Category: Portfolio Management

The Beginning of the End of Money Market Funds

The Beginning of the End of Money Market Funds

Posted on by David Merkel

Say goodbye to money market funds, and hello to more volatility, whether in money market funds, or their substitutes.? As with all of the financial crisis, it would have been better if the Fed and Treasury had not intervened.? Most money market funds would have survived.? The market panicked less than the regulators did.

But now we have the capitulation of Luis Aguilar, perhaps giving in to the pressures of the banks that hate competition from the money market funds.? Who is more powerful? Banks.? Where are there more systemic losses?? Banks.

Money market funds are not the problem.? If there is a crisis, let them fail.? The losses will be ~2% of principal; banks will do far worse.

Publishing the net asset value of Money Market Funds will destabilize them; rising NAVs will attract more money, and falling NAVs will lead to a run on the MM funds.?? It is a recipe for disaster.

Far better is my proposal, which is an excellent compromise.

To those analyzing policy for money market funds at the SEC:

Greetings. My name is David Merkel, and I run Aleph Investments, LLC, a Maryland RIA. I manage stock and bond portfolios for upper middle class people, and for small institutions. I am a Chartered Financial Analyst, and in the past, I was a life actuary, where I developed stable value products for pension plans.

It is much harder to assure a stable share price with longer dated assets, but I was able to do so via a variety of strategies. Doing the same thing for money market funds is simple.

Before I continue, I want to make clear that I have no economic interest in money market funds, aside from being an investor in them. At present, the SEC is proposing a variety of changes to money market funds that practically render them uneconomic. No wonder the companies managing the MM funds oppose that.

But the companies managing the MM funds are unrealistic as well, they don?t see any reason for change. I have a proposal that splits the difference, and is trivial to carry out.

My proposal says this: Funds calculate their internal NAV, but do not disclose it to the public. They only disclose it in the rare case where the NAV drops below 0.995, and it would ?break the buck.?

When a fund ?breaks the buck,? it announces a credit event. It tells shareholders that they have lost money, and to protect the interests of all shareholders, all shareholders will suffer a small capital loss.

Whatever the fairly calculated NAV is when a capital loss is announced, the new NAV would be 1.0025, and the number of shares reduced to the level that supports that NAV. If the value of the assets has been accurately calculated, and there are withdrawals, the premium to NAV should rise, not fall, for the remaining shareholders.
As an example, imagine a fund makes bad decisions, and the internal NAV calculation reveals an NAV of 0.9825. The fund would announce a credit event, and roughly 2% of all units would be lost, and the new internal NAV would be 1.0025. Those leaving the next day would only strengthen the fund.

Few will like the concept of a credit event in money market funds. That said, the idea would have many salutary effects on money market funds:

  1. It would eliminate runs on the funds.
  2. It would get people used to the idea that there is some risk in money market funds, though limited.
  3. It would eliminate the need for the government to intervene and insure money market funds.
  4. It would allow some money market funds to take more risk, and offer more return. There would be less need to constrain maturity and credit quality of the investments in the MMFs so tightly.
  5. The cost would be minimal, most of the time losses would be 1-2%, which would be paid for through interest in less than a year.

My proposal is better because it treats money market funds like ETFs ? they are pass-through vehicles, and as such, do not need capital buffers.

And, my proposal is better, because it recognizes that credit events should be rare but acceptable aspects of how money market funds work. Think about it: particularly when short term interest rates are so low, there is no way for interest to cover even the slightest discrepancies versus NAV.

Under my way of doing things, let there be stable net asset values, freedom in investment guidelines, but the possibility of credit events. The present set of restrictions in investing does no one any good, because the problem is not length of maturity or credit quality, but issuer concentration.

But let money market fundholders analyze the tradeoff between yield and risk. Guess what? Short-term bond fund holders have to do the same thing.

But why are we going after money market funds? When they fail, the cost is pennies on the dollar, and it rarely happens. Why not go after banks? They fail far more frequently, with much larger losses. I say let money market funds fail, and do not increase regulations on them. Rather, let them be like ETFs, and let them be constrained by the prudence of the free markets. What? You can have investment without the possibility of loss? Ridiculous.

Regulate the banks tightly, but let money market funds go free, but advertise that losses are more than possible.
I strongly urge that you adopt my proposal. The money market funds will not like it, but they can live with it. The SEC may not like it entirely, but it accomplishes all of goals that you care about. This is a compromise proposal where everyone can win.

Sincerely,

David J. Merkel, CFA, MA

To my readers, I only ask one thing — do you have contacts at Fidelity, Vanguard, Federated, ICI, etc., who care about this?? I wa able to put my proposal before the SEC through Commissioner Luis Aguilar.? I talked with two senior attorneys at the SEC in August.

But I am a political nobody.? I may have a bright idea, and many have told me that, but I need an entity with political clout to absorb my idea, and use it.? I don’t care if I get credit; I just want to do something good to minimize regulation, but deliver bad results to those who choose bad managers.

All that said, if the SEC acts as it is indicating, they will destroy money market funds, and we will all be the poorer for it.

Focus on what you can Control

Focus on what you can Control

Posted on by David Merkel

In investing, focus is important.? We have to divide the world into what we can and can’t control.

Will North Korea (snicker) or Iran (no snicker) get nuclear arms?? I can’t control that, an I am not sure what I would do if I knew what would happen.

Will the Fed move to inflate goods prices, as opposed to their quantitative easing which mostly affects asset prices?? Or will they look to protect nominal values of debt, and deflate?

There are many things that I don’t know; if I did know the future with certainty, I am sure that most other people would know it at at least a lesser level of certainty.

