Portfolio Management – Page 45

Sorted Weekly Tweets

Posted on 27 July 2013 by David Merkel

Rest of the World

Aflac Wins Wider Access to Japan Post?s Insurance Sales Network http://t.co/IDyLX4dR7c Looks like a win 4 all sides. FD: + $AFL $$ Jul 26, 2013
Echoes of the Asian Crisis http://t.co/ZzDbO9TtFV India, Turkey, Brazil, South Africa? all r running substantial current-account deficits $$ Jul 26, 2013
Measuring Mario Draghi’s Promises 1 Year On http://t.co/HTs9YDuBXp Mario gambled & won so far. Have the banks used this calm time well? $$ Jul 26, 2013
China risks deflation trap as true GDP crumbles http://t.co/5UnQRRi340 Whole economic sectors that recently drove growth have stalled $$ Jul 26, 2013
Boring But Important: ECB Relaxes Collateral Rules http://t.co/K4wOPXivpW ECB is wiling 2take less creditworthy collateral, aiding growth $$ Jul 26, 2013
Egypt?s Vanishing Currency Black Markets http://t.co/t8FNvy09Ow The military has brought temporary calm, but can they run the economy? $$ Jul 26, 2013
Ma Says Taiwan People Override Missiles in Meeting Xi http://t.co/ziCaK6rCFN Taiwan & China might get along, were it not for old grudges $$ Jul 26, 2013
Japan Prices Rise Most Since ?08 in Boost for Abe: Economy http://t.co/1Fyej1sMMp May seem 2b a boost, but wait till interest rates rise $$ Jul 26, 2013
Moody?s Sees Local Default as $21 Billion Matures http://t.co/63ThxfEOT1 How China deals w/defaults will have a long term market impact $$ Jul 26, 2013
An American General Warns the Israeli Right?http://t.co/st9ByUkiyz Arabs either get their own state, or they get Israeli political rights $$ Jul 25, 2013
No Menstrual Hygiene For Indian Women Holds Economy Back http://t.co/ToN7a7iYts Be grateful that you don’t live in India if u r a woman $$ Jul 25, 2013
Egypt General Stokes Protest http://t.co/DFcjL1Rc9L U.S. Suspends Planned F-16 Delivery as Military Chief Calls for Anti-Morsi Rallies $$ Jul 25, 2013
Pope Calls for More Just Society http://t.co/JLrQ4GWtPb Airy-fairy, what do you mean by just? Eliminating crony capitalists & socialists $$ Jul 25, 2013
China Coal-Fired Economy Dying of Thirst as Mines Lack Water http://t.co/kvQnHgtqfE China can command projects 2b done; can’t make water $$ Jul 24, 2013
Troubled Currencies http://t.co/2jGEw6om6f Iran, North Korea, Argentina, Venezuela, Egypt & Syria. Dig the stats: http://t.co/GR9V3YsvNc $$ Jul 24, 2013
Mandela?s Wealth-Sharing Dream Fades in South Africa http://t.co/nRroLnSyoI Black elite replaced a White elite, little change 4 most $$ Jul 23, 2013
Record Downgrades Foreshadow First Onshore Default http://t.co/cF5fse1yI3 Reaction 2a default in China will b interesting $$ #willtheyletit Jul 21, 2013
China Communist Party Fate Seen Resting on Farmer Rights http://t.co/GWstYr2R10 Will Communist Party grow up & recognize property rights? $$ Jul 21, 2013
‘Desperate’ Cuba voyage is latest scrape for North Korean fleet http://t.co/ET7Y0n1DdE Interesting story on how bad NK merchant marine is $$ Jul 20, 2013
Hitting China?s Wall http://t.co/BIU1vF563V Late to the party, Krugman realizes that China’s economy has to rebalance 2 more consumption $$ Jul 20, 2013

Detroit

Detroit?s Bankruptcy: What You Need to Know http://t.co/8Y3SFcRIFA Nice summary of how most of the major parties r affected & process $$ Jul 26, 2013
How Detroit Drowned in a Sea of Troubles http://t.co/l2aMlTRApk Most disasters result from a series of small bad decisions $$ #detroit #FTL Jul 26, 2013
Now That Detroit?s Gone Bust, Is Your City Next? http://t.co/3C9sPJNqAw?s-gone-bust-your-city-next Consider San Diego, doesn’t fit model $$ Jul 23, 2013
How Detroit Affects Muni-Bond Investors http://t.co/FhAnmighaI If Detroit forces losses onto bondholders, other municipalities will mimic $$ Jul 21, 2013
Detroit Bankruptcy Judge Rhodes Is Ponzi-Law Scholar http://t.co/VgdMDjfTAD Sound like a bright, no-nonsense guy; rules over big problem $$ Jul 21, 2013
Detroit Bankruptcy Likely to Spark a Pension Brawl http://t.co/pJybP68iHo How much will benefits b cut4active, deferred & retired workers $$ Jul 21, 2013
Pension Payouts May Turn on Whether State or Federal Law Prevails http://t.co/fnTcOfO0i3 If State Law, then defined benefits r protected $$ Jul 21, 2013
Moody’s: Detroit bankruptcy filing credit negative http://t.co/2BTQBZ71FI Will b interesting 2c which classes of bonds recover $$ well Jul 20, 2013

Obamacare / PPACA

Bobby Jindal and Scott Walker: Unworkable ObamaCare http://t.co/8IDiKwfzye Opaque rules, big delays & rising costs: The chaos is mounting $$ Jul 26, 2013
Will Obamacare Kickstart Health-Care Revolution? http://t.co/E3rffobd6G More likely to boost overall spending until we scrap & start over $$ Jul 25, 2013
Obama’s New York Model http://t.co/qn9dtCQ7Km How NY state destroyed its insurance market using ObamaCare rules. PPACA now deregulates $$ Jul 24, 2013
Union Fears ?Destructive Consequences? From Obamacare http://t.co/liizu2UBnf Overly complex laws often r attacked piece-by-piece $$ Jul 20, 2013

Pensions

US States And Local Pensions Deficits Still in the Red Zone? http://t.co/absZaz1TRM Big issue. Govts didn’t put in $$, stretched assumptions Jul 26, 2013
Corporate Pension Plans Start Return Toward Fully-Funded Status http://t.co/6ay0QU03ep Yields up, risk assets up, DB pension funding up $$ Jul 25, 2013
David Skeel: Facing Up to America’s Pension Woes http://t.co/jIVvhQqa7B If you have a public pension, your income will b cut, get ready $$ Jul 25, 2013

Energy

Crack spread 101 http://t.co/aBScYANDQk For a primer on how crude oil refiners make $$ , start here. FD: + $VLO $PSX $MPC Volatile beasts Jul 26, 2013
Pimco Prepares for Life After Bill Gross http://t.co/PzFgWZZxRK The key mind that built Pimco; how will it survive without him? $$ #notwell Jul 26, 2013
Is Your College Going Broke? http://t.co/D0xoknDZRd Forbes rates 925 schools on financial strength. Scores here 4 free; c who will live. $$ Jul 25, 2013
Global Oil Supply Shock? http://t.co/QO1jcw8hjk Special report on Crude covering the US, Canada, Russian Supply, & global demand factors $$ Jul 22, 2013

