffett-Type Return?http://t.co/uywgbnCaxg?Masayoshi Son had insight into Alibaba when invested $20M $$?May 10, 2014
  • US Shale Boom Keeps Global Oil Prices From Soaring?http://t.co/ipDZdMke1o?Oil Majors have 2 invest more 2 get less http://t.co/9u5lRnolmh $$?May 10, 2014
  • Lenovo Targets Mobile as Tech Empire Grows on Castoff Businesses?http://t.co/sXSytLozjV?Squeezing good $$ out of mature tech businesses?May 10, 2014
  • Pitney Bowes changing stripes: Cramer?http://t.co/QzDuxGLZjT?Talks about their partnership w/ $EBAY to seamlessly estimate shipping $$ $PBI?May 10, 2014
  • 5 quality stocks that are missing out on the bull run?http://t.co/8GTmjMt46J?Quality often misses out when credit spreads r tight $$ 2005-7??May 10, 2014
  • Alibaba Partners Keep Control After Shunning Hong Kong for US?http://t.co/4XvRaqoUM5?A partnership will govern, limiting takeover efforts $$?May 10, 2014
  • Wal-Mart Notches Web Win Against Rival Amazon?http://t.co/3f9chtgyME?Still $AMZN is 6x larger than $WMT in online sales, long way to go $$?May 06, 2014
  • IBM’s Watson supercomputer can help settle your debates?http://t.co/cFmXZXmEV6?Ask Watson a question, will give top 3 args for & against $$?May 06, 2014
  • Symantec Develops New Attack on Cyberhacking?http://t.co/xbeAQgcnab?Declaring Antivirus Dead, Firm Turns2Minimizing Damage From Breaches $$?May 06, 2014
  • Buffett Phase Two Means Seeking Deals More Enduring Than Stocks?http://t.co/FyERjB7YO5?Trying to build the best long-term conglomerate $$?May 05, 2014

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US Politics & Policies

 

  • Benghazi Isn’t Iran-Contra?http://t.co/otSpoLR38P?But the comparison reflects poorly on the Obama administration $$?May 10, 2014
  • SEC Finds Illegal or Bogus Fees Majority of Buyout Firms?http://t.co/TwU954gwzm?Who pays what expenses? How r fees & returns calculated? $$?May 10, 2014
  • What Timothy Geithner Really Thinks?http://t.co/CxMmqJF18b?Just don’t blame him, didn’t want the job & wanted 2 leave it sooner, Really? $$?May 10, 2014
  • Railroad: Federal order won’t affect oil shipments?http://t.co/9nFXjxRTcP?BNSF carries most of the oil coming from Bakken FD: + $BRK.B $$?May 10, 2014
  • Why Nonbank SIFI Designations Put the Cart Before the Horse?http://t.co/oRQCv7r5jf?FSOC & Fed don’t get systemic risk & designating SIFIs $$?May 10, 2014
  • Massachusetts Scraps Its Health Insurance Exchange?http://t.co/nVB3C17iVg?Fascinating how many states had to scrap their healthcare sites $$?May 06, 2014
  • Why Weather Could Determine Who Wins a Race To Measure Inflation?http://t.co/2PTidHexu6?Billion Prices Project inflation measure 1%>CPI $$?May 06, 2014
  • The End of the Permissionless Web?http://t.co/MWyAraGxUT?Regulators want 2 become the gatekeepers for Internet innovation. It ain’t broke $$?May 06, 2014
  • Toilet Bowl Kills Fan in Violence at World Cup Host Brazil?http://t.co/Qx0HSiv0dB?Soccer hooliganism hits a new low, death by toilet $$ $EWZ?May 05, 2014

 

 

Other

 

  • Woman With Printer Shows the Digital Ease of Bogus Cash?http://t.co/kN4Ua9zZl0?Fascinating 2c how easy it is to convert $5s into $100s $$?May 10, 2014
  • Career Advice for Managers: Learn to Execute Strategy?http://t.co/jI85DW4Itj?Strategy should come b4 reaction to the problems of the day $$?May 10, 2014
  • Growing Number of Hispanics in US Leave Catholic Church?http://t.co/0jXt2caYjl?Most of those leaving go evangelical protestant $$ #readbible?May 10, 2014
  • Economics students call for shakeup of the way their subject is taught?http://t.co/vv8OL1xq9m?Right diagnosis, wrong cure, need Austrian $$?May 07, 2014
  • Rethink The Word ‘Cancer,’ Panel Says?http://t.co/jiuSNLF4JM?Cancer comes in many different forms; with some, early treatment is needed $$?May 06, 2014
  • Virtual reality preps 4 impact in healthcare, manufacturing, finance?http://t.co/taBVd2dFy1?Retirement planning, worker safety, training $$?May 06, 2014
  • MLB: The Year That No One Got Caught Stealing?http://t.co/Pn3itlbi36?Catchers now spend more time practicing hitting than throwing $$ $SPY?May 06, 2014
  • Elite Colleges Don’t Buy Happiness for Graduates?http://t.co/H2S5hTml6g?Happiness stems more from personal attitudes than college type $$?May 06, 2014

 

US Economy

 

  • Cancer Doctors Join Insurers in US Drug-Cost Revolt?http://t.co/OrqflkeN32?Drug costs reflect price 4 successes but paying 4 failures $$?May 10, 2014
  • Later Easter Drives Retail Sales in April?http://t.co/VAuXPhVGR7?Never thought Easter was that big of an economic factor $$?May 10, 2014
  • Record Meat Costs Mean Pricey Barbecues?http://t.co/tNr7vcb11K?Herds r smaller, as ranchers shake off past water & feed problems $$ $TSN?May 10, 2014

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Wrong

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  • Wrong: Happy Hedge Fund Managers Earn Money for Nothing?http://t.co/pOSYH3SSXO?Wrong benchmark S&P 500 4 hedgie comparison s/b t-bills $$?May 10, 2014
  • Wrong: Blackstone?s Schwarzman Says Individuals Need More Alternatives?http://t.co/Mnp0cjlXZ5?He’s just trolling 4 dumb $$ folks. Ignore him?May 10, 2014

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Comments, Replies & Retweets

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  • If the treatment is cheap enough, & has no harmful side-effects, investors will benefit from fat returns ;)?http://t.co/ROAQUU6Rpu?$$ $ELOS?May 07, 2014
  • “He might be comparing IRRs on PE to total returns on stocks. Trouble with that one is that capital?” ? D. Merkel?http://t.co/MhXU9vLCvG?$$?May 07, 2014

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Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

US Politics & Policy

  • The Potential Bubble the Federal Reserve Cares Most About http://t.co/tp1Ug7YcaR?Worrying about a bubble in the bond mkt $$?May 03, 2014
  • The Weekend Interview: The Investors at War With Political Power?http://t.co/MuEvV0DQcC?Courts protect our liberties from bureaucracies $$?May 03, 2014
  • Detroit Homeowners Gun Down Burglars as Police Wait for Cars?http://t.co/Dkg7YEct4g?This is the future of many US cities w/tight budgets $$?May 03, 2014
  • Railway exec: Keystone debate not about rail versus pipes?http://t.co/bVKjkcvnq0?Aiming 4 safer tank cars & separating out natgas liquids $$?May 02, 2014
  • Xerox CIO Fixing Nevada Health Exchange, as Tough Decisions Loom?http://t.co/brbP5LD0Ru?Bad job by $XRX but at least they trying 2 fix it $$?May 02, 2014
  • For Now, Justice Ginsburg’s ‘Pathmarking’ Doesn’t Include Retirement?http://t.co/xduXEt5OUV?Interesting piece on liberal SCOTUS leader $$?May 02, 2014
  • The Supreme Court’s EPA Ruling Dims Lights on Coal Power Plants?http://t.co/eAIlagHyqe?This will eventually be reversed when shale fails $$?May 02, 2014
  • The Coming Two-Tier Health System?http://t.co/xpIMjPnvhc?The longer PPACA goes on the more people will c benefits limited & costs rise $$?May 02, 2014
  • California City of Torrance Grapples With Toyota Relocation to Texas?http://t.co/OljCzROHlq?Despite denials this happened b/c hi CA taxes $$?May 01, 2014
  • The Missing Benghazi Email?http://t.co/amNnz6KAWT?New evidence that Ben Rhodes told Susan Rice and Hillary Clinton to blame the video $$?May 01, 2014
  • Shifting Demographics Tilt Presidential Races in US Burbs $$?http://t.co/Ut6WAHwu91?Demographic effect politics will shift when OASDI chokes?May 01, 2014
  • Half of people living in Illinois and Connecticut want to get out?http://t.co/ewsu2wu8HT?Maryland #3 b/c of high taxes $$ $SPY $TLT?May 01, 2014
  • Yellen Concerned Fed Model Fails to Predict Price Moves?http://t.co/P1NXGaHY6w?Been true 4 a long time; Neoclassical Macroeconomics fails $$?May 01, 2014
  • U.S. on Highway to Flunking Out?http://t.co/yvRybDP3Bp?@Ritholtz Maybe US gasoline taxes could b dedicated to infrastructure & fix this $$?May 01, 2014
  • Property-Tax Collections Rising at Fastest Pace Since US Crash?http://t.co/GoC12zZltE?My, but that was a short respite from hi prop taxes $$?May 01, 2014
  • Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Higher Tuition?http://t.co/ZaHVqZG6ft?Forgiveness programs abused 2milk Govt $$?May 01, 2014
  • Lawyers Sue Stock Market for Being Rigged?http://t.co/ntCxkptCw8?@matt_levine tells us about a plaintiff suing every broker & exchange $$?Apr 30, 2014
  • Will the Fed s Capital Rules Interfere with Monetary Policy??http://t.co/UpWnLNwIff?Leverage affects banks short-run-> margins adjust up $$?Apr 30, 2014
  • The Economic and Environmental Costs of Wasted Food?http://t.co/3YqsPbZzJv?Difficult to avoid; need for inventories, transport costs high $$?Apr 23, 2014

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Financials

  • Treasuries Irresistible to America?s Banks Awash in Cash?http://t.co/wHjk3cRPn2?Clip a small interest margin, take little risk $$?May 03, 2014
  • Big US Banks Make Swaps a Foreign Affair?http://t.co/5DD7en8pBG 5 banks intermediate 95% of derivatives $$?May 03, 2014
  • Fidelity Reaps Rewards as Banks Lose Bond Muscle?http://t.co/mSTelgwh0d?If the sell side does not provide liquidity, the buy side will $$?May 03, 2014
  • Bank of America Lost $2.7B in a Maze of Accounting?http://t.co/K05aIQBhQE?Acctg gets screwy when you mix fair value & book value elements $$?May 02, 2014
  • Traders Join Exodus as Forex Probes Add Pressure on Costs?http://t.co/Aqlsb6vElW?Difficult to dominate such a big mkt, but maybe they did $$?May 02, 2014
  • Warren Buffett Does Not Understand the J.P. Morgan Derivatives Positions?http://t.co/poMfOnAhOS?He acts to protect Berkshire vs bad debts $$?May 02, 2014
  • Fed Citing Wall Street Lapses Leads Drive on Bonds as Pay?http://t.co/Ad2DOnjZYl?Light version of the old “double liability” regime $$ $XLF?May 02, 2014
  • Stress Tests Forecast $190B in Losses at $FNMA, $FMCC in Severe Downturn?http://t.co/UA9S5Jj13a?also this article http://t.co/Wh2QlFzqZh $$?May 02, 2014
  • Traders Denied M&A Payday as Firms Use Cash?http://t.co/hSw2BGNjWh?Global firms buy assets in native currency, thus don’t need FX traders $$?May 01, 2014
  • Fixed-income houses double down?http://t.co/1rm6QHbjgc?Less yield to fight over makes the fight all the tougher $$ $TLT?May 01, 2014
  • Easier Homeowner Credit Compelling $WFC?http://t.co/AzcGHepiJJ?Cut min credit score 4borrowers of $FNMA & $FMCC loans 660->620 $$ FD: + $WFC?May 01, 2014
  • Wall Street Bond Dealers Whipsawed on Bearish Treasuries Bet?http://t.co/S6X2QhUgRV?Caught leaning the wrong way as US economy weakens $$?Apr 30, 2014

