Category: Bonds

Questions from Readers

Questions from Readers

Posted on by David Merkel

Miscellaneous questions post — here goes:

Thank you very much for your blog! I am hooked since I found it and have been getting smarter by the day!

I like Safety Insurance Group, found it through your blog, noticed you were no longer long. They don’t do life insurance, just cars and houses – I know you say not to mix because they are sold and underwritten differently. They had a rough Q1 but a good 2013, seems like the winter Mass weather might have done it. They are over Book of 1 so there are other insurers that are cheaper, but they look like a good compliment to NWLI (also found through you and like very much) in the auto space, in a small (and thus dominate-able) market.?

Am I missing something about SAFT??

Many sincere thanks David!

I like the management team at Safety Insurance. ?When I met with them years ago, they impressed me as bright businessmen competing well in one of the most dysfunctional insurance markets in the US — Massachusetts. ?Most major insurers did not write auto and home insurance there as a result. ?But then the state of Massachusetts began to loosen up their tight regulations, and some of the bigger insurers that stayed away have entered — GEICO, MetLife, Liberty Mutual, etc.

When the market was more closed, SAFT had strategies that allowed them to profitably take market share Commerce Group [now Mapfre]. ?With more competition in Massachusetts, Safety’s earnings have suffered. ?I can’t get excited about a short tail P&C insurer trading above book at 13-14x forecast earnings.

Maybe people are buying it for the 4%+ dividend. ?I don’t use dividend yield as an investment criteria, for the most part. ?I would avoid Safety Insurance. ?It’s well-run, but the price of the stock is too high. ?If it drops below $35, it would be a compelling buy.

Hi David,

I was interested in your comment on Normalized Operating Accruals as an indicator of accounting quality.

Why is this?

I tend to view changes in accruals as an indication of the underlying strength of a business, but would appreciate your insight on this.

Thanks

The idea behind net?operating accruals is that accrual entries represent future cash flows, which are less certain than cash flows that have already happened. ?Companies that report high levels of accounts receivable, inventories, etc., as a fraction of assets or earnings, tend to offer negative earnings surprises, because many of those accruals will not convert to cash as expected.

Here is how I measure Net Operating Accruals:

(Total assets – Cash ?- (Total liabilities – Short-term debt – Preferred stock – Long-term debt))/Total assets (or earnings)

An apology here, because the term commonly used is “net operating accruals” and I messed up by calling it “normalized.”

Companies with conservative accounting (fewer accruals) tend to have stronger earnings than those that are more liberal in revenue recognition.

Dave, you and I are too old school. We need to move into this century. The way that most people seem to get into the investment industry has nothing to do with what you talk about. It is far easier to become a “financial advisor” that pushes annuities on the 60+ crowd. You don’t really have to learn anything about investing. All you need to know is about salesmanship. Offer a free lunch/dinner and reel them in!

I honestly think that more folks are going this route instead of the “hard way” you have outlined. . .

Maybe you can do a sarcastic post: “How to NOT be valuable, but make a lot of money in the Investment Business.”

Personally I find the annuity and non-traded REIT pushers very repulsive. At the same time, I know several of them that have done very well . . .

There are two factors at work here — yield and illiquidity. ?The need for yield is driven by monetary policy. ?Particularly with a?sizable?increase in retirees, many of whom can’t make enough “income” when interest rates are so low, they take undue risks to get “income,” not realizing the risks of capital loss that they are taking.

When I was an analyst/manager of Commercial Mortgage Backed Securities, there was a key fact one needed to understand: safe mortgages?do not depend on whether the businesses leasing the properties operate well or not. ?Safe mortgages have no operational risk, and thus avoid theaters, marinas, etc. ?Stick to the four food groups: Multifamily, Retail, Office, and Industrial.

There will be negative events with insecure investments offering a high yield. ?You may not get the return of your money, as you try to get a high return on your money.

Then there is the illiquidity — that is what allows the sponsors the ability to pay high commissions to those who sell the annuities and non-traded REITs. ?Because the investors can’t leave the game, the income stream of the sponsor is very certain. ?They take a portion of the anticipated income stream, and pay it in a lump sum to their agents as a commission. ?And that is why the agents are so highly motivated.