Monetary Policy

Fed Chief Choice Shapes Up as Race Between Summers, Yellen http://t.co/zXurDGlmMY Sad that it comes to this, neither is competent $$ #FTL Jul 25, 2013
Bernanke Seen Slowing QE to $65 Billion in September http://t.co/roO9X8TQFb Y r we listening 2 economists? I don’t c QE tapering in 2013 $$ Jul 24, 2013
Fed Criticized on Oversight of Bank-Owned Commodity Units http://t.co/6S07xD8quN Fed has never used its role as lead bank regulator well $$ Jul 24, 2013
Biggest Banks Face Fed Restoring Barriers in Commodities http://t.co/daCEcXpwYM Asset allocations to commodities drove financialization $$ Jul 24, 2013
Gonzalo Lira: The Democrats Finally Embrace Money Printing http://t.co/hgnJcw3m6F Democrats realize the larger QE is, they can spend more $$ Jul 24, 2013
Right now, Larry Summers is the front-runner for Fed chair http://t.co/Gajh9jbKHR Reverse psychology 2 scare us 2 beg Obama pick Yellen $$ Jul 24, 2013
Why Fed Has Failed to Lower US Unemployment http://t.co/c7HxlBAoEP Main reason:monetary policy can’t solve unemployment, regulatory issue $$ Jul 22, 2013
Janet Yellen for Fed Chair http://t.co/zXW8cR9nKD @calculatedrisk makes a good case 4 Yellen; I would prefer someone more skeptical $$ Jul 20, 2013

Daily Journal

If $DJCO is managing >$100 million in stocks, then y aren’t they filing a 13F-HR w/the SEC as other managers do? http://t.co/nMRJMwC2TL $$ Jul 24, 2013
Munger Triples Publisher?s Value With Panic-Era Stock Bet http://t.co/AOAnQdJyun Cagey Munger times the bottom w/quality companies $$ $DJCO Jul 24, 2013

Financials

Easing of Mortgage Curb Weighed http://t.co/2dsxUG9cPy The Apostles of ez debt underwriting preach their gospel 2 regulators in DC $$ #FTL Jul 24, 2013
Americans Gambling on Rates With Most ARMs Since 2008 http://t.co/WUIyZLyRQt Proving again that u “Can’t teach a Sneech.” $$ #FTL Jul 24, 2013
Athene’s James Belardi, a Controversial Player, Gets Into the Annuities Game http://t.co/FFnKBzJPv3 Regulate him 2 the strictest degree $$ Jul 23, 2013
Nontraded REIT Pulls In Bundles Of Cash http://t.co/e51BfrLHhX Avoid any illiquid investment where the promoter knows far more than u $$ Jul 23, 2013
Housing Recovery Increasingly Prices Out First-Time Buyers http://t.co/LPInUpbjmJ A good thing; ppl need 2 save&make bigger downpayments $$ Jul 23, 2013
Commodities and banks, a recap http://t.co/SerwTZVNTj @izakaminska gives a primer on the financialization of commodities $$ Good read $STUDY Jul 23, 2013
Resigned to reform, Wall Street tries a different tack in DC http://t.co/sEANnYTqET Look at the insurance industry, it’s better regulated $$ Jul 23, 2013
Gorilla Flipping Homes as Rebound Revives Rapid Trades http://t.co/Z0V3aBPtlL Interesting niche: w/scale buys worst homes, rehabs/flips $$ Jul 22, 2013
Mortgage applications fall as refinancings dry up, big opportunities for REITs http://t.co/R5q7RXcJJT REITs can issue private mortgages $$ Jul 22, 2013
Prudential Hits Back on Risk Status http://t.co/I2B3ZawBJy $PRU right & FSOC wrong, problem isn’t size, asset quality, but liab liquidity $$ Jul 22, 2013
In other words, unless a life insurer is writing biz that is immediately or contingently terminable, they don’t go bad in a crisis $$ $PRU Jul 22, 2013

Politics & Policy

Letters About 401(k) Plan Costs Stir Tempest http://t.co/mFQnQ8k59A problem is that is hard 2 service small account & give them advice $$ Jul 25, 2013
Uncertainty and the Slow Labor Market Recovery http://t.co/IvXzr0Dt6l SF Fed estimates that policy uncertainty has held back employment $$ Jul 23, 2013
Feeling the heat on climate change http://t.co/MFMu4gUghd Climate is like markets; unpredictable, constantly varying, makes fools of us $$ Jul 23, 2013
Parents Shell Out Less Money for Their Kids’ College http://t.co/BD3WIz4bhp Fewer will attend college, instead they will enter trades $$ Jul 23, 2013
Reining in the audit industry’s reality distortion field http://t.co/8d6Uakd1p6 Acctg stds 2 flexible & auditors 2 chummy w/cos need chg $$ Jul 22, 2013
Tax break that corporate America wants kept secret http://t.co/0si0ts8gpG Not secret, corporations have negotiated taxes w/IRS 4a while $$ Jul 22, 2013
Warren?s Mistake About Wall Street Risk-Taking http://t.co/qY6jsau0Lg Crisis came b/c too many financed illiquid assets short-term $$ Jul 22, 2013

Market Impact

It’s Possible to Graduate Debt-Free. Here’s How: http://t.co/GsypSp77mo Scholarships, online courses, use your skills 2make $$ & summer job Jul 24, 2013
Three Big Money Mistakes You Could Be Making Right Now http://t.co/lysIFIkV6o Simplified: B careful what you spend; ez 2 waste $$ Jul 23, 2013
Gold futures hiccup indicates demand outpacing supply http://t.co/mF13t0jDaE Too much paper gold chasing too little gold; take delivery $$ Jul 23, 2013
Investors, Analysts See End of Commodity ‘Supercycle’ http://t.co/SEddMlCxug Probably true intermediate-term, but not long-term $$ Jul 22, 2013
Investors Struggle With Cash Conundrum http://t.co/qgTjBIegEy Cash is unique & useful, preserves value when inflation or real rates rise $$ Jul 22, 2013
SEC?s White Takes on Two Billionaires in One Day to Make Mark http://t.co/o9F6N9fdoz I like the current aggressive posture of the SEC $$ Jul 21, 2013
Junk Bonds Jump as Bonds Boom http://t.co/RA46qT8g8A Yield lust resumes as bonds begin to rally more generally amid new issuance $$ Jul 21, 2013