So focus on what you can control, rather than what you can’t.

  1. You can control your own behavior.? You can’t control the behavior of others, whether it is those who invest alongside you, or manager behavior, or that of clients who invest more and less at the wrong times.? Optimal behavior might mean buying things out-of-favor after the fury of selling has gone cold.
  2. If you are a manager, you can guide, but not control client expectations.? You can educate them on your willingness to take risk, but you can’t control their emotions.
  3. As a manager, you can tell investors the mandate toward which you are managing — and then you must manage within it, because your investors expect it.
  4. You must match the liquidity of investments to the need for liquidity.? Value investors must stress patience.? Hot money investors must keep things liquid.? The same applies to time horizon.
  5. Market conditions may be depressed or ecstatic.? You can’t control movements in the mood of the market, but you can adjust your position so that you can benefit from likely future change, if valuation measures are extreme.

This is one reason why I try to limit the number of decisions that I make, for myself and clients, while trying to make better decisions for all of us.

In general, I think better investment decision-making stems from diversification where you don’t know more than the market, and concentration where you do know better.

 

Behind the Curve

Behind the Curve

Posted on by David Merkel

If you were an actuary working for a Defined Benefit pension plan, or Social Security, you would develop an estimate of the stream of cash flows that you expect the plan to pay.? The expected cash flows are ultimately what matters.?? Estimates of what the cash flows are worth in the present are a sideshow, because the estimates of what the assets of the plan will earn are far less stable than the estimates of what will get paid, even over the long term.

Unless we get significant and prolonged inflation, the discount rates applied to the liabilities are unrealistic, even in Indiana, which has the lowest rates that I have heard of for major plans at 6.75%.? Discount rates should be in the 3.5-5.0% area.? It is very difficult to earn more than 1-2% over the long Treasury, or more than can be earned from long Baa/BBB bonds.

Thus, in my opinion,virtually every underfunded pension plan is behind the curve, and their underfunded status is underestimated.

So here’s the scandal.? As funds don’t earn enough to pay the benefits, their funded status worsens.? As their asset levels drop to Puerto Rican levels, they become forced to raise taxes to keep pace with the rising payments as Baby Boomers retire.? That’s the curve that they are behind: the curve of increasing retirement benefits.

Now, there are other strategies.? Reduce benefits to active employees.? Eliminate COLAs.? New hires only get a DC plan.? Play hardball with retirees, and get them to reduce vested benefits in exchange for greater certainty of payment.

I’m not optimistic here.? There will be cuts.? The only question is on whom the cuts will fall.

 

Another Penny Stock to Avoid

Another Penny Stock to Avoid

Posted on by David Merkel

I received a “newsletter” today from Legendary Stocks.? Now with a name like “Legendary Stocks,” you would think the companies would have a long prior existence.? But the stock mentioned I can’t even find on EDGAR, which is different from all the other penny stocks I have analyzed.

As with all the rest, this doesn’t smell good.? This is a company with small revenues, negative earnings, and negative book value.? Though it trades in the US under the ticker IMNG, I can’t find much data on it.? Even their website has no investor data.? That is abnormal.

Oh, this was a part of Legendary Stocks, 5-point type size? disclaimer:

Legendary stocks has been contracted to receive and manage budget of eight hundred thousand dollars by a third party prime star communications agency for coverage of iMing. In addition, The Legendary stocks expects to receive new subscriber revenue as a result of this advertising effort. [Emphasis mine]

Leaving aside the concept that many Chinese stocks listed in the US are scams, where assets and earnings are misrepresented, there is little independent data to work with here.

But given the 93% decay rate on promoted penny stocks, I predict that by my next birthday, 12/5/2013, IMNG will trade for less than 10 cents a share, adjusted for reverse splits from the present.

I say to all who hear me: avoid promoted stocks.? Buy what you have analyzed: don’t trust what others think, even me.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Credit Markets

 

  • Credit Suisse Raises $802M CLO; Prudential Closes Fund http://t.co/RbXDgtPU Watch arb from creation of CDOs & CLOs: clue 2 bond rally end Dec 01, 2012
  • Caisse Thinks Bond Party Is Over? http://t.co/j6lWdJjA Shifting $$ from bonds 2 infrastructure; usually good though liquidity is underpriced Dec 01, 2012
  • Bond Yields May Fall Short of Corporate Pension Fund Needshttp://on.barrons.com/VkWekV Bonds in DB plans r4 risk reduction not just yield $$ Dec 01, 2012
  • My point is that it is difficult to tell whether we will be getting inflation or deflation. My bond portfolios are barbelled: long &short $$ Nov 30, 2012
  • Investors Unprepared for Bond Danger, BlackRock?s Rosenberg Says http://t.co/56kv1CrS B wary of owning 2 much or 2 little long bonds $$ Nov 30, 2012
  • Safe or junk, bonds in bubble trouble http://t.co/Nd5iEYPy Fuss told the summit in New York there was evidence of “a spread bubble” $$ Nov 28, 2012
  • Overnight Rates Surge in Fed?s Operation Twist http://t.co/xwvKCPGb Large supply of short Treasuries raises Repo rates over LIBOR $$ Nov 26, 2012

 

Muni Markets and Pensions

 

