The period from November 2007 through January 2008 was challenging, but I did say a lot of good things.? Here’s a sample of the best:

Contemplating Life Without the Guarantors

Markets always beat governments, unless governments get so determined as to subvert markets.? Guarantors provide “thought insurance” so you don’t have to analyze the bond that they guarantee.? But what if the solvency of the guarantor is questioned?

The US Dollar and the Five Stages of Grieving

An important article that explains why currency interventions almost never work.? Required reading for Treasury Departments and Central Banks.

Why Did I Name This Site ?The Aleph Blog??

Cogent explanation for the odd name.? But I have gotten the question a few times as to whether I named my site after Jorge Luis Borges short story, “The Aleph.”? The answer is no, but after reading “The Aleph,” I would say that it folds into reason number four for why this is called The Aleph Blog.? Aleph is big.? Very, very big.

On the Value of Secondary and Primary Markets

They are valuable for different reasons, but they are related.

In Defense of the Ratings Agencies

The original piece, pointing out how the regulators have abandoned their responsibility, having outsourced it to the rating agencies.

Personal Finance, Part 6 ? The First Question

How much are you willing to learn, and how much work do you want to do? For people who ask my advice, that is usually the first question that I ask.

Booyah for Brainy Buybacks! (But not Brain-dead Buybacks.)

There is no simple answer to whether a buyback is the right strategy or not.? It depends on the price of the stock versus its value.

Options as an Asset Class

You can own/short options, but you can’t own/short volatility per se, at least not back in 2007.

Municipal Tensions

We are experiencing the front end of the woes now.? This won’t be over for 20 years.

How to Read the Whole Bible, and Survive the Experience

A simple way to read the whole of the Bible, and avoid getting bored, as so many do who try to read it straight through, and give up when 10-50% done.

In Defense of the Rating Agencies ? II

Anyone can criticize, but who can offer a system that is better than the present one on a comprehensive basis?

The Beauty of Broken Moats

Berky had an opportunity with almost all of the financial guarantors kicked to the curb.? It never worked out because Berky would not take modest risks.? In foresight today, those modest risks don’t seem so modest, so salute Mr. Buffett, who has forgotten more than most of us will ever know.

What Did Buffett Know about the Gen Re Finite Reinsurance Deal with AIG?

Odds are, Buffett knew a lot more than he confessed to know.? Buffett is a maven on insurance issues.

On Benchmarking

Benchmarking enforces conformity on managers, and the shorter-term the horizon, the more it makes them closet indexers.

Pandora and the Fair Value Accounting Rules

There are really tough issues here.? Everyone wants to be accurate, but over what time horizon, and how to adjust over time?? Bright investors will build in provisions for adverse deviation, and be conservative.

Unstable Value Funds?

This didn’t prove to be an issue, in this credit cycle, though form what I heard from insiders, it got close.? If the Fed hadn’t done 0% and QE, my dire predictions might have come true.? They still might in the future.? Be wary.

Meet Some of my Friends

Though the videos have disappeared, the story of how President George W. Bush, Jr. came to visit the factory of a friend of mine (of which I own 1.4%) is an interesting tale.? I was proud of my friend, who is a humble, but a great guy.

A Bonus from MoneySense Magazine

A free version of what Canadian magazine buyers had to pay for. How to earn more while taking less risk.

Personal Finance, Part 11 ? Your Personal Required Investment Earnings Rate

The intuitive explanation of what you need to earn in order to achieve all of your life goals.? It’s probably higher than you think.

With 401(k)s and Other Defined Contribution Plans, Watch Your Wallet

An important article — from the article:

If you are paying more than 1% of assets per year, then something is wrong, unless the asset classes are esoteric, which should not be the case for DC plans.? Remember, you have to be your own guardian with defined contribution plans.? No one will do it for you.? And, if a few of your colleagues complain at the same time, you will be amazed at how quickly it will be taken seriously, because the administrative staff of the plan sponsor usually doesn?t get that much feedback.

In general, high costs are closely correlated with low performance.? Keep a close hand on your wallet, and leave those who are charging you more than 1%, unless they are doing something special for you.

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I think I gave good advice in that era.? As the bubble deflated, investors needed to be more careful, and I highlighted that.? Not that I will always get it right…

In hindsight, I’m not happy about what I wrote August-October 2007.? As the bubble built I criticized it in fainter ways than it deserved.? Given the implosion of money markets, I should have been more bearish.? Part of that faintness stemmed from the stigma that came to bears in that era.? But here are articles from that era:

More Slick VIX Tricks

Attempts to explain the relationships between implied volatility and equity, and also corporate bonds.

Speculation Away From Subprime, Compendium

Subprime was getting blamed, but there were many areas where markets were very speculative at the time.? I call them out here, and I was not often wrong.

The FOMC as a Social Institution

I got a lot of publicity over this one.? I may do another one in 2011.? It is important to understand that those on the FOMC are not geniuses.? They are bright, but slaves to a view of the world that is not accurate.? The Fed drinks their own Kool-aid.