Other

Advances That Regrow Babies’ Hearts http://t.co/rDJ7c3sEih “Our theory is that a newborn heart has amazing growth potential…” $$ #Cool Jul 23, 2013
Does it matter if students can?t write? http://t.co/b8txYKVd0K Yes! Ability 2 write is a proxy for ability 2 analyze qualitative data $$ Jul 24, 2013
Wrong: How an Introvert Can Be Happier: Act Like an Extrovert http://t.co/cGEZEr6xu4 B what u like 2b & you will b happy; don’t force chg $$ Jul 23, 2013
Duchess Casts Midwife Tradition Aside for Royal Birth http://t.co/EX1mfFiiae 4 normal births midwives r the best, they give better care $$ Jul 23, 2013
SIM Cards Have Finally Been Hacked, And The Flaw Could Affect Millions Of Phones http://t.co/hKQbe2x2zp Watch yr cell phone bill 4 chgs $$ Jul 22, 2013
Forget campfires, more kids heading to entrepreneur camp http://t.co/6KwzH0rv0J Interesting idea, maybe I’ll send one of my kids $$ Jul 22, 2013
Burger Binges at Red Robin Fuel Hospitality Hiring Spree http://t.co/ri97tWIuBd Optimistic sign 4 job growth on the low end of wages $$ Jul 22, 2013
What happens to entrepreneurs after their one-hit wonder falls from favor? http://t.co/yYpIqHrsyU 4 examples: what happens after hot->not $$ Jul 22, 2013
A Buffett Fortune Fades in Brooklyn http://t.co/bCvLZYVSaw An unscrupulous charity invades the principal of an endowment & fails badly $$ Jul 21, 2013
Rise of the Warrior Cop http://t.co/f9vCdBjBiu Cops become more like soldiers, trampling on rights of Americans 2 life, liberty & virtue $$ Jul 21, 2013
Fifteen Years After Autism Panic, a Plague of Measles Erupts http://t.co/N7UmpedzYi The measles return after 15+ years of low vaccination $$ Jul 21, 2013
Germiest Places – 8 Ways to Protect Yourself in Restaurants http://t.co/BDDbA4i9p3 U may never again feel the same about ketchup bottles $$ Jul 21, 2013

Comments, Replies, & Retweets

Planning would be better http://t.co/eoCliTfLP2 Jul 25, 2013
@JLGull1 It applies to Berkshire Hathaway, Perry Corp, Markel, and many other holding companies Jul 25, 2013
@kaylatausche Honored to have you following me. Keep up the good work at CNBC; you do it well. Jul 24, 2013
@chadstarliper What I saw was fwd rates 5 years out move up pretty hard, and not move back, much Jul 24, 2013
@chadstarliper I agree w/ that, though in the short run, most don’t look at the fwd cv. But didn’t the fwd cv move when BB said “taper?” Jul 24, 2013
@chadstarliper But it does affect the yield the debt is offered at vs the open market Jul 24, 2013
@srochetrading thanks Jul 24, 2013
@chadstarliper QE is buying ~50% of US debt issuance, Democrats would like that to continue. Jul 24, 2013
@srochetrading I don’t know GL that well, would @ProfSteveKeen talk 2 me if I asked him? Jul 24, 2013
I just left a comment in “Warren Buffett sidekick Munger creates a mini-Berkshire at Daily Journal” http://t.co/T4S7rdjHVp Jul 24, 2013
I just left a comment in “Warren Buffett’s long-term stock picks – MarketWatch” http://t.co/1DB0TniNTu Jul 24, 2013
I just left a comment in “Stagflation: The Fed?s worst nightmare – Irwin Kellner – MarketWatch” http://t.co/cHFQluVzPY Jul 23, 2013
@Bonjubs Yes, being a Christian, a Libertarian, a loving father & husband, adopting 5 children & having 3, are all crimes against humanity Jul 22, 2013
@Bonjubs Rebellion is almost always a mistake. It has not helped most of the Arab Spring. Most long-lasting change comes via peaceful means Jul 22, 2013
RT @StevStiffler: ????? s??? p??? o? ?uo?d ?no? u?n? o? ???? ?up?p no? ?? ??????? Jul 21, 2013

The Rules, Part XLVII

Posted on 25 July 201320 June 2017 by David Merkel

Crashes are the result of a shift from a positive self-reinforcing cycle to a negative self-reinforcing cycle.

Cycles in business and investment tend to be self-reinforcing.? That is true because most men don’t think, they imitate.? Economics needs to revise its view of man as rational, because it hurts to think differently.? It is much easier to go with the flow of your relatively successful neighbors, and imitate them.? Thinking for yourself is needless effort to many.? Why bother with that when doing well is a simple thing?

The trouble is, early imitators are few, because the signal is not so big.? Late imitators are many; the signal is big, and wrong.? The dumb money arrives at the end of a boom.? At that time, asset prices are so high that the asset must make gains over the next ten years in order to cover the capital cost of the investment.? At peaks, it would pay better to hold fixed income, and not play in the hot asset.

At the peak, it only takes a few sellers to overcome the market, because all of the dumb money is exhausted.? They are fully invested.? Valuation-sensitive buyers are wary.? This is one reason why markets rise slower than they fall.? Credit expands to aid the boom, but when the bust comes, new credit is cut off rapidly.? Thus we have crashes, and the economy never moves as quickly as the market, but the economy moves with more persistence.

I want to attack this from a different angle.? In 1929, before the crash, there was an article by J. J. Raskob in Ladies Home Journal entitled, “Everybody Ought to Be Rich.”? Think about that title.? Stocks flew as a result of the easy money policy of the Fed in the ’20s.? Some had invested in the market and made a fortune up to 1929.? Was that sustainable? No.? Did many keep it? No, very few.

But now suppose that everyone had invested in the market in mid-1929, off of Mr. Raskob’s advice.? Stocks would have soared further, and crashed worse.? Why?? The pricing of stocks is not arbitrary — a high price must be justified by high earnings relative to where an investment grade bonds yield.? As it was, the highly indebted economy of 1929 was ripe for a fall, with earnings and bond yields falling dramatically.? At least the Great Depression solved their debt problem — the Great Recession isn’t doing it for us.

But can everyone be rich?? Gotta break it to you, the answer is no.? Part of it is relative — there will always be some differences wealth/income because of a number of factors: some work harder, some work faster, some invest better, some get a better starting position, etc.

But part of it is absolute.? Some jobs don’t make sense unless you have less-skilled workers to accept lower wages for picking fruit, daycare, delivering pizza, etc.? In a society where almost all people marry and have more than two kids naturally on average, that means many of those low level jobs will fall to the young.? In societies where the birth rate is low, a lot of those jobs go to immigrants from poorer nations.? Now if you accept the idea that there is a spread of abilities in people, you know that there are less-skilled people by the time they arrive at age 25.? Some of it is natural.? Some of it is laziness.? Some of it is bad planning.? Many of those that are less skilled will occupy the low-end jobs, and in a society with reasonable population growth, there won’t be much room for immigration.