Eventually, the demand for yield will be disappointed. ?Uncertain yields will fail in a crisis, and reset much lower. ?Income that stems from dividends, preferred dividends, MLPs, junk bonds, structured notes, etc., is not secure in the short-to-intermediate run. ?It is far better to invest to grow value than to invest for income. ?They can pay you a yield, sure, but if the underlying value is not growing, you will eventually get capital losses, and after that, much less yield.

Look for safety in yield investments. ?If you are going to take risks in investing, take risk, but ignore the income component. ?Don’t stretch for yield.

SEC Filings for Humans

SEC Filings for Humans

Posted on by David Merkel

I would carry around a 3.5″ floppy disk in my briefcase while I worked in center city Philadelphia. ?The years were 1994-96, and getting data over the internet was still in its infancy. ?Even Bloomberg terminals did not yet have data from EDGAR.

If I was efficient with my actuarial work, I would occasionally wave bye to my colleagues early, and walk over to the Philadelphia Public Library to use the electronic resources they had for analyzing stocks. ?I would find articles on various stocks that I had interest in, and I would save them to the floppy disk for later review. ?After a while, I discovered EDGAR which had the required data that companies would file with the SEC. ?Now there was more data to analyze.

I’m not sure when, but eventually the SEC set up its own website for EDGAR. ?And a great website it is — I probably use it twice a day at least. ?But could it be better?

I sometimes say that I have the best readers in the world, and this is a case where a reader tipped me off to a website that has taken EDGAR data to a whole new level.

[Applause]

There is a lot at this site, and it is the result of a lot of open source software work.

I can’t fully do justice to all that this site does, but let me try to describe it through a series of questions. ?Do you want to:

And much much more… ?I found amusing the pages that showed filings plotted against stock price over time, and I decided to look at Tower Group. ?My, but how the then President, Chairman & CEO, sold stock as things were falling apart in September 2013.

I will be using this site in the future. ?It takes EDGAR to a new level by stratifying data in a wide number of ways, and correlates it with a variety of external data. ?Very useful, and I offer my thanks to those who created it.

Asset Value Illusion

Asset Value Illusion

Posted on by David Merkel

Are some Baby Boomers retiring because the current value of their assets is?high? ?This article from Bloomberg gives an ambivalent answer to the question. ?Personally, I don’t know the answer to that question, but I can answer a related question: In the current market environment, where interest rates are low and stock valuations?are high, should Baby Boomers accelerate their retirements?

The?answer is no. ?Here’s why: in retirement, you aren’t earning income from wages. ?You need income to be able to pay for expenses. ?If?interest rates are low and?stock valuations?are high, you won’t be able to create much income relative to your assets.

It’s like owning a long bond that you intend to buy and hold for the income. ?Do you care that interest rates have fallen, and the value of your bond is above where you bought it? ?No. ?It doesn’t give you any more income. ?If you sold it, where would you reinvest to get more income at equivalent risk?

Let me digress: rather than looking at asset values, look at anticipated cash flow streams. ?Have you grown you anticipated cash flow stream? ?In a bull market, many look like geniuses, but if it is only due to a rise in valuations, it means that the cash flow streams are unchanged.

I realize this is a harder way to look at the markets, but for those that have managed the interest rate risk at life insurers, this is the way the best do it. ?Have you created a higher income rate over the funding horizon? ?That is true improvement of the economic position.

Don’t merely look at the current value of your assets. ?That is an illusion of the true value in terms of income. ?Think of it this way. ?Say that you have surpassed your prior peak assets of 2007 recently in 2014. ?Now look at the income you could have purchased in 2007 (use the long bond as a proxy — 5%), versus what you could buy today — 3.4%. ?The ability to generate income is reduced by 30%+.

You might argue that the long bond is the wrong proxy — too long, too safe. ?I would argue that the safety is necessary. ?If you want to take more risks in fixed income, go ahead, but that is an option. ?As for length, the length?is close to what is needed, but if you used 20-year bonds, the argument would not change.

Final Notes

You might think you have a lot of money, but how much income can it generate? ?Are you protected against inflation? Deflation? Credit risk? ?Don’t assume because the asset balance is high that you are necessarily better off, because you might not be able to earn as much income off your assets.

Classic: Changes in Corporate Bonds

Classic: Changes in Corporate Bonds

Posted on by David Merkel

This was a two part article that was published at RealMoney July?19-20, 2004:

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Two changes have taken place in the corporate bond market in recent years. The first change deals with credit default swaps, which I’ll discuss in today’s column. In Part 2 I’ll talk about how corporate bonds are analyzed differently now.