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China

  • Chinese Bad-Loan Ratio Rises ?Significantly,? Huarong Says?http://t.co/Eu5AAeyGp5?Costs of prior malinvestment weigh on China $$?May 03, 2014
  • Xi?s Squeeze Leaves China?s Heartland Missing Boom?http://t.co/Bt0L96guqH?Efforts to constrain bad bank loans slows Chinese economy $$ $FXI?May 03, 2014
  • Wealthy Chinese replace Russians as top apartment buyers?http://t.co/zEWVg7dOOC?Better to buy in NYC than Shanghai, Hong Kong, Singapore? $$?May 02, 2014
  • How Women Lost as Out China’s Property Market Boomed?http://t.co/MXkG2udq0t?China lacks law protecting married women’s property interests $$?May 02, 2014
  • Green Batteries? Graphite Adds to China Pollution?http://t.co/rxZufzpj9H?Buy a $TSLA or a $HMC Prius, send polluted rain to China $$ $SPY?May 01, 2014

 

Rest of the World

  • Poland?s Tusk Proposes Energy Union 2 Break Russian Hold on Gas?http://t.co/CzDr3evIhe?Wishful thinking as infrastructure 2 deliver lacks $$?May 03, 2014
  • More Italian Women Are Choosing to Have No Children?http://t.co/fSghk0oKwP?A nation that does not have children is irrelevant $$?May 03, 2014
  • Portugal Grabs Cheap Bond Deal With Eye on Bailout Exit?http://t.co/9gEDWEIuYh?Debt problems r not resolved, but mkts feel better 4 now $$?May 03, 2014
  • German Ship Captain Swamped in Debt Underscores Bank Risk?http://t.co/eP7Xhvj67X?Current EU economic policies hide bad debt risks $$?May 03, 2014
  • GoldenTree Goes Bold in Buying Russian Corporate Bonds?http://t.co/d0nvYJ7Ah2??Russia, it?s a strong credit in a difficult environment,? $$?May 03, 2014
  • One Missing Jet, One Sunken Ferry, Two Responses?http://t.co/I1ZgkwQyLo?@WilliamPesek compares Malaysia & S. Korea & responses 2 disaster $$?May 02, 2014
  • Turkey’s Erdogan: 1 of the World’s Most Determined Internet Censors?http://t.co/12ALhoW2i3?#twitterisblockedinTurkey $$ #internetchangesall?May 02, 2014
  • German Businesses Urge Halt on Sanctions Against Russia?http://t.co/bJho1CvvIP?Is business so global that major wars can’t be fought? $$?May 02, 2014
  • How Canada?s Flirtation w/a China Oil Market Soured?http://t.co/h5HPS7pnM8?Why Canada will NEVER ship crude to China via a Pacific port $$?May 02, 2014
  • Georgia Pushes for Fast Path 2 NATO on Russian Threat?http://t.co/bYY8LK1pla?Is Georgia worth annoying Russia? Avoid entangling alliances $$?May 02, 2014
  • US sanctions raise concerns for foreign investors?http://t.co/XWbwvPXyir?Or, maybe not: http://t.co/rhsqIHCafl $$?May 02, 2014
  • Google Warning on Russia Prescient as Putin Squeezes Web?http://t.co/pVedAtqcAx?Social Media has its downsides if Govt uses it against u $$?May 02, 2014
  • Liquidity Trap Hitting AAA Bonds Has ATP CEO Sounding Alarm?http://t.co/bhWlb1EjxQ?Curbing speculation has led 2 decreased bond liquidity $$?May 02, 2014
  • Israelis Without ABCs Unready2Power Startup Nation?s Economy?http://t.co/q2V1IwGrIZ?He that doesn’t teach his son a trade teaches him2rob $$?May 01, 2014
  • Tokyo Inflation Quickens to Fastest Since 1992?http://t.co/khjhBvHgWT?Worth watching, as inflation is not the friend of Japan ultimately $$?May 01, 2014

 

US Economy?

  • Colleges, Employers Rethink Internship Policies?http://t.co/RMievOB82U?Unpaid internships often don’t lead to jobs, just use your time $$?May 03, 2014
  • Apprenticeships Help Close the Skills Gap. So Why Are They in Decline??http://t.co/pCnZCgXqAr?If they weren’t tied 2 labor unions… $$?May 03, 2014
  • Calculated Risk: Ranking Economic Data?http://t.co/l4X9wcjrEw) Bill McBride gives his opinions on what economic data is most important $$?May 03, 2014
  • Union Blasts Staples-Run Postal Outlets?http://t.co/qmmc4iXhIS?Of course, they don’t want the competition $$?May 03, 2014

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Energy

  • Energy Future Junior Creditors Test Bid for Fast Bankruptcy Deal?http://t.co/ZFgWCteuh0?A warning to those doing big LBO deals in a boom $$?May 03, 2014
  • Shale Drillers Feast on Junk Debt to Stay on Treadmill?http://t.co/qG9WwN63V0?Fascinating look many junk-rated E&P companies paying 5.4% $$?May 02, 2014
  • Valero to Suncor Shun Overseas Imports in Eastern Canada?http://t.co/dco5QQdox4?Oil imports falling in Eastern N.America, Brent spd eases $$?May 02, 2014
  • Berkshire Hathaway Energy Buys AltaLink Power-Transmission Company?http://t.co/K95RDCbYM8?Buffett wants long-lived infrastructure assets $$?May 02, 2014
  • Shale Revolution Lures Trading Houses 2US Energy Assets?http://t.co/6WTGDZNLzl?If u can understand physical flows, there?s a value chain $$?May 01, 2014
  • Drones Are Becoming Energy?s New Roustabouts?http://t.co/e2OBYmeV48?Can cover more area and c things that a person could not c & record $$?May 01, 2014
  • Challenges Lie Ahead for North American Oil Production?http://t.co/m7vvemlw6m?We’re running out of cheap crude oil $$?Apr 22, 2014


Market Impact

  • Defensive Value ETF Races to New Highs?http://t.co/KOKo14nkDk?This isn’t defense; many people throw $$ at stocks that offer dividends?May 03, 2014
  • Chile CEF?s Premium a Case of Yield Lover?s Mirage?http://t.co/blhZjCHLzN?Be wary: not all distributions indicate recurring yield $$?May 03, 2014
  • Hedge Funds Short Small Caps Most Since ?04?http://t.co/2hLYbzM521?Dangerous trade, b/c mkt can b insane longer than u remain solvent $$?May 03, 2014
  • Howard Marks’ Brilliant Observation On What It Takes To Be A Great Investor?http://t.co/yeJnpION8s?Be different, & right often enough $$?May 02, 2014
  • Junk Loans Pulled as Buyers Say No After Fed Voices Worry?http://t.co/lCDRdfFvV6?Junk-loan MFs had their 1st outflow in week ended 4/16 $$?May 02, 2014
  • Why This Bull Market Feels Familiar?http://t.co/8JXl7JGwMe?Low earnings in tech IPOs, momentum & loose monetary policy $$ $SPY?May 01, 2014
  • Why Investors Love Hedge Funds?http://t.co/uFjN76R9KT?@Ritholtz teaches us about high fees, & decrasing effectiveness as they grow large $$?Apr 30, 2014

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Companies

  • Ballmer Becomes Largest Individual Microsoft Shareholder?http://t.co/DvWSRZAb1Z?Bill Gates always had an exit strategy from $MSFT $$?May 03, 2014
  • Apple Sells $12B of Bonds to Keep Cash Overseas?http://t.co/FiSK8eJS5C?Avoiding the tax hit is more important leverage across borders $$?May 03, 2014
  • Berkshire Meeting, Now ?Woodstock for Capitalists,? Had Humble Start?http://t.co/wbYCcKc8yr?Nobody goes there anymore; it’s too crowded $$?May 02, 2014
  • Buffett Wants Tough Questions? How About These??http://t.co/m36vBV6VIe?Ask him about the Harney Investment Trust, his shadowy creation $$?May 02, 2014
  • Verizon Loses Cellphone Customers for First Time?http://t.co/6DbXOm993W?Interesting, wonder if it is a trend… $$ $VZ?May 01, 2014
  • IBM End to Buyback Splurge Pressures CEO to Boost Revenue?http://t.co/D657Dc27mX?Buybacks can only do so much; organic growth needed $$ $IBM?May 01, 2014
  • FM Global CFO: Know Your Supply Chain?http://t.co/dBTc6MYXXY?Real disasters happen when multiple things go wrong at the same time $$ $SPY?May 01, 2014
  • ‘I Think Google’s Pretty Dangerous and Thuggish. I?ve Always Said That.’?http://t.co/jYZBaewNjZ?Trying 2 defend yourself; not saying much $$?Apr 28, 2014

 

Personal Finance

  • Does Anyone Play It Straight in Markets??http://t.co/MRZY1ro2as?@ritholtz warns u that many in the mkts r trying to separate u & your $$?May 03, 2014
  • Feeling Cool About A Hot Personal Finance Book?http://t.co/hwFULepE8v?When someone tries to sell u insurance 4 a savings need, go away $$?May 03, 2014
  • 4 Alternatives to Reverse Mortgages?http://t.co/6Wmd2kYQmz?Refinance, Home Equity Loan, Sell the Home (maybe to your kids) $$ #sell?May 02, 2014
  • Work and Live, Retire and Die @Ritholtz?http://t.co/t1YWHoG6NO?People plan to retire later than they actually do & life interferes $$ $SPY?May 02, 2014
  • How to Choose the Right Mutual Fund?http://t.co/4kvyh8rZZK?Omits active share, good mutual funds typically look un-indexlike $$?May 01, 2014
  • If You’re Not Saving, You’re Losing Out?http://t.co/QtG87rNHPF?It’s not the money u make, it’s the money u keep that counts $$ $SPY $TLT?May 01, 2014

 

Other

  • The Questionable Link Between Saturated Fat and Heart Disease?http://t.co/32pwYj4Z6i?There has never been more disagreement over food $$?May 03, 2014
  • Will That Golfer Choke? New Field of Mental Analytics Tees Up Answer?http://t.co/B8dxIYL1Jf?Can analytics make u think better in sports $$?May 03, 2014
  • Cyber security: business is in the front line?http://t.co/RXkfEDaPu0?This isn’t a soft cost anymore; the need to secure IT is vital $$?May 03, 2014
  • Remember Life Before Antibiotics? No? Wait, It’ll Come to You?http://t.co/g9uQajBJJL?Antibiotic resistance grows, obsoleting some drugs $$?May 02, 2014
  • How the ‘Jesus’ Wife’ Hoax Fell Apart?http://t.co/Kdswi39oZr?Hoaxes & apochrypha have circulated since the Apostles. They always crumble $$?May 02, 2014
  • Why Some MBAs Are Reading Plato?http://t.co/ltj9Y8QYyV?Schools Try Philosophy to Get B-School Students Thinking Beyond the Bottom Line $$?May 01, 2014
  • Does Baseball Have to Be So Slow??http://t.co/8PRcoei9Ua?Dawdling by batters & pitchers, & an increase in strikeouts makes games drag $$?May 01, 2014
  • The world’s smallest magazine cover is 2,000 times smaller than a grain of salt?http://t.co/o4H7mfHCDE?Nanotech: we do it because we can $$?May 01, 2014
  • Why Militaries Mess Up So Often?http://t.co/39NKx6YPUn?Officers trained during peacetime tend not to take the risks necessary in wartime $$?May 01, 2014

 

Wrong?