Everyone ought to be rich?? Because they invest?? If everyone were a value investor of high degree, and we parted with our excess income regularly to invest, where would the opportunities be?? In a situation like that, brighter and more motivated people would try to start businesses where they levered their own abilities without trying to play on the secondary markets, assuming they could find people to work with them.

The idea that “everyone ought to be rich” is hooey.? There are rare times when an asset class gets on a roll and seems invincible:

Stocks in the 20s, 50s-60s, 80s-90s
Bonds in the 80s-00s
Commodities in the 70s, 00s
Cash in the 70s
Real estate in the 20s, 70s-80s, first half of 00s

But to profit in those eras, you would have to know the right place to be, have proper discretion make wise investments, AND have enough funds socked away in order to make the wise investments.? By the time someone writes a book/article “Everyone ought to be rich,” or “How you can be rich by flipping real estate,” etc., it is too late.? And please ignore the scam ads where penny stocks create millionaires — that applies to those few selling the penny stocks, not those buying.

Few people have achieved great wealth through investing.? The ordinary sorts are those who manage other people’s money in public markets, and a lot of it, and do a middling-to-good job, so that clients don’t leave.? Other do it through private equity, but there again, they are levering other people’s money.? Then there are those that use mostly their own money, like Buffett, Munger, etc., and find undervalued situations relative to prospects regularly.? Those are precious few.

Society has people that make money off of:

Work
Lending
Managing physical assets
Managing businesses
Managing financial assets

That last category gets too much attention.? Most people have better advantage upgrading their skills, or owning private businesses that they understand well.? That may not make them rich, but it might make them well-off.

Summary

There are booms and busts, and each period has self-reinforcing behavior.? It is difficult to time booms and busts.? Some get the booms; some get the busts; very few get both.? It is tough to make money off of the boom-bust cycle and keep it.? It is really tough to make your living entirely through investing, unless you inherit it.? Work to enhance your skills to your best advantage wherever you work.

But no, everyone can’t be rich, and we have to accept that reality, and reflect that in government policy.? Encourage free and fair competition; eschew crony capitalism.? Don’t give anyone, rich or poor, an unfair advantage.

Finally, recognize what the neoclassical economists won’t admit — you can’t get rid of the boom/bust cycle.? It is a fact of life, and all of the tinkering with policy will never eliminate it — it will only intensify it.

The Rules, Part XLVI

Posted on 20 July 2013 by David Merkel

Speculative companies should be evaluated on cash, burn rate, probability of success, size of potential market and margins at maturity.

I rarely buy speculative companies, but it is an interesting question as to how speculative companies like Amazon, Google, or a biotech firm should be valued.? Speculative companies are like options; they often end with no value, and occasionally end with a large value.

Here are my five points:

Cash
Burn rate
Probability of success
Size of potential market, and
Margins at maturity.

Cash and burn rate tell you how long the company has to play before it fails.? If a company is spending cash in an effort? to produce a profitable business, how long can it do so until it runs out of cash?

That plays into the probability of success — more time means a higher probability, mostly, but desperation can aid success.? Other aspects on probability of success include the competition, novelty/reliability of the science, etc.

If the strategy does succeed, how large could the market be that is served, and how big could the margins be as part of an oligopoly?

But after all that, discount for the probability of failure, and discount the future earnings stream at 20%/year, because this is so uncertain.

As I said to colleagues at one firm I worked for in 2004, “Imagine Google gets 20% of the profits of the global advertising business 10 years out, and holds onto it?? What would that be worth?”

It would be worth a lot, and Google has probably exceeded that profitability estimate, thus the high market valuation of Google.? Give credit to people with clever ideas at the right time.

Anyway, be careful investing in speculative companies — this is an area where you will get more strikeouts than home runs.? I tend to be a singles hitter in investing, but with a high average.? But in the few cases where I look at a speculative company, this is how I do it.

The Rules, Part XLV

Posted on 20 July 2013 by David Merkel

Market rents are typically fixed in size.? When a strategy to exploit a particular market inefficiency gets too big, returns to the rent disappear, or even go negative prospectively, even if they appear exceedingly productive retrospectively.

If you have read me for any decent amount of time, you know I am big on economic and financial cycles, and how they can’t be eliminated.? There are two groups that think the cycles can be eliminated:

Politicians and Central Bankers who think they can create permanent prosperity, when all they really create is an increase in overall debt.
Efficient market theorists who think there are no strategies that beat the market.

It is the second group that I am dealing with this evening.? Market strategies trend.? If we have had outperformance from value investing this year,? the odds are good that we will have it next year, unless it has gone on for too many years (5+).

Ideas in investing tend to streak, get overinvested, then die.? This is one reason why I don’t believe articles about the death of various investment concepts.? We need to think about investment ecologically.? There are no permanently valid investment factors to beat the market.? There are many investment factors that beat the market over time, but not while many are pursuing them.? Imitation drives returns, and then over-imitation kills them.

That means we should be wary when a strategy has been working too well for too long.? It also means we should be skeptical when any strategy with a strong thesis behind it is declared “dead.”? That may be the very time to consider it, or maybe wait a year or two.? Many strategies are forgotten; after a time of failure it is time to remember them.

Part of this stems from the biases of institutional investors.? They think that their winnowing down of the investable universe through screening will always produce a good crop of candidates in which to invest.? But that’s not true.? Talented investors think more broadly, and are willing to consider investments that don’t fit within common screens.

The thing is: strategies go in cycles.? They are born at a time when no one loves them.? They gain currency from the good returns of those who adopt them, leading to a frenzy where many adopt the strategy, and returns are great, but now companies that fit the strategy are overvalued.? The process goes into the reverse gear where the strategy is garbage, until enough parties abandon it and the prices of stocks that would be a part of the strategy are attractive.

So when you hear:

Value is dead
Growth is dead
Large caps are dead
Small caps are dead (rare)
Momentum is dead
Low volatility is dead.
Quality is dead.
Low Quality is dead.
XXX industry or sector is dead.

Be skeptical, and begin edging into companies that you like in the “doomed” strategy.? Make sure they have strong balance sheets and competitive positions.? That will protect you if the trend persists.

One more note: this doesn’t work in reverse.? A strategy that has been working for a little while will likely streak.? Resist the trend when it is old, not when it is young.

Finally, remember: there are only tendencies, not laws: markets exist to surprise you.? There are theories that work in the market over time, but they do not work year after year, the results come in lumps, unlike the projections of the financial planners.

And I close by saying to all of my readers — is this not how the market works?? There is momentum, but it sometimes fails dramatically.? Ideas streak, and then collapse far faster.? I say be aware of what has been rewarded and what has not.? Sell stuff that has been rewarded too long, and that which has been recently trashed.? Buy the stuff that has come into favor, and strong companies that have been unduly trashed.