  • Bankruptcy threat back on the table in Pennsylvania city as filing ban ends http://t.co/NgMGQs2Z Will b tough to stiff muni bondholders $$ Dec 01, 2012
  • Calpers Seeks to Sue San Bernardino Over Pension Payments http://t.co/xv0OqQV9 Will have2show a place in CA law/constitution reqrng pmt $$ Nov 28, 2012
  • Fierce Debt Puts Pensions at Risk in Puerto Rico http://t.co/w2oGk8YW Future curse: May u starve like a Puerto Rican pensioner! Uh, yeh $$ Nov 27, 2012
  • Proponents of pension reform face steep hurdles http://t.co/n2AYvghT Choose: raise taxes, reduce services, attempt constitutional change $$ Nov 26, 2012
  • San Bernardino?s ?Toxic Politics? Snarl Calpers Debt http://t.co/N4YWPCTD Be careful what you put into your city’s Charter. $$ Nov 26, 2012

 

Market Dynamics

 

  • The Great 2012 Cashout http://t.co/i4lZvD0c Special dividends r coming fast & furious; last call 4 low tax rates; next stop: Caymans $$ Dec 01, 2012
  • Wells Fargo CEO: ‘Bad players are gone’ from finance http://t.co/AwSGY8gz FD: + $WFC | Sadly, false. There may be fewer, but not all gone $$ Nov 30, 2012
  • Nontraded BDC sales on a tear despite closing of first fund http://t.co/ML7oVkIu Poison, beware. BDCs are bad enough w/o the illiquidity $$ Nov 30, 2012
  • Beware the Smart Money: Hedge Funds Issue Sell Signal http://t.co/HXBKD5ZO When fast money is “all in” it just takes a jolt2make mkt fall $$ Nov 30, 2012
  • Home Equity Loans Make Comeback Fueling US Spending http://t.co/3WULRzOO We never learn, we never learn, we never learn, we never learn $$ Nov 27, 2012
  • Private-Equity Managers Make Moves as Tax Increases Near http://t.co/eKKsH5w6 refinancing investments, accelerating gains, etc. $$ Nov 26, 2012
  • The Faustian Bargain between States and Banks http://t.co/gGUHGWIa I lend 2u, u lend 2me. I lend 2u, u lend 2me. What could go wrong? $$ Nov 26, 2012
  • The Manufacturing Boom You Won’t Notice http://t.co/R62nFiae Productivity continues 2 improve -> more mfg in US, but not more mfg jobs $$ Nov 26, 2012
  • Overlooking Overvaluation http://t.co/nWfA1KMe Hussman interacts w/long-term valuation measures. He finds the market overvalued $$ #whatelse Nov 26, 2012
  • Everything You Know About Investing is Wrong http://t.co/v8wAYPg6 Single-vble measures of valuation fail in short-run, some in long-run $$ Nov 26, 2012
  • The prior BB article is a little deceptive, because regulated entities use them under regulation. Many r quite safe, like auto ABS, etc. $$ Nov 24, 2012
  • Shadow Banking Grows to $67 Trillion Industry, Regulators Say http://t.co/houN2uhM Many are SPV securities held by banks & ins cos $$ Nov 24, 2012

 

Companies

 

  • How a desperate HP suspended disbelief for Autonomy deal http://t.co/qv1vIWcQ If $HPQ had been focused on organic growth, wouldnta happened Nov 30, 2012
  • Berkshire Hathaway, CaixaBank Agree to Reinsurance Deal http://t.co/RDQqXhMl Berky hasn’t done well w/Life Re — I would be cautious $$ Nov 30, 2012
  • Google Has Officially Eaten the Newspaper Industry http://t.co/TGqEWK7T $GOOG now has more advertising revenue than all print media $$ Nov 28, 2012
  • Investors Demand CEO Face Time http://t.co/4CPugaAV CEO griping about time spent on investors is wrong; a good CEO is Mr. Outside $$ Nov 28, 2012
  • Global Steel Industry Faces Capacity Glut http://t.co/DhU7BaWa We need to see 20% of the steel industry fail b4 buying steel stocks $$ Nov 28, 2012
  • Lehman Sells Archstone in Deal Worth $6.5B http://t.co/f2V5K7tk Losses taken; Lehman more liquid; Sam Zell lives 2 gravedance $$ $EQR $AVB Nov 27, 2012
  • $AMZN ‘s bond offering will b a bit of a “museum piece.” I.e. unusual issuer unlikely to issue more; should get tight deal spreads $$ yld<2% Nov 26, 2012
  • $ICOA Says $GOOG Didn’t Acquire the Company http://t.co/y3XXagL7 Whoever put out the press release will be an easy target 4 the SEC $$ Nov 26, 2012
  • France to ArcelorMittal: if you don?t like losing money, get out of France http://t.co/gYQ31NOk Invisible foot punishes France 4 bad policy Nov 26, 2012
  • Flowers Foods Sizes Up Hostess http://t.co/4DYwu6p6 Might buy brands, marketing arrangements, factories., etc. Won’t hire unions $$ $FLO Nov 26, 2012

 

Central Banking

 

  • Japan?s Ill-Fated Experiment With Money Doctoring http://t.co/OgCSJ4KB Interesting tale of Asia conquest; what does it imply 4 the US? $$ Nov 30, 2012
  • The death of volatility? http://t.co/04RNO7z1 “Central bank puts have done a great job of removing tail risks.” for now h/t: @izakaminska Nov 29, 2012
  • When the Credit Transmission Mechanism Breaks? http://t.co/HvCddUDh While we r delevering monetary policy won’t work well. h/t: @pragcap $$ Nov 28, 2012
  • The Indiana Jones economy http://t.co/GqjOk5Ql @izakaminska explains how economic transmission mechanisms r short-circuited by hoarding $$ Nov 28, 2012
  • Brazil real jumps as central bank eclipses Mantega http://t.co/xUpU6tE2 Loose developed mkt $$ polcy forces choice: exports or inflation? $$ Nov 26, 2012