  • Wrong:Nontraded REIT returns: Where to put cash now??http://t.co/EPykRK8e7S?Avoid illiquidity unless u r paid 4 it. Avoid big commissions $$?May 03, 2014
  • Wrong: China’s Century Starts Now @BloombergView?http://t.co/UUziinXlqJ?Wait until after the banking crash & recovery, then write this $$?May 01, 2014
  • Wrong: Money-Market Funds As Safe as Banks, Except When They’re Not?http://t.co/7S2TEDpk7Q?Banks fail more often & losses r more severe $$?May 01, 2014

?

Retweets, Replies, and Comments?

  • “Ask Buffett about the Harney Investment Trust:http://t.co/KUHnslWBFv…” ? David_Merkel http://t.co/bLVAj6OY7O $$?May 02, 2014
  • Commented on StockTwits: Whoops, and I should have gotten that one right?http://t.co/nB9lRK14kb?May 01, 2014
  • “Paul, try valuing BRK off of increase in book value per share, and the metric comes out to a more?” ? DavidMerkel?http://t.co/cm2Rdhkzfn?$$?May 01, 2014
  • “Now try to explain how long yields fell the last time the Fed tightened.” ? David_Merkel?http://t.co/MwJL3d6KQX?$$ FD: + $TLT?May 01, 2014
  • “If citizens are not created/educated by 18, you won’t have good citizens.” ? David_Merkel?http://t.co/TzfQsJULED?$$ http://t.co/eiOLPqNuub?Apr 29, 2014
  • “This may be a game of “Who has the stronger balance sheet?” $HLF or Ackman?” ? David_Merkel?http://t.co/2QCjheaJjd?$$?Apr 29, 2014
  • @Peter_Atwater @Minyanville @Socionomics Thanks, Peter. Means a lot coming from you.?Apr 28, 2014
  • @ReformedBroker @ritholtz feel free to repost it (w/credit to me) if you like?Apr 28, 2014
  • RT @felixsalmon: For the record, I never said, nor do I believe, that text is over. I?m still going to be writing lots of text!?Apr 28, 2014
  • RT @victorricciardi: @researchpuzzler @AlephBlog @jciesielski @tobyshute Tom Great meeting you Thanks for your ideas for promoting my new b??Apr 25, 2014
  • RT @researchpuzzler: thanks to CFA Society Baltimore @AlephBlog @victorricciardi @jciesielski @tobyshute for the great exchange of ideas?Apr 25, 2014
  • RT @ppearlman: summer must read – “@reformedbroker: CLASH OF THE FINANCIAL PUNDITS: COUNTDOWN BEGINS NOW!?http://t.co/iZqYTs8OFt“?Apr 25, 2014
  • RT @abnormalreturns: Had to Google ?cable network Fusion??RT @felixsalmon: It?s out: I?m going to Fusion?http://t.co/B1EK0eJmc8?Apr 24, 2014
  • RT @ChemistryVines: Mercury(II) thiocyanate (Hg(SCN)2)?https://t.co/Ar2yhIlOwo?Apr 23, 2014
  • @Calvinn_Hobbes I don’t know. We all want to grow up, until we do grow up. Only the foolish regret growing up.?Apr 22, 2014
An Idea for When the Market is High

An Idea for When the Market is High

Posted on by David Merkel

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

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

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

Company Ticker Industry Country B/P E/P
Petrobras Argentina SA ADR PZE 0606 – Oil & Gas – Integrated Argentina

