Category: Insurance

A Brief Note on Earnings Yields

A Brief Note on Earnings Yields

Posted on by David Merkel

I debated briefly (between my ears) how to present this data.? I settled on this method, because if you want to play with it you can do so without too much trouble.

Here are the earnings yields, dividend yields, and payout ratios (what percentage of trailing 12-month earnings have been paid out as dividends) by industry and sector:

Industry E Yield D Yield Payout %
0124 – Metal Mining

18.24%

3.49%

19%
0606 – Oil & Gas – Integrated

13.40%

3.76%

28%
0412 – Auto & Truck Manufacturers

12.61%

1.69%

13%
0709 – Insurance (Life)

11.73%

2.44%

21%
0215 – Construction Services

11.71%

1.83%

16%
0603 – Coal

11.33%

2.89%

25%
0121 – Iron & Steel

10.41%

2.49%

24%
0957 – Retail (Grocery)

10.36%

3.00%

29%
1209 – Water Utilities

9.77%

3.51%

36%
0512 – Fish/Livestock

9.40%

1.74%

18%
0915 – Communications Services

9.03%

4.72%

52%
0706 – Insurance (Accident & Health)

8.98%

1.22%

14%
0609 – Oil & Gas Operations

8.94%

2.06%

23%
0727 – Regional Banks

8.94%

2.85%

32%
0518 – Office Supplies

8.30%

2.47%

30%
0203 – Aerospace and Defense

8.00%

2.12%

26%
0415 – Auto & Truck Parts

8.00%

1.41%

18%
0969 – Schools

7.84%

0.56%

7%
0809 – Major Drugs

7.77%

3.92%

50%
0103 – Chemical Manufacturing

7.74%

2.16%

28%
1103 – Air Courier

7.43%

2.17%

29%
0106 – Chemicals – Plastics and Rubbers

7.36%

2.12%

29%
0524 – Tobacco

7.30%

3.94%

54%
0130 – Non-Metallic Mining

7.28%

0.48%

7%
0206 – Construction & Agricultural Machinery

7.17%

1.62%

23%
0724 – Money Center Banks

7.16%

2.38%

33%
0903 – Advertising

7.00%

1.57%

22%
0218 – Misc. Capital Goods

6.92%

1.76%

25%
0403 – Apparel/Accessories

6.91%

1.41%

20%
1112 – Railroads

6.90%

1.74%

25%
0436 – Tires

6.81%

1.00%

15%
0406 – Appliances & Tools

6.71%

1.90%

28%
0509 – Crops

6.65%

0.62%

9%
0924 – Personal Services

6.61%

1.72%

26%
1006 – Computer Hardware

6.60%

0.28%

4%
0954 – Retail (Drugs)

6.45%

1.13%

17%
1203 – Electric Utilities

6.32%

3.83%

61%
0127 – Misc. Fabricated Products

6.18%

1.86%

30%
1024 – Electronic Instruments & Controls

6.01%

2.08%

35%
0503 – Beverages (Alcoholic)

5.88%

2.34%

40%
0906 – Broadcasting & Cable TV

5.75%

1.50%

26%
0109 – Containters & Packaging

5.67%

2.17%

38%
0806 – Healthcare Facilities

5.58%

0.26%

5%
1106 – Airline

5.52%

0.33%

6%
0715 – Insurance (Property & Casualty)

5.51%

1.71%

31%
1003 – Communications Equipment

5.49%

1.46%

27%
0963 – Retail (Specialty Non-Apparel)

5.49%

0.70%

13%
0506 – Beverages (Non-Alcoholic)

5.47%

2.41%

44%
0515 – Food Processing

5.46%

2.23%

41%
0912 – Casinos & Gaming

5.43%

0.88%

16%
1015 – Computer Peripherals

5.31%

2.32%

44%
0927 – Printing & Publishing

5.21%

2.21%

42%
0951 – Retail (Department & Discount)

5.20%

1.76%

34%
1027 – Office Equipment

5.09%

2.89%

57%
0942 – Restaurants

5.09%

2.02%

40%
0430 – Recreational Products

5.07%

1.57%

31%
1030 – Scientific & Technical Instruments

5.07%

1.27%

25%
0712 – Insurance (Miscellaneous)

5.04%

1.90%

38%
0118 – Gold & Silver

5.03%

1.78%

35%
0939 – Rental & Leasing

4.96%

0.73%

15%
0521 – Personal & Household Products

4.95%

2.64%

53%
1021 – Computer Storage Devices

4.80%

0.22%

5%
1036 – Software & Programming

4.76%

0.96%

20%
0960 – Retail (Home Improvement)

4.73%

1.89%

40%
0418 – Footwear

4.66%

1.09%

23%
0612 – Oil Well Services & Equipment

4.64%

1.64%

35%
0421 – Furniture & Fixtures

4.64%

1.70%

37%
0945 – Retail (Apparel)

4.58%

1.17%

26%
0921 – Motion Pictures

4.58%

0.82%

18%
0209 – Construction – Supplies and Fixtures

4.56%

2.02%

44%
0812 – Medical Equipment & Supplies

4.48%

1.25%

28%
0909 – Business Services

4.47%

1.23%

28%
0803 – Biotechnology & Drugs

4.45%

2.39%

54%
0936 – Recreational Activities

4.45%

2.36%

53%
0303 – Conglomerates

4.29%

1.33%

31%
0918 – Hotels & Motels

4.21%

0.93%

22%
0133 – Paper & Paper Products

4.03%

2.63%

65%
0424 – Jewelry & Silverware

4.03%

0.04%

1%
1109 – Misc. Transportation

3.99%

1.27%

32%
1206 – Natural Gas Utilities

3.87%

3.81%

99%
1018 – Computer Services

3.85%

0.66%

17%
0718 – Investment Services

3.77%

1.84%

49%
0730 – S&Ls/Savings Banks

3.39%

1.93%

57%
0933 – Real Estate Operations

3.00%

3.89%

129%
1033 – Semiconductors

2.81%

1.86%

66%
0112 – Fabricated Plastic & Rubber

2.59%

1.42%

55%
0948 – Retail (Catalog & Mail Order)

2.56%

0.01%

0%
0433 – Textiles – Non-Apparel

2.56%

0.09%

3%
0975 – Waste Management Services

2.55%

2.63%

103%
1115 – Trucking

2.34%

0.61%

26%
0115 – Forestry & Wood Products

2.03%

2.48%

122%
0212 – Construction – Raw Materials

1.62%

1.55%

95%
0427 – Photography

1.00%

0.26%

26%
0221 – Mobile Homes & RVs

0.72%

1.64%

228%
1012 – Computer Networks

-0.57%

0.28%

-48%
0703 – Consumer Financial Services

-3.68%

1.96%

-53%
0972 – Security Systems & Services

-5.04%

1.17%

-23%
0930 – Printing Services

-5.06%

3.58%

-71%
1118 – Water Transportation

-7.14%

3.28%

-46%
0966 – Retail (Technology)

-9.39%

2.52%

-27%
0409 – Audio & Video Equipment

-24.98%

1.32%

-5%

 

Sector E Yield D Yield Payout %
01 – Basic Materials

11.29%

2.62%

23%
06 – Energy

10.46%

2.79%

27%
04 – Consumer Cyclical

8.00%

1.53%

19%
02 – Capital Goods

7.52%

1.86%

25%
Grand Average

6.97%

2.34%

34%
07 – Financial

6.34%

2.28%

36%
09 – Services

6.34%

2.79%

44%
05 – Consumer Non-Cyclical

5.80%

2.64%

46%
12 – Utilities

5.62%

3.82%

68%
08 – Health Care

5.39%

2.49%

46%
11 – Transportation

5.17%

1.62%

31%
10 – Technology

4.82%

1.12%

23%
03 – Conglomerates

4.29%

1.33%

31%

Now, remember that the earnings yields here are backward-looking.? To give you an example, property-casualty insurers and reinsurers lost a lot over the last 12 months, but still managed to have P/E ratios of around 18 (5.5% earnings yield).? When you look at these tables, ask yourself how good current prospects might be relative to the last 12 months.

Also remember that cyclical companies tend to have low valuations before their sales slump.? As sectors go, I think Energy has a lot to commend it in this environment.? Could have a lot of upside, and not much downside.

The tables above cover the whole market, 8800+ companies weighted by their market capitalizations.? I could do a second version to these tables for a subset of the markets, forward-looking, which used the earnings estimates of the sell-side.? I suspect that would cover the larger half of the companies, and roughly 99% of the total market cap.? Let me know if you would like that, it wouldn’t be that hard to do.

PS — Note that everything here is in line with the terms of my data license, because every number here is one that I calculated.? I try to follow that rule in things that I publish, aside from well-known and limited bits of data.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

 

China

 

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

 

Market Dynamics

 

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

 

Asset Management

 

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

 

Monetary Policy

 

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

 

Banking & Finance

 

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

 

Pensions

 

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

 

Politics

 

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

 

US Economy

 

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

 

Miscellaneous

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

Why Auditors Should be Rotated

Posted on by David Merkel

There is a proposal afoot to mandate auditor rotation every fiver years or so.? Some don’t like it.? I think it is a great idea, with large benefits relative to the costs.

My insights, or lack thereof come from working in life insurance financial reporting in a number of different ways for around 15 years.? Only on time in 15 years, in what is arguably one of the most complex industries as accounting goes, did I ever find serious questioning going on.? Should I tell this story?

Yeah, I should, because it involves the “piece of work” that I reported to at AIG who told me, “Dealing with auditors is bloodsport.”? He also said, “Dealing with reinsurers is bloodsport.”? Delicious that this came to bite him in both ways.

A certain life reinsurer who was large then (call them Geta Life), but is out of the business now (unimaginable then, but given what happened here, no surprise), reinsured a large portion of the immediate annuities and structured settlements, including rated structured settlements that the AIG domestic life companies had written.

Did the treaties pass risk?? With a vengeance they did; not only did they pass mortality risk, but all investment risks were passed as well.? For this fine service, Geta Life earned 1% per year on the surplus relief, i.e., the difference between the book value of liabilities and assets reinsured.

It was not so well understood then, but mortality risk for structured settlements did not tend to work out well.? After an injury giving rise to a court case which would structure a settlement for the plaintiff, the defendant would ask insurance companies to bid on the settlement, which was a stream of certain and life contingent payments.? When the injury impaired the life of the plaintiff, bidding would get stiffer, because it is cheaper to fund life-contingent payments to those who aren’t likely to live so long.

Or so you would think… there was one case where a two-year old boy was injured, to the point of being in a coma, and the underwriter who bid the case rated him as having the lifespan of one who was age 73.? But the money transferred to the parents in the judgement was more than enough to care for the boy, and have a lot left over for the parents.? Ding!? The kid would live a lot longer than 15 years as a result of the settlement.

Rated settlements, where one bid on impaired lives, carried the “Winner’s Curse.” If you won, you overpaid.