The Current Market Morass

As the markets declined, there were a lot of signs of the oncoming trouble that were ignored.? Following market liquidity was an aid to avoiding some of the crisis that was to come.

The Collapse of Fixed Commitments

I anticipate a lot of what will happen in the next 18 months, while not taking that much action.

A Moment of Minsky?

I get some publicity for being a little ahead of the crowd in suggesting that Minsky was correct in the way he viewed economic cycles.? I also anticipate what will happen one year later.

Sticking with the Short End, or, The Short End of the Stick

In the midst of the money market panic, the Fed added liquidity, whether it was right to do so, or not.

The Four Rules of Currency Intervention

These are the rules regarding currency interventions, ignored by hubristic governments that go their own way, and lose value as a result.

Ten Years From Now

In this article, I attempted to estimate what variable drove stock market performance in aggregate ten years out.? I discovered:

My Upshots

1. Note that it was a bullish period, and that stocks did not lose nominal money over a ten-year period to any appreciable extent.
2. Stocks almost always beat bonds over a ten-year period, except when inflation and real interest rates 10 years from now are high.
3. Investing in stocks during low interest rate environments can be hazardous to your wealth.
4. Watch for inflation pressures to protect your portfolio. Stocks get hurt worse than bonds from rising inflation.
5. Inflation and real rate cycles tend to persist, so when you see a change, be willing to act. Buy stocks when inflation is cresting, and buy short-term bonds when inflation is rising

If Hedge Funds, Then Investment Banks

I argued that if many hedge funds had mismarked assets, then many investment banks would as well.? Definitely worked out that way, but bigger than I expected.

Society of Actuaries Presentation

This was a forty minute talk that I gave to the Society of Actuaries at their Annual Meeting.? Very big picture, and very prescient.? Worth a look if you have 15 minutes sometime.? I put a lot of work into this one.

Stocks Don?t Care Who Owns Them; Social Insurance and Private Markets Do Not Mix

Every now and then, some crank like Bill Clinton comes up with the idea that “all we gotta do is invest the Social Security trust funds in the stock market, and the funding problem will go away.”? This is the antidote to that malarkey.

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But, as the markets approached their recent highs during this period, I was skeptical, but insufficiently skeptical.? Further, I blew it on Deerfield, National Atlantic, and my view of how FOMC policy would evolve.? So for this era of my blogging, I have my regrets — I should have done better, even though I got some interesting things right.

This second period goes from May to July 2007.? Here we go!

A Modest Proposal to Raise Taxes on Mr. Buffett (and me)

Points out how the problems with the tax code are really more about defining income rather than tax rates.? It is easy for the rich to defer/shelter income — far better to tax increases in net wealth, and tax all people like traders, who are marked-to-market at the end of each fiscal year.

Talking to Management

One of my “labor of love” pieces written for RealMoney — five parts, dealing with how to interrogate management teams.? A lot of the game is asking the wrong questions, and seeing how management answers them.

Back From Bermuda

Uh, this post made me persona non grata in Bermuda for 2-3 years.? I think I could return now.? Part of the difficulty was that I was not told that sessions were supposed to be “off the record.” That said, my blog was the most popular blog in Bermuda for a day.? Apologies, HF, and thanks for inviting me; sorry to embarrass you.

Thinking About What Might Blow Up

Fascinating to see all of the markets that were going to blow up within 15 months trotted out for display.? Also, the basics of my theory on how one detects bubbles.

What Brings Maturity to a Market

Failure brings maturity to a market; risk-based pricing follows the realization of risk.

PIMCO in Theory and Practice

Important piece, because people watch PIMCO on the tube, and think that they make money off of their economic predictions, which are often wrong.? PIMCO is really a bunch of intelligent fixed income quants, who make their money off of mispriced out-of-the-money volatility.

Private Equity: Short Term versus Long Term Rationality

Analyzing comments of Cramer and others as to when the Private Equity bull market would end.

Speculation Gone Wrong, Or, Tops are a Process

I was commenting on how it is hard it is to call a top, because they are processes rather than events.? Who can tell how long foolish liquidity can last?

Trailing E/P as a Function of Treasury Yields and Corporate Spreads

Part one on my “Fed Model.”? Analyzing secondary factors in stock and bond performance.

Subprime Credit, Illiquidity, Leverage, Contagion and Concentration

I suggested that a small number of players would get hit by losses in subprime.? True enough, but what I did not know was how much risk was still being held by investment banks.

Efficient Markets Versus Adaptive Markets

A post I cite frequently, mainly for the joke at the end, but a post that tries to make the point that markets are not fully efficient, but they are somewhat efficient.

Quantitative Analysis is not Trivial ? The Case of PB-ROE

In some environments, PB-ROE and low P/E investing will be similar, but that will not always be true. Do not accept a false simplification, even though it may be true at present. The PB-ROE model is richer, and works in more environments, after adjusting for the limitations listed above. PB-ROE is a very useful tool, and not ?gobbledygook.?