 

Politics & Policy

 

  • Mortgage interest rate tax deduction scores political points ? but little else http://t.co/xiaLfUkT Limit to $20K of interest $$ @hnmoore Nov 30, 2012
  • IMNSHO, the PPACA was designed to destroy the parts of the US health care system that worked well, in order 2 move 2a single-payer system $$ Nov 30, 2012
  • Unaffordable Cost Seen for Some Under Affordable Care Act http://t.co/iEPsMhdh When this law goes live in 2014, people will hate it $$ Nov 30, 2012
  • In D.C., Social-Media Surveillance Pays Off http://t.co/XkLcZ3nm What they glean from social media aids service to constituents $$ Nov 29, 2012
  • 10 Things the SEC Won’t Tell You http://t.co/QOfbkvhC 11) U r your own best defense; we can’t help u much if u r stupid, b skeptical $$ Nov 28, 2012
  • Going to college is not of itself a good thing economically. You have to choose something that will pay off if you dare borrow money $$ Nov 28, 2012
  • Federal Student Lending Swells http://t.co/Wvi2d6vT We need to eliminate student loans. They do more harm than good. $$ Nov 28, 2012
  • Time running out on debt ceiling http://t.co/iZ6BLqdP Follows months behind the “fiscal cliff.” Will probably cause as much angst. $$ Nov 27, 2012
  • “Y is the burden of proof on those who want 2 return 2 the proven statutory & regulatory approaches of the past?” http://t.co/GJuNCS1X $$ Nov 26, 2012
  • Disabled parents face bias, loss of kids: report http://t.co/SvW3g3Xn Found this 2b disturbing; govt should avoid meddling w/families $$ Nov 26, 2012
  • A Minimum Tax for the Wealthy http://t.co/THiT0YGK Let Warren pay tax on his deferred gains in $BRK.A shares, & pay the large DTL also $$ Nov 26, 2012

 

Rest of the World

 

  • China?s over-investment problem http://t.co/WJVLvnMD IMF working paper says what China skeptics have said for years: 2 much investment $$ Nov 30, 2012
  • China Mafia-Style Hack Attack Drives California Firm to Brink http://t.co/cmnb4qco Chinese hackers steal software & hack software firm $$ Nov 28, 2012
  • A UK Exit From EU Offers No Promise of Better Fortunes http://t.co/TBmi6as7 EU is a failed experiment; Y should the UK continue there? $$ Nov 28, 2012
  • French jobless total hits 14-yr high http://t.co/NYdjc6Rs Francois Hollande getting costly economics lessons, paid4 by the French people $$ Nov 27, 2012
  • China Wage Gains Hurt by Weaker Profit Damp Consumption http://t.co/tESRToBZ Malinvestment leads2 lower profits, then wages can’t grow $$ Nov 27, 2012
  • China?s nemesis: bribes, banquets and backslapping http://t.co/D7V7yF06 Difficult 2 develop highly when rule of law is not followed $$ Nov 26, 2012

?? Sovereign CDS trading plummets http://t.co/jKBj47bv Will eventually lead discretionary holders to lighten sovereign positions $$ Nov 26, 2012

  • Egyptian Army allowed Morsi in2 power 2 avoid riots & allow him 2 mess up, so that Egyptians would support military rule again. US wins 2 $$ Nov 26, 2012

 

Wrong

 

  • Wrong: Misconceptions 101: Why College Costs Aren?t Soaring http://t.co/nZWYKQSQ Doesn’t square w/the rise in delinquent student loans $$ Nov 28, 2012
  • Wrong: Obama To Meet Romney Tomorrow Amid Fiscal Cliff Talks http://t.co/2VfO7Fxz Doesn’t Obama realize Romney has no power in the GOP? $$ Nov 28, 2012
  • Wrong: Fed’s Easing Yields Hidden Benefit http://t.co/6bJejPB1 1994 is not 2013. The banks/financials/households were in good shape $$ Nov 28, 2012
  • Taleb Mishandles Fragility http://t.co/qIGbLQHl Taleb needs new ideas, but does not perceive that. He is mired in the past. $$ Nov 28, 2012
  • Russell Napier’s “Most Important Chart In The World” http://t.co/XYKdagZm While we’re at it let’s reprise the Nikkei vs Nasdaq charts $$ Nov 28, 2012

 

Other

 

  • THE FUTURE OF DIGITAL [SLIDE DECK] http://t.co/RabKP5EC Good but long piece from BI on the future of digital media $$ Nov 30, 2012
  • Alleged Insider Group Includes Website Editor http://t.co/Llnmz2aE In general insider info is a curse to the upright; ties your hands $$ Nov 30, 2012
  • Texas Feral Hog Wrecks Mark Losing Battle With Animals http://t.co/TMPpFNh6 This is Texas, no one said anything about losing. $$ Nov 29, 2012
  • He Carries On, She Likes to Check http://t.co/4D1Fd5Td Men and women are different when they fly. This explains it. $$ Nov 29, 2012
  • . @izakaminska is a favorite writer of mine. She helps me with the nuances of tightly nested markets, finding the variable that is valuable Nov 29, 2012
  • American Housing Casino Revives After Big Drop: Mortgages http://t.co/lZmmHo9s Setting up conditions for the naive 2 lose again $$ Nov 28, 2012
  • FHA?s Biggest Loser: No-Money-Down Mortgages http://t.co/bJgwTdtV Surprise! Lend2 someone w/nothing 2 lose & they default a lot more $$ Nov 26, 2012

 

Teaching Math

 