But this was not on the radar screen of the somewhat oblivious Geta Life, until they found that the treaties were passing large losses to them, and they decided to audit the treaty.? Sadly, the actuaries above me, who had signed the treaties before I was employed by AIG, forgot to inform the investment department that the treaty limited the trading of around 20% of the bonds of the company in ways that would be mimicked 10 years later in CDOs.

  • Trades may not lower credit quality
  • Trades may not lower yield
  • The cashflow profile of the assets can’t be materially changed.
  • And a few more things…

This problem got dumped in my lap as a young actuary, as I found we were way out of compliance with the treaty terms, selling had gone on with abandon, on assets the reinsurer relied on, reducing the investment income the reinsurer would receive in a falling interest rate environment.

So, I proposed to the reinsurer that I go back in treaty history, and select assets purchased to replace those sold that would have kept the treaty in compliance, and put those into the segregated portfolio, and inform the investment department of the rules.? Once Geta Life understood that, they agreed to my “solution.”? That solution took me several months to work out, but I got it done.

In the meantime, the reinsurance treaties with Geta Life had become so valuable to AIG’s domestic life subsidiaries that if they came into question, the subsidiaries would fail.? The accountants of the auditors, realizing that there was something big to analyze, but not knowing how to do it, called in one of their best actuarial auditors.? My ever-confident boss knew he could beat him.

I still remember critical parts of the meeting as the actuarial auditor slowly checkmated my boss, and forced him to reduce the reserve credit for GAAP accounting, resulting in a sizable loss.

Closing off the story, Geta Life was satisfied on the changes in the asset portfolios, but was still annoyed at the losses.? The changes in assets did not avail much; bad underwriting was pinching.? They came to us saying that “Reinsurance is a good faith venture. You’re not supposed to take advantage of us.? Refund our losses, or we will take you to court for not having having managed the treaty properly from inception.”

I said, “You wrote the treaty.? You accepted my asset changes.? You are supposed to absorb mortality risk, such as there is.? I am not an officer of the company, so if you aren’t happy with this, talk to my boss.”

Shortly after that, I left AIG; it was not a great place to work.? Geta Life sued AIG for damages and won (far more than they should have).? Should have produced a blip in terms of earnings, and didn’t.

Mmmmm…. back to the original point.? Should auditors be rotated?

In all my years of financial reporting, I got wind of things in other areas of the company that I served that auditors should have questioned.? Auditors have often been “lap dogs.”? Only once did I ever see a significant challenge.? More often, I saw the auditors try to help the company explain an “accounting oddity.”? (AIG had a nonstandard way of reporting deferred annuity reserves that was very liberal, and it was proposed by their auditors.)

If auditors know that they are only going to be on the job for five years, they will realize a few things:

  • If this is going to die in a few years, it doesn’t matter as much if it dies next year.? Maybe firm reputation is worth more than two more years of a contract.
  • My work will be reviewed by someone unsympathetic to me in a few years.? He will have little incentive not to tear my work up, and call for restatements.
  • Having a fresh set of eyes on corporate finances will lead to questioning of assumptions that get ignored because they are boilerplate to the continuing auditor.
  • If auditing ceases to be an annuity to auditors, they will be less complacent, and might even act like auditors on occasion.

My experience with auditors was that they spent a lot of time on the data, and rarely asked the tough questions on assumptions and methods.? They were bean-counters, not actuaries, and certainly not businessmen.

If auditors are rotated, the incentives for just letting things slide will diminish.? That’s why auditors should be rotated.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Central Banking

 

  • Been using FRED since it was a bulletin board in 1991. Great job, FRED team! http://t.co/kksvwllM Mar 24, 2012
  • The Villain http://t.co/yYReRb4r On Bernanke, the man who expanded the power of the Fed far beyond constitutional limits, if there r any $$ Mar 24, 2012
  • Bernanke Sees Need for Higher Household Spending to Fuel Growth http://t.co/3LQUTGji Yes Ben, we will spend more while we are inverted $$ Mar 24, 2012
  • Fed?s Evans Calls for Stronger Commitment to Low Rates http://t.co/vSKfU36q Read paper; don’t buy it. ARIMA, no out of sample tests $$ Mar 24, 2012
  • Bernanke Says Low Rates Didn’t Fuel Bubble http://t.co/XlF50zKV Perhaps Bernanke can’t remember minor crisis; RMBS extension mid-2003 $$ Mar 24, 2012
  • That crisis created a very sharp move up in rates http://t.co/jfNAVN3o $$ Mar 24, 2012
  • Bernanke: the man, the legacy and the law http://t.co/zA7OeFc4 ?courts have shied away from developing jurisprudence on monetary policy.? $$ Mar 24, 2012
  • @fatdaz It is my firm belief that no economic entity can dominate entirely; central banks have been destroyed b4; will happen again $$ Mar 24, 2012
  • Masters of the Universe Start to Challenge Ben Bernanke http://t.co/31Pr1yrQ Markets are more powerful than Central Banks, watch out Fed! Mar 23, 2012
  • European Banks Would Have Passed Fed?s Stress Test http://t.co/z5bCBeYy Ultimate insult 4 stringency of Fed’s stress tests $$ #devildetails Mar 20, 2012
  • Bernanke Stands to Gain Capital-Market Experts With Nominees http://t.co/oX8xOdEU We need some people that doubt neoclassical economics $$ Mar 20, 2012
  • Bernanke Returns to Academic Roots to Justify Fed?s Existence http://t.co/ORfma5sE Safe audiences let him talk publicly w/little risk $$ Mar 20, 2012
  • Federal Reserve Stress Tests Make Us All Muppets http://t.co/CQu827KD Ignores E-Zone contagion, increase in int rate volatility, etc $$ Mar 19, 2012
  • Bernanke: “I Want to Bring Back Irrational Exuberance” http://t.co/p0qlQwXe @brucekrasting on overheating in some debt asset classes $$ Mar 19, 2012

 

China

 

  • Ai Weiwei: ?You?re There but You?re Not Existing? http://t.co/d7mLxHXm RARE interview w/Ai Weiwei, describing his detention in China $$ Mar 24, 2012
  • China?s stock-market supervision suffering http://t.co/QEBPC5ya “Understaffed securities regulator, weak legal system cited” $$ #nosurprise Mar 21, 2012
  • @Roy_Cam They can’t make money b/c of overcapacity; China invested too much in steel & global growth stinks. US exports of steel r rising $$ Mar 20, 2012
  • @Roy_Cam We only import 30% of steel used in US, 4% of which comes from China = 1.2% of steel used is from China http://t.co/FTWt80oa $$ Mar 20, 2012
  • @Roy_Cam You are right there, and that’s one reason why profitability is declining in steel industry globally. $$ Mar 20, 2012
  • China to increase fuel prices 6-7% http://t.co/dBwrepDj Pump prices at record highs; biggest rise since June 2009 #ouch $$ Mar 20, 2012
  • Sad Industry Mantra: Make Steel, Lose Money http://t.co/Pu9e6qFj Insanity; doing same thing, expecting different results. Future bailout $$ Mar 20, 2012
  • The State-Owned Enterprises of China http://t.co/55nvgUMs I think a “big bang” would work, but the Communist Party would never do it $$ #Mao Mar 20, 2012
  • Chinese property *alert* http://t.co/eklWzXkU Property sales value contracted 20% year on year in the two months ending in February. $$ Mar 20, 2012
  • China’s new home prices “no longer rising” http://t.co/UL4T3yzQ The Chinese Gov’t always gets what it wants, until it gets too much of it $$ Mar 19, 2012
  • Chinese Companies Forced to Falsify Data, Government Says http://t.co/tH0MUiYn AN example of why I don’t trust Chinese economic data. $$ Mar 18, 2012
  • @Xiphos_Trading Don’t know if there will be a crash or not, but there has been a lot of malinvestment in China, like Late 80s Japan $$ Mar 18, 2012

 

Europe

 

  • Those Catchy Spanish (Yield) Curves http://t.co/qoGmGl7E Yields backing up in the Spanish bond market; this could be the next crisis $$ Mar 24, 2012
  • Euro-Zone Banks Get Show of Faith http://t.co/ZWqd8Df5 US MMFs begin adding back yieldy E-zone bank CP $$ #wedontlearnwereallydontlearn Mar 24, 2012
  • On second thought, hold off moving that business to Ireland http://t.co/Bdu6ezon Ireland heading into recession; possibility of default? $$ Mar 23, 2012
  • @Mapsofworld Gun to the head, I think it fails entirely, but that opinion is not held with high probability $$ Mar 22, 2012
  • @Mapsofworld If the E-zone doesn’t move 2a full fiscal union, the Euro will either fail entirely, or become the currency of a smaller group Mar 22, 2012
  • The Safe Haven of the Nordic Currencies Is No More http://t.co/FquH5ZWW It’s a little early to get categorical about this $$ Mar 21, 2012
  • A Wall St. Firm Advises Greece, With Discretion http://t.co/Y12GeNZq $BLK is one powerful firm that many govts in crisis turn 2 4 help $$ Mar 21, 2012
  • Swiss Secrecy Besieged Makes Banks Fret World Money Lure Fading http://t.co/qV197Px1 What good r Swiss banks if no secrecy, tax evasion $$ Mar 20, 2012
  • Germany on a Different Track http://t.co/Gl3BNXBA While Much of EZone Deals W/Busts, Property Prices r Rising in Berlin, Hamburg, Munich Mar 20, 2012

 

Rest of the World

 

  • Israel Billionaires Put Own Interest Ahead of Holders http://t.co/QSTpBn6E What’s mine is mine; what’s yours is negotiable $$ Mar 24, 2012
  • Late Shah?s Son Selected As Iran?s Person Of The Year http://t.co/phWmAFRQ This is VOA so take it w/a grain of salt; still funny 2thinkabout Mar 24, 2012
  • Latin American Nations in Worse Shape for Crisis, IDB Says http://t.co/zlZvDJi4 “result of lower budget surpluses b4 interest payments” $$ Mar 20, 2012
  • What is the real rate of interest telling us? http://t.co/Vbk13I02 Excess capacity in devel world post bubble pop, send cap 2 emerg mkts Mar 20, 2012

 

Insurance

 

  • @CflGator Life companies should be simple, but product design exploded to the point where reserving can’t keep up; I own only 1 life co. Mar 24, 2012
  • @CflGator Variable & Universal life products have secondary gtee issues; there r a variety of long dated term products w/rsv issues $$ Mar 24, 2012
  • @CflGator and P&C insurance — life insurance is capital intensive; they are sticking with their simplest biz, aside from long-tail P&C $$ Mar 24, 2012
  • @CflGator It really depends; they wrote a lot of complex life products. On the bright side, a company in runoff is a cash cow. $$ Mar 24, 2012
  • @CflGator That’s the tough Q. $HIG offered significant secondary guarantees when they were the #1 annuity writer. May not b prop reserved $$ Mar 21, 2012
  • Hartford Shares Jump On Split, Analysts Like It Too http://t.co/APFbv4UA Not so fast on $HIG; regulators must approve a split; c my cmmt Mar 21, 2012
  • Should Hartford?s Annuity Holders Be Worried? http://t.co/HfuZO3QO Probably not; small annuitants have protection from guaranty funds $$ Mar 21, 2012
  • Annuity Case Chills Insurance Agents http://t.co/rHkg68Lw I’m always skeptical of products w/high commissions & surrender charges $$ Mar 19, 2012