Surviving the Loss of a Major Class of Investor

There used to be a tendency for Wall Street to hold a supply of corporate bonds to sell to the buy side. That changed when credit default swaps were, or CDS, developed. A credit default swap is a transaction where one party buys protection against the default of a corporate credit from another party. The party selling protection receives a constant payment over the life of the transaction so long as the corporate credit does not default.

These swaps were developed in the mid-1990s, but they remained somewhat tangential to investment banks until the negative side of the credit cycle hit in 2000-2002. Many banks did a huge business in CDS, but they traded cash bonds and CDS separately. Typically, the cash bond side of the house was net long corporate bonds, and the CDS side was typically flat credit risk. From late 2001 through 2002, a major change rippled through the “bulge bracket” firms on Wall Street. They got the bright idea to trade cash bonds and CDS together as a group.

This had several desirable outcomes:

  • It enabled them to hold a larger inventory of corporate bonds with less risk.
  • It enabled them to be flat the corporate bond market in a period of severe stress. (However, it must be noted that most of those that instituted programs like this had the trough of the corporate bond market.)
  • It allowed them to trade more rationally. There were new trades that could be done by comparing the cash bond market and CDS market, going long one and short the other. (Note: Here’s how to make money on corporate trading desks: You have more flow in the market than most people you trade with. When clients offer you mispriced trades in your favor, you trade with them and then buy or sell the offsetting positions in the intradealer market at a fair price. With CDS, you have more options for laying off the risk.)

This had the unfortunate effect of removing a seemingly natural buyer from the corporate bond market at a time when the corporate bond market could least afford it. It is my guess that that?was part of the reason why the corporate bond market bottomed out in October of 2002, rather than July of 2002. Pressure on the corporate bond market from CDS-related selling did not abate until mid-November of 2002.

As a result, there is only one major buyer of long-term corporate credit risk left in the U.S. economy: life insurance companies. Pension funds play a role in this market, as do foreign institutional buyers. So when corporate bonds do badly or well, life insurance companies are disproportionately affected.

In one sense, we are in a brave new world for both life insurance companies and the corporate bond market because the life insurance industry alone is not big enough to purchase all of the corporate bonds outstanding. Perhaps foreign institutions have filled the gap at present; if so, it will be interesting to see whether foreign capital is as patient as the life insurance industry if we have another downturn in the credit markets.

An Additional Implication of CDS

CDS unify the debt capital structure of debt-issuing companies. In the old days, companies that borrowed money from banks, or issued debt, did so in marketplaces that were separately priced. That separation allowed corporations a greater degree of wiggle room when financial times got tough. Even if the bond market temporarily shut down after a company was downgraded to junk, typically banks would still lend to them, even if the terms were more onerous.

But with the advent of CDS, the banks might lend, but they will lay all the risk on the CDS market. As more risk gets laid off, the credit default swap spreads rise. As the credit default swap spreads rise, an arbitrage opportunity appears against cash bonds.

This leads the corporate bond market default in tandem with rising credit default swaps spreads. Finally, because of arbitrage between equity prices, equity volatility, corporate bond spreads and credit default swap spreads, even a dislocation in the equity markets can lead to trouble in the debt markets and vice versa.

Here is an example of how the world has changed. In late 2000, Xerox (XRX) was under threat of downgrade from both ratings agencies. A downgrade from either agency would make Xerox unable to sell commercial paper, which it needed to finance its deteriorating business. The company tried to issue more commercial paper, but the auction failed, which forced it to exit the commercial paper market. To make up for the cash flow shortfall, Xerox went to its banks to tap its CP backup credit lines. The banks, distressed that what was previously considered free money for them was actually going to be put to use, went to hedge their risks in the CDS market as the CP backup lines got drawn down. The massive buying demand for Xerox CDS led the CDS spreads to widen, which spread into the corporate bond market through arbitrage and eventually led the price of Xerox common equity downward. This happened in a matter of a few days, although the effects rippled for weeks afterward.

Thus, in a panic situation, every market that provides capital to corporations fights against the corporations in a unified manner. This is very different from how the markets behaved 10 years?ago. The implication for equity investors is that if you’re buying the equity of debt-issuing corporations, you must be aware that in a crisis they will be more volatile than they were in the past.

Since the bottom of corporate bond market in the 2002, corporations have enjoyed stronger profits and free cash flow. Many corporations have deleveraged. This would be reason alone for corporate spreads to tighten. But there is another factor at play here that is less known outside of the corporate market.