  • Helping Parents Score on the Homework Front http://t.co/7FPGjA0n 6-yr olds should not be doing fractions. Parents aren’t the problem $$ Nov 28, 2012
  • The push to think abstractly about math does not work w/kids. You can start with girls around 13, boys around 14; misguided idealism $$ Nov 26, 2012
  • Children learn math best through drill, giving way to problem-solving, giving way to algebra (abstraction), further abstraction Calculus Nov 26, 2012
  • A New Kind of Problem: The Common Core Math Standards http://t.co/VGxxQGqr This is as bad as the “New Math” of the 1960s; utterly idiotic $$ Nov 26, 2012

 

 

Retweets

 

  • RT @prchovanec: Market should be rooting for China to buckle down to real econ adjustment, not hit yesterday’s growth targets with yeste … Dec 01, 2012
  • Would put the fraction at 80%, but I agree $$ RT @GMRobertson: if they are risk free they are solely for risk reduction, IG is about 2/3 so Dec 01, 2012
  • Wow! RT @prchovanec: Chinese company debt climbed to 122% of GDP in 2012 from 108% last year, highest level in 15 years http://t.co/ujKmHpTx Dec 01, 2012
  • Probably $$ RT @merrillmatter: @hnmoore I think eliminating (slowly) the 2nd home tax deduction is more palatable and possible. Nov 30, 2012
  • Blameworthy RT @grossdm: anybody ask boehner about the time he voted for massive new medicare entitlement without a funding mechanism yet? Nov 30, 2012
  • +1 RT @jonsticha: as is mine. Large bets on rates either way are a bad bet IMO Nov 30, 2012
  • RT @MuniTrader: @AlephBlog completely agree. credit risk front end, high coupon quality on the back end. pretty obvious but best way to … Nov 30, 2012
  • RT @PlanMaestro: If you don?t know enough to know about the business instantly, you won?t know enough in a month or in two? ? Buffett H/ … Nov 29, 2012
  • Needs2meet an actuary RT @TheStalwart: James Galbraith is only economist who talks about lowering the retirement age http://t.co/3srMzYX3 Nov 29, 2012
  • Recognizing reality, & verbally shading down fwd GDP $$ RT @carney: What does the beige book change from “moderate” to “modest” growth mean? Nov 28, 2012
  • Thanks, still think Eurozone should dissolve, replace w/mere free trade zone $$ RT @euromoney: Another take (quick): http://t.co/WxSquHKf Nov 28, 2012
  • RT @John_Hempton: Nassim Nicholas Taleb is a humourless git… and his publishers censor the internet. Do not buy his book… http://t.c … Nov 28, 2012
  • RT @munilass: Over 300 drone strikes and 2,500 people killed without a policy in place for when such attacks should be authorized http:/ … Nov 27, 2012
  • To the best of my knowledge, never RT @merrillmatter: do humans ever (in toto, as a society) voluntarily deleverage? Nov 27, 2012
  • Sad but true RT @AppFlyer: we never learn. Nov 27, 2012
  • That’s a big gap w/Moody’s @ Baa1 – S&P looks at balance sheet, Moody’s at Income Stmt? $$ http://t.co/C4wCNzaM RT @jonsticha: AA- @ S&P Nov 26, 2012
  • Rated Baa1 $$ RT @SimoneFoxman: RT @chrisadamsmkts: Amazon is today set to issue its first bond in more than a decade http://t.co/k03iJNi4 Nov 26, 2012
  • That’s why we homeschool RT @Nonrelatedsense: @AlephBlog pull kids from public schools if you can afford it. Nov 26, 2012
  • Bigtime $$ RT @Pawelmorski: Though anyone who thinks Canada is bubble-free might care to follow @garthturner and read his blog. Nov 26, 2012
  • Can we get the PBOC to take Yellen? $$ RT @TheStalwart: I’m definitely on board with this Central Bank poaching/global market place thing… Nov 26, 2012
  • Wow. Whoever published the original release will be an easy target $$ RT @mickwe: @AlephBlog so did all these guys http://t.co/sdUtAnlN Nov 26, 2012
  • AP goofs RT @mickwe: oh… RT @allthingsd: Google Sources: Acquisition of ICOA Wireless Are ‘Not True’ -by @ahess247 http://t.co/aGVCteBf Nov 26, 2012
  • RT @mickwe: That wifi co Google just bought for $400m? Loses $ and ‘Cash and cash equivalents were $10 at June 30, 2012’ http://t.co/PXB … Nov 26, 2012
  • Warranties r usually ripoffs RT @danielckoontz: Anybody who’s ever bot an extended warranty should read this post twice http://t.co/Ryl1AkKn Nov 25, 2012
  • A good guy; I appreciate him $$ RT @PlanMaestro: Retail Industry’s Ninja Mind Tricks http://t.co/DxJfueu4 #biases Nov 25, 2012

 

Replies

 