1.26

7.95
Pampa Energia S.A. (ADR) PAM 1203 – Electric Utilities Argentina

0.83

11.41
OMV AG (ADR) OMVKY 0609 – Oil & Gas Operations Austria

1.13

11.33
Validus Holdings, Ltd. VR 0709 – Insurance (Life) Bermuda

1

13.3
Everest Re Group Ltd RE 0715 – Insurance (Property & Casualty) Bermuda

0.88

15.35
Maiden Holdings, Ltd. MHLD 0715 – Insurance (Property & Casualty) Bermuda

0.93

10.11
Montpelier Re Holdings Ltd. MRH 0715 – Insurance (Property & Casualty) Bermuda

0.99

11.83
Axis Capital Holdings Limited AXS 0715 – Insurance (Property & Casualty) Bermuda

1.01

13.2
Platinum Underwriters Holdings PTP 0715 – Insurance (Property & Casualty) Bermuda

1.02

11.25
White Mountains Insurance Grou WTM 0715 – Insurance (Property & Casualty) Bermuda

1.07

8.49
Aspen Insurance Holdings Limit AHL 0715 – Insurance (Property & Casualty) Bermuda

1.12

9.61
Assured Guaranty Ltd. AGO 0715 – Insurance (Property & Casualty) Bermuda

1.18

18.59
Partnerre Ltd PRE 0715 – Insurance (Property & Casualty) Bermuda

1.23

10.75
Argo Group International Holdi AGII 0715 – Insurance (Property & Casualty) Bermuda

1.27

11.55
Endurance Specialty Holdings L ENH 0715 – Insurance (Property & Casualty) Bermuda

1.31

12.55
Gerdau SA (ADR) GGB 0121 – Iron & Steel Brazil

1.32

6.84
Gafisa SA (ADR) GFA 0215 – Construction Services Brazil

2.04

15.52
Petroleo Brasileiro Petrobras PBR 0606 – Oil & Gas – Integrated Brazil

1.67

13.2
Telefonica Brasil SA (ADR) VIV 0915 – Communications Services Brazil

0.85

7.58
Companhia de Saneamento Basico SBS 1209 – Water Utilities Brazil

0.89

8.57
Endeavour Silver Corp EXK 0118 – Gold & Silver Canada

0.89

9.9
Teck Resources Ltd (USA) TCK 0124 – Metal Mining Canada

1.33

6.84
TransGlobe Energy Corporation TGA 0609 – Oil & Gas Operations Canada

0.85

10.03
Granite Real Estate Investment GRP.U 0933 – Real Estate Operations Canada

0.87

7.53
Brookfield Office Properties I BPO 0933 – Real Estate Operations Canada

1.08

10.08
Boardwalk REIT (USA) BOWFF 0933 – Real Estate Operations Canada

1.14

11.54
Greenlight Capital Re, Ltd. GLRE 0715 – Insurance (Property & Casualty) Cayman Islands

0.9

19.45
Sinopec Shanghai Petrochemical SHI 0103 – Chemical Manufacturing China

1.52

11
Yongye International, Inc YONG 0103 – Chemical Manufacturing China

1.65

43.36
China XD Plastics Co Ltd CXDC 0109 – Containters & Packaging China

1.13

22.71
Lihua International Inc LIWA 0127 – Misc. Fabricated Products China

2.31

41.21
Xinyuan Real Estate Co., Ltd. XIN 0215 – Construction Services China

5.22

42.83
China Automotive Systems, Inc. CAAS 0415 – Auto & Truck Parts China

0.99

11.04
China Petroleum & Chemical Cor SNP 0609 – Oil & Gas Operations China

0.87

10.11
Concord Medical Services Hldg CCM 0806 – Healthcare Facilities China

3.06

12.45
China Telecom Corporation Limi CHA 0915 – Communications Services China

1.17

7.03
Xueda Education Group (ADR) XUE 0969 – Schools China

0.84

6.63
Changyou.Com Ltd (ADR) CYOU 1018 – Computer Services China

1.23

20.92
Nam Tai Electronics, Inc. NTE 1024 – Electronic Instruments & Controls China

1.11

21.58
Jinpan International Limited JST 1024 – Electronic Instruments & Controls China

1.7

13.36
Semiconductor Manufacturing In SMI 1033 – Semiconductors China

0.96

8.06
China Eastern Airlines Corp. L CEA 1106 – Airline China

1.05

12.11
China Southern Airlines Co Ltd ZNH 1106 – Airline China

1.7

13.19
Guangshen Railway Co. Ltd (ADR GSH 1112 – Railroads China

1.34

6.64
Axa SA (ADR) AXAHY 0709 – Insurance (Life) France

1.19

9.46
Volkswagen AG (ADR) VLKAY 0412 – Auto & Truck Manufacturers Germany

0.94

9.73
Allianz SE (ADR) AZSEY 0715 – Insurance (Property & Casualty) Germany

0.92

11.08
E.ON SE (ADR) EONGY 1203 – Electric Utilities Germany

1.28

8.17
National Bank of Greece (ADR) NBG 0727 – Regional Banks Greece

2

131.03
Capital Product Partners L.P. CPLP 1118 – Water Transportation Greece

0.83

10.36
Safe Bulkers, Inc. SB 1118 – Water Transportation Greece

0.83

11.99
StealthGas Inc. GASS 1118 – Water Transportation Greece

1.32

9.08
Navios Maritime Holdings Inc. NM 1118 – Water Transportation Greece

1.32

13.4
Sun Hung Kai Properties Limite SUHJY 0215 – Construction Services Hong Kong

1.44

15.22
Hysan Development Company Limi HYSNY 0215 – Construction Services Hong Kong

1.66

20.18
Tai Cheung Holdings Ltd (ADR) TAICY 0215 – Construction Services Hong Kong

2.11

34.38
Le Gaga Holdings Ltd ADR GAGA 0509 – Crops Hong Kong

1.55

14.63
Bank of East Asia Ltd. (ADR), BKEAY 0727 – Regional Banks Hong Kong

0.85

8.78
Iao Kun Group Holding Co Ltd IKGH 0912 – Casinos & Gaming Hong Kong

1.36

12.89
Cheung Kong (Holdings) Limited CHEUY 0933 – Real Estate Operations Hong Kong

1.16

11.07
Seaspan Corporation SSW 1118 – Water Transportation Hong Kong

1.05

15.2
Magyar Telekom Tavkozlesi Nyrt MYTAY 0915 – Communications Services Hungary

1.34

6.66
XL Group plc XL 0715 – Insurance (Property & Casualty) Ireland

1.12

11.72
Fly Leasing Ltd(ADR) FLY 0939 – Rental & Leasing Ireland

1.3

17.39
Ellomay Capital Ltd. ELLO 1033 – Semiconductors Israel

0.93

10.95
FUJIFILM Holdings Corp. (ADR) FUJIY 0112 – Fabricated Plastic & Rubber Japan

1.55

6.64
Kobe Steel, Ltd. (ADR) KBSTY 0121 – Iron & Steel Japan

1.47

14.7
Mitsui & Co Ltd (ADR) MITSY 0218 – Misc. Capital Goods Japan

1.33

13.26
Wacoal Holdings Corporation (A WACLY 0403 – Apparel/Accessories Japan

1.45

7.14
Toyota Motor Corp (ADR) TM 0412 – Auto & Truck Manufacturers Japan

0.82

10.5
Honda Motor Co Ltd (ADR) HMC 0412 – Auto & Truck Manufacturers Japan

0.92

7.61
Nissan Motor Co., Ltd. (ADR) NSANY 0412 – Auto & Truck Manufacturers Japan

1.11

10.04
Nomura Holdings, Inc. (ADR) NMR 0718 – Investment Services Japan

1.09

10.18
Mizuho Financial Group Inc. (A MFG 0727 – Regional Banks Japan

1.13

14.9
Sumitomo Mitsui Financial Grp, SMFG 0727 – Regional Banks Japan

1.28

16.67
Mitsubishi UFJ Financial Group MTU 0727 – Regional Banks Japan

1.53

13.67
Nippon Telegraph & Telephone C NTT 0915 – Communications Services Japan

1.39

8.93
ORIX Corporation (ADR) IX 0939 – Rental & Leasing Japan

0.98

7.59
Ternium S.A. (ADR) TX 0121 – Iron & Steel Luxembourg

0.89

7.61
ING Groep NV (ADR) ING 0709 – Insurance (Life) Netherlands

1.14

9.46
VimpelCom Ltd (ADR) VIP 0915 – Communications Services Netherlands

0.93

13.67
ASM International NV (ADR) ASMI 1033 – Semiconductors Netherlands

1.01

74.95
Petroleum Geo-Services ASA (AD PGSVY 0612 – Oil Well Services & Equipment Norway

0.81

9.85
Banco Latinoamericano Comerc E BLX 0727 – Regional Banks Panama

0.85

8.39
Compania de Minas Buenaventura BVN 0118 – Gold & Silver Peru

1.18

10.05
OFG Bancorp OFG 0727 – Regional Banks Puerto Rico

0.93

11.04
Popular Inc BPOP 0727 – Regional Banks Puerto Rico

1.52

19.77
Triple-S Management Corp. GTS 0806 – Healthcare Facilities Puerto Rico

1.79

12.52
LUKOIL (ADR) LUKOY 0606 – Oil & Gas – Integrated Russian Federation

1.91

19.08
China Yuchai International Lim CYD 0218 – Misc. Capital Goods Singapore

1.2

15.34
Net 1 UEPS Technologies Inc UEPS 0703 – Consumer Financial Services South Africa

0.91

6.79
POSCO (ADR) PKX 0121 – Iron & Steel South Korea

1.72

6.97
Shinhan Financial Group Co., L SHG 0727 – Regional Banks South Korea

1.24

8.42
Woori Finance Holdings Co., Lt WF 0727 – Regional Banks South Korea

1.91

9.86
SK Telecom Co., Ltd. (ADR) SKM 0915 – Communications Services South Korea

0.89

11.87
Repsol SA (ADR) REPYY 0606 – Oil & Gas – Integrated Spain

1.06

7.93
Transocean LTD RIG 0612 – Oil Well Services & Equipment Switzerland

1.14

9.54
ACE Limited ACE 0715 – Insurance (Property & Casualty) Switzerland

0.84

10.92
Allied World Assurance Co Hold AWH 0715 – Insurance (Property & Casualty) Switzerland

1

11.73
United Microelectronics Corp ( UMC 1033 – Semiconductors Taiwan

1.3

8.02
Silicon Motion Technology Corp SIMO 1033 – Semiconductors Taiwan

1.96

19.74
BP plc (ADR) BP 0606 – Oil & Gas – Integrated United Kingdom

0.85

15.1
Noble Corporation PLC NE 0612 – Oil Well Services & Equipment United Kingdom

1.08

10.05
Subsea 7 SA (ADR) SUBCY 0612 – Oil Well Services & Equipment United Kingdom

1.09

7.02
ENSCO PLC ESV 0612 – Oil Well Services & Equipment United Kingdom

1.11

12.2
Rowan Companies PLC RDC 0612 – Oil Well Services & Equipment United Kingdom

1.3

6.71
HSBC Holdings plc (ADR) HSBC 0727 – Regional Banks United Kingdom

0.94

8.09
Vodafone Group Plc (ADR) VOD 0915 – Communications Services United Kingdom

1.47

31.68
J Sainsbury plc (ADR) JSAIY 0957 – Retail (Grocery) United Kingdom

0.96

10.57
Global Ship Lease, Inc. GSL 1118 – Water Transportation United Kingdom

2.11

16.62
Cliffs Natural Resources Inc CLF 0124 – Metal Mining United States

1.87

12.76
M.D.C. Holdings, Inc. MDC 0215 – Construction Services United States

0.91

23.28
M/I Homes Inc MHO 0215 – Construction Services United States

0.92

27.21
URS Corp URS 0215 – Construction Services United States

1.16

7.02
Mestek, Inc. MCCK 0218 – Misc. Capital Goods United States

0.98

11.53
General Motors Company GM 0412 – Auto & Truck Manufacturers United States

0.83

7.98
Rocky Brands Inc RCKY 0418 – Footwear United States

1.21

6.82
Johnson Outdoors Inc. JOUT 0430 – Recreational Products United States

0.87

7.83
LeapFrog Enterprises, Inc. LF 0430 – Recreational Products United States

0.89

17.58
Yasheng Group HERB 0509 – Crops United States

11.77

70.4
Seaboard Corporation SEB 0515 – Food Processing United States

0.82

6.77
John B. Sanfilippo & Son, Inc. JBSS 0515 – Food Processing United States

0.84

8.55
Omega Protein Corporation OME 0515 – Food Processing United States

1.01

12.24
Ennis, Inc. EBF 0518 – Office Supplies United States

0.92

8.43
ACCO Brands Corporation ACCO 0518 – Office Supplies United States

1.01

11.07
Universal Corp UVV 0524 – Tobacco United States

0.93

10.8
Hess Corp. HES 0609 – Oil & Gas Operations United States

0.86

12.86
Approach Resources Inc. AREX 0609 – Oil & Gas Operations United States

0.93

9.48
Equal Energy Ltd. (USA) EQU 0609 – Oil & Gas Operations United States

0.96

9.38
Sandridge Mississippian Trust SDT 0609 – Oil & Gas Operations United States

1.49

63.59
PHI Inc. PHII 0612 – Oil Well Services & Equipment United States

0.85

8.96
Medallion Financial Corp TAXI 0703 – Consumer Financial Services United States

0.94

9.13
CIT Group Inc. CIT 0703 – Consumer Financial Services United States

0.96

7.26
Goldman Sachs Group Inc GS 0703 – Consumer Financial Services United States

0.97

10.16
Ellington Financial LLC EFC 0703 – Consumer Financial Services United States

1.04

13.7
Walter Investment Management C WAC 0703 – Consumer Financial Services United States

1.11

23.94
Chimera Investment Corporation CIM 0703 – Consumer Financial Services United States

1.12

11.58
PHH Corporation PHH 0703 – Consumer Financial Services United States

1.19

9.68
EZCORP Inc EZPW 0703 – Consumer Financial Services United States

1.58

7.55
WellPoint Inc WLP 0706 – Insurance (Accident & Health) United States

0.89

9.52
Employers Holdings, Inc. EIG 0706 – Insurance (Accident & Health) United States

0.93

10.46
Reinsurance Group of America I RGA 0706 – Insurance (Accident & Health) United States

1.08

7.49
American Equity Investment Lif AEL 0709 – Insurance (Life) United States

0.86

16.77
Protective Life Corp. PL 0709 – Insurance (Life) United States

0.92

9.76
FBL Financial Group FFG 0709 – Insurance (Life) United States

0.96

9.73
Unum Group UNM 0709 – Insurance (Life) United States

0.98

9.55
Assurant, Inc. AIZ 0709 – Insurance (Life) United States

1

9.67
Lincoln National Corporation LNC 0709 – Insurance (Life) United States

1.07

9.76
Symetra Financial Corporation SYA 0709 – Insurance (Life) United States

1.23

8.64
CNO Financial Group Inc CNO 0709 – Insurance (Life) United States

1.29

12.39
Imperial Holdings, Inc. IFT 0709 – Insurance (Life) United States

1.38

37.03
National Western Life Insuranc NWLI 0709 – Insurance (Life) United States

1.63

10.85
Genworth Financial Inc GNW 0709 – Insurance (Life) United States

1.72

6.87
Fortegra Financial Corp FRF 0712 – Insurance (Miscellaneous) United States

1.28

8.18
Allstate Corporation, The ALL 0715 – Insurance (Property & Casualty) United States

0.82

8.75
HCC Insurance Holdings, Inc. HCC 0715 – Insurance (Property & Casualty) United States

0.82

8.92
State Auto Financial Corp STFC 0715 – Insurance (Property & Casualty) United States

0.83

6.92
Stewart Information Services C STC 0715 – Insurance (Property & Casualty) United States

0.83

7.96
Safety Insurance Group, Inc. SAFT 0715 – Insurance (Property & Casualty) United States

0.84

7.39
Investors Title Company ITIC 0715 – Insurance (Property & Casualty) United States

0.86

9.85
First American Financial Corp FAF 0715 – Insurance (Property & Casualty) United States

0.87

6.75
American Financial Group Inc AFG 0715 – Insurance (Property & Casualty) United States

0.87

9.15
ProAssurance Corporation PRA 0715 – Insurance (Property & Casualty) United States

0.87

10.86
Old Republic International Cor ORI 0715 – Insurance (Property & Casualty) United States

0.88

10.53
Selective Insurance Group SIGI 0715 – Insurance (Property & Casualty) United States

0.9

8.51
Horace Mann Educators Corporat HMN 0715 – Insurance (Property & Casualty) United States

0.91

9.6
Kemper Corp KMPR 0715 – Insurance (Property & Casualty) United States

0.95

9.64
Baldwin & Lyons Inc BWINB 0715 – Insurance (Property & Casualty) United States

0.98

9.42
Hanover Insurance Group, Inc., THG 0715 – Insurance (Property & Casualty) United States

0.99

9.44
Alleghany Corporation Y 0715 – Insurance (Property & Casualty) United States

1.01

9.15