 

Fixed Income

 

  • Why Fixed Income Funds May Fall Short http://t.co/cHmF3hOj On the difficulties of combating tracking error in fixed income ETFs. $$ Mar 24, 2012
  • Top Junk Pummels Treasuries for Safest Profits http://t.co/E5vl2qHB That’s the rearview mirror; will be harder to squeeze more returns out Mar 21, 2012
  • The differentiation of Agency MBS risk profiles http://t.co/IJN2mbCm Interesting to see long avg life on high coupon underwater mortgages $$ Mar 21, 2012
  • Bond Bear Market Yet to Roar http://t.co/oNENX9jc The selloff has been piddling so far, has not affected equities, & it may reverse $$ Mar 21, 2012
  • Do High Yield Bonds Know Something Stocks Don?t? http://t.co/986Evuok Equities & Inv Grade corps outperforming HY Corps- call provisions? $$ Mar 19, 2012
  • RE: @thearmotrader Thanks, you did the post that I wanted to do.? Now I just have to point to it. http://t.co/Ru22nvom Mar 19, 2012

 

Exchange Traded Products

 

  • “@HerbGreenberg mentions that once the creation/redemption mechanism ?breaks? (my word, not his), that the ETF/ETN sh? http://t.co/jxK0bZfX Mar 23, 2012
  • RE: Not likely, but maybe.? If they were forced to see that they were getting a negative (or very low positive) yield? http://t.co/nnxLt2oj Mar 23, 2012
  • Exchange-Traded Notes Are Worse Than You Think http://t.co/FAO4IS3H Path-dependent fees, shadow NAVs, high fees, tracking error, credit risk Mar 21, 2012
  • Who Uses Leveraged and Inverse ETFs Anyway? http://t.co/cYpkVMr5 Retail owns 80%+. Normal ETFs r mostly held by institutions $$ Mar 21, 2012
  • Know Your Client ? Leveraged ETF Version http://t.co/gqPtiZtF Doesn’t matter if leverage is internal or external, client needs come first $$ Mar 21, 2012
  • Money Managers Serving Clients First, Ego Second http://t.co/gY9bd1iR Using the investment vehicles of competing firms — a good thing $$ Mar 21, 2012
  • RE: @finadd “Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by t? http://t.co/cn5TM1cR Mar 20, 2012
  • @amy_calistri at the levels implied by the CEF pricing at some funds, it would shave the yield 3% $DHF $MAV $HIX, 5% $PHT, 12% $PHK $$ Mar 19, 2012
  • @amy_calistri Right. I watch the premiums on credit-sensitive CEFs as a measure of frothiness. If the underlying at some HY CEFs were bot + Mar 19, 2012
  • Anybody know what was up with $EFT today? Floating-rate loan CEF up 4%+, Closed near par last Friday… odd. $$ Mar 19, 2012
  • ‘Junk’ ETFs: Tread Lightly http://t.co/lXftKjwB Check the Price vs the NAV before you buy; also, if w/ds start, index bonds will get hit Mar 19, 2012

 

Individual Equities

 

  • Leon Black?s Bid Gets No Respect as Great Wolf Surges http://t.co/kqS6pNyU Used 2call this stock “little dog;” badly managed frm beginning Mar 24, 2012
  • @merrillmatter Bezos is scary-smart. I don’t own $AMZN either $$ Mar 21, 2012
  • Just watched it. Wow, very impressive RT @merrillmatter: Skynet shall be renamed SkyBezos — Order Fetch http://t.co/6l9R9bHn $$ Mar 21, 2012
  • +1, ugh RT @abnormalreturns: [post] America officially ran out of good corporate names today. http://t.co/lLGEmeAB $ABT $KFT $AAPL $NKE $MCD Mar 21, 2012
  • You’re on a roll today @merrillmatter: @AlephBlog soon our robot overlords will deliver our bread and circuses to us in the Bezos Colosseum Mar 21, 2012
  • No RT @merrillmatter: @AlephBlog I want to start a consultancy that veto’s stupid company names. Would your anti-consultancy veto that? 🙂 Mar 21, 2012
  • Amazon Wrings Profit From Fulfillment as Spending Soars http://t.co/McHUqMhe Tough work 4 laborers, though. $AMZN pushes pretty hard $$ Mar 21, 2012
  • Kraft to Be Renamed Mondelez After Grocery Unit Is Spun Off http://t.co/GONE6x47 Pronounced ?Mohn-dah-LEEZ.? Sigh, who got paid 4 this? $$ Mar 21, 2012
  • The 400% Man’s New Big Bet http://t.co/33rHut9y Implicitly a bet that $BRKa will always be able to buy back stock @ 1.1x book value $$ Mar 21, 2012
  • In a Major Restructuring, $HPQ To Combine Printer and PC Groups http://t.co/Aj3zaKaY FD: +HPQ; seems like a marginal idea, maybe works $$ Mar 20, 2012
  • Why $HPQ Really Needs A CEO Succession Plan http://t.co/hkPDVkAy Good cultures should promote from within; HP used to have that $$ FD: +HPQ Mar 20, 2012
  • Buffett Message Is ?Do as I Say, Not as I Do? http://t.co/Gcblc8oZ Alice Schroeder very acidic on Buffett; half right & half wrong $$ Mar 20, 2012
  • $AAPL to Pay Dividend, Buy Back Stock to Return Some of Cash http://t.co/uxf6jEBP About time, if there aren’t opps 2use the $$ Mar 19, 2012

 

Money Market Funds

 

  • @MarcHochstein Thanks, I found the CFA Institutes comment today, and their view is similar 2 mine in some ways: http://t.co/8yPLcXfX $$ Mar 22, 2012
  • @MarcHochstein investment restrictions moved back to 2008 norms. The ability 2 have credit events frees MMFs to pursue best advantage $$ Mar 21, 2012
  • @MarcHochstein My idea will work 4 MMFs using inv policies prior 2 2008. The MMF folks aren’t earning $$ now, but they could with + Mar 21, 2012
  • @MarcHochstein After reading this: http://t.co/aUoaN4kb Ask them, what if you traded Merkel’s idea 4 a loosening of investment rules? $$ Mar 21, 2012
  • @MarcHochstein 1 more thing; if they have any sympathy toward my idea, I live near DC & would be willing to testify to the SEC $$ Mar 20, 2012
  • @MarcHochstein Does that help? I still think my proposal, one of the few compromise proposals out there would work best of all. Mar 20, 2012
  • @MarcHochstein Having been a life actuary, most regulatory progress happens when actuaries talk w/smarter regulators & forge compromise Mar 20, 2012
  • @MarcHochstein Does that help? MMFs are just saying “We r fine, nothing needs 2b done.” 2me that strategy prob loses. Mar 20, 2012
  • @MarcHochstein Would ask them if they have any way of stopping MMF runs on a private basis; this is the SEC goal; solve that, they leave Mar 20, 2012
  • @MarcHochstein More humbly, I would ask them if they really think they can beat the SEC. SEC’s proposal is horrible, but saying “no” loses Mar 20, 2012
  • @MarcHochstein Not so humbly, I would ask that u show them my proposal that I sent to the SEC, & ask them to back it http://t.co/vuNL8tQE Mar 20, 2012

 

Market Dynamics

 

  • The Easy Money’s Been Made, Four Reasons for Caution http://t.co/9kAXqEU4 E-zone calm, risk tolerance+ , VIX low, FOMC may move soon Mar 24, 2012
  • ?and then all of a sudden, THE BULLS WENT BERZERK! http://t.co/bJKCVJha Lots of bullishness out there, though Howard Marks thought otherwise Mar 21, 2012
  • @byrneseyeview That’s true, & I did a presentation on that. One more complicating factor were financials, which looked cheap but weren’t $$ Mar 21, 2012
  • @byrneseyeview Found it. Here: http://t.co/YupRW6yD It’s on a number of topics; it was well-received $$ Mar 21, 2012
  • Contra: The Biggest Bubble You’ve Never Heard Of http://t.co/0tzkPyiA Value can’t b a bubble. Growth can b a bubble. Growth & ROE meanrevert Mar 21, 2012
  • Is this time really different? http://t.co/eePs0aIV It’s never different. It’s always different. Profit margins will mean-revert; Q is when Mar 21, 2012
  • Biggs boosts bullish bets on stocks to 90% net long http://t.co/5fYQDhUC Won’t be the first 2 say this, but makes me doubt the rally $$ Mar 21, 2012
  • The Ax is Back http://t.co/B1j3f7nH @reformedbroker Reduced profits on Wall Street translates into reduced perks, bonuses & jobs $$ Mar 21, 2012
  • Public Companies: The End Is Near http://t.co/KejHwYDu There r still advantages 2being publicly traded, but has eroded since Sarbox, etc $$ Mar 20, 2012
  • S&P 500 Rises to Four-Year High as Apple Plans Dividend http://t.co/RnBf9yEw $AAPL raises the div yld on the S&P 500 by 0.08%. Big! $$ Mar 19, 2012
  • Shares and shibboleths http://t.co/CspyJCNX The equity premium over a diversified portfolio of investment grade bonds is ~1%/yr IMO $$ Mar 19, 2012
  • Hubble, Bubble, Index Trouble http://t.co/2q3CPx4g Been saying this for years, indexing changes market dynamics, what happens @ reversal? $$ Mar 18, 2012

 

Politics

 

  • Why Are Your Neighbors Just Like You? http://t.co/0lcPOuLZ On the demise of really knowing your neighbors; we try 2 reach out; few others do Mar 24, 2012
  • @traderscrucible @interfluidity My blog (& Steve’s) have always had a strong public policy emphasis. Dreaming, but we suggest better policy. Mar 23, 2012
  • Agent Based Models http://t.co/0etJ20fL “Why not keep it simple, and just say, you pay an asset tax for every dollar over $100B?” $$ Mar 23, 2012
  • The Warren Buffett Chain Letter http://t.co/31FFSrmm Draconian adjustments. What Buffett did & didn’t say. 3% deficit ejects Congress $$ Mar 21, 2012
  • Migration of sovereign debt from private hands to public institutions http://t.co/rQbDTXg3 &the debt sits til liquidity is needed -> crisis! Mar 21, 2012
  • To Stay On Top, The US Must Invest In Research Universities http://t.co/P4kyUqY0 FD: + $INTC; do it w/yr own $$ not taxes; c my comment Mar 20, 2012
  • RT @BarbarianCap: “cnbc: California Cities Scrambling to Avoid Becoming Insolvent” > the die was cast years ago; clowns, path depende … Mar 20, 2012
  • Stopping the National Debt: A Movement Led By a Cowboy, a Colonel, & a Citizens’ Cavalry http://t.co/frqAXCpy Natl Debt Relief Amendment Mar 20, 2012
  • Who is REALLY paying in the $25bil TBTF mortgage settlement http://t.co/T2h1B5CO $5B from banks, rest MBS holders eg pension plans, insurers Mar 19, 2012
  • The JOBS Act: Plutocracy in Action http://t.co/Fjo3Ppet Another article on the previous topic; don’t downgrade information quality $$ Mar 19, 2012
  • Small Biz Jobs Act Is a Bipartisan Bridge Too Far http://t.co/AwBXg184 Would not mess w/securities laws in that way to create growth $$ Mar 19, 2012
  • Public Unions Send Medical Bills to Taxpayers http://t.co/Lb2XgAv9 CA Sup Ct foolishly makes healthcare nonreducible. CA will die $$ Mar 18, 2012
  • As Unions Lose Their Grip, Indiana Lures Manufacturing Jobs http://t.co/vj177CT2 Like my article that few like http://t.co/WgdN7Mmq $$ Mar 18, 2012
  • Pension Legislation Could Cut Contributions, Hike Taxes http://t.co/Tj1UlUz8 Stupid proposals that weaken DB pensions, companies r strongnow Mar 18, 2012