Defends the PB-ROE model while admitting its limitations.

The ?Fed Model?

Defends a version of the dividend discount model, and shows the simplifications that the “Fed Model” imposes are unrealistic, while showing that a more realistic model can add value over the long run.

A Fundamental Approach to Technical Analysis

Tries to explain how an intelligent fundamental investor would think about technicals, particularly in markets that are less liquid.

Twenty-Five Ways to Reduce Investment Risk

This article got me an invite to write an article for a Canadian business magazine.? But this article encapsulates the many ways I think about risk in investing.

Dissent on Dividends

Roger Nusbaum ably pointed out how demographics favors an increasing amount of dividends being paid to retiring Baby Boomers.? That is true.? We have ETNs being set up to do that (beware of Bear Stearns default risk), and hedge fund-of-funds crowding into strategies that synthetically create yield.? Beyond that, we have Wall Street creating funky yield vehicles that gyp facilitate the yield needs of buyers (while handing them capital losses).

My main point is this.? Approach yield the way a businessman would.? If you see an above average yield, say 4% or higher, ask what conditions could lead them to lower the yield. History is replete with situations where companies paid handsome dividends for longer than was advisable.

Back in 2002, I heard Peter Bernstein give an excellent talk on the value of dividends to the Baltimore Security Analysts Society.? At the end, privately, many scoffed, but I thought he was on the right track.? I still like dividends, but I like businesses that grow in value yet more.? Aim for good returns in cash generating businesses, and the dividends will follow.? Stretching for dividends is as bad as stretching for yield on bonds.? That extra bit of yield can be poisonous, leading to capital losses far greater than the incremental yield obtained.

Dividends are good, but they are a very imperfect way to approach the market.

Is the S&P 500 30% undervalued?

A somewhat whimsical piece that looked at implied equity volatility alone, and suggested that either the equity market was low, or equity volatility was high.? The truth was neither.? Equity volatility would blow out and go higher still, along with credit spreads.? Fortunately I was not dogmatic about my model’s conclusions.? I was more bearish in general in late July.

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So much for that era.? It was an interesting time as the bubble neared its apex.

We’re coming up on the fourth blogoversary for the Aleph Blog next month, so I wanted to do something a number of readers asked me to do — create a list of my best posts, with a little commentary.? I’m going to do it in segments of three months each, so that should be 16 posts by the time I am done.

Our first period goes from February-April 2007.? I wrote a lot on the panic after the Chinese market fell dramatically.? I also got Cemex and Deerfield Capital dreadfully wrong.? But here are the high points of that quarter:

What is Liquidity?

Liquidity is not a simple concept.? Depending on the situation, it can mean different things.

Helpfully, Martin Barnes, of BCA Research, an economic research firm, has laid out three ways of looking at liquidity. The first has to do with overall monetary conditions: money supply, official interest rates and the price of credit. The second is the state of balance sheets?the share of money, or things that can be exchanged for it in a hurry, in the assets of firms, households and financial institutions. The third, financial-market liquidity, is close to the textbook definition: the ability to buy and sell securities without triggering big changes in prices.

Pretty good, but it could be better. These are correlated phenomena. Times of high liquidity exist when parties are willing to take on fixed commitments for seemingly low rewards. Credit spreads are tight. Credit is growing more rapidly than the monetary base. Banks are willing to lend at relatively low spreads over Treasuries. Same for corporate bond investors. And, if you are trying to generate income by selling options, it almost doesn?t matter what market you are trading. Implied volatilities are low, so you realize less premium, while giving up flexibility (or, liquidity).

Yield = Poison

When everyone is grasping for yield, that is the time to avoid it, and aim for capital gains.? That is what I am doing now.

Bicycle Stability Versus Table Stability

A bicycle has to keep on moving to stay upright. A table does not have to move to stay upright, and only a severe event will upend a large table.

The main point there was to ask yourself what happens to your investments if the finance markets ever shut for a while.? Not that that scenario was likely to happen.

Getting Your Portfolio in Better Shape

Getting Your Portfolio in Better Shape, Part 2

Two part series on how I make changes to my portfolio.

Your Money or Your Job! (Or Both!)

Commentary on the buyout of Tribune.? Sadly, I was proven right on this one.? Sam Zell ended up making those at Tribune worse off.

Let Them Eat Yield!

More in the vein of Yield = Poison.? Sage words in a hot fixed income market that was about to blow.

Too Many Vultures, Too Little Carrion

I got it right that subprime auctions were not a sign of strength.

International Diversification

It’s a good thing, but it is not a free lunch.

Why Financial Stocks Are Harder to Analyze

The main problem is that the cash flow statement is meaningless, but I try to put a little more meat on the bones.

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So much for the first three months.? I hope you enjoy this series, as I highlight the best of the past.