EMC Insurance Group Inc. EMCI 0715 – Insurance (Property & Casualty) United States

1.02

9.88
United Fire Group, Inc. UFCS 0715 – Insurance (Property & Casualty) United States

1.05

10.3
Navigators Group, Inc, The NAVG 0715 – Insurance (Property & Casualty) United States

1.09

7.68
Cna Financial Corp CNA 0715 – Insurance (Property & Casualty) United States

1.1

8.15
American International Group I AIG 0715 – Insurance (Property & Casualty) United States

1.34

12
American National Insurance Co ANAT 0715 – Insurance (Property & Casualty) United States

1.4

8.99
MBIA Inc. MBI 0715 – Insurance (Property & Casualty) United States

1.45

10.86
FBR & Co FBRC 0718 – Investment Services United States

1.03

29.21
KKR Financial Holdings LLC KFN 0718 – Investment Services United States

1.05

11.24
NASDAQ OMX Group, Inc. NDAQ 0718 – Investment Services United States

1.13

6.66
Piper Jaffray Companies PJC 0718 – Investment Services United States

1.17

7.42
Primus Guaranty, Ltd. PRSG 0718 – Investment Services United States

1.25

50.12
Arlington Asset Investment Cor AI 0718 – Investment Services United States

1.28

11.6
Oppenheimer Holdings Inc. (USA OPY 0718 – Investment Services United States

1.34

6.71
CIFC Corp CIFC 0718 – Investment Services United States

1.73

9.51
JPMorgan Chase & Co. JPM 0724 – Money Center Banks United States

0.98

7.39
First National Bank Alaska FBAK 0727 – Regional Banks United States

0.81

6.61
Old National Bancorp ONB 0727 – Regional Banks United States

0.81

7
Sandy Spring Bancorp Inc. SASR 0727 – Regional Banks United States

0.81

7.28
TowneBank TOWN 0727 – Regional Banks United States

0.81

7.52
Fidelity Southern Corporation LION 0727 – Regional Banks United States

0.81

10.35
Central Pacific Financial Corp CPF 0727 – Regional Banks United States

0.81

21.18
Cascade Bancorp CACB 0727 – Regional Banks United States

0.81

22.18
LCNB Corp. LCNB 0727 – Regional Banks United States

0.82

6.69
S & T Bancorp Inc STBA 0727 – Regional Banks United States

0.83

7.38
Great Southern Bancorp, Inc. GSBC 0727 – Regional Banks United States

0.83

8.55
ESB Financial Corporation ESBF 0727 – Regional Banks United States

0.84

6.88
WesBanco, Inc. WSBC 0727 – Regional Banks United States

0.84

7.15
Trustmark Corp TRMK 0727 – Regional Banks United States

0.84

7.28
KeyCorp KEY 0727 – Regional Banks United States

0.84

7.3
MidWestOne Financial Group, In MOFG 0727 – Regional Banks United States

0.84

8.77
Bar Harbor Bankshares BHB 0727 – Regional Banks United States

0.84

9.1
Seacoast Banking Corporation o SBCF 0727 – Regional Banks United States

0.84

21.31
First Bancorp Inc FNLC 0727 – Regional Banks United States

0.85

7.39
Mercantile Bank Corp. MBWM 0727 – Regional Banks United States

0.85

9.45
Heritage Financial Group Inc HBOS 0727 – Regional Banks United States

0.86

7.23
MainSource Financial Group Inc MSFG 0727 – Regional Banks United States

0.86

7.33
Norwood Financial Corporation NWFL 0727 – Regional Banks United States

0.86

7.9
Fulton Financial Corp FULT 0727 – Regional Banks United States

0.87

6.82
Pulaski Financial Corp PULB 0727 – Regional Banks United States

0.88

6.85
Washington Federal Inc. WAFD 0727 – Regional Banks United States

0.88

6.87
International Bancshares Corp IBOC 0727 – Regional Banks United States

0.89

7.93
Lakeland Bancorp, Inc. LBAI 0727 – Regional Banks United States

0.9

6.84
Northrim BanCorp, Inc. NRIM 0727 – Regional Banks United States

0.9

7.67
BCB Bancorp, Inc. BCBP 0727 – Regional Banks United States

0.9

7.91
ACNB Corporation ACNB 0727 – Regional Banks United States

0.9

8.14
Intermountain Community Bancor IMCB 0727 – Regional Banks United States

0.9

9.74
First Financial Corp THFF 0727 – Regional Banks United States

0.91

7.44
Farmers & Merchants Bancorp In FMAO 0727 – Regional Banks United States

0.91

7.8
Southeastern Bank Financial Co SBFC 0727 – Regional Banks United States

0.91

11.29
Isabella Bank Corp ISBA 0727 – Regional Banks United States

0.92

6.95
First Merchants Corporation FRME 0727 – Regional Banks United States

0.93

6.76
Wintrust Financial Corp WTFC 0727 – Regional Banks United States

0.93

7.12
First Citizens BancShares Inc. FCNCA 0727 – Regional Banks United States

0.94

7.57
Firstbank Corporation FBMI 0727 – Regional Banks United States

0.94

8.03
Century Bancorp, Inc. CNBKA 0727 – Regional Banks United States

0.95

10.72
Central Valley Community Banco CVCY 0727 – Regional Banks United States

0.96

6.62
PNC Financial Services Group I PNC 0727 – Regional Banks United States

0.96

8.94
American National BankShares I AMNB 0727 – Regional Banks United States

0.96

9.01
Capital One Financial Corp. COF 0727 – Regional Banks United States

0.97

9.95
Provident Financial Services, PFS 0727 – Regional Banks United States

0.99

6.92
NASB Financial, Inc. NASB 0727 – Regional Banks United States

0.99

11
Flagstar Bancorp Inc FBC 0727 – Regional Banks United States

1.01

21.87
First Defiance Financial FDEF 0727 – Regional Banks United States

1.02

8.35
MidSouth Bancorp, Inc. MSL 0727 – Regional Banks United States

1.03

6.96
C&F Financial Corp CFFI 0727 – Regional Banks United States

1.04

13.4
First Community Bancshares Inc FCBC 0727 – Regional Banks United States

1.05

7.25
Provident Financial Holdings, PROV 0727 – Regional Banks United States

1.05

8.78
Chemung Financial Corp. CHMG 0727 – Regional Banks United States

1.06

6.7
Territorial Bancorp Inc TBNK 0727 – Regional Banks United States

1.08

7.23
Berkshire Hills Bancorp, Inc. BHLB 0727 – Regional Banks United States

1.09

6.61
Regions Financial Corporation RF 0727 – Regional Banks United States

1.09

7.73
Old Second Bancorp Inc. OSBC 0727 – Regional Banks United States

1.1

113.32
Farmers Capital Bank Corp FFKT 0727 – Regional Banks United States

1.14

7.7
Premier Financial Bancorp, Inc PFBI 0727 – Regional Banks United States

1.18

10.46
FIRST FINANCIAL NORTHWEST, INC FFNW 0727 – Regional Banks United States

1.18

14.46
Intervest Bancshares Corp IBCA 0727 – Regional Banks United States

1.19

8.37
MBT Financial Corp. MBTF 0727 – Regional Banks United States

1.23

28.89
New Hampshire Thrift Bancshare NHTB 0727 – Regional Banks United States

1.26

7.66
MVB Financial Corp MVBF 0727 – Regional Banks United States

1.29

10.03
Citigroup Inc C 0727 – Regional Banks United States

1.3

8.73
Susquehanna Bancshares Inc SUSQ 0727 – Regional Banks United States

1.31

8.42
QCR Holdings, Inc. QCRH 0727 – Regional Banks United States

1.44

12.41
First Niagara Financial Group FNFG 0727 – Regional Banks United States

1.45

8.28
First Citizens Bancorporation, FCBN 0727 – Regional Banks United States

1.5

9.95
Farmers & Merchants Bank (Long FMBL 0909 – Business Services United States

0.98

8.05
Kelly Services, Inc. KELYA 0909 – Business Services United States

1.02

7.21
Lakes Entertainment, Inc. LACO 0912 – Casinos & Gaming United States

1.01

14.29
Black Box Corporation BBOX 0915 – Communications Services United States

1.38

7.36
Iridium Communications Inc. IRDM 0915 – Communications Services United States

1.72

10.16
Courier Corporation CRRC 0927 – Printing & Publishing United States

0.86

6.72
CSS Industries Inc CSS 0927 – Printing & Publishing United States

1.08

7.53
Blackstone Mortgage Trust Inc BXMT 0933 – Real Estate Operations United States

0.87

145.18
New York Mortgage Trust Inc NYMT 0933 – Real Estate Operations United States

0.88

14.44
PennyMac Mortgage Investment T PMT 0933 – Real Estate Operations United States

0.89

13.15
Starwood Property Trust, Inc. STWD 0933 – Real Estate Operations United States

0.94

7.84
Capstead Mortgage Corporation CMO 0933 – Real Estate Operations United States

0.99

7.31
Dynex Capital Inc DX 0933 – Real Estate Operations United States

1.02

12.82
Two Harbors Investment Corp TWO 0933 – Real Estate Operations United States

1.04

16.24
American Capital Agency Corp. AGNC 0933 – Real Estate Operations United States

1.05

14.81
Apollo Commercial Real Est. Fi ARI 0933 – Real Estate Operations United States

1.09

7.4
MFA Financial, Inc. MFA 0933 – Real Estate Operations United States

1.09

9.89
Anworth Mortgage Asset Corpora ANH 0933 – Real Estate Operations United States

1.1

9.07
Resource Capital Corp. RSO 0933 – Real Estate Operations United States

1.16

9.91
Rent-A-Center Inc RCII 0939 – Rental & Leasing United States

0.97

8.84
Willis Lease Finance Corporati WLFC 0939 – Rental & Leasing United States

1.31

9.51
Biglari Holdings Inc BH 0942 – Restaurants United States

0.83

23.81
Rick’s Cabaret Int’l, Inc RICK 0942 – Restaurants United States

0.92

8.66
PCM Inc PCMI 0948 – Retail (Catalog & Mail Order) United States

1.09

7.11
Trans World Entertainment Corp TWMC 0963 – Retail (Specialty Non-Apparel) United States

1.68

7.37
TravelCenters of America LLC TA 0963 – Retail (Specialty Non-Apparel) United States

1.76

7.55
Tech Data Corp TECD 0966 – Retail (Technology) United States

0.87

7.43
hhgregg, Inc. HGG 0966 – Retail (Technology) United States

1.32

6.67
Ingram Micro Inc. IM 1015 – Computer Peripherals United States

0.84

6.68
Key Tronic Corporation KTCC 1015 – Computer Peripherals United States

0.93

9.42
Xerox Corp XRX 1018 – Computer Services United States

0.89

8.31
VOXX International Corp VOXX 1024 – Electronic Instruments & Controls United States

1.57

10.96
OmniVision Technologies, Inc. OVTI 1033 – Semiconductors United States

0.91

8.46
Benchmark Electronics, Inc. BHE 1033 – Semiconductors United States

1

9
JetBlue Airways Corporation JBLU 1106 – Airline United States

0.85

6.84
Republic Airways Holdings Inc. RJET 1106 – Airline United States

1.42

12.1
SkyWest, Inc. SKYW 1106 – Airline United States

2.19

8.93
Atlas Air Worldwide Holdings, AAWW 1109 – Misc. Transportation United States

1.49

10.44
International Shipholding Corp ISH 1118 – Water Transportation United States

1.67

7.41
Gas Natural Inc EGAS 1206 – Natural Gas Utilities United States

0.89

6.75

What are my surprises here?

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

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

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

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

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Stocks & Industries

  • Invest In Stubs, Spin-Offs And Liquidations For Alternative Returns?http://t.co/ccezep0K9Y?Cites a Gabelli article http://t.co/xTrqEfmQeq $$?Apr 19, 2014
  • Real Estate Management Better Than Owning Real Estate??http://t.co/IFaDLiwTRa?Sometimes yes, sometimes no. Definitely adds more leverage $$?Apr 19, 2014
  • Wells Fargo Securities Lending Lawsuit Ends in Settlement?http://t.co/w3lSY4Cw8D?Low margin business that can go badly wrong in a crisis $$?Apr 19, 2014
  • Makani, a $GOOG subsidiary makes an airborne wind turbine that dramaticlly increases power generation efficiency?http://t.co/0Fug49o7gC?$$?Apr 18, 2014
  • Google to Buy Titan Aerospace as Web Giants Battle for Air Superiority?http://t.co/HjJ8wKtnjM?Makes me think $GOOG has 2much $$ 2spend?Apr 18, 2014
  • Profit Tastes Like Chicken in Hunt for Cheaper US Meat?http://t.co/drgQbwEiKR?With recent rise in beef & pork prices people substitute $$?Apr 18, 2014
  • Roads Versus Rail:The Big Battle Over Public Transportation?http://t.co/ydBxEglexC?Makes case that American will own fewer cars in future $$?Apr 18, 2014
  • Barclays Ups $LNC To Buy, Says $MET , $PRU Are Undervalued – Stocks To Watch?http://t.co/c7yNaVZqdp?Stock Market sensitive insurance cos $$?Apr 18, 2014
  • Bidding War Looming for Aspen? Analysts Say Don?t Count On It?http://t.co/iMotqyAgHv?Offer 4 $AHL looks pretty full 2me, dont look4more $$?Apr 18, 2014
  • Biggest LBO Demise Poised to Put Oncor in Play?http://t.co/d30djwOa5M?Buffett is unlikely 2 enter into bidding in a competitive sale $$?Apr 18, 2014
  • Target of Naked Short Sellers Is Angry, Confused?http://t.co/I3ZZDn5JNp?@matt_lavine takes on imaginary naked shorting in $LPHI $$?Apr 18, 2014
  • Radioactive Waste Is North Dakota’s New Shale Problem?http://t.co/BiMkO0ZdgK?Significant amounts of low level radiation from radium $$?Apr 18, 2014
  • The death of mortgage lending?http://t.co/u8uQBvZCuS?Loan yields must rise in order to compensate for higher required capital at banks $$?Apr 19, 2014
  • Kochs? Flood Insurance Opposition Becomes Campaign Issue?http://t.co/b1iuvoVhZK?1 of the few businesses the Kochs’ aren’t in is insurance $$?Apr 18, 2014
  • Office Markets Strengthen Where Tech, Energy Jobs Are?http://t.co/sESuHUeAVr?Helps explain the spottiness of commercial RE prices $$ $CMBS?Apr 18, 2014
  • Labor Shortage Threatens to Bust the Shale Boom?http://t.co/R1TctaTelD?Can’t find a job? Consider learning to weld; monotonous but pays $$?Apr 18, 2014
  • Koch Brothers Net Worth Tops $100B as TV Warfare Escalates?http://t.co/XgH0M6CNIR?Almost as wealthy as extended Walton family $$ $WMT $SPY?Apr 18, 2014
  • Big Banks Ramp Up Business Lending?http://t.co/83dMAPIQia?Signs of life spotted in big corporations, but r they just buying back stock? $$?Apr 18, 2014
  • How Can Yahoo Be Worth Less Than Zero??http://t.co/sr3owwkyNE?@matt_levine argues a breakup of $YHOO makes sense even if core biz loses $$?Apr 18, 2014
  • Wal-Mart Undercuts Rivals With New U.S. Money Transfer Service?http://t.co/a4vq0HYALi?Useful if u need 2 transfer $$ inside the US $WMT $SPY?Apr 18, 2014
  • How Chick-fil-A Spent $50M to Change Its Grilled Chicken?http://t.co/Q9kpXoSIbF?The marinade matters, but the grill design was the key $$?Apr 15, 2014
  • Small US Colleges Battle Death Spiral as Enrollment Drops?http://t.co/nHRhO4Gc1R?Too much capacity & affordability is a problem $$ $APOL?Apr 14, 2014