 

Regulation

 

  • Where is the Center for Audit Quality When We Actually Could Use It? http://t.co/jWt09bcw JOBS Act: destroy info reliability to create jobs Mar 23, 2012
  • Fed?s Fisher Says ?Too-Big-to-Fail? Problem Remains http://t.co/eLvHGmXt Richard Fisher favors breakup of the biggest banks. $$ Mar 21, 2012
  • @carney just read your piece on the net capital rule. Similar to my piece last November http://t.co/tl28NPku Good piece. $$ Mar 21, 2012
  • Top Court’s Patent Rejection Alarms the Biotech Industry http://t.co/oK11WlvR ’bout time we forced a more fundamental review of patents Mar 21, 2012

 

Economics

 

  • Solar?s 80% Plunge Hurts Utilities From Hawaii to Spain http://t.co/m9eACVTp Overcapacity drives down prices of PV panels for now. $$ Mar 21, 2012
  • Mean Time Between Failures http://t.co/zkT0z9cX The “recovery” is getting long in the tooth, eg it may end soon; graph: http://t.co/xOHA1IYA Mar 20, 2012
  • Obama?s tax hikes threaten a new US recession http://t.co/uNHwBpeJ Looking @ 4 more years of divided govt & stalemate $$ #debtbombgrows Mar 20, 2012
  • @The_Dumb_Money I would have liked to see the Banks/Etc. who owned the servicers bear more of the cost $$\ Mar 20, 2012
  • Partial equilibrium intuitions about choice http://t.co/215kIrmS @interfluidity more difficult to solve general equilibrium Qs than partial Mar 19, 2012
  • Understanding the New Price of Oil http://t.co/TaMTaneR No surprise here; most cheap oil has been found, the price of oil should rise $$ Mar 18, 2012

 

Miscellaneous

 

  • @merrillmatter Factoid: 100,000,000,000 to 1 for a monkey to type the word “banana” from random typewriter jumping Mar 21, 2012
  • Is a Calorie a Calorie? http://t.co/4hyTfSvr Yes, but different nutrients come w/calories. Also, a unit of fat has 2x cals vs carbs/protein Mar 21, 2012
  • Madoff’s Lament: I Was An Honest Money Manager Once http://t.co/OGp2xRHR The outside world should ignore Madoff now. Attention feeds him. Mar 21, 2012
  • Trust no one http://t.co/cFYBkCA7 & http://t.co/ILP0dPlA Independent & regular journalists face conflicts of interest in giving speeches $$ Mar 20, 2012
  • On Slime and Water http://t.co/8iezy0FK Pink Slime in burgers, and shortages of potable water in most of the globe, except Canada & US. $$ Mar 18, 2012
  • The NSA Is Building the Country?s Biggest Spy Center (Watch What You Say) http://t.co/iUsN5D0t Time to increase encryption key sizes $$ Mar 18, 2012
  • @TimABRussell I always read all the books I review; in rare cases when I don’t, I tell readers that I skimmed it. $$ Mar 18, 2012

Central Banking

?

?? Been using FRED since it was a bulletin board in 1991. Great job, FRED team! http://t.co/kksvwllMMar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? The Villain http://t.co/yYReRb4r On Bernanke, the man who expanded the power of the Fed far beyond constitutional limits, if there r any $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke Sees Need for Higher Household Spending to Fuel Growth http://t.co/3LQUTGji Yes Ben, we will spend more while we are inverted $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Fed?s Evans Calls for Stronger Commitment to Low Rates http://t.co/vSKfU36q Read paper; don’t buy it. ARIMA, no out of sample tests $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke Says Low Rates Didn’t Fuel Bubble http://t.co/XlF50zKV Perhaps Bernanke can’t remember minor crisis; RMBS extension mid-2003 $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? That crisis created a very sharp move up in rates http://t.co/jfNAVN3o $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke: the man, the legacy and the law http://t.co/zA7OeFc4 ?courts have shied away from developing jurisprudence on monetary policy.? $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @fatdaz It is my firm belief that no economic entity can dominate entirely; central banks have been destroyed b4; will happen again $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Masters of the Universe Start to Challenge Ben Bernanke http://t.co/31Pr1yrQ Markets are more powerful than Central Banks, watch out Fed! Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? European Banks Would Have Passed Fed?s Stress Test http://t.co/z5bCBeYy Ultimate insult 4 stringency of Fed’s stress tests $$ #devildetails Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke Stands to Gain Capital-Market Experts With Nominees http://t.co/oX8xOdEU We need some people that doubt neoclassical economics $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke Returns to Academic Roots to Justify Fed?s Existence http://t.co/ORfma5sE Safe audiences let him talk publicly w/little risk $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Federal Reserve Stress Tests Make Us All Muppets http://t.co/CQu827KD Ignores E-Zone contagion, increase in int rate volatility, etc $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Bernanke: “I Want to Bring Back Irrational Exuberance” http://t.co/p0qlQwXe @brucekrasting on overheating in some debt asset classes $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?

China

?

?? Ai Weiwei: ?You?re There but You?re Not Existing? http://t.co/d7mLxHXm RARE interview w/Ai Weiwei, describing his detention in China $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? China?s stock-market supervision suffering http://t.co/QEBPC5ya “Understaffed securities regulator, weak legal system cited” $$ #nosurprise Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @Roy_Cam They can’t make money b/c of overcapacity; China invested too much in steel & global growth stinks. US exports of steel r rising $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @Roy_Cam We only import 30% of steel used in US, 4% of which comes from China = 1.2% of steel used is from China http://t.co/FTWt80oa $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @Roy_Cam You are right there, and that’s one reason why profitability is declining in steel industry globally. $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? China to increase fuel prices 6-7% http://t.co/dBwrepDj Pump prices at record highs; biggest rise since June 2009 #ouch $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Sad Industry Mantra: Make Steel, Lose Money http://t.co/Pu9e6qFj Insanity; doing same thing, expecting different results. Future bailout $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? The State-Owned Enterprises of China http://t.co/55nvgUMs I think a “big bang” would work, but the Communist Party would never do it $$ #Mao Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Chinese property *alert* http://t.co/eklWzXkU Property sales value contracted 20% year on year in the two months ending in February. $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? China’s new home prices “no longer rising” http://t.co/UL4T3yzQ The Chinese Gov’t always gets what it wants, until it gets too much of it $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Chinese Companies Forced to Falsify Data, Government Says http://t.co/tH0MUiYn AN example of why I don’t trust Chinese economic data. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

?? @Xiphos_Trading Don’t know if there will be a crash or not, but there has been a lot of malinvestment in China, like Late 80s Japan $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

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Europe

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?? Those Catchy Spanish (Yield) Curves http://t.co/qoGmGl7E Yields backing up in the Spanish bond market; this could be the next crisis $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Euro-Zone Banks Get Show of Faith http://t.co/ZWqd8Df5 US MMFs begin adding back yieldy E-zone bank CP $$ #wedontlearnwereallydontlearn Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? On second thought, hold off moving that business to Ireland http://t.co/Bdu6ezon Ireland heading into recession; possibility of default? $$ Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? @Mapsofworld Gun to the head, I think it fails entirely, but that opinion is not held with high probability $$ Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

?? @Mapsofworld If the E-zone doesn’t move 2a full fiscal union, the Euro will either fail entirely, or become the currency of a smaller group Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

?? The Safe Haven of the Nordic Currencies Is No More http://t.co/FquH5ZWW It’s a little early to get categorical about this $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? A Wall St. Firm Advises Greece, With Discretion http://t.co/Y12GeNZq $BLK is one powerful firm that many govts in crisis turn 2 4 help $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Swiss Secrecy Besieged Makes Banks Fret World Money Lure Fading http://t.co/qV197Px1 What good r Swiss banks if no secrecy, tax evasion $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Germany on a Different Track http://t.co/Gl3BNXBA While Much of EZone Deals W/Busts, Property Prices r Rising in Berlin, Hamburg, Munich Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

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Rest of the World

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?? Israel Billionaires Put Own Interest Ahead of Holders http://t.co/QSTpBn6E What’s mine is mine; what’s yours is negotiable $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Late Shah?s Son Selected As Iran?s Person Of The Year http://t.co/phWmAFRQ This is VOA so take it w/a grain of salt; still funny 2thinkabout Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Latin American Nations in Worse Shape for Crisis, IDB Says http://t.co/zlZvDJi4 “result of lower budget surpluses b4 interest payments” $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? What is the real rate of interest telling us? http://t.co/Vbk13I02 Excess capacity in devel world post bubble pop, send cap 2 emerg mkts Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

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Insurance

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?? @CflGator Life companies should be simple, but product design exploded to the point where reserving can’t keep up; I own only 1 life co. Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @CflGator Variable & Universal life products have secondary gtee issues; there r a variety of long dated term products w/rsv issues $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @CflGator and P&C insurance — life insurance is capital intensive; they are sticking with their simplest biz, aside from long-tail P&C $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @CflGator It really depends; they wrote a lot of complex life products. On the bright side, a company in runoff is a cash cow. $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @CflGator That’s the tough Q. $HIG offered significant secondary guarantees when they were the #1 annuity writer. May not b prop reserved $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Hartford Shares Jump On Split, Analysts Like It Too http://t.co/APFbv4UA Not so fast on $HIG; regulators must approve a split; c my cmmt Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Should Hartford?s Annuity Holders Be Worried? http://t.co/HfuZO3QO Probably not; small annuitants have protection from guaranty funds $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Annuity Case Chills Insurance Agents http://t.co/rHkg68Lw I’m always skeptical of products w/high commissions & surrender charges $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

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Fixed Income

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?? Why Fixed Income Funds May Fall Short http://t.co/cHmF3hOj On the difficulties of combating tracking error in fixed income ETFs. $$ Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? Top Junk Pummels Treasuries for Safest Profits http://t.co/E5vl2qHB That’s the rearview mirror; will be harder to squeeze more returns out Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? The differentiation of Agency MBS risk profiles http://t.co/IJN2mbCm Interesting to see long avg life on high coupon underwater mortgages $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Bond Bear Market Yet to Roar http://t.co/oNENX9jc The selloff has been piddling so far, has not affected equities, & it may reverse $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Do High Yield Bonds Know Something Stocks Don?t? http://t.co/986Evuok Equities & Inv Grade corps outperforming HY Corps- call provisions? $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? RE: @thearmotrader Thanks, you did the post that I wanted to do.? Now I just have to point to it. http://t.co/Ru22nvom Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