Two Methods of Analysis

There are two distinctly different ways to analyze corporate bonds. The first way is the old standard, which relies on fundamental analysis of a company’s financial statements. The second way relies on contingent claims theory (options theory, Merton’s model) and primarily uses market-oriented variables like stock prices and option volatility.

The basic idea behind the latter method is that the unsecured debt of a firm can be viewed as having sold a put option to the equity owners. In an insolvency, the most the equity owners can lose is their investment. The unsecured bondholders (in a simple two-asset-class capital structure) are the new “de facto” equity holders of the firm. That equity interest is most often worth far less than the original debt. Recoveries are usually 40% or so of the original principal.

Under contingent claims theory, spreads should narrow when equity prices rise, and when implied volatility of equity options falls. Both of these make the implied put option of the equity holders less valuable. Equity holders do not want to give the bondholders a firm that is worth more, or more stable.

So what’s the point? Over the last seven years, more and more managers of corporate credit risk use contingent claims models. Some use them exclusively; others use them in tandem with traditional models. They have a big enough influence on the corporate bond market that they often drive the level of spreads.

Because of this, the decline in implied volatility for the indices and individual companies has been a major factor in the spread compression that has happened. I would say that the decline in implied volatility, and deleveraging, has had a larger impact on spreads than improved profitability has.

Wider Implications for the Markets

Contingent claims models are not perfect, but they are quite good. To ignore them is foolish, but understanding their weaknesses is helpful.

Contingent claims models have a tendency to overestimate the risk of default with corporations that are overleveraged but have a long maturity debt structure. In many of these cases, the indebted corporation has a great deal of “breathing room” and often can maneuver its way out of the situation. This can offer real opportunities for buy-and-hold investors because they can buy the debt or equity at depressed levels and hold it through the apparent crisis. Doing this requires careful fundamental analysis, so if you invest in any of these situations, make sure you do your homework thoroughly.

Finally, the combination of contingent claims theory and the existence of CDS can produce other anomalies. It becomes theoretically possible to hedge CDS against common equity. Some hedge funds do this. They analyze bank debt, corporate bonds, convertible bonds, preferred and common stocks, options, warrants and other financing instruments, to find the cheapest aspect of a company’s credit structure and buy it, and find the richest aspect and sell it.

The full set of implications for the asset markets from this is unknown, partly because funds that do this are small relative to the markets as a whole. If the hedge funds that did this were too large for the markets, it would create too many feedback loops that have not yet been tested, which would have a tendency to amplify price moves in a crisis.

I can’t tell where such a crisis might lurk. The markets are relatively optimistic now. But being aware that these feedback loops could exist, can give you an edge in a crisis. The main upshot is this: Having a strong balance sheet is worth more today than it was in the past. It’s one of many reasons why I continue to focus on higher-quality companies in my equity investing.

Playing for Pennies, Risking Dollars

Playing for Pennies, Risking Dollars

Posted on by David Merkel

I try to avoid investments where the upside is limited, but the downside is unlimited. ?That’s the way I feel about junk bonds now. ?Have junk?yields been lower?before?? No, we have eclipsed the time in 2013 when the junk?market was in a yield frenzy, until Bernanke uttered the word “taper.”

There are a lot of desperate retirees seeking income, assuming it is free, and not merely a return of capital. ?There are a lot of desperate people seeking certainty in investing and do not realize that dividends are a handmaiden of value, and not value itself.

There are a lot of desperate pension plans looking to make up for lost time, and hoping against hope, buying dividend paying and growth stocks, high-yield bonds, alternatives like hedge funds, private equity, etc., at the wrong time.

Those are the things you should buy when stocks are cheap and people are scared to death. ?You sell them when people are confident, and valuations are high.

Valuations are high; not nosebleed high as in 2000, but high as in comparable to the peak in 2007. ?Could things go higher? ?Yes, but you are playing for pennies and risking dollars in the process. ?Those with a value and quality discipline will likely fare better in the process, but markets are messy, and what actually happens will be a surprise.

Thus I would encourage you to consider the credit quality of your stocks and bonds. ?What kind of shock could they withstand? ?When yields?are?low, like they are now, the system is less resilient to credit crises. ?Be aware, and be on your guard.