Outside the US

  • China GDP Gauge Seen Showing Deeper Slowdown?http://t.co/ntIxxdXcpO?If China increases consumption GDP growth will fall faster still $$ $FXI?Apr 18, 2014
  • Housing Trouble Grows in China?http://t.co/Z4tKUuqLFd?Overbuilding by Real-Estate Developers Leaves Smaller Cities W/Glut of Apartments $$?Apr 18, 2014
  • Suddenly, Europe Is Taking a Harder Line on Russia Sanctions?http://t.co/MnzxvMP3pe?Nations can solidify when they face a common threat $$?Apr 18, 2014
  • Las Bambas Copper Mine Purchase Shows China’s Still in the Hunt for Commodities?http://t.co/h1cqGERGCu?China may not b changing much $$?Apr 18, 2014
  • Forgetting How to Speak Russian?http://t.co/D0UwT6unki?Among former Soviet republics knowing Russian is less important for business $$?Apr 18, 2014
  • The Middle East War on Christians?http://t.co/BW1NwCAXuH?Israeli Ambassador 2 UN argues Israel is tolerant of Christians, not like some $$?Apr 18, 2014
  • Britons Struggle to Save for Home Down Payments as Prices Surge?http://t.co/M6vH0vDlDs?Space is constrained in London & foreigners buy $$?Apr 18, 2014
  • US Said to Warn Money Managers of More Russia Sanctions?http://t.co/rB8AUQTsnc?Putin knows Iran survived worse sanctions; Russia tougher $$?Apr 18, 2014
  • China Sentences Four Activists on Disturbing Public Order Charge?http://t.co/Tx95rrhWsb?Mostly, US has rule of law, China has rule by law $$?Apr 18, 2014
  • US govt isn’t perfect, but in principle the govt is subject to the Constitution & laws, & not merely able 2 use law 2 enforce its will $$?Apr 18, 2014
  • Frontier Fund Buyers Find It Pays To Look Under The Hood?http://t.co/JQ6khwYllJ?2much $$ is being thrown @ frontier mkts; crowded trade $FM?Apr 18, 2014
  • Why iShares? ?FM? Is About To Get Better?http://t.co/4FiqlfW0YS?Diversifies out of Middle East, but frontier market vals r stretched $$ $FM?Apr 18, 2014
  • Putin’s 21-Year Quest to Be Russian Guardian Began in Estonia?http://t.co/5oelLBHCmN?Father was betrayed by Estonians in WWI, almost died $$?Apr 15, 2014

Market Dynamics & Fundamentals

  • Bridgewater Founder Says 85 Percent Of Pensions will Go Bankrupt?http://t.co/YknEmyGgfJ?9% pension returns required, 4% is most likely $$?Apr 19, 2014
  • The Fitch Fundamentals Index Dashboard?http://t.co/OzI6KWUFfs?Interesting little utility 4 understanding where we are in the credit cycle $$?Apr 19, 2014
  • Rich Start-Ups Go Back for Another Helping?http://t.co/ZbFbpLVgmM?When capital is plentiful, bad decisions get made. expected returns low $$?Apr 18, 2014
  • Stumbling S&P 500 Reaches Worst Stretch of Election Cycle?http://t.co/zgJTynu2od?Interesting timing, wonder whether past is prologue? $$?Apr 18, 2014
  • How a 56-Year-Old Engineer?s $45K Loss Spurred SEC Probe?http://t.co/3HfdH2aqxK?Always read the risk factors in the prospectus or 10K $$?Apr 18, 2014
  • High-Speed Traders Said to Be Subpoenaed in NY Probe?http://t.co/2qxmrxeVd7?What level of technology is legitimate 2 gain an advantage? $$?Apr 18, 2014
  • Nuggets of Corporate Governance Wisdom From Charlie Munger?http://t.co/gMFIE9jlRM?Also c this paper: http://t.co/033v0bgdYr $$ $BRK.B $SPY?Apr 18, 2014
  • Global stock rally: World market cap reached record high in March, &is $2.4T above pre-recession, pre-crisis level?http://t.co/iMq0IoBhch?$$?Apr 18, 2014
  • Speed?the only HFT advantage? Not so fast?Flash?Boyshttp://www.cnbc.com/id/101586488?Algorithms may also be an advantage w/price patterns $$?Apr 18, 2014
  • Investor Alert – Exchange-Traded Notes?Avoid Unpleasant Surprises?http://t.co/NqhUr2whsJ?A helpful reminder 2b wary of exotic ETNs $$ $SPY?Apr 18, 2014
  • Americans Sold on Real Estate as Best Long-Term Investment?http://t.co/La4UROU0ie?Helps explain y retail investors lose on average $$ $GLD?Apr 18, 2014
  • Destroying Smart Beta 2: Ground Rules?http://t.co/uecYqZLCEe?Smart beta is a trendy but vapid concept, factors should be part of alpha $$?Apr 18, 2014
  • Gross Loses to Goldman in Hot Bond Strategy as Pimco Lags?http://t.co/VWv7UC72bS?Series of bad bets makes Pimco a laggard as AUM flees $$?Apr 15, 2014
  • Trillion-Dollar Firms Dominating Bonds Prompting Probes?http://t.co/RXZNkNwtFs?Concentrated markets can lead to bond pricing distortions $$?Apr 15, 2014

US Politics & Policy

  • What’s the Matter With Illinois??http://t.co/wmDiyWDN1e?They r the exemplary state for shortsightedness & corruption $$?Apr 19, 2014
  • Heartbleed Hackers Steal Encryption Keys in Threat Test?http://t.co/dYfezfXe8A?>6 people were able to extract private key of a website $$?Apr 19, 2014
  • Elijah Cummings, W/IRS, Targeted Tea Party Group True The Vote?http://t.co/TE5A1zTM0y?I live in his gerrymandered district; kick him out $$?Apr 18, 2014
  • Yellen Lays Groundwork for Rules on Short-Term Credit Markets?http://t.co/z03MWlpsqI?Fed doesn’t regulate the banks well, y try 4 more? $$?Apr 18, 2014
  • Schooling on a ‘Debit Card’?http://t.co/wwixbB0pqy?Arizona created a program so that special needs kids can get specialized schooling $$?Apr 18, 2014
  • IRS Among Agencies Using License Plate-Tracking Vendor?http://t.co/HTs5aEMNtK?Howard County Police use it & catch people 4 old crimes $$?Apr 18, 2014
  • Wealth Effect Failing to Move Wealthy to Spend?http://t.co/R3vfD5i94J?Wealth effect, if it exists, is small, FOMC is pursuing illusions $$?Apr 18, 2014
  • NSA Said 2 Exploit Heartbleed Bug for Intelligence for Years?http://t.co/9XvcLX9ZTE?NSA quietly knows security vulnerabilities; uses them $$?Apr 15, 2014
  • The Wall Street second-chances rule: scandal makes the rich grow stronger?http://t.co/8HhscWJjMN?What does not kill us makes us stronger? $$?Apr 14, 2014

Practical

  • How well do you know your insurance policy??http://t.co/szp3G8H4kN?Know what is covered & what isn’t, how much is covered & options $$?Apr 19, 2014
  • Attention Shoppers: Fruit and Vegetable Prices Are Rising?http://t.co/MMdPOLry9A?As are meat prices & most food prices $$ #agflation?Apr 18, 2014
  • How to start investing?http://t.co/yGyziE8Tac?Good advice from a credible source $$?Apr 18, 2014

Other

  • El Nino Signs Detected, Presaging Global Weather Change?http://t.co/D1uDLS9aJ0?El Nino exists 2 give us something 2 blame when frustrated $$?Apr 18, 2014
  • More People Pick Elimination Diets to Discover Food Sensitivities?http://t.co/ftQkzs3PxP?Fad and Science of Not Eating Entire Food Groups $$?Apr 18, 2014
  • SAT Adopts Real-World Questions and Jettisons Obscure Words?http://t.co/Mspw9EG3OV?In 2016, changes from intelligence to achievement test $$?Apr 18, 2014
  • Scientists Make First Embryo Clones From Adults?http://t.co/e5qlwyiWwj?Cloned cells 2create early-stage embryos, matching DNA tissue $$?Apr 18, 2014

Comments, Replies & Retweets

  • RT @howardlindzon: Funds still paying up (I say silly overpay) for private over public, this is spooking IPO ‘s for sure?http://t.co/mclSd9??Apr 15, 2014
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US Policy & Politics?

  • Nearly Half of Dodd-Frank Rules Still Unwritten?http://t.co/TwzSawT298?Experiment of regulation by study committees continues albeit slow $$?Apr 12, 2014
  • Banks Given Two Extra Years to Fully Comply With Volcker Rule http://t.co/XVfO9CKMm7?Banks prefer abolition; Fed offers a delay $$ #more??Apr 12, 2014
  • How Big Banks Created a Fed to Serve Their Own Interests?http://t.co/tUlNYE3px5?Fed almost always ends up being a shill 4 the banks $$ $XLF?Apr 12, 2014
  • Angry students snap photos of lunches, tell Michelle Obama: ‘You call this a [expletive] lunch?’?http://t.co/PY4gfa90oI?Food Nazis r mean $$?Apr 12, 2014
  • On equal pay for women, Obama challenges GOP to ‘join us in this the 21st century’ http://t.co/wthQJKwsOO?White House has own disparities $$?Apr 12, 2014
  • When the Messenger Is Worth Shooting?http://t.co/GGuAxpkizc?Fewer & fewer people think teaching financial literacy 2 avg ppl works $$ $SPY?Apr 12, 2014
  • Republicans should be friendly to markets, not to business?http://t.co/YXEWNr9MEh?Big business excellent at co-opt laws 4 their own good $$?Apr 12, 2014
  • Maybe a Gender Pay Gap Is OK?http://t.co/2rtYIZ6MFo?This argumentation isn’t new; economists have been making this argument since the 70s $$?Apr 12, 2014
  • The Best SEC Money Can Buy?http://t.co/wbwBB0CYd4?@ritholtz on Jim Kidney’s excellent retirement speech on the SEC which is worth reading $$?Apr 12, 2014
  • Food Price Shock, 2014 Edition?http://t.co/u79xlrwK1I?Note that the last time this happened, wars & other pains hit developing world $$?Apr 12, 2014

Market Impact

  • Hedge Fund Industry Growing With Pensions To Thank?http://t.co/RF2FTh3YsD?Probably a mistake as hedge funds tend not 2b good w/volatility $$?Apr 12, 2014
  • Hedge Funds Unwind As Growth To Value Rotation Intensifies?http://t.co/XoK1RFKiAg?As growth stocks correct, hedge funds chase performance $$?Apr 12, 2014
  • How Money Managers Fight Their Emotions and Sometimes Lose http://t.co/J0KH06m12P Too Bold? Not bold enough? Tough 2strike right balance $$?Apr 12, 2014
  • The Buys You Can?t Make Yourself?http://t.co/0swRNG0Eyo?@reformedbroker points out the value of @MebFaber ‘s global value ETF $GVAL $$?Apr 12, 2014
  • Humble Student of the Markets: A quant lesson from a technician http://t.co/svQilIRW4m Useful way to understand indicators & mkt regimes $$?Apr 12, 2014
  • 2014 crash will be worse than 1987’s: Marc Faber?http://t.co/Guil41sSvP?Bold w/respect to timing &severity of the next crisis, prob wrong $$?Apr 12, 2014
  • Do ‘rising rate’ ETFs really protect investors??http://t.co/tcx2p4qtuc?I would b wary here; additional yield often carries hidden risks $$?Apr 12, 2014