  • @LSilverspar as @EpicureanDeal says: “Names will be changed to protect the innocent, if we find any.” Few clean hands among banks, S&Ls, etc Nov 30, 2012
  • @Frank_McG Consider it a different way… I think it would b more likely to see a case prosecuted over insider information w/ CDS trading $$ Nov 30, 2012
  • @Frank_McG I’ve never seen a case tried for insider information on bonds, because gains r less, but technically, legally it is possible $$ Nov 30, 2012
  • Congress controls the purse strings, not the Presidency, which is too powerful as an office already. Bad… http://t.co/iGBUVgtw Nov 30, 2012
  • But when she became CEO, she could have paid the ~$100MM breakup fee. She didn’t, so she is partly to blame. http://t.co/N1xiZ0mh Nov 30, 2012
  • @ritholtz Dear Barry, is that a real plus? We have increasing delinquencies there, in the face of nondischargability in bankruptcy $$ Nov 29, 2012
  • @danielckoontz Thank you, dear friend Nov 29, 2012
  • @munilass I’m no expert, but CALPERS would have2 point @ California statutes/constitution requiring the payment http://t.co/UJpO1m3T Nov 28, 2012
  • @williamalden Not surprising. Academics & pseudo-academics r easy to co-opt. Most of the members worked in finance & r its friends $$ Nov 28, 2012
  • @Sir_Strangelove Free trade is a simple concept, & is hindered by Eurocrats. Free trade means fewer laws & regulations, not more $$ Nov 28, 2012
  • @Sir_Strangelove No. The Euro is the worst of it, but nations need to have their own unique rules to function well, not standardization $$ Nov 28, 2012
  • @EddyElfenbein Funny in a way, because at the beginning of his career, his main research tools were S&P and Moody’s stock reports $$ Nov 28, 2012
  • “You have more to say than Taleb. He has not had a useful new idea in 10 years.” ? David_Merkel http://t.co/sSh4Qetw $$ @reformedbroker Nov 28, 2012
  • @JayLeonard So, more like $2.0-2.5T per year Nov 27, 2012
  • @JayLeonard I think they are wrong. Other statistics I have seen indicate the amount is 8% of GDP, or $1.2T plus whatever the current gap is Nov 27, 2012
  • @carney My comment: If you pay $400M to get $500M over 30 years, the IRR is 1.45%. Better to buy a ladder of muni or corporate bonds. $$ Nov 27, 2012
  • @AppFlyer Care 2 clarify? Nov 27, 2012
  • @BryanMortenson Thanks, appreciated. Nov 27, 2012
  • @BryanMortenson Has the latest Financial Report of the US Government come out yet? Due soon. Thought I was on the email list… Nov 27, 2012
  • @carney Best place to look would be Canadian Mortgage bubble articles like this: http://t.co/w1Zk7Uhc Nov 27, 2012
  • @TheStalwart This is why I don’t follow any monthly numbers for my investing: noise/signal is high. Even a year of data, noise swamps signal Nov 27, 2012
  • @richtoscano I largely agree. My main disagreement is that the majority says rates must go up, and for some time, but they don’t $$ Nov 27, 2012
  • @richtoscano They R the best comparisons that we have 2 the current situation. I respect U, Rich, but wht wld B a better comparison? $$ Nov 27, 2012
  • “You may have a long wait. Great Depression & Modern Japan went on over 10 years.” ? David_Merkel http://t.co/YlMSAU9c http://t.co/XVq1wgWO Nov 26, 2012
  • @jonsticha Used 2 manage corporates for Fidelity & Guaranty Life. I only guessed, but big rating gaps mean there r two stories told $$ Nov 26, 2012
  • @japhychron I don’t know. So many things are messed up that it is impossible to say… 🙁 Nov 26, 2012
  • “But Buffett’s tax proposal barely nicks him because he makes little income. His shadow income is?” ? David_Merkel http://t.co/7zWRb4SV $$ Nov 26, 2012
  • @mickwe Basically, $GOOG bot out a penny stock, $ICOA, virtually inactive & broke. Pays a ~nickel/share for something $.0001 Friday. Huh? $$ Nov 26, 2012
  • @BarbarianCap $HOGS Tough company to analyze; doubts as to the reality of assets, financials, according to some Nov 26, 2012
  • @GaelicTorus I’ve been through the social work system five times in my life, each time to rescue a child & adopt him. I am not naive. Nov 26, 2012
  • @Nonrelatedsense I knew that, but I still think that Taleb had great insights in his first book, and has not grown from there. Nov 25, 2012
  • @volatilitysmile A good warning to all of us who put our opinions forthto the public. Nov 25, 2012
  • “Taleb has jumped the shark” ? David_Merkel http://t.co/QNdVE57V Sorry to be so blunt $$ Nov 25, 2012
  • @PlanMaestro I have friends working in South Sudan on that. Bigger problem is a lack of tending the fields; the culture is not aggressive $$ Nov 25, 2012
  • @PlanMaestro One of the most important initial things a developing nation can do is get agriculture right; other things tend to follow $$ Nov 25, 2012
  • @moorehn I liked Taleb’s first book a lot. His insights since then have not increased. I think he is on his 16th minute of Warhol’s fame. $$ Nov 24, 2012
  • @Convertbond Is there a link for that? Investment dept @ ins co in 93 was reaching for yield through duration @ wrong time 94 bad year 4 dur Nov 24, 2012
  • @JamesGRickards If you’re in Baltimore/DC and want to talk, I would be interested in what you are thinking. Let me know. Nov 24, 2012
  • @JamesGRickards Too speculative. We should be happy saying that we don’t know. The Bible does not speak to the issue, nor do the Fathers. Nov 24, 2012

For what it is worth

  • My week on twitter: 51 retweets received, 3 new listings, 48 new followers, 106 mentions. Via: http://t.co/SPrAWil0 Nov 29, 2012

?

Recent 13F filings

Recent 13F filings

Posted on by David Merkel

I make changes to my portfolio and those of my clients once a quarter, where I trade out of 2-4 of my ~35 companies, and buy a similar number of new companies.? I have detailed that in this article.

But one thing that I do differently now is where I source ideas.? There are three places:

  1. Articles I read that seem to have good ideas.? I print them out and put them in a folder.
  2. My industry studies.
  3. Scanning the 13Fs of ~75 clever investors.? That’s the new part.