 

Illusory Investment Income

Illusory Investment Income

Posted on by David Merkel

Yield is an illusion, whether it comes from stocks, REITs, preferred stocks, bonds, loans,?limited partnerships, etc. ?Yield from investments is not the same as being a farmer with chickens, where each day you can collect eggs, enjoy or sell them, and your net worth is not affected by harvesting the eggs.

I say this because one has to consider the enterprise paying the dividends, interest, or distributions. ?What are the odds that the enterprise might have to scale back or eliminate dividends or distributions? ?What are the odds that the enterprise might default on interest payments?

I have said it, and I will say it again: focus on the health and growth of the enterprises, and not on the dividends (and buybacks). ?The ’70s had many people buying stocks with high yields, dividends often exceeding what earnings could deliver.

Some naively say, “Dividends don’t lie.” ?Well yes, the money you receive is yours, but is the company as healthy after the dividend? ?Will they be able to keep it up? ?Often that is not the case.

In an era of financial repression, where the Fed punishes savers who deserve a better return, many reach to try to get a higher income off of investments. ?In the process they end up taking a lot of risk that their income streams will be cut through dividend decreases, and outright defaults on interest payments.

Income payments rely on the health of the entities making payments. ?This means that an intelligent income investor acts like a value investor, and looks for overall prosperity of the enterprise as security for the payments and growth in payments he would like to receive.

Now dividends and stock buybacks do signal the willingness of management to hand assets back to shareholders and maximize short-term returns to shareholders. ?Even debt finance, with an unwillingness to issue more equity is usually a sign of a management team that is shareholder oriented. ?But both of these findings rely on the idea that the management team has not overextended itself, such that they risk insolvency,?cutting the dividend, or reducing the buyback.

Broader investment variables to indicate growth in the value of the enterprise have more punch than the shareholder income measures. ?Look at earnings, book value, growth in book value, cash flow from operations, and free cash flow?instead. ?And with industrials, sales per share is often the best indicator, particularly in a market like the present one where sales growth is anemic.

Okay, look at the shareholder income-based measures if you must, but analyze:

  • The payout ratio — are they paying out more to shareholders than they are earning? ?What if earnings decline? ?Will they maintain the payouts?
  • Times interest earned — how secure are the interest payments relative to earnings?
  • How likely are they to safely raise the payouts to equity? ?Growth in dividends is often more important the the level of dividends. ?The best performing REITs have had lower payouts that grew more rapidly.

Guard the return of your money, rather than seek a high return on your money. ?When the ?credit cycle turns negative, and it will turn negative, it always does, management teams that have been too aggressive will get punished. ?Try to avoid the punishment.

I write this as an equity manager that has an above average yield on investments, but the yield stems from low price-to-earnings, -sales, -cash flow, -free cash flow and -book. ?15% of my companies don’t pay a dividend, and I don’t care. ?If the management teams have good places to reinvest money to grow value, that is the best place of all to be. ?Buffett loves investing excess cash if he can find highly productive places to do so.

With all that said, analyze companies for growth in value, safety, and prudent use of free cash flow. ?If income is a part of capital discipline, well good, but be aware of the risks in an adverse economic scenario. ?When the tide goes out, we find out who has been swimming naked.

 

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

?

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

?

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

?

Wrong

?

  • 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

?

?

Comments, Replies & Retweets

?

  • 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

?

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

?

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

?

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

?

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

?

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
Look to the Liabilities to Understand the Assets

Look to the Liabilities to Understand the Assets

Posted on by David Merkel

There’s a puzzle of sorts in asset allocation, and it falls under the rubric of uncorrelated returns. ?When a new asset class arrives, and it is small and few invest in it — lo, it is uncorrelated!

But then the word spreads, and more investors begin investing in the alternative asset class. ?This has two effects:

  1. It drives up the price of the alternative assets, temporarily boosting performance, and
  2. It makes the asset class returns more sensitive to the actions of large institutional investors, such that the correlations rise with stocks and other risk assets.

How an asset is funded matters a great deal as to future price performance. ?I often talk about strong hands and weak hands in investing, but I can make it simple:

  • Strong Hands — Well capitalized, little debt, and what debt there is, is long-dated. ?Such people can buy assets and ride out storms, not worrying about mark-to-market losses.
  • Weak Hands — Poorly capitalized, much debt, and what debt there is is short-dated. ?A storm will capsize them, making them forced sellers of the assets they acquired with debt.