Rest of the World

  • Kuroda Seen Brewing Yen-Weakening Surprise Action?http://t.co/fVpFvwEiJz?Don’t b shocked if the BOJ does yet more to weaken the yen $FXY $$?Apr 12, 2014
  • This is the bank to watch for a Chinese credit implosion?http://t.co/sKL9NPruZz?Minsheng is an aggressive lender 2the most dodgy credits $$?Apr 12, 2014
  • China?s steelmakers have branched out into shadow banking?which is funny since they owe $484B?http://t.co/Z1IzHBJJ7G?Brief stmt of prob $$?Apr 12, 2014
  • China Pizza Passion Has Fonterra Riding Mozzarella Wave?http://t.co/J4605GnGK4?Pizza is so different than traditional Chinese food $$ $YUM?Apr 12, 2014
  • Ukraine?s Rust Belt Faces Ruin as Putin Threatens Imports?http://t.co/7BYk6ULy3t?Russia has more ec influence on Ukraine thn US on Russia $$?Apr 12, 2014
  • Saudi Banks Reject Algosaibi Meeting on $5.9B Default?http://t.co/6eZwowBlZW?Islamic finance struggles w/debt that isn’t debt but is debt $$?Apr 12, 2014
  • Lavender-Filled Teddy Bears From Tasmania Are a Big Hit in China http://t.co/ubhWoUSnQz?Bobbie Bear touches the hearts of Chinese ladies $$?Apr 12, 2014
  • Top economists warn Germany that EMU crisis as dangerous as ever http://t.co/gsqrbZ5ox0?Overall & banking leverage still higher than safe $$?Apr 12, 2014
  • Fracking’s hottest year in China?http://t.co/5xVoKK6K0d?China finds gas & tight oil in their shale formations. Who knew? $$ $FXI $XLE?Apr 12, 2014

Companies & Industries

  • Time Inc. to Raise $1.4B in Debt for Spinoff?http://t.co/8QUGvyKhrv?I would b careful here; levering up old media not a recipe 4 success $$?Apr 12, 2014
  • Vox Takes Melding of Journalism and Technology to a New Level http://t.co/YdMuuu0ZQC?Vox Media creates a content mgmt system 4 journalism $$?Apr 12, 2014
  • Trailer Parks Lure Wall Street Investors Looking for Double-Wide Returns http://t.co/zym4OmSDP5?Poor people have a hard time moving $$?Apr 12, 2014

Other

  • Stay-at-Home Moms Rise in Reversal of Modern Family Trend http://t.co/sCBErpTIhk?Children deserve attention to help them grow up $$ $SPY?Apr 12, 2014
  • More Moms Staying Home, Reversing Decadeslong Decline?http://t.co/w7bnhw8tQd?Value in efforts 2 produce better children w/more parenting $$?Apr 12, 2014
  • Font War: Inside the Design World’s $20M Divorce?http://t.co/4YpYf1x5UN?Not clearly spelling out a partnership agreement: font of trouble $$?Apr 12, 2014
  • Windows XP Goes Dark; Will Hackers Be Lurking??http://t.co/GPBJKpzdhf?XP has been debugged; odds of significant holes are low $$?Apr 12, 2014
  • After Heartbleed Bug, A Race to Plug Internet Hole?http://t.co/HCBfcHBl5O?A significant part of internet affecting privacy had a hole $$?Apr 12, 2014
  • Global solar dominance in sight as science trumps fossil fuels?http://t.co/BZOdAVwYbA?Can capture 31% of sun’s energy with a 111V Solar Cell?Apr 12, 2014
  • At Gross’s Pimco, El-Erian Says ‘Different Styles’ Stopped Working Well Together http://t.co/vRqPfRA67m?Oil & water eventually separated $$?Apr 12, 2014

Wrong

  • Unsafe: Greece Plans to Issue Long-Term Bond on Wednesday?http://t.co/X4gnld481q?Lust 4 yield guides the behavior of debt investors $$?Apr 12, 2014
  • Misleading: Oklahoma Swamped by Surge in Earthquakes Near Fracking http://t.co/nHfPIWys3q?All quakes r little which avoids big quakes $$?Apr 12, 2014
  • Wrong: Are Safer Cars Worth the Money??http://t.co/1N0Y9aklJb?Misapplies benefit-cost analysis; may b cheaper ways 2 save more lives $$ $F?Apr 12, 2014

Retweets, Replies & Comments

  • ‘ @foxjust Nice going; EEBS is breaktakingly honest with respect to earnings manipulation. cc: @jciesielski $$?Apr 12, 2014
  • RT @ReformedBroker: Reminder: The Fed?s own economic forecasts are basically worse than your dog?s.?http://t.co/uLYirMA5zB?Apr 09, 2014
Book Review: Treasure Islands

Book Review: Treasure Islands

Posted on by David Merkel

9780230341722

Tax havens exist to lower taxes and regulations on corporations and wealthy individuals. ?But doing this involves significant complicated legal and accounting work. ?The average person could not benefit because the fixed costs are high. ?You need to have a lot of assets to benefit from tax havens.

So why do the wealthy governments of the world tolerate tax havens? ?Why don’t they “use NATO to blockade these places, and tell them to end their tax-avoidance-facilitation policies, or else.” ?Sadly, the wealthy have disproportionate power over politicians, and the majority of politicians are wealthy. ?They like the system as it is. ?You can make the tax code as progressive as you like; you will not end up taxing the intelligent wealthy much more.

This book confronts transfer pricing, where profits get shifted to low-tax countries by clever accountants. ?Very difficult to police.

The is an amusing section in the middle of the book about the City of London Corporation, which has unique rights in the UK. ?It is the home of most financial activity n London, and is mostly unaccountable to the UK.

In general, I believe that taxation should be the same regardless of the structure of the entity being taxed, its location, etc. ?To that end, I think that corporations should be taxed on their global income as expressed to its owners. ?Or, don’t tax corporations, but make all taxation like limited partnerships, and tax the individuals that own them.

There are other possible solutions. ?There can be limits on corporate structure. ?Israel limits subsidiaries such that the depth from the holding company cannot exceed two. ?There could be consolidation and/or non-recognition of ?subsidiaries in tax havens.

Additional Resources

Longreads article

Book website?(those reading at Amazon, come to Aleph Blog to get links)

Quibbles

The book makes its last chapter about how tax havens helped cause the financial crisis, but it makes a very weak case. ?Individuals and Banks overlevered themselves as asset prices rose, creating a bubble — not much different than the 1920s. ?Tax havens played little role, even if they aided securitization in a few ways.

The book argues for capital controls, but those controls often create incentives for greater corruption.

My main problem with the book is that it does not offer any workable solutions to the problems. ?My secondary problem is that the problem is not so much with the tax havens, which we could easily marginalize, but with the politicians, who do not do the hard work of seeing that taxation takes place, regardless of the corporate form or location.

Who would benefit from this book:?You have to be willing to endure complex arguments to benefit from this book.? If you want to, you can buy it here:?Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens.

Full disclosure: I borrowed it at my library.

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.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Rest of the World

 

  • Malaysia Plane Traced in Inmarsat Engineer London Huddle?http://t.co/roKtJSY9WY?How they managed to figure out the area of the crash $$ $SPY?Mar 30, 2014
  • UK Pension Revolution Putting Long-Term Bonds at Risk?http://t.co/o8TNO4lgAn?Need 2 match liabs drives demand 4 long bonds, lowers yields $$?Mar 30, 2014
  • Putin Has Exposed NATO’s Weakness?http://t.co/xDs2X10AKg?US & NATO Europe willing to agree upon? What r they willing 2 risk? Be careful $$?Mar 30, 2014
  • China Said to Expand Property Survey Amid Oversupply Concern?http://t.co/m0VAkijXmi?Will b difficult 2 end overinvestment by fiat $$?Mar 30, 2014
  • Chinese Pigs Eating Soybeans Cut US Supply to 1965 Low?http://t.co/hLfrB2MXM1?Chinese demand 4 pork drives demand 4 US Soybeans $$?Mar 30, 2014
  • Lira Fate Tied to Real Assets as Hot Money Flees?http://t.co/GpdoGuymdO?In countries where inflation is a threat, invest in property $$?Mar 30, 2014
  • Business not ipso facto criminal: Tendency of presuming it guilty without proof is damaging India?s economy?http://t.co/HgpdxdNrbu?$$?Mar 30, 2014
  • Mr. Putin’s Revealing Speech?http://t.co/BTQ2IDbny5?Defender of Orthodox civilization as he sees it pushes back against encroahing NATO $$?Mar 30, 2014
  • Russian Forces on Border Stir Concern as Crimea Annexed?http://t.co/b7SLK8wTTH?Threats of more economic sanctions will not deter Putin $$?Mar 23, 2014
  • What the West Can Learn From Putin’s Other Neighbors?http://t.co/NB4aeGih9D?Don’t make promises that u won’t keep; Putin is not scared $$?Mar 22, 2014

 

Financial Sector

 

  • So what is today’s nonbank business model??http://t.co/awllKHMHK1?Legalized extortion done to ?protect consumers,? objective is political $$?Mar 30, 2014
  • Wall Street Banks Cut Out of Prized Commercial Mortgages?http://t.co/xImkJXAwC7?$MET $PRU originate commercial mortgages 2 fund own liabs $$?Mar 30, 2014
  • SEC Is Probing Dealings by Banks and Companies in Loan Securities?http://t.co/yseFiyZvFJ?Current CLO issuance drives loan issuance $$ $BKLN?Mar 30, 2014
  • Pimco Chases BlackRock in ETFs as Money Returns to Bonds?http://t.co/rL9Bm40rHm?Amazing how people follow anything w/positive momentum $$?Mar 30, 2014
  • And if banks start lending aggressively, it will b time to radically shrink asset maturities in bond portfolios, velocity will b rising $$?Mar 30, 2014
  • Banks Lending Like It?s 2007 Belied by $10T Hoard?http://t.co/Ef6yHiVNSu?But they aren’t lending heavy yet, if they do FOMC has 2tighten $$?Mar 30, 2014
  • Scandal-Hit British Banks Turn to ‘Weirdy Beardy’?http://t.co/XGv1Bt9af1?”Why do you exist?” “Who r u?” Pondering existence bugs bankers $$?Mar 30, 2014
  • Josh Rosner: The Wrong Remedy for Fannie and Freddie?http://t.co/ExIuZxRlyM?Better to wind them up & get Govt out of the Mtge mkts $$?Mar 30, 2014
  • Iowa?s Friendlier Watchdogs Lead Insurer Pack to Des Moines?http://t.co/UPug7MJA7I?Iowa DOI will regret embracing complexity, gtee funds2 $$?Mar 30, 2014

 

Market Impact

?

  • Which will win? $BRK.B or $IWM ? 3views:?http://t.co/P4rWOG283S?& http://t.co/c20Fbqh2b6 & http://t.co/QMIWqojPnB BRK will beat smallcaps $$?Mar 30, 2014
  • Americans Can?t Retire When Bill Gross Sees Repression?http://t.co/4hNi5jAH2U?Investments eventually reflect the underlying cash flows $$?Mar 30, 2014
  • Financial scars linger: 1/3 of investors wary of stocks?http://t.co/xbFcGeOykX?Have 2 wait 4 these people 2 come & put in the top $$ $SPY?Mar 30, 2014
  • 1999 Buffett: stocks can’t possibly meet public’s expectations. Internet? Notes how few got rich in auto &aviation?http://t.co/2FsC9vuvKe?$$?Mar 30, 2014
  • Declining Pension Benefits Leave Workers Uneasy?http://t.co/A5RmBueODe?Difficult 2 fund high benefits when interest rates r so low $$ $TLT?Mar 30, 2014
  • Google Traders See Opportunity in Confusion on New Shares?http://t.co/2bTfXy75ol?New nonvoting shares may allow 4 some arbitrage plays $$?Mar 30, 2014
  • Attention Suckers: Please Send Us Your Money?http://t.co/Mibp1EXWh3?@Ritholtz comments how the JOBS Act weakened investor protections $$?Mar 30, 2014

?