I’m not going to write a lot more commentary this evening.? I’m just going to give you a results dump.? I have already gone through my results and made changes to my clients’ portfolios, save for one stock that is a little illiquid, and will take some time to acquire.

As it is, I want to share the following data with you from my trolling through the 13F filings:

Number of investors adding a new stock:

CUSIP New Ticker Name
026874784

6

 AIG AMERICAN INTL GROUP INC
25490A309

5

 DTV DIRECTV
38259P508

5

 GOOG GOOGLE INC.
50075N104

5

 MDLZ Mondelez International, Inc.
65334H102

5

 NXY NEXEN INC COMMON STOCK NPV
896945201

5

 TRIP TRIPADVISOR INC
37045V100

4

 GM GENERAL MTRS CO
399473107

4

 GRPN GROUPON INC
46625H100

4

 JPM JPMORGAN CHASE & CO
53071M880

4

 LVNTA LIBERTY VENTURES – SER A

 

Umm, Groupon, GM?? Interesting.

Number of investors adding to a stock position:

CUSIP Increased Ticker Name
026874784

13

 AIG AMERICAN INTL GROUP INC
38259P508

12

 GOOG GOOGLE INC.
191216100

12

 KO COCA COLA COMPANY
37045V100

11

 GM GENERAL MTRS CO
24702R101

10

 DELL Dell Inc
742718109

9

 PG PROCTER & GAMBLE CO/THE
172967424

9

 C CITIGROUP INC
50075N104

8

 MDLZ Mondelez International, Inc.
65248E104

8

 NWSA NEWS CORP
741503403

8

 PCLN PRICELINE COM INC
037833100

8

 AAPL APPLE INC
896945201

7

 TRIP TRIPADVISOR INC
125509109

7

 CI CIGNA CORP
78463V107

7

 GLD SPDR GOLD TRUST
68389X105

7

 ORCL Oracle Corp

 

The companies most held by my group of investors:

CUSIP Owned Ticker Name
38259P508

28

 GOOG GOOGLE INC.
037833100

21

 AAPL APPLE INC
594918104

20

 MSFT MICROSOFT CORP
68389X105

17

 ORCL Oracle Corp
026874784

15

 AIG AMERICAN INTL GROUP INC
172967424

15

 C CITIGROUP INC
478160104

15

 JNJ JOHNSON & JOHNSON
931142103

15

 WMT WAL-MART STORES INC
084670702

14

 BRK.B BERKSHIRE HATHAWAY INC-CL B
24702R101

13

 DELL Dell Inc
65248E104

13

 NWSA NEWS CORP
060505104

13

 BAC BANK OF AMERICA CORP
747525103

13

 QCOM QUALCOMM INC
084670108

13

 BRK.A BERKSHIRE HATHAWAY INC-CL A
191216100

12

 KO COCA COLA COMPANY
949746101

12

 WFC WELLS FARGO & CO NEW

 

Number of investors decreasing a stock position:

CUSIP Decreased Ticker Name
38259P508

16

 GOOG GOOGLE INC.
594918104

15

 MSFT MICROSOFT CORP
037833100

13

 AAPL APPLE INC
931142103

12

 WMT WAL-MART STORES INC
68389X105

10

 ORCL Oracle Corp
17275R102

10

 CSCO CISCO SYS INC COM
902973304

10

 USB US BANCORP DEL
084670702

9

 BRK.B BERKSHIRE HATHAWAY INC-CL B
060505104

9

 BAC BANK OF AMERICA CORP
57636Q104

9

 MA Mastercard Inc – Class A
65248E104

8

 NWSA NEWS CORP
949746101

8

 WFC WELLS FARGO & CO NEW
254687106

8

 DIS DISNEY WALT CO
717081103

8

 PFE PFIZER INC
92826C839

8

 V Visa Inc-Class A Shares
931422109

8

 WAG WALGREEN CO

 

Number of investors selling a stock entirely:

CUSIP Sold Ticker Name
25490A101

6

 DTV DIRECTV-CLASS A
594918104

4

 MSFT MICROSOFT CORP
931422109

4

 WAG WALGREEN CO
87612E106

4

 TGT TARGET CORP
032346108

4

 AMLN AMYLIN PHARMACEUTICALS INC
037833100

3

 AAPL APPLE INC
060505104

3

 BAC BANK OF AMERICA CORP
57636Q104

3

 MA Mastercard Inc – Class A
65248E104

3

 NWSA NEWS CORP
871503108

3

 SYMC SYMANTEC CORP
172967424

3

 C CITIGROUP INC
78463V107

3

 GLD SPDR GOLD TRUST
032511107

3

 APC ANADARKO PETROLEUM CORP
53217V109

3

 LIFE LIFE TECHNOLOGIES CORP.
855030102

3

 SPLS Staples Inc
053332102

3

 AZO AUTOZONE INC
086516101

3

 BBY Best Buy Company Inc
64110L106

3

 NFLX NETFLIX INC
844741108

3

 LUV Southwest Airlines Co
256677105

3

 DG DOLLAR GEN CORP NEW
91324P102

3

 UNH Unitedhealth Group Inc
30161N101

3

 EXC Exelon Corp
778296103

3

 ROST ROSS STORES INC
690742101

3

 OC OWENS CORNING NEW
46120E602

3

 ISRG INTUITIVE SURGICAL INC
726505100

3

 PXP Plains Exploration
88023U101

3

 TPX TEMPUR PEDIC INTL INC
382388106

3

 GR GOODRICH CORP
532791100

3

 LNCR LINCARE HOLDINGS INC.