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Exchange Traded Products

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?? “@HerbGreenberg mentions that once the creation/redemption mechanism ?breaks? (my word, not his), that the ETF/ETN sh? http://t.co/jxK0bZfX Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? RE: Not likely, but maybe.? If they were forced to see that they were getting a negative (or very low positive) yield? http://t.co/nnxLt2oj Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? Exchange-Traded Notes Are Worse Than You Think http://t.co/FAO4IS3H Path-dependent fees, shadow NAVs, high fees, tracking error, credit risk Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Who Uses Leveraged and Inverse ETFs Anyway? http://t.co/cYpkVMr5 Retail owns 80%+. Normal ETFs r mostly held by institutions $$ Mar 21, 2012

?? Know Your Client ? Leveraged ETF Version http://t.co/gqPtiZtF Doesn’t matter if leverage is internal or external, client needs come first $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Money Managers Serving Clients First, Ego Second http://t.co/gY9bd1iR Using the investment vehicles of competing firms — a good thing $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? RE: @finadd “Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by t? http://t.co/cn5TM1cR Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @amy_calistri at the levels implied by the CEF pricing at some funds, it would shave the yield 3% $DHF $MAV $HIX, 5% $PHT, 12% $PHK $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? @amy_calistri Right. I watch the premiums on credit-sensitive CEFs as a measure of frothiness. If the underlying at some HY CEFs were bot + Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Anybody know what was up with $EFT today? Floating-rate loan CEF up 4%+, Closed near par last Friday… odd. $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? ‘Junk’ ETFs: Tread Lightly http://t.co/lXftKjwB Check the Price vs the NAV before you buy; also, if w/ds start, index bonds will get hit Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

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Individual Equities

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?? Leon Black?s Bid Gets No Respect as Great Wolf Surges http://t.co/kqS6pNyU Used 2call this stock “little dog;” badly managed frm beginning Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @merrillmatter Bezos is scary-smart. I don’t own $AMZN either $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Just watched it. Wow, very impressive RT @merrillmatter: Skynet shall be renamed SkyBezos — Order Fetch http://t.co/6l9R9bHn $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? +1, ugh RT @abnormalreturns: [post] America officially ran out of good corporate names today. http://t.co/lLGEmeAB $ABT $KFT $AAPL $NKE $MCD Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? You’re on a roll today @merrillmatter: @AlephBlog soon our robot overlords will deliver our bread and circuses to us in the Bezos Colosseum Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? No RT @merrillmatter: @AlephBlog I want to start a consultancy that veto’s stupid company names. Would your anti-consultancy veto that? 🙂 Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Amazon Wrings Profit From Fulfillment as Spending Soars http://t.co/McHUqMhe Tough work 4 laborers, though. $AMZN pushes pretty hard $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Kraft to Be Renamed Mondelez After Grocery Unit Is Spun Off http://t.co/GONE6x47 Pronounced ?Mohn-dah-LEEZ.? Sigh, who got paid 4 this? $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? The 400% Man’s New Big Bet http://t.co/33rHut9y Implicitly a bet that $BRKa will always be able to buy back stock @ 1.1x book value $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? In a Major Restructuring, $HPQ To Combine Printer and PC Groups http://t.co/Aj3zaKaY FD: +HPQ; seems like a marginal idea, maybe works $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Why $HPQ Really Needs A CEO Succession Plan http://t.co/hkPDVkAy Good cultures should promote from within; HP used to have that $$ FD: +HPQ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Buffett Message Is ?Do as I Say, Not as I Do? http://t.co/Gcblc8oZ Alice Schroeder very acidic on Buffett; half right & half wrong $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? $AAPL to Pay Dividend, Buy Back Stock to Return Some of Cash http://t.co/uxf6jEBP About time, if there aren’t opps 2use the $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

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Money Market Funds

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?? @MarcHochstein Thanks, I found the CFA Institutes comment today, and their view is similar 2 mine in some ways: http://t.co/8yPLcXfX $$ Mar 22, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein investment restrictions moved back to 2008 norms. The ability 2 have credit events frees MMFs to pursue best advantage $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein My idea will work 4 MMFs using inv policies prior 2 2008. The MMF folks aren’t earning $$ now, but they could with + Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein After reading this: http://t.co/aUoaN4kb Ask them, what if you traded Merkel’s idea 4 a loosening of investment rules? $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein 1 more thing; if they have any sympathy toward my idea, I live near DC & would be willing to testify to the SEC $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein Does that help? I still think my proposal, one of the few compromise proposals out there would work best of all. Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein Having been a life actuary, most regulatory progress happens when actuaries talk w/smarter regulators & forge compromise Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein Does that help? MMFs are just saying “We r fine, nothing needs 2b done.” 2me that strategy prob loses. Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein Would ask them if they have any way of stopping MMF runs on a private basis; this is the SEC goal; solve that, they leave Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein More humbly, I would ask them if they really think they can beat the SEC. SEC’s proposal is horrible, but saying “no” loses Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @MarcHochstein Not so humbly, I would ask that u show them my proposal that I sent to the SEC, & ask them to back it http://t.co/vuNL8tQE Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

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Market Dynamics

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?? The Easy Money’s Been Made, Four Reasons for Caution http://t.co/9kAXqEU4 E-zone calm, risk tolerance+ , VIX low, FOMC may move soon Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? ?and then all of a sudden, THE BULLS WENT BERZERK! http://t.co/bJKCVJha Lots of bullishness out there, though Howard Marks thought otherwise Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @byrneseyeview That’s true, & I did a presentation on that. One more complicating factor were financials, which looked cheap but weren’t $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @byrneseyeview Found it. Here: http://t.co/YupRW6yD It’s on a number of topics; it was well-received $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Contra: The Biggest Bubble You’ve Never Heard Of http://t.co/0tzkPyiA Value can’t b a bubble. Growth can b a bubble. Growth & ROE meanrevert Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Is this time really different? http://t.co/eePs0aIV It’s never different. It’s always different. Profit margins will mean-revert; Q is when Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Biggs boosts bullish bets on stocks to 90% net long http://t.co/5fYQDhUC Won’t be the first 2 say this, but makes me doubt the rally $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? The Ax is Back http://t.co/B1j3f7nH @reformedbroker Reduced profits on Wall Street translates into reduced perks, bonuses & jobs $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Public Companies: The End Is Near http://t.co/KejHwYDu There r still advantages 2being publicly traded, but has eroded since Sarbox, etc $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? S&P 500 Rises to Four-Year High as Apple Plans Dividend http://t.co/RnBf9yEw $AAPL raises the div yld on the S&P 500 by 0.08%. Big! $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Shares and shibboleths http://t.co/CspyJCNX The equity premium over a diversified portfolio of investment grade bonds is ~1%/yr IMO $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Hubble, Bubble, Index Trouble http://t.co/2q3CPx4g Been saying this for years, indexing changes market dynamics, what happens @ reversal? $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

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Politics

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?? Why Are Your Neighbors Just Like You? http://t.co/0lcPOuLZ On the demise of really knowing your neighbors; we try 2 reach out; few others do Mar 24, 2012 http://www.allmytweets.net/css/extlink.png

?? @traderscrucible @interfluidity My blog (& Steve’s) have always had a strong public policy emphasis. Dreaming, but we suggest better policy. Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? Agent Based Models http://t.co/0etJ20fL “Why not keep it simple, and just say, you pay an asset tax for every dollar over $100B?” $$ Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? The Warren Buffett Chain Letter http://t.co/31FFSrmm Draconian adjustments. What Buffett did & didn’t say. 3% deficit ejects Congress $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Migration of sovereign debt from private hands to public institutions http://t.co/rQbDTXg3 &the debt sits til liquidity is needed -> crisis! Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? To Stay On Top, The US Must Invest In Research Universities http://t.co/P4kyUqY0 FD: + $INTC; do it w/yr own $$ not taxes; c my comment Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? RT @BarbarianCap: “cnbc: California Cities Scrambling to Avoid Becoming Insolvent” > the die was cast years ago; clowns, path depende … Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Stopping the National Debt: A Movement Led By a Cowboy, a Colonel, & a Citizens’ Cavalry http://t.co/frqAXCpy Natl Debt Relief Amendment Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Who is REALLY paying in the $25bil TBTF mortgage settlement http://t.co/T2h1B5CO $5B from banks, rest MBS holders eg pension plans, insurers Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? The JOBS Act: Plutocracy in Action http://t.co/Fjo3Ppet Another article on the previous topic; don’t downgrade information quality $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Small Biz Jobs Act Is a Bipartisan Bridge Too Far http://t.co/AwBXg184 Would not mess w/securities laws in that way to create growth $$ Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Public Unions Send Medical Bills to Taxpayers http://t.co/Lb2XgAv9 CA Sup Ct foolishly makes healthcare nonreducible. CA will die $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

?? As Unions Lose Their Grip, Indiana Lures Manufacturing Jobs http://t.co/vj177CT2 Like my article that few like http://t.co/WgdN7Mmq $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

?? Pension Legislation Could Cut Contributions, Hike Taxes http://t.co/Tj1UlUz8 Stupid proposals that weaken DB pensions, companies r strongnow Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

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Regulation

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?? Where is the Center for Audit Quality When We Actually Could Use It? http://t.co/jWt09bcw JOBS Act: destroy info reliability to create jobs Mar 23, 2012 http://www.allmytweets.net/css/extlink.png

?? Fed?s Fisher Says ?Too-Big-to-Fail? Problem Remains http://t.co/eLvHGmXt Richard Fisher favors breakup of the biggest banks. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? @carney just read your piece on the net capital rule. Similar to my piece last November http://t.co/tl28NPku Good piece. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Top Court’s Patent Rejection Alarms the Biotech Industry http://t.co/oK11WlvR ’bout time we forced a more fundamental review of patents Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

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Economics

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?? Solar?s 80% Plunge Hurts Utilities From Hawaii to Spain http://t.co/m9eACVTp Overcapacity drives down prices of PV panels for now. $$ Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Mean Time Between Failures http://t.co/zkT0z9cX The “recovery” is getting long in the tooth, eg it may end soon; graph: http://t.co/xOHA1IYA Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Obama?s tax hikes threaten a new US recession http://t.co/uNHwBpeJ Looking @ 4 more years of divided govt & stalemate $$ #debtbombgrows Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? @The_Dumb_Money I would have liked to see the Banks/Etc. who owned the servicers bear more of the cost $$\ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? Partial equilibrium intuitions about choice http://t.co/215kIrmS @interfluidity more difficult to solve general equilibrium Qs than partial Mar 19, 2012 http://www.allmytweets.net/css/extlink.png

?? Understanding the New Price of Oil http://t.co/TaMTaneR No surprise here; most cheap oil has been found, the price of oil should rise $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

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Miscellaneous

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?? @merrillmatter Factoid: 100,000,000,000 to 1 for a monkey to type the word “banana” from random typewriter jumping Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Is a Calorie a Calorie? http://t.co/4hyTfSvr Yes, but different nutrients come w/calories. Also, a unit of fat has 2x cals vs carbs/protein Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Madoff’s Lament: I Was An Honest Money Manager Once http://t.co/OGp2xRHR The outside world should ignore Madoff now. Attention feeds him. Mar 21, 2012 http://www.allmytweets.net/css/extlink.png

?? Trust no one http://t.co/cFYBkCA7 & http://t.co/ILP0dPlA Independent & regular journalists face conflicts of interest in giving speeches $$ Mar 20, 2012 http://www.allmytweets.net/css/extlink.png

?? On Slime and Water http://t.co/8iezy0FK Pink Slime in burgers, and shortages of potable water in most of the globe, except Canada & US. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

?? The NSA Is Building the Country?s Biggest Spy Center (Watch What You Say) http://t.co/iUsN5D0t Time to increase encryption key sizes $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

?? @TimABRussell I always read all the books I review; in rare cases when I don’t, I tell readers that I skimmed it. $$ Mar 18, 2012 http://www.allmytweets.net/css/extlink.png

Industry Ranks March 2012

Industry Ranks March 2012

Posted on by David Merkel

I?m working on my quarterly reshaping ? where I choose new companies to enter my portfolio.? The first part of this is industry analysis.