Sorted Weekly Tweets

Posted on 19 July 2013 by David Merkel

Energy

US fuel export surge gives refiners surprise summer blockbuster http://t.co/8d3WbY7xZg We need free trade in energy & end corn ethanol $$ Jul 19, 2013
US approval of Enbridge pipeline plan irks some oil shippers http://t.co/4YYisxzgFH Limited pipeline capacity versus supply raises rates $$ Jul 19, 2013
Deadly derailment won’t stop oil on trains http://t.co/gb7u6riA6S Rail allows 4 flexibility at a higher cost and lower safety $$ Jul 19, 2013
The danger of too much ethanol http://t.co/huUzLpgvDX We would b a lot smarter 2 buy ethanol from Brazil, or drop ethanol in entire $$ Jul 17, 2013
Surging Gasoline Prices Push CPI Inflation Higher, But Weak Core Fuels Taper Uncertainty http://t.co/0Z5zXMjvlJ Inflation rising, note it $$ Jul 17, 2013
Senators Grill Refiners Over High Prices Amid Oil Boom http://t.co/j0jhNhkXSF There is cheap crude in the center of the US, not at coasts $$ Jul 17, 2013
US ethanol credits soar to fresh high http://t.co/1gUVMm5O3u Perhaps allow the importing of Brazilian ethanol; that would improve matters $$ Jul 16, 2013

China

China Loosens a Key Control Over Banks http://t.co/AS6hzeD9vY Not sure this is big; eliminating floor interest rate allows 4 lower rates $$ Jul 19, 2013
China’s Zhu Changhong Helps Steer Nation’s Currency Reserves http://t.co/WcjpJD4YiC Aligns China’s interests more tightly w/the US $$ Jul 17, 2013
China Keeps On Gobbling Up Treasurys http://t.co/4gOipjltfJ Meet the Fed’s competitor 4 acquiring Treasury bonds; forced buyers both $$ Jul 17, 2013
Wealth Products Threaten China Banks on Ponzi-Scheme Risk http://t.co/BB8162405P Chinese banks will b threatened by runs in a few years $$ Jul 17, 2013
Police Say Sexual Favors Spur $1.5 Billion Glaxo China Sales http://t.co/hrPhrJjGkb China sells itself cheap if this is true $$ #SAD Jul 17, 2013

Central Banking

Curse of the front-runner a bad omen for Fed contender Yellen? http://t.co/CabkT1vGRV We need someone other than a neoclassical economist $$ Jul 19, 2013
The Summers or Geithner nightmare http://t.co/oltKKRvRMC They benefit from not being Yellen. Otherwise, no reason to consider them. $$ Jul 19, 2013
Bernanke Says Unwinding of Risky Bets Boosts Borrowing Costs http://t.co/QVVmtUPUnq Interesting argument, given his prior encouragement $$ Jul 19, 2013
Bernanke: Three Reasons Interest Rates Have Risen http://t.co/AJ7fVb2Csp Stronger economy, ‘fraidy cat markets, & leverage unwind $$ Jul 19, 2013
Hilsenrath: What Bernanke Means http://t.co/riIsNWgsCq When you have a poor communications strategy, a lot of people r needed to explain $$ Jul 18, 2013
Four Factors the Fed Faces on Bond-Buying Exit http://t.co/nDpYsdDKef Fed does not get labor market, inflation, & fiscal concerns $$ Jul 17, 2013
3 reasons why Larry Summers should not b next Fed chairman http://t.co/kS6d0VcThG Many reasons y da conceited fool should not b Fed chair $$ Jul 17, 2013
Bernanke Boom Signaled by Yield Surge as Market Recalculates http://t.co/H7miGoHpoI Watch rates fall again on economic weakness $$ Jul 16, 2013

Rest of the World

Female Footballers Covered Head to Toe Inflame Islamists http://t.co/WWTPU4EIqu No matter how hard u try, some people won’t b happy $$ Jul 19, 2013
Honda?s Fujino Readies ?Flying Acura? to Challenge Cessna http://t.co/fAaOQ7Oq3v Honda pours lotsa $$ into a long-shot small plane venture Jul 19, 2013
Honda Builds ?World?s Fastest Lawn Mower? http://t.co/WpCe7DciTf Can go 130MPH, or 15MPH when it is cutting grass. All bragging 4 rights $$ Jul 19, 2013
Rudd Home Sale Thwarted as Canberra Market Slows Pre-Vote http://t.co/uts4KwqXru Housing prices fall as economy slows & govt shrinks $$ Jul 18, 2013
Abe Unleashed After Vote Seen in Biggest Risk Drop http://t.co/mKuANJSeKL Social-security costs r already 31% of government budget $$ Jul 18, 2013
Payday Looms on Dictator?s Defaulted Bonds in Peru http://t.co/0gDmQGzGu5 Expropriation in the 70s demands repayment 4 those that lost $$ Jul 18, 2013
Ahmadinejad Departure in Iran Means Moving Desk Down Hall http://t.co/Iiv0lTr3nI Never underestimate the staying power of a bad idea. $$ Jul 17, 2013
International Paper’s Big Pulp Bet Hits a Frosty Siberia http://t.co/zOv3fPyKC9 Cheap Timber & transport stymied by Russian bureaucracy $$ Jul 17, 2013
Merkel?s Unseen Power Beate Baumann Misses No Chancellor Details http://t.co/G23npBa7qF Baumann works behind scenes on policy & politics $$ Jul 16, 2013
In Egypt, the ‘Deep State’ Rises Again http://t.co/GEXtZ1kR63 Collusion between Army & Opposition parties against Muslim Brotherhood $$ Jul 13, 2013

Market Impact

A portfolio for all seasons? http://t.co/GZle4jAj2U If Harry Browne’s idea were more widely adopted, the price of gold would fly. $$ Jul 19, 2013
The 100 Best Finance Blogs: All The Internet?s a Stage http://t.co/6nUipa6mbv Aleph Blog is pleased to make the list @ # 48. Great blogs $$ Jul 19, 2013
Red Bull-Fueled All-Nighters Put Fortress Fund on Top http://t.co/VhA7FTlNNJ Diminishing marginal returns 2 scale; time spent late poor $$ Jul 18, 2013
Excellence Hurts Returns in US Stock Study http://t.co/IgN41lyuUA Stock performance mimics bond performance; junk stocks & bonds do well $$ Jul 18, 2013
Judge Slams S&P’s Defense in US Lawsuit http://t.co/PP9FNRlGGj Puffery: lousy argument 4a rating agency 2make b/c ur supposed 2b honest $$ Jul 18, 2013
Meet the Man Who Has Worked at Goldman for 80 Years http://t.co/JsQTRY20Vl Alfred Feld is still plugging away for clients @ $GS at age 98 $$ Jul 18, 2013
Eminent Domain Plan Decried by DoubleLine Sees New Life http://t.co/h78U7z5i5i Myth: ordinary people were innocent in housing bubble $$ Jul 17, 2013