Buffett understands this. ?His insurance companies have relatively low underwriting leverage, but they benefit from high allocations to stocks. ?He can own stocks because there is a core amount of liabilities that will fund the stocks that he owns.

Think of housing for a moment. ?Asset prices were highest when the ability to use short-term low-cost financing was abundant. ? Eventually, there was no demand for housing when prices would lock in losses for buyers who would rent the property out.

If an asset is owned by entities that have weak financing, there is a real risk of loss if the financing can’t be maintained. ?You become subject to the credit cycle, which governs much of investing. ?Invest when credit spreads are wide; don’t invest when they are narrow.

I know that advice is vague, but that’s a part of the game. ?You have to adjust the riskiness of your portfolio to overall conditions, and resist trends, if you want to make money over the long run.

How people and other entities fund the assets that they own has an effect on the future price performance, because it affects how they might buy or sell.

 

Book Review: The Investor’s Paradox

Book Review: The Investor’s Paradox

Posted on by David Merkel

18593599Investing is paradoxical, as many that read my blog would know. The market has cycles. ?There are overall boom/bust cycles. ?There are minor cycles between the major cycles. ?Strategies fall in and out of favor. ?What is an investor to do? ?Even harder, what should one who selects assets managers do?

It is hard to select talented investment managers. ?I know this, because I have done it many times in my career. ?This book points out the difficulties in selecting managers. ?Were the returns due to skill, or did he hit a lucky streak? ?If you are looking at the numbers only, it would be hard to tell. ?Asking managers detailed qualitative questions could help, as could looking at the current portfolio, and asking:

  1. Does the portfolio fit the stated style of the manager?
  2. Does it fit his description of how he tries to make money?

This book summarizes many issues in picking managers:

  • Strict mandates vs looser mandates
  • The ways in which we deceive ourselves willingly, to believe a nice manager, or con man
  • How hedge funds grew and changed
  • Can managers adapt to new market environments successfully, or should they persist with their model which used to work, but is now out of favor?
  • How do you deal with funds that are too complex for the ordinary retail investor to understand? (I would say avoid them.)

The book includes a chapter on Madoff, and while it doesn’t break new ground, it does point out why custodians and auditors are important. ?If there had been an independent custodian, or a real auditor, Madoff’s scam could never have happened. ?I also appreciated the reference on page 125 as to the methods that scammers use to gain the confidence of those they scam. ?This is one case where bright people get fooled. ?I would encourage readers to read “The Big Con,” or even marketing books, to make themselves skeptical.

The book has a firm hand on what leads to risk/return among managers — Concentration, Directionality, Compelexity, Illiquidity, and Leverage. ?LTCM is held out as an example of a disaster waiting to occur.

The book explains different types of investors, and why they take the risks they do. ?Different investors take different risks.

The author gives his own summary of how to interview fund managers, though I found it to be light. ?As a former buy-side analyst, I had to interview CEOs, and while I used a few techniques of the author, there are more techniques that can be used. ?I appreciated the allusion to “Colombo,” because purposely dumb questions can reveal the honesty of the one being interviewed, and may reveal details that could not be gotten through a smart question.

At the end, he points out how pension plans will not be likely to meet their return goals. ?He is right, and efforts to break that paradigm through allocations to alternative investments are also unlikely to work. ?Hedge funds don’t respond well to volatility.

This is a good book, but I have one further main objection.

Quibbles

When the author discusses Simon Lack’s analysis of hedge funds (P 190), he wrongly dismisses the significance of dollar-weighted versus time weighted rates of return. ?If a manager’s returns are so volatile that it leads investors to buy high and sell low, that is the manager’s fault. ?Good managers limit risk so that their investors don’t panic. ?Also, since dollar weighted returns are what investors receive as a whole, that is the actual result of the investing, and is the way that all investment managers should be measured. ?And as such, Lack’s arguments are correct. ?Investors would have gotten more out of investing in T-bills, which absolutely, would not be much more, but less is less. ?Lack is correct, and the author is wrong.

Who would benefit from this book:?If you hire mutual fund managers, you could benefit from this great book.? If you want to, you can buy it here:?The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice.

Full disclosure: I asked the PR people for a copy of the ?book, and they sent it.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Also, it should be noted that value managers have client bases that often invest more in bad times, and take profits in good times, so their dollar-weighted returns are often higher than the time-weighted returns. ?Educated, contrarian investors do better.

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