My main industry model is illustrated in the graphic.? Green industries are cold.? Red industries are hot.? If you like to play momentum, look at the red zone, and ask the question, ?Where are trends under-discounted??? Price momentum tends to persist, but look for areas where it might be even better in the near term.

If you are a value player, look at the green zone, and ask where trends are over-discounted.? Yes, things are bad, but are they all that bad?? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

If you use any of this, choose what you use off of your own trading style.? If you trade frequently, stay in the red zone.? Trading infrequently, play in the green zone ? don?t look for momentum, look for mean reversion.

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

Huh?? Why change if things are working well?? I?m not saying to change if things are working well.? I?m saying don?t change if things are working badly.? Price momentum and mean-reversion are cyclical, and we tend to make changes at the worst possible moments, just before the pattern changes.? Maximum pain drives changes for most people, which is why average investors don?t make much money.

Maximum pleasure when things are going right leaves investors fat, dumb, and happy ? no one thinks of changing then.? This is why a disciplined approach that forces changes on a portfolio is useful, as I do 3-4 times a year.? It forces me to be bloodless and sell stocks with less potential for those with more potential over the next 1-5 years.

I like some technology names here, some energy some healthcare-related names, P&C Insurance and Reinsurance, particularly those that are strongly capitalized.? I?m not concerned about the healthcare bill; necessary services will be delivered, and healthcare companies will get paid.

A word on banks and REITs: the credit cycle has not been repealed, and there are still issues unresolved from the last cycle ? I am not interested there even at present levels.? The modest unwind currently happening in the credit markets, if it expands, would imply significant issues for banks and their ?regulators.?

I?m looking for undervalued and stable industries.? I?m not saying that there is always a bull market out there, and I will find it for you.? But there are places that are relatively better, and I have done relatively well in finding them.

At present, I am trying to be defensive.? I don?t have a lot of faith in the market as a whole, so I am biased toward the green zone, looking for mean-reversion, rather than momentum persisting.? The red zone is pretty cyclical at present.? I will be very happy hanging out in dull stocks for a while.

P&C Insurers and Reinsurers Look Cheap

After the heavy disaster year of 2011, P&C insurers and reinsurers look cheap.? Many trade below tangible book, and at single-digit P/Es, which has always been a strong area for me, if the companies are well-capitalized, which they are.

I already own a spread of well-run, inexpensive P&C insurers & reinsurers.? Would I increase the overweight here?? Yes, I might, because I view the group as absolutely cheap; it could make me money even in a down market.? Now, I would do my series of analyses such that I would be happy with the reserving and the investing policies of each insurer, but after that, I would be willing to add to my holdings.

Do your own due diligence on this, because I am often wrong.

Seven Notes

Seven Notes

Posted on by David Merkel

First, I have some blog news:? my hosting provider made me delete 7000 spammers out of my user database.? That left me with 200+ users.? Inadvertently, in the process, around 70 bona fide users with surnames starting with the letters J-Z got deleted.? So, if you got deleted, and have to re-register, my apologies.? I tried to be careful, but made an error when matching databases.

Second, MetLife should not have to undergo the stress tests that banks do.? Banks borrow short and lend long; they are inherently unstable.? Insurance companies generally match assets and liabilities, and are stable.? The only insurer of consequence to fail in the crisis was AIG, and it was because of derivatives and securities lending issues, areas that other insurance companies do not touch, or handle differently.

Third, why does an institutional investor use an investment bank?

When I was a corporate bond manager, we used everyone.? We wanted access to deals, and if you don’t deal with all of the majors, you are shut out.? Of course every manager deals with Goldman Sachs even if they don’t trust them.? The big guys know this and keep their brokers at arm’s length.

If you are a reporter, that is why managers will not speak on record.? If the syndicate desks on Wall Street don’t like you, they won’t give you good allocations on contested deals.

Bond managers are wise to use Goldman.? They are wiser to realize that Goldman does not act in their interests, and so, be cautious.? And to the degree that you are a smart manager, you can lessen your dependence on the big guys, and work with the hungry second tier, who know that money can be made by implementing the ideas of smart investors, so find ways to buy cheap bonds for smart investors from dumb investors, and sell rich bonds from smart investors to dumb investors.? After all, brokers only make money when assets are bought or sold.

There are few friends on Wall Street.? Big institutions know that, retail investors should learn that.? But the guy who resigned from Goldman should be aware that not all clients were muppets.? Firms I was with would avoid derivatives unless we were the ones structuring them.? If we have control, derivatives are good.? If we don’t have control, derivatives are bad.? Control is good….

You should always be thinking that those who you deal with may not be acting in your interest, and often, it is because of forces beyond their control.? I was pinned with $10MM face of Teleglobe bonds and the main broker dealing in them held (unknown to me at the time) $100MM+ of the bonds.? My efforts to sell the bonds failed because the broker had a larger position, and there was no active market.

Fourth, just because you live in America, it doesn’t mean you should get a high wage.? Particularly for manufacturing wages are declining, and why shouldn’t they decline, because productivity is not rapidly advancing.? It’s like my article on comparable worth.? Most Americans are going to have to get used to being poorer, because there are many others who can do what they do for less.? And, that partly explains the 1% vs 99% argument, because as the rest of the world grows, and the US doesn’t, it has impact on those in the US that earn too much relative to their productivity.

Fifth, imagine for a moment that you are in charge of an organization that is going to play a baseball game against the winners of the World Series.? You can choose any people to be players that have not been employed in MLB for the last five years.? How well do you think you will do?

Duh. You know you are going to lose.? Well, the same thing applies for those that are arguing that the 99% can dominate the 1%.? Short of Soviet tyranny, it won’t work.? The 1%, should it really exist as a stable organization, is too smart, and will beat the 99% nine times out of ten.

We talk a lot about democracy, though our government thwarts it when it can.? Government typically boils down to aristocracy — the rich rule, and it can’t be otherwise, unless we want Communism, like China under Mao.? In the Eurozone, under the “socialism,” the wealthy happily rule.? Only societies that are wiling to destroy wealth are willing to deny power to the wealthy.? And China is a great example here, as the wealthy increasingly dominate their government, to a greater degree than is true in the US.

Money talks, losers walk, and I never give money to politicians; it is all too corrupt.? Just realize that the deck is stacked against you.? Money finds a way to win in the process eventually.

Sixth, California will suffer for making retiree healthcare unchangeable.? Retiree healthcare in its present form is not affordable by almost everyone.? Why destroy your state by making? promises that can’t be upheld?

Seventh, after you read this, explain why you might trust Chinese statistics.? I reminds me of AIG where bad news had a hard time traveling to the top.

 

Dishonest Annuity Advertisement

Dishonest Annuity Advertisement

Posted on by David Merkel

Those that have read me for a long time know that I am a proponent of immediate annuities.? Though they pay a fixed stream of income, they are more useful than bonds, because they provide longevity insurance; they can be tailored to prove an income that you can’t outlive, for you and your spouse.

But I got really annoyed when I saw an ad that said the following:

  • 7% Income Guaranteed
  • No RISK of Principal

And if you click on it, it takes you here, where they talk about 8%+ returns.? Total garbage.

Yes, if you are old enough, when you buy an immediate annuity, the annual payment may be 7% or more than the amount that you gave to the insurance company.? But with the yield on long low-investment grade bonds? hovering above 5%, I can tell you with certainty as a life actuary that the life companies are not providing a 7% return to retirees — it is far, far less, more like 4%, or maybe less.

So why the difference?? Immediate annuities work off of the idea that a lot of people will die, and money from their annuities is reallocated to the living (minus a profit for the insurer, on average).? The insurer earns 4.5% on its investments, and additional money of 3.5-5.0% from deaths of annuitants supports the payments of those living, with 1% to cover commissions, administration, and profits.

So, they advertise that they are paying you 7-8%+, when they are really paying you 4.0-4.5%, and exposing you to the risk of inflation, because that payment will never rise.? Ask them for payout levels on inflation-adjusted immediate annuities, and watch your jaw drop as you see how relatively low the payments are.

This is dishonest advertising, because not only are they not giving you the true level of returns, but they tell you there is no risk of principal.? Guess what, though I like immediate annuities, the only reason there is no risk of principal with them is that you surrender your principal when you buy one.? Your principal is gone, and you have a payment stream that will disappear at death (or death of you and your spouse).

This advertisement was probably put together by an independent agency, but blame still goes to the insurers that allowed themselves to be involved in such a scam:

  • Allianz
  • Aviva
  • Fidelity Investments
  • Genworth Financial
  • ING
  • Metlife
  • Midland National
  • New York Life
  • Pacific Life
  • Prudential (US)

Shame on all of you.? This is deceptive advertising that defrauds those who trust the representations of your agent.? State Insurance Commissioners, please take note.

If something seems too good to be true, it usually is, and this is another example of that.

The Best of the Aleph Blog, Part 14

The Best of the Aleph Blog, Part 14

Posted on by David Merkel

This period of the Aleph Blog covers May through July of 2010.? The one big series that I started in that era was “The Education of a Corporate Bond Manager” series.? The idea was to describe how a neophyte was thrust into an unusual position and thrived, after some difficulties.

The Education of a Corporate Bond Manager, Part I

How I learned the basics, and survived 9/11.

The Education of a Corporate Bond Manager, Part II

How I learned to trade bonds, and engage in intelligent price discovery.

The Education of a Corporate Bond Manager, Part III

What is the new issue bond allocation process like, and what games get played around it?

The Education of a Corporate Bond Manager, Part IV

On the games that can be played in dealing with brokers.

The Education of a Corporate Bond Manager, Part V

On selling hot sectors, and dealing with the dirty details of unusual bonds.

The Education of a Corporate Bond Manager, Part VI

On dealing with ignorant clients, and taking out-of-consensus risks.