Biggest Muni Sale of 2013 Set to Price for Texas Roadway http://t.co/VYTI7TAqH2 There is demand 4 muni deals; this is a prime example $$ Jul 17, 2013
Should You Invest in the New Wave of IPOs? http://t.co/CSBOFQYpIa When IPOs r many, often the quality is lower. B careful w/IPOs here $$ Jul 13, 2013
Senators Introduce Bill to Separate Trading Activities From Big Banks http://t.co/2ig1nWw4hH There r better reforms that need 2b made $$ Jul 13, 2013
The Yankees parking lots that went bankrupt, skipped city payments and took city land http://t.co/aIylgsyrmf Read; fascinating tale $$ Jul 13, 2013

Other

Three Ways to Unlock Great Insights http://t.co/wNpdgGcwp5 Consider anomalies, new perspectives,& desperation $$ Jul 19, 2013
South Carolina Psychiatric Patient Stuck 38 Days in ER http://t.co/ublh93VwXe Eats up a lot of hospital resources, but what to do? $$ Jul 18, 2013
For His Next Trick, the Cronut Maker Reinvents the S?more http://t.co/dyMYB1V6BO I am into cooking, but this sort of stuff makes me blink $$ Jul 18, 2013
The Cronut Maker Reinvents the S’more http://t.co/AqIfdAtEyo If you add enough calories to any recipe, it will be delicious. $$ Jul 18, 2013
Smartphone Upgrades Slow as ‘Wow’ Factor Fades http://t.co/G1dKzoe1Zm Every trend fades. Exponential goes linear, linear goes logarithmic $$ Jul 17, 2013
Health Insurance Shoppers Put Low Price Above Other Options http://t.co/qBBuCCvHXV People want basic coverage 4a moderate price $$ Jul 16, 2013

Wrong

Wrong: China’s Flying Propaganda Weapon Will Blow Your Mind http://t.co/OtBvBMFKle Will b an ez target, given RF signature & 4 turboprops $$ Jul 19, 2013
Wrong: Consumers Most Penny-Wise in Almost 50 Years http://t.co/LTuUGB3eEW A high correlation doesn’t mean a beta of one $$ #studystatistics Jul 19, 2013

The Rules, Part XLIV

Posted on 19 July 2013 by David Merkel

Expectations are a part of the game.

As expectations change, so do the markets.? What could be simpler?? Markets are discounting mechanisms, so why aren’t expectations the whole game?

Expectations are the whole game for widely traded assets that are analyzed by many.? But there are complex assets and smaller assets for which expectations, should they exist, are not well-defined.? A large example would be Berkshire Hathaway.? When the stock of Berkshire Hathaway begins to care about making/missing earnings estimates, that will be a real change in the way the stock is viewed.

I have a number of other stocks in my portfolio that have no analyst coverage, so whatever expectation their is for the company is ill-defined.? Earnings shrink?? Stay flat? Rise a little, lot, or more?? Often the reactions are muted, because expectations are ill-defined.

With cheap stocks, I often view results in two ways:

Expectations mode: are they beating earnings expectations or not?
Book value mode: are they earning enough to justify the current market price?? (And are the earnings real?)

It’s hard to lose money on companies that trade below book and have a single-digit P/E.? The value accretes and eventually market prices follow.? You just have to be happy with firms that are boring, but profitable.

Cheap stocks with good balance sheets do not get killed when there are earnings disappointments.? With those stocks, we can sit back and wait for a better day.

All that said, earnings estimates provide a feedback mechanism for those stocks that have an adequate number of analysts following them.? Imperfect as it is, it guides the way we react to quarterly releases of adjusted earnings.? And when companies attempt to show adjusted earnings that are liberal, it is no surprise when the market rejects their presentation, and the stock goes down.

But this rule applies to policymakers as well.? Over the last 27 years, the Federal Reserve has placed a greater emphasis on communications.? I think that was a mistake, but the Fed made it a goal to shape the expectations of the market.? And they did so.

But once you sharpen the focus of the market to your promises, should it surprise you that when you give the least bit of equivocation, that the market reacts badly?? Hey, you made your bed, now sleep in it.? You trusted in your ability to communicate, and now you reap the result.

Even with no current change in policy, a change in expectations can have a huge effect on markets, particularly when novel policy tools are being used.? Ben Bernanke should not have been surprised by the reaction of the market to his comments to the press after the last FOMC meeting.? All of the efforts since that time to take it back have bolstered the stock market, but have not affected the bond market much.? Remember that the bond market is usually smarter than the stock market, thus I remain bearish.

Full disclosure: Long BRK/B

Distinguishing Alpha from Noise

Posted on 17 July 2013 by David Merkel

I read a paper today that I thought was pretty interesting — A Consultant?s Perspective on Distinguishing Alpha from Noise. [8 pages PDF]? I have been on both sides of the table in my life.? I have hired managers, and I have tried to sell my equity management services.

In general, managers that thought would offer value would venture off the beaten path.? They might own some well-known names, but they would own far more that would make me say, “Who is that?”? The companies would be less known because they are smaller, foreign, have a control investor, etc.

Those portfolios would look a lot different than an index fund.? They would be more concentrated by sector, industry and company.? They would have a process that analyzes what the market is misvaluing, whether by sector, industry, or company.? They would stick to their discipline through thick and thin, realizing that all anomalies in the market go in and out of favor.

The process would specify what anomalies of the market, or what information advantages the fund would attempt to exploit.? But once you specify that, you stick to that as your strategy.? There is no room for tossing an asset in “because it looks good.”

There is a balance in good strategies that allows for minor modifications around core principles.? All good strategies have to adapt, but there has to be a strategic core from which the strategy will never vary.? Absent that core, the strategy will give in to fear and greed — buying high and selling low.

Quoting from the paper:

I am amazed at all the managers that make an assertion of the type “In the long run X always wins”, where X could be dividend yield, earnings growth, quality of management, a quantitative factor or mix of factors, etc., yet are unable cite a reason why X should be systematically under-priced by the market.

My view is twofold.? There are some ugly situations involving financial stress that most investors don’t want to take on.? There are also less glamorous companies that few want to buy.? Those can be excellent investments.? My second point is tougher to make, but industries go in and out of favor.? So do market factors.? Buy that which is safe, and out-of-favor.

Now, for managers, I would recommend keeping a trading journal, where you record why you think your investment hypothesis will succeed.? If your investments succeed for reasons that you specified in advance, that is an indication of skill.? There is a lot of what is called “luck” in investing.? If you are beating the market, and it is not for reasons that you specified in advance, you do not have skill, you have luck, and luck strongly tends to mean revert.

My view comes down to this: I like to see a long track record of outperformance, an unusual portfolio, and a strategy that convinces me that you have discipline, and a constructive way of finding undervalued assets. ? Absent that, I will probably think that you are a pretender than an outperformer.? There are always some that outperform for a short time, and then underperform as the underlying economics shift.? Markets are volatile enough that there are always some with three-year track records that are stunning, and very lucky.