US Housing

 

  • High Prices Partly to Blame for Slow New Home Sales?http://t.co/rSHWH4Uzra?When markets near their peak, frequently volumes drop off $$ $LEN?Mar 30, 2014
  • Time might be ripe for boomers to sell their homes and move on?http://t.co/hzL9mMImDS?Sell them 2whom & @ what price? Lack move-up buyers $$?Mar 30, 2014
  • Finding a House That Won’t Destroy You?http://t.co/kJNQf3upos?Buy a house u can afford even under stressed conditions, reduce risk $$?Mar 30, 2014

 

US Politics, Policy & Economics

 

  • Florida?s Scott Travels on Corporate Tab as Lobbyists Tag Along?http://t.co/qhDVzIgXO1?Governors increasingly use corporate $$ 2fund trips?Mar 30, 2014
  • IRS Takes a Position on Bitcoin: It’s Property?http://t.co/aCbGKvWGRT?Thus any trading of bitcoins involves capital gains &losses $$ $BTCUSD?Mar 30, 2014
  • Google, EBay and the Roots of Collusion?http://t.co/Vc2SMUU5T5?Some don’t want to annoy companies that r complementary 2their biz goals $$?Mar 30, 2014
  • The Individual Mandate Goes Poof?http://t.co/PvjexmswaF?Barack Obama undoes what House GOP would like 2undo, just not permanently totally $$?Mar 30, 2014
  • Global Warming Will Not Cost the Earth, Leaked IPCC Report Admits?http://t.co/hziljg2Npp?Will b interesting 2c how gets spun by bothsides $$?Mar 30, 2014
  • Economists: Rising interest rates are the biggest threat to recovery?http://t.co/gPQ1c2ZHAQ?More evidence that rates will stay low $TLT $$?Mar 24, 2014
  • Kocherlakota: Don’t raise rates to head off possible crisis?http://t.co/yxAGSWGmGQ?There may come a time when you will have no choice $$?Mar 22, 2014

Other

 

  • Advice for a Happy Life by Charles Murray?http://t.co/7y51RDeGy3?Marry young & someone similar 2u, don’t try2get rich, Groundhog Day $$ $SPY?Mar 30, 2014
  • Why Runners Can’t Eat Whatever They Want?http://t.co/FLMOWE8sC1?Studies Show Heart Risks to Devil-May-Care Diets?No Matter How Much U Run $$?Mar 30, 2014
  • Speed Reading Returns?http://t.co/EwxEFe6Paz?Apps and Classes Help People Adapt 2Reading on Their Phones | More content 2 read everywhere $$?Mar 30, 2014
  • The book Scientology tried to ban?http://t.co/g4GeTda7bS?Read about the *real* L. Ron Hubbard, from a book Church of Scientology hates $$?Mar 30, 2014

?

Wrong

  • Wrong: Not Voting Should Not Be a Choice?http://t.co/UlBFwMe6fi?Seems fundamental that no one should b forced to vote; it’s a protest $$?Mar 30, 2014
  • Wrong: Japan Is Doomed Unless It Learns to Love Inflation?http://t.co/AFD8QA1d8Z?More “hair of the dog that bit you solutions” $$ $JPY $JOF?Mar 30, 2014
  • Wrong: Digital v human: the new debate?http://t.co/PiUgvNHm6x?We’ve seen transformational technologies b4, takes a while 4 new jobs 2show $$?Mar 30, 2014
  • Wrong: Fed?s Bullard: Yellen?s ?6 Months? Comment Doesn?t Represent Change in Policy Stance?http://t.co/v7gzHBobVw?Could have fooled me $$?Mar 22, 2014

?

Notes, Comments, Reples & Retweets

  • RT @ReformedBroker: In November 1999, Buffett wrote this op-ed for Fortune on why he doesn’t bet on innovation. @pmarca @hblodget http://t??Mar 27, 2014
  • RT @felixsalmon: “This means Bitcoins are not fungible, and that makes it unworkable as a currency.??http://t.co/JjFOO8Z2Xq?cc @pmarca @bar??Mar 27, 2014
  • RT @journalistjosh: Crowdfunding emptor: Attention Suckers: Please Send Us Your Money?http://t.co/gvxeT4SyOW?via @BloombergView?Mar 27, 2014
  • We enjoyed having @susanweiner speak to us at the #CFA Institute – Baltimore; we can all benefit from learning to write more engagingly $$?Mar 26, 2014
  • ‘ @PlanMaestro Yes, I remember that piece?http://t.co/YDhQTnNopk?and the series that followed it http://t.co/OC2PfnWc1z $$ Capital efficient?Mar 26, 2014

?

Classic: Know Your Debt Crises: This Too Shall Pass

Classic: Know Your Debt Crises: This Too Shall Pass

Posted on by David Merkel

The following was published at RealMoney on August 6th, 2007:

Editor?s Summary

The illiquid debt instruments at the heart of the current crisis are subject to regime shifts.

  • ?We?re in a periodic repricing of illiquid debt instruments.
  • Look for the time when the bulk of the losses will be reconciled.
  • Stick with the companies that have strong balance sheets.

I appreciated Cramer’s piece Friday morning, which picks up on many themes that I have articulated for the last four years here on RealMoney.? Here are a few:

  • Hedge fund-of-funds demand smooth returns that are higher than that which a moderate quality short-term fixed-income fund can deliver.
  • This leads to the creation of hedge funds that seek yield through arbitrage strategies.
  • And the creation of hedge funds that seek yield through buying risky debts, unlevered.
  • And the creation of hedge funds that seek yield through buying less risky debts, levered.
  • And the creation of hedge funds that seek yield through buying risky debts, levered.

In the short run, yield-seeking strategies work.? If a lot of players pursue them, they work extra-well for a time, as late entrants to the trade push up the returns for early entrants, with greater demand for scarce, illiquid securities with extra yield.? Pricing grids are a necessity for such securities, because the individual securities don’t have liquid secondary markets.? The pressure of demand raises the value not only of the securities being bought, but also of those securities that are like them.? (Smart managers begin to exit then.)

I’ve been through regime shifts in the markets for collateralized debt obligations (CDOs), asset-backed securities (ABS), residential-backed securities (RMBS) and commercial mortgage-backed securities (CMBS).? Something shifts at the back of the chain that forces everything to reprice.? For example:

1989-1994: After the real estate boom of the mid-1980s, many banks, savings & loans and insurance companies get loose in their lending standards and real estate investment, leading to a crisis when rent growth can?t keep up with financing terms; defaults ensue, killing off a great number of S&Ls, some major insurance companies and a passel of medium and small banks.

Late 1991-early 1993: The adjustable-rate mortgage market, fueled by demand from ARM funds, overbids for ARMs in an effort to provide a high floating rate yield.? As the FOMC loosens monetary policy, higher than expected prepayments force losses onto the ARM funds

Late 1993-late 1994: The FOMC threatens to, and does, start raising interest rates, which throws the residential mortgage-backed market into crisis.

Mid-1998-mid-1999: Long Term Capital Management blows up, forcing all manner of exotic ABS, CMBS and RMBS into the market for bids.? The bids back up, until the entire market reprices and then tightens in the space of one year.

1998-1999: Home equity ABS blow up, as defaults threaten to, and then do, emerge at levels far higher than anticipated.? Almost no originators survive.

1999-2001: Cruddy high-yield bonds reveal their true value as defaults threaten to, and then do, emerge.

2002-2003: The manufactured-housing ABS market blows up, as originators don?t take initial losses but roll borrowers over into new loans that reduce payments and extend payment terms, technically keeping the loans current.? The system collapses when the buildup of bad debts and repossessed homes becomes too great to roll over.

(Of the existing large securitization markets, only the CMBS market so far has not faced a real crisis, partly due to the influence of the B-piece buyers cartel: six or so firms that buy the junk-rated debt of deals and enforce credit quality standards on the individual loans by kicking out poorly underwritten loans.? But who knows?? Even that could be overwhelmed under the right circumstances.)

In each of these situations, there was a boom-bust cycle.? The markets did not adjust slowly and evenly to changing conditions; the transitions between ?boom? pricing, and ?bust? pricing were swift.? This is the nature of markets, particularly when enough debt is employed to amplify the process.

There is no conspiracy necessary to make the shift happen (though often the media will make it seem like there was one); the bubble pops when the financing proves insufficient to carry the assets.? After the bubble pops, it becomes a question of what the underlying assets can be liquidated for, allocating losses mercilessly according to the loan documents and bankruptcy priority.

Today the crises are nonprime lending, leveraged buyouts and other high-yield debt and over-leverage in the CDO market.? These will get worked out, as all other crises do, handing losses to those who speculated unwisely and allowing those who financed properly to prosper on the other side of the crisis.

As you invest, look for the time when more than half of the losses will be reconciled.? That will be near the bottom for homebuilders and housing finance.

That time may not come for another two years or so, but there will be money to be made once the crisis is mostly reconciled.? Just stick with the companies that have strong balance sheets.

Redacted Version of the March 2014 FOMC Statement

Redacted Version of the March 2014 FOMC Statement

Posted on by David Merkel
January 2014 March 2014 Comments
Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Weather is always a weak reason for a bad result.? You almost never see anyone claim good weather boosted results.
Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. No significant change.
Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. No significant change.
Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. No change.? Funny that they don?t call their tapering a ?restraint.?
Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable. No change.? TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.56%, up 0.02% from January.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. No change. Any time they mention the ?statutory mandate,? it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. Unemploys the concept of the Unemployment rate as the sole measure of labor conditions.? Maybe aggregate wages would be better.
The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. No significant change.
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term. No change.? CPI is at 1.1% now, yoy.
Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. Drops the language on fiscal retrenchment.? Continued overestimate of economy and labor conditions.
In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. Reduces the purchase rate by $5 billion each on Treasuries and MBS.? No big deal.

 
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. No change
The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate. No change.? But it has little impact on interest rates on the long end, which are rallying into a weakening global economy.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. No change. Useless paragraph.
If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. No change.? Says that purchases will likely continue to decline if the economy continues to improve.
However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. No change.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.

 

 No change.
The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.   Drops the contentious sentence locking themselves into a policy.
In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Monetary policy is like jazz; we make it up as we go.? Also note that progress can be expected progress ? presumably that means looking at the change in forward expectations for inflation, etc.
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. Makes its standards for raising Fed funds more arbitrary.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. No change.
  The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. New sentence.? Says loose policy will stay longer than needed.
  With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements. New sentence.? Says loose policy will stay longer than needed.? Also, disregard any change in policy that you might have seen here.? We still felt the need to change the statement, but really, nothing has changed.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.

 

 Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

 

 Bernanke is gone.? Good.? Yellen is Chair. Bad.
  Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity. This is perhaps the lamest vote against an FOMC decision that I have ever seen.? The differences between the fifth and sixth paragraphs are minuscule.

?

Comments

  • Small $10 B/month taper.? Equities, commodities, and long bonds both fall.? The FOMC says that any future change to policy is contingent on almost everything.
  • They have an optimistic view of the economy, especially on labor.? At least they are abandoning the unemployment rate as their measure of labor conditions.
  • They missed a real opportunity to simplify the statement.? More words obfuscate, they do not clarify.
  • Current proposed policy is an exercise in wishful thinking.? Monetary policy does not work in reducing unemployment, and I think we should end the charade.
  • In the past I have said, ?When [holding down longer-term rates on the highest-quality debt] doesn?t work, what will they do?? I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.? The Fed is playing with forces bigger than themselves, and it isn?t dawning on them yet.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
  • GDP growth is not improving much if at all, and much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.
Theme: Overlay by Kaira.