Then there was the continuation of “The Rules” series:

The Rules, Part XIII, subpart A

On the biases the come from yield-seeking.

The Rules, Part XIII, subpart B

Repeat after me, “Yield is not free.”

The Rules, Part XIII, subpart C

Reaching for yield always has risks, but the penalties are most intense at the top of the cycle, when credit spreads are tight, and the Fed?s loosening cycle is nearing its end.? It is at that point that a good bond manager tosses as much risk as he can overboard without bringing yield so low that his client screams.

The Rules, Part XV

Securitization segments a security into liquid and illiquid components.

The Rules, Part XVI

“Governments are smaller than markets; markets are smaller than cultures.“

A fundamental rule of mine, but one with a lot of punch.

The Rules, Part XVII

On the differences between panics and booms.

The Journal of Failed Finance Research

Much research fails quietly, but other researchers don’t learn about the dead ends.? Better that they should learn of the failures, and avoid the dead ends.

How I Minimize Taxes on my Stock Investing

Sell low tax cost lots and donate appreciated stock to charities.

Place Political Limits on Overly Compliant Central Banks

Gives a simple rule to control central banks so that they avoid the present troubles.

Yield, the Oldest Scam in the Books

Yes, offering yield is the oldest way to trick people into handing over their money.

A Summary of my Writings on Analyzing Insurance Stocks

A good place to get started if one wants to get up to speed on insurance stocks, but there is a lot there.

Economics is Hard; the Bad Assumptions of Economists Makes it Harder

Going over Kartik Athreya?s letter criticizing nonprofessional economics bloggers.? Why the math behind macroeconomics and microeconomics doesn’t work.

Why Are We The Lucky Ones?

When you are a part of a small broker-dealer, all manner of harebrained deals get offered to you.? This explores three of them.? Note: management did not ask my opinion on the fourth deal, and that is a large part of why they no longer exist.

One more note: the guy who was going to pledge $5 million of stock in example 2 for a $1 million loan?? The stock is worth $7,000 today.

Watch the State of the States

The economics of the states tells us a lot more about the national health because they can’t print money to buy national debts.? (Though they can can raid accrual accounts…)

We Might Be Dead In The Long-Run, But What Do We Leave Our Children?

My view is that neoclassical economists are wrong.? Aggregate demand has failed for four reasons:

  1. Overleveraged consumers will not readily buy.
  2. Citizens of overleveraged governments will not readily spend, for fear of what may come later from the taxman, or from fear of future unemployment.
  3. Aggregate demand is mean-reverting.? It overshot because of the buildup of debt, and is now in the process of returning to more sustainable levels.? The same is true of private debt levels, which are being reduced to levels that will allow consumers to buy more freely once again.
  4. When the financial system is in trouble, people get skittish.

The Market Goes to the Dogs, Which Chase Their Tail Risk

Complex and expensive hedging solutions, many of which embed some credit risk, can be less effective than lowering leverage, and (horrors) holding some cash.

Fishing at a Paradox. No Toil, No Thrift, No Fish, No Paradox.

This one had its detractors, because I believe the paradox of thrift is wrong.? Too much aggregation, and it does not allow the dynamism of the economy to adjust over time, even from severe conditions.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Here’s the news of the past week:

US Economy

 

  • How the Government Lies About the Real Inflation Rate http://t.co/g6E4KxV5 I agree inf is understated, but by 1-2%, not 6-8%/yr $$ Mar 09, 2012
  • Tax Hunt Pushes Global Wealthy Into Offshore Trusts for Children in US http://t.co/l53hjFH1 Many clever ways 2cheat the taxman #thinkahead Mar 07, 2012
  • How Much Do Income Taxes Affect Our Behavior? http://t.co/mADKt7a7 Answer: not much, but people favor lower marginal tax rates anyway $$ Mar 07, 2012
  • On Politics, Social Security and Spine http://t.co/N8O1Eu6h @brucekrasting on the Disability Income Trust & what it implies 4 politics $$ Mar 07, 2012
  • Why Young People Might (Eventually) Like to Buy a House http://t.co/yC9FX7H5 On the low end, this makes sense at present. $$ Mar 06, 2012
  • Getting Ready to Buy a House http://t.co/6aqzzPmI Megan McArdle notes how low down payments r still prevalent; system not clean @ present $$ Mar 06, 2012
  • Warren Buffett vs. the profiteers of doom http://t.co/02XgQ9tB Unless the US fails in entire, Buffett will be right & the scaremongers wrong Mar 06, 2012
  • NACM credit managers’ index trade credit increase http://t.co/LUdFkYTZ Businesses r more confident in extending credit; coincident indicator Mar 04, 2012
  • @DavidSchawel Then they are having materially better performance than the FHA; I still think housing prices have further to fall on hi end Mar 04, 2012
  • Your Share of Fannie, Freddie Losses: $1,300 http://t.co/h9KdR5d3 Even considering what they are paying the US in dividends, they lose. $$ Mar 03, 2012

?

Federal Reserve

  • @GonzaloLiraSPG Borrow, not print. Fed becomes huge hedge fund 2 arb risky debt spreads. Not in favor of this, but it is happening in small Mar 09, 2012
  • Thought experiment: What would happen if the Fed borrowed enough money to buy up all of the MBS, CMBS, ABS, Agys, Corps, Munis, etc? $$ Mar 09, 2012
  • What the Fed is Considering Doing in Layman’s Terms http://t.co/dXZTMXL2 Levering up, taking more risk in an effort to reduce long yields $$ Mar 09, 2012
  • Bernanke Seen Accepting Faster Inflation as Fed Seeks to Boost Employment http://t.co/AyixImcf Fed is asymmetric, only fights unemployment Mar 08, 2012
  • http://t.co/DR8SLua2 NY Fed never buys the on-the-run and near the run nominal bonds, does the opposite for TIPS, pushes up implied CPI $$ Mar 07, 2012
  • Fed?s Money Monopoly Endangers Liberty and Peace http://t.co/TGhcvm8O Unsound money encourage governments 2b graspy & warlike $$ Mar 07, 2012
  • Central bank policy driving corporate spreads http://t.co/YvV1djQb When the Fed offers cheap financing, risk asset flourish $$ Mar 06, 2012
  • Woodlands congressman battling Federal Reserve’s power http://t.co/iUiwTimH Inflation only, expand role of Regional Feds; Fisher likes it $$ Mar 04, 2012
  • The eventual unwinding of QE: why it?s ignored and what it could mean http://t.co/BPRMaGaU The Fed will be reluctant 2 shrink the Bal Sht $$ Mar 03, 2012

 

Eurozone

 

  • Draghi Lays Groundwork for ECB Stimulus Exit as Inflation Takes Spotlight http://t.co/0y5znzjH So u can’t get inflation thru debt growth? Mar 09, 2012
  • Bond And CDS Arbitrage Opportunities? http://t.co/uRDRh59G Sov CDS “cheap” 2 bonds b/c of a lack of trust in the default trigger $$ Mar 09, 2012
  • Portugal. Boo! http://t.co/ZED0TWOx Mar 09, 2012
  • Draghi Headache: Inflation Heating Up in Europe http://t.co/RQqvvOiC Draghi raised the 2012 forecasts for inflation to 2.1%-2.7% $$ Mar 08, 2012
  • Rift Grows Between Germany’s Bundesbank and ECB http://t.co/trwAlyWm Wise Buba will take pain where ECB wil not. Follow this it will destroy Mar 08, 2012
  • Goldman?s Secret Greece Loan Reveals Sinners http://t.co/eMzOvs2X When u conspire 2b shady, u work w/the shady, who will cheat u2 $GS $$ Mar 07, 2012
  • French-German Border Shapes More Than Territoryhttp://nyti.ms/zDuqpi Culture matters. Policy matters. Similar people yield different results Mar 06, 2012
  • Everyone Loves Mario http://t.co/2sDYYNXh Draghi is popular at present, but this will not end well, b/c bank dependence on the ECB will tell Mar 04, 2012
  • The optimistic view of Europe http://t.co/xtsVrfrY Rogoff argues that these are the birth pangs of the USE: the United States of Europe $$ Mar 04, 2012
  • IMF Set to Curb Funds for Greece http://t.co/XvNhtAcm IMF has 2 much exposure to EZ-fringe; could it b global system hit peak debt? $$ Mar 04, 2012

?

Economics

 

  • An interesting model of asset bubbles http://t.co/cHcFGHht Follows the debt-fueled model of asset bubbles, with momentum tossed in $$ Mar 09, 2012
  • Model Thinking Notes I from Stanford Class http://t.co/qHD0UCzt Those applying models to political questions predict better than others $$ Mar 09, 2012
  • Investors Crave a Taste of the Island http://t.co/fjWsoVDR Amazing how reducing deficits and cleaning up finances can bring growth $$ Mar 09, 2012
  • Cicero quote of the week http://t.co/Y1e6KKYL The budget should b balanced, the Treasury should b refilled, public debt should b reduced… Mar 08, 2012
  • Kindleberger?s Universal Bubble and Crash Scenario http://t.co/Og2VYsX8 We are overindebted, should we be surprised that we face a crisis? Mar 08, 2012
  • After 3 years, we?re all hooked on free money http://t.co/oKRDzSPD Low base rates are creating a new kind of inflation, sad but true $$ Mar 08, 2012

 

China

 

  • Contra: China Inflation May Provide Room for Stimulus http://t.co/Qds1uBwx That is, if you can believe the Chinese inflation statistics $$ Mar 09, 2012
  • Asian banks may b bust; tiger still bites http://t.co/2mW40PMJ Economic consultancy Lombard Street warned China is financial house of cards Mar 08, 2012
  • According to Credit Suisse, the global commodity demand has peaked http://t.co/GNXsHZwL China cannot increase its demand further $$ Mar 08, 2012
  • China Life Discount Swells on World Growth Woes http://t.co/Jl27DtCk I still don’t get China Life and its business model; avoid b careful Mar 08, 2012
  • China needs to enhance ability to win ‘local wars’, Premier says http://t.co/THUVeHVe Dominance of the South China Sea is desired $$ Mar 07, 2012
  • China?s State of the Union http://t.co/D2E2yaH0 China has fewer options by the day. GDP is shrinking because much production is worthless $$ Mar 04, 2012
  • +1 $$ RT @The_Analyst: @AlephBlog ha, newsflash: people whose livlihood depends on strong real estate market say market is strong… Mar 04, 2012
  • End of The World not nigh, say developers http://t.co/JTDwPtT3 A lot of cross-currents in Chinese property markets, suspect trouble $$ Mar 04, 2012
  • China?s Politics in Rare Bloom http://t.co/kmDFW8ou A rare season where the hidden politics of China become publicly visible $$ Mar 04, 2012

 

Miscellaneous

 