Separating luck from skill — that is the toughest aspect of investing.? But it is needed because there are so many investment managers touting skill, and what do they really offer?

In Defense of Concentrated Portfolios

Posted on 10 July 201310 July 2013 by David Merkel

I was traveling most of yesterday on an odd bit of Church business, but I am back home now, late as it is.? I listen to the radio as I travel to meeting like this, and much of it reminds me of why I don’t like many aspects of talk radio.

Arguments that don’t take into account the complexity of the issues
Advertising that may cheat your hearers
Arguments that assume the worst of your adversaries
Callers that are sycophants
Views that are too cynical.? Don’t assume a conspiracy when mere incompetence will do it.

Today, I heard a lot of odd things, but one hit me hard because it is what I do.? I caught a small part of Dave Ramsey’s show, where he was ignorantly criticizing stock-pickers like me, that we can’t outperform the S&P 500 or a growth stock index fund (which is easier).? He further criticized concentrated portfolios, saying that they were far too risky, saying that you had to have at least 100 stocks in a portfolio to achieve diversification.

Now, fellow Christians often ask me what I think of Dave Ramsey, and I often say to them that his emphasis on paying down and avoid debt is a good one, but that he doesn’t have much to say beyond that.? Now, that’s my perspective from listening? to snippets over the years.? I don’t claim to understand him fully, but after listening to him, I can’t get what the thrill is — it is all rather basic.

But then, basic is what most people need, and that is why cash & debt management is the first priority for most people.? Many of my personal finance articles deal with that.

Ramsey is out of his league when trying to opine on whether concentrated portfolios offer value of not.? There are two philosophies here:

Don’t put all of your eggs in one basket
Put all of your eggs in one basket, and watch that basket like a hawk.

These two philosophies show the tradeoff of diversification for knowledge.? From an interview with Marty Whitman in Barron’s:

Why do you prefer to run funds that are concentrated, rather than diversified? And how do you protect against risk when you do this?

We get protection by being price-conscious and by being extremely knowledgeable about our holdings. And diversification is a surrogate?and a [very] poor surrogate?for knowledge, elements of control [of a company] and price-consciousness. If you are really a value investor and do deep research, how many investments can you be involved in at the same time? If you are a high-frequency trader, you could trade 100 securities today. The real value investors are lucky if they can do 10 investments at a time.

The idea is that value investors gain detailed knowledge of companies that they invest in.? That takes time and effort, so they limit the number of companies that they invest in.? The idea is to do so much research, that you have an information advantage over 99% of the market.? It pays off.

Buffett himself wrote an article called, “The Superinvestors of Graham and Doddsville [PDF],” which was published in Hermes [Columbia Business School], and republished as a forward to later versions of “The Intelligent Investor.”? Most of the “Superinvestors” ran concentrated portfolios by today’s standards.? Some were highly concentrated — the one common thing among them is a value style that focuses on a margin of safety to avoid large losses, and purchasing shares of companies whose assets are out of favor, where a bargain price can be obtained.

Now not everyone is cut out to be dispassionate about investing, treating it like a business where you are trying to buy safe assets cheap, and sell them dearly when they come back into favor.? You often look wrong before you are right.

I myself run a concentrated stock portfolio, 36 stocks at present with significant industry concentrations in energy, insurance, and technology, and have done well versus the S&P 500 over the last 13 years.? I think this is considerably less risky than buying an S&P 500 index fund, much less a growth stock index fund.? The value stock index fund?? That’s a good option for those wanting passive equity exposure.? On the whole, I like what I do better.? My portfolio never looks like the index.

If you own actively managed funds, though, particularly large cap funds, take a look through them, and see if they look like an index fund to you (but with much higher fees).? The term is called “active share.”?? How different are they from an index fund? Look for funds that do it differently, and have succeeded in the process.? That’s what I do for friends when I look over their actively-managed mutual funds.

All for now.

Many Will Not Retire; What About You?

Posted on 6 July 20139 July 2013 by David Merkel

Retirement.? A concept of the late 1800s to the present.? Easy to swallow when the population is growing rapidly.? Tough to do when populations are growing slowly, much less shrinking.? I would point you to two articles I have written:

With stock prices high and interest rates low, many people look at their portfolios and smile: high current market values.? But what would happen if you had to turn?it into income?? Interest rates are low.? Dividend yields, though better than the past, are still pretty low.? This is another place where total return blinds us to economic reality.? If market values have risen solely because people are desperate for yield, earnings, etc., and not because future productivity is likely to be far higher, the rise in asset values does not represent a rise in distributable cash flows, which is what investors truly need.

Think of this a different way, and ignore markets for a moment.? How do we take care of those that do not work in society?? Resources must be diverted from those that do work, directly or indirectly, or, we don’t take care of some that do not work.

Back to?markets: Social Security derives its ways of supporting those that no longer work from the wages of those that do work.? That’s one reason to watch the ratio of workers to retired.? When that ratio gets too low, the system won’t work, no matter what.? The same applies to Medicare.? With a population where growth is slowing, the ratio will get lower. If the working population is shrinking, there is no way that benefits for those retiring will be maintained.

Pensions tap a different sort of funding.? They tap the profit and debt servicing streams of corporations and other entities.? Indirectly, they sometimes tap the taxpayer, because of the Pension Benefit Guaranty Corporation, which guarantees defined benefit pensions up to a limit.? There is no explicit taxpayer backstop, but in this era of bailouts, who can tell what will be guaranteed by the government in a crisis?

Current low interest rates imply that there aren?t a lot of highly productive projects yearning for capital.? This is a product of overly easy monetary policy that never let recessions clear away bad projects.? Low interest rates make future promises more expensive for defined benefit plans, and make it harder to accrue assets for defined contribution plans.

Do you have one million dollars socked away yet?? No?? Under optimistic assumptions, maybe you can earn 4% on your money without touching the principal.? That would give you $40,000/year pre-tax.? Add in Social Security, and maybe you can make things work.

If you want to give up liquidity, and any sort of estate for heirs, you could annuitize all or part of your assets, bringing your yield up 1-2%.? For whose who have less money, that could make things work.

That said, inflation could throw a monkey wrench into all of this.? Buying inflation protection knocks around 0.5% off yields.? But who knows how much the government will encourage or discourage inflation?? That is the leading open question at present.

Summary

So long as interest rates remain low, and asset values high relative to replacement cost, funding retirement will be an expensive proposition.? Not many will be able to do it.? As population growth slows, government entitlements will prove difficult to maintain at current levels.

As such, we should expect older people to work longer than their parents and grandparents did.? In many cases it will be ?Work till you die.?? The idea of retirement as a long vacation at the end of life will only be true for the well-off, a minority of the population.

And compared to prior history, that?s how it should be.? A comfortable retirement is an expensive proposition, and not something that can be given to everyone by government fiat.? The economy only has so much productivity; to the degree that retirees suck off resources, there is that much less to help the economy grow.

I write this as a 52-year old man.? I have opportunities ahead, but for most people in the Western nations, as demographics lead to older populations, economies will decline unless something comes to revive growth in population.

To those who are older, I say ?Be ready to work.?? To those who are younger I say, ?Plan and prepare, save, and figure out how to supplant the oldsters who occupy the positions you want to have.?

It?s not going to be easy over the next forty years.? But if it were easy, everyone could do it.? Instead, those who are prepared will do it.? And so my readers, get ready to do it.

Sorted Weekly Tweets

Posted on 29 June 201330 June 2013 by David Merkel

Wrong

Wrong: A Hawkish Signal Bernanke Didn’t Send stks.co/sISp No, Fed misunderstood the markets, & what their “transparency” said $$
Slow-minded: Fed Presidents Say Dodd-Frank Failed to Dispel Too-Big-to-Fail stks.co/fbLA No, duh. U r only realizing this now? $$
Wrong: Pension funds may see the silver lining on the interest rate cloud stks.co/gbLA As interest rates rise, assets go down $$
Wrong: The Last Mystery of the Financial Crisis stks.co/aZl7 Shallow analysis that does not take account of regulatory needs $$
Wrong: Long Live Synthetic CDOs – Bloomberg stks.co/ianr Levering up risky debts exacerbates the credit cycle; should b ended $$

Market Dynamics

Traders Trapped in Scandinavia Discover No Easy Sell stks.co/tIUb Low-liquidity currencies, big moves when all rush 2the exit $$
Why ?average? returns aren?t good enough stks.co/fbLB Arithmetic avgs r less accurate than geometric averages & more $$
Royal Bank of Canada Gains by Putting the Brakes on Traders stks.co/qIXh Over the long haul they will prosper vs HFT $$
Billionaire Ron Baron: The Dow?s A Double stks.co/cZbY He’s delusional, and does not get how stretched prices are vs book/sales $$
Holding bonds today is a disaster in the making stks.co/iatP I think the economy will b weaker than Fed expects, could c rally $$
Closed-End Funds Bite Back stks.co/garg Leverage Juiced Returns When Rates Were Moored; Now It Is Magnifying Losses $$ #BlameDaFed
Apollo Fueled by $9.6 Billion Profit on Debt Beats Peers stks.co/pI7U Strength of investing across capital structure evident $$
State Street Temporarily Stops Cash Redemptions For Muni-Bond ETFs stks.co/pHnc Dealers can’t presently swap ETF shares 4 cash $$
Billionaire Fisher Says U.S. Still in Middle of Stock Rally stks.co/hanR He is stuck in a mindset of a low debt world $$
Housing Seen Shrugging Off Loan Rate Rise as Banks Loosen stks.co/jaQY Easier financing returns, tho Tsy yield rise undoes more $$
Treasury Yields Surge Most Since 2003 as Fed Previews Tapering stks.co/sHeT When cheap forward financing ends, prices go south $$

Metals

Gold-Price Decline Uncovers Mining Companies’ Debt Woes stks.co/tIUa Debt in cyclical industries is always a problem in a bust $$
Gold Drops to 34-Month Low as Precious Metals Slide on Fed View stks.co/cZdI All risk assets have been hit since Fed meeting $$
Gold Bear Market Hits Hardest in South Africa Mines stks.co/eZl1 Mines r high cost per ton, no surprise they r affected early $$
Bottom Falling Out of Copper Prices stks.co/jbDz When Dr. Copper speaks, we can sense the pulse of the economy, getting weaker $$
Gold Miner Writedowns at $17 Billion After Newcrest stks.co/aZDq Beginning of a process reconciling dud mining assets $$

Monetary Policy

Risk of 1937 relapse as Fed gives up fight against deflation stks.co/ibLa Deflation is inevitable given present policy $$
2 Fed Presidents Emphasize Stimulus 2Persist After QE Taper stks.co/cZ7b & stks.co/aZHK Fisher & Kocherlakota obfusc8 $$
BIS fears fresh bank crisis from global bond spike stks.co/eZGv Banks r mismatched long; will have trouble in run on liquidity $$

China

Credit Warnings Offer World a Peek Into China?s Secretive Banks stks.co/cZdL & more extreme: stks.co/dZdV Bad future $$
China breaks silence on cash crunch stks.co/fasu Nation’s lenders approach crisis point as part of crackdown on shadow finance $$
China?s alarming credit crunch stks.co/sHxk This could have been exacerbated by a reversal of a popular yen-yuan carry trade $$
China Loses Control of Its Frankenstein Economy stks.co/faqF Things r likely 2b shaky in China’s short-tern lending markets $$
Financial reform cannot wait stks.co/jaiU But the Party, is it ready to give more freedom to its people & transparency 2 banks $$

Energy

How BP Got Screwed on Gulf Oil Spill Claims stks.co/tISo Free $$ brings out the worst in people | FD: +$BP
Frack Music Attracts Halliburton to Submarine Spy Tool stks.co/hb7I “The hills r alive, w/the sounds of fracking…” $$
In Moving US Oil, ‘Flexible’ Rail Bests Pipelines stks.co/pI7j Railroad tank cars:low fixed, high variable costs, more flexible $$
New Pipelines to Bring Landlocked Oil to Texas-Coast Refineries stks.co/jakj Pipelines: high fixed cost, low variable cost $$

Insurance

Berkshire?s Tracy Britt In, Lynn Swann Out at Heinz?s Board stks.co/bZh0 Whiz Kid gets 1st board seat $BRK.A M&A | FD:+ $BRK.B $$
Regulators put chill on US private-equity insurance deals stks.co/dZbX Those who might undo the conservatism should not buy $$
$HIG to Sell Unit to Berkshire stks.co/pIb8 I do not get how $BRK.B benefits from this; its worse than the $CI transaction $$
7 Annuity Mistakes to Avoid stks.co/sHxj Illiquity, wrong payout type or guarantees, switching, w/d 2much, taking buyback, etc. $$
Misjudged Annuity Guarantees May Cost Life Insurers Billions stks.co/rI1Z Why I don’t invest life insurers w/much variable biz $$

Other

Working Poor Losing Obamacare as States Resist Medicaid stks.co/dZdW A rare case where states avoid Federal $$ | avoiding a trap
Four Reasons Non-GAAP Metrics Are Exploding stks.co/cZbX Non-GAAP measures r an attempt to make acctg reflect free cash flows $$
Another shameful day for Europe as EMU creditor states betray South stks.co/pIb9 Germany crams down on Greece & euro-fringe $$
Holder Says US Seeking More Disclosure on Surveillance stks.co/aZ10 U can disclose it now; U r a bigger threat than terrorism $$
Sorry, but Do You Speak English? stks.co/pHna Not surprising; cultural differences drive differences in English dialects $$

Full disclosure: long BP, BRK/B