  • ‘Internet-in-a-Suitcase’: The Web Technology That Wants You to Be Free http://t.co/UXTNOHDo Not live yet, but coming 2a revolution near u Mar 09, 2012
  • Wal-Mart Therapy Tried as Pentagon Copes With Traumatized Troops http://t.co/7YIU2yqJ long $WMT | PTSD? Trips 2 WMT may help, really. $$ Mar 08, 2012
  • US public schools sell empty classroom seats abroad http://t.co/qTuefNqV Solves a tough problem 4 rural districts w/falling enrollment $$ Mar 08, 2012
  • US Top Destination for Christian, Buddhist Immigrants, Study Says http://t.co/gZW6T62o Interesting commentary on religion & migration $$ Mar 08, 2012
  • The Confucius quote is a lot like Hillel’s “Do not do unto others what you would not hav… http://t.co/XplJNuew Mar 07, 2012
  • RE: @dcrothers This is too important to be left to preschools only. Mothers and fathers must take an active role in t? http://t.co/4je2nZj2 Mar 06, 2012

 

Markets

 

  • Insurers to re-examine risk, capital structure in 2012 – PwC http://t.co/1Cl8bTc1 Low ins co valuations begets low interest for M&A $$ Mar 09, 2012
  • Contra: Apollo Wants to ?Be the New Bank? in 2012, Co-Founder Rowan Says http://t.co/HjfMo5xx Might work in short-run; dangerous idea $$ Mar 09, 2012
  • Tactical asset allocation — Another ripoff http://t.co/NVCwvCCQ During bear markets, TAA gains temporary cache as market timing $$ Mar 08, 2012
  • Think Twice, Even Thrice, Before Trading http://t.co/618YZMAB Most of the time, trading leads to losses, people like the illusion of control Mar 08, 2012
  • Trade to improve your portfolio http://t.co/fINnnvh1 Features thoughts of those who agree. When will average people listen to the good guys? Mar 08, 2012
  • The mystery of the vanishing stock trader http://t.co/y0jvQ6F8 Volume is disappearing in Canada. That’s probably healthy; buy Canada $$ Mar 07, 2012
  • @CflGator My simple solution to all of that is that only hedgers may initiate trades, speculators may not trade with speculators. $$ Mar 07, 2012
  • Contra: Managed money goes LONG oil http://t.co/SartTMgC In mid-2008, there weren’t as many speculative longs & the price was far higher $$ Mar 07, 2012
  • Companies Float Up to $20 Billion in Bonds http://t.co/CJTnGiTE If that much is getting digested easily, maybe the corp rally continues Mar 07, 2012
  • @lcsonka39 @hedgefundinvest I did use the words “if” and “maybe.” I am far enough away that I’m not sure, but I have been through that b4 $$ Mar 07, 2012
  • US Insurers Face $2 Billion in Claims From Tornadoes, Risk Modeler Says http://t.co/N6vW1uIn I would expect a rough weather year $$ Mar 07, 2012
  • IBM?s Watson Computer Gets Wall Street Job http://t.co/qP2mlQDZ Bloodless. Soulless. Brilliant. Ultimate Risk Manager or Disaster Creator Mar 07, 2012
  • Judge: Jefferson County Chapter 9 Case Can Continue http://t.co/MGn2sDTD Remember Ch 9 only gives breathing room, Empee benes relief $$ Mar 06, 2012
  • Do You Need to Buy Big Oil Stocks? http://t.co/FlPMNBXN Arends: As fuel prices soar (again), it may make sense to invest where you spend Mar 06, 2012
  • How To Make Financial Content http://t.co/NRLLm00B Funny takes from @reformedbroker on how various news organizations write their copy $$ Mar 06, 2012
  • Demographic trends will depress portfolio returns, this researcher warns http://t.co/yDXh8J8C Arnott makes u look at the real economy $$ Mar 06, 2012
  • Stocks Cheaper Than Any U.S. Peak in 23 Years http://t.co/wZAnn7Ij Key Q: what will profit margins do? Only will 2 use capital is scarce Mar 06, 2012
  • Milwaukee?s Home-Grown Managers Shun Fads http://t.co/oSzOOjMh My hometown. People there are rational and not given to fads. $$ Mar 06, 2012
  • Dan Zwirn, the Man Who Fell to Earth http://t.co/NmgWpqRm Grew hedge fund fast, inadequate operational support, scandal, business dies $$ Mar 04, 2012

 

International (rest of the world)

 

  • One Year Later, Japan City Sees Light?in a Long Tunnel http://t.co/3JfbCqWG Too much $$ being tossed at too few people in short-run Mar 09, 2012
  • Australian vs Canadian property http://t.co/7Q3pdBP1 Argues that Canada is in trouble, Australia in worse shape but a better economy for now Mar 07, 2012
  • Faros Trading: Yen to Weaken http://t.co/cSAp3Fra & http://t.co/aJkOCcXQ Idea that the yen may weaken is gaining traction $$ Mar 06, 2012
  • Canadian envoy to Iceland sparks loonie controversy http://t.co/QZfE9Kvi Hey, I would link to the loonie if I could, smart idea $$ Mar 06, 2012
  • BRIC Investors Losing as Statists Forgo Earnings http://t.co/kuntGmOJ Worrisome trend, but political influence on firms tends 2b cyclical Mar 04, 2012
  • Why Japan Is Looking Good http://t.co/trw811WG Argues that QE weakens the yen, leading to better corp performance of f low valuation $$ Mar 04, 2012
  • London Is Eating New York?s Lunch http://t.co/UBEFijF7 London has a greater share of international transactions; New York too regulated $$ Mar 04, 2012

 

Politics

 

  • Romney campaign says losing nomination would take ‘act of God’ http://t.co/Q0VS1qRV Whom God would destroy, he first makes proud #hubris $$ Mar 07, 2012
  • Paralyzed Kids Employ Florida Lobbyists With Millions at Stake http://t.co/fmS5UIHu When there r damage caps, pleading 4 special exceptions Mar 07, 2012
  • Hoping for a deadlocked convention that turns to Huckabee, or someone like him http://t.co/OCRBjpXF Mar 03, 2012
  • @Nonrelatedsense I do not trust Romney, Santorum, or Gingrich. They change positions too easily. I may not like everything about Huckabee+ Mar 04, 2012
  • @Nonrelatedsense or Ron Paul, but they don’t shift their views as much. Huckabee would be acceptable to both wings of the GOP. $$ Mar 04, 2012
The Anti-Consultancy Consultancy

The Anti-Consultancy Consultancy

Posted on by David Merkel

I’ve had this idea for 15 years or so, but forgot about it until I sat down and talked with a friend who worked for a dysfunctional company that recently let him go.? My experience working in corporate America is that the best and most effective firms listen to their employees, and set up some means of obtaining their opinions on how the business could be improved.? Bad firms have managements that think that know it all, and the rank and file must merely execute what they imagine will work.

In all of the time that I worked in the insurance industry, or served on the boards nonprofit organizations, I have yet to have seen a situation where a consultant needed to be hired to solve a problem.? The middle management of the firms in question knew what the answer was, but senior management was either fighting with itself, or weak-minded.

I remember one situation where the Chief Investment Officer and the Chief Financial Officer hated each others guts, and could rarely agree.? The only way to solve a particular problem was to hire a consultant, who would neutrally give them an answer that they both would heed.

I was running a small line of business in the company, and the consultant approached me for data, which I gave him, but I asked my boss about the situation.? He told me that the company was spending roughly 7% of that year’s income to analyze the investment policy of the firm, particularly with respect to the liabilities of the firm.? I said to my boss, “If you gave me 3 months, I could solve this project on my own, and the cost would be 3% of what the consultant charges.”? He laughed and told me about the fighting above us, that led to the costs.

As it was, the consultant gave advice that was less detailed than I would have given, but was valuable, though embarrassing to the insurance company — they were invested two years shorter than they should be.? There a free lunch to pick up income and reduce risk.? You could go three years longer if you wanted to optimize risk.

Lovely, but if management had just asked its line of business actuaries to answer the questions it all could been solved for a small fraction of the cost, and with more precision.? Also, though no one talked about it at the time, it really showed that senior management really did not understand the core business, which was earning a spread over liabilities adjusted for risk.

I have another experience working with a non-profit where the executive was weak, and would never hire anyone more talented than himself.? As a board member, I was always shocked with how badly the place was run, but the board members suffered from the same disease; few were competent.? Management liked having incompetent board members.? Worse, the incompetent board members did not like anyone suggesting that there was a better way to do things, which is why I eventually left.

This management team hired consultant after consultant on things that I felt were answerable from resources within.? But being weak-minded, they did not trust their middle management to answer basic questions.? A lot of money was wasted in the process, which was particularly painful, because the non-profit did not have a lot of resources to spare.

Do You Really Need a Consultant?

There are cases where hiring a consultant is needed, but the first question should be whether those who work for the firm, particularly middle-management might be able to do a better job with it for less cost.? Going back to the first firm mentioned, I was hired by a division of the firm to provide exactly that expertise.

Even if employees are a little short of the expertise needed, giving the project to them will develop the expertise internally to deal with the question at hand and handle greater questions later.? More, it will improve morale, as employees deal with difficult problems and triumph over them.? If you want to read about one vignette in dealing with this, you can read it here.? It made me choke up as I re-read it, because it was such an amazing transformation/comeback that no one expected.

But the first priority of people management in a firm should be hiring bright people and set them free to act.? There was one firm I worked for where this was actually done, where the man in charge hired people, all of whom were brighter than him.? I was one of them, and I did not realize at the time that he had hired me to be his #2.? Small organization, informal, yeh.

He wasn’t always easy to deal with, and on a number of occasions people in our unit would come to me near the end of the day, and say “can we talk?”? When I learned the topic, I would say, “Close the door.”? Then I would listen to their grievances.

I responded to them, “Look, our boss is imperfect, but he means well, work with him.? He was courageous enough to hire people brighter than himself, which few will do.? Reason will win out here, and I will help the process along, but be sweet reason incarnate, try to convince, don’t gripe.”

And as it was, all such situations were resolved, and we produced a far better firm, with good results to the client, and good morale.? (And I quietly led useful change, which was the way I did things in my younger days.)

A New Business

So, if you as a management team think that you need a consultant to solve your problems, e-mail me.? For a nominal fee, I will ask you whether you have set up a culture with bright people who can solve problems, and whether they have tried to solve your problems.? If you have tried that, and your team can’t do it, yes, a consultant is warranted, otherwise not.? But it also means that you have hired wrong.? Get some talent in your door that can solve tough problems.

In essence, I would be a consultant telling you not to hire consultants, and to build up the talent base of your organization, such that you would never need me, or anyone more expensive than me again.? I would be a very cheap way of improving your organization.

Denouement

But what happened to the group where I became the #2?

Well, I briefly became #1 when the boss left prior to a merger.? We merged into a larger organization that didn’t really get how insurance assets should be run.? As it was, they lost the mandate, long after I was gone.

The rump of the organization now has a five star rating from Morningstar for high-yield bond management, and is happily managing assets in Charm City (Baltimore), while the immediate parent company (that they were sold to) is in NYC.

Oh, the boss who left?? He eventually found work? managing bonds near DC.? A good guy, if a little irascible. He is still a friend.? In fact, all the people I mentioned are still friends, because I don’t make permanent enemies.? I just try to promote what is best for all.

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