 

As a percentage of market cap, new positions added:

CUSIP New Ticker Name
G5784H106

NA

 MANU MANCHESTER UTD PLC NEW
64107N206

27.49%

 UEPS Net 1 UEPS Technologies Inc
06652K103

27.20%

 BKU BANKUNITED INC
86663B102

26.98%

 SNBC Sun Bancorp Inc
147154207

25.80%

 CACB Cascade Bancorp
584404107

25.36%

 MEG MEDIA GEN INC
09064Y307

23.66%

 BIOF BioFuel Energy Corp.
269279402

14.54%

 XCO EXCO RESOURCES
912318201

12.88%

 UNG UNITED STATES NATL GAS FUND
121220107

12.21%

 BKW BURGER KING WORLDWIDE INC
29788A104

10.06%

 EOPN E2open, Inc.
G0585R106

10.03%

 AGO Assured Guaranty Ltd.
25490A309

9.48%

 DTV DIRECTV
44047T109

8.94%

 HZNP HORIZON PHARMA INC
92343E102

8.74%

 VRSN VeriSign Inc.
57686G105

8.58%

 MATX Matson Inc
896945201

7.58%

 TRIP TRIPADVISOR INC
39530A104

7.53%

 GRH Greenhunter Energy Inc-Restric

 

Increases in positions as a percentage of market cap:

CUSIP Increased Ticker Name
G5784H106

361.97%

 MANU MANCHESTER UTD PLC NEW
64107N206

27.49%

 UEPS Net 1 UEPS Technologies Inc
06652K103

27.20%

 BKU BANKUNITED INC
86663B102

26.98%

 SNBC Sun Bancorp Inc
147154207

25.80%

 CACB Cascade Bancorp
584404107

25.36%

 MEG MEDIA GEN INC
09064Y307

24.24%

 BIOF BioFuel Energy Corp.
912318201

15.09%

 UNG UNITED STATES NATL GAS FUND
269279402

14.54%

 XCO EXCO RESOURCES
121220107

12.21%

 BKW BURGER KING WORLDWIDE INC
53635B107

11.90%

 LQDT Liquidity Services, Inc.
29788A104

10.06%

 EOPN E2open, Inc.
G0585R106

10.03%

 AGO Assured Guaranty Ltd.
25490A309

9.48%

 DTV DIRECTV
896945201

9.21%

 TRIP TRIPADVISOR INC
779376102

9.21%

 ROVI ROVI CORP
44047T109

8.94%

 HZNP HORIZON PHARMA INC
92343E102

8.74%

 VRSN VeriSign Inc.
57686G105

8.58%

 MATX Matson Inc
760975102

7.60%

 RIMM RESEARCH IN MOTION LTD
39530A104

7.53%

 GRH Greenhunter Energy Inc-Restric
07556Q105

7.41%

 BZH Beazer Homes USA Inc
194014106

7.06%

 CFX Colfax Corporation

 

Decreases in positions as a percentage of market cap:

CUSIP Decreased Ticker Name
147154207

-28.97%

 CACB Cascade Bancorp
98417P105

-27.68%

 XIN XINYUAN REAL ESTATE CO LTD
624756102

-27.02%

 MLI MUELLER INDS INC
06652K103

-26.06%

 BKU BANKUNITED INC
64107N206

-24.77%

 UEPS Net 1 UEPS Technologies Inc
86663B102

-21.46%

 SNBC Sun Bancorp Inc
83545G102

-18.35%

 SAH SONIC AUTOMOTIVE INC CL A
09064Y109

-15.81%

 BIOF BIOFUEL ENERGY CORP
014481105

-15.75%

 ALEX Alexander & Baldwin Inc
269279402

-13.78%

 XCO EXCO RESOURCES
007865108

-11.85%

 ARO Aeropostale Inc
205862402

-11.69%

 CMVT COMVERSE TECHNOLOGY INC
G0585R106

-10.38%

 AGO Assured Guaranty Ltd.
499183804

-10.21%

 KNOL KNOLOGY INC
25490A101

-9.29%

 DTV DIRECTV-CLASS A
74165N105

-8.79%

 PRMW PRIMO WTR CORP
760276105

-8.36%

 RJET REPUBLIC AWYS HLDGS INC
359360104

-8.22%

 FFEX FROZEN FOOD EXPRESS INDS INC
440441400

-8.16%

 HRZCA HORIZON TELCOM – CLASS A
647581107

-8.06%

 EDU NEW ORIENTAL ED & TECH GRP I
939640108

-7.94%

 WPO Washington Post
960908309

-7.67%

 WPRT WESTPORT INNOVATIONS INC
871206405

-7.48%

 SCMR SYCAMORE NETWORKS INC
863236105

-7.44%

 STRA STRAYER ED INC
918866104

-7.31%

 VCI VALASSIS COMMUNICATIONS INC
532791100

-7.07%

 LNCR LINCARE HOLDINGS INC.

 

Largest amount of stocks sold out in entire:

CUSIP Sold Ticker Name
147154207

-28.97%

 CACB Cascade Bancorp
98417P105

-27.68%

 XIN XINYUAN REAL ESTATE CO LTD
624756102

-27.02%

 MLI MUELLER INDS INC
06652K103

-26.06%

 BKU BANKUNITED INC
64107N206

-24.77%

 UEPS Net 1 UEPS Technologies Inc
86663B102

-21.46%

 SNBC Sun Bancorp Inc
09064Y109

-15.81%

 BIOF BIOFUEL ENERGY CORP
014481105

-15.75%

 ALEX Alexander & Baldwin Inc
269279402

-13.78%

 XCO EXCO RESOURCES
007865108

-11.85%

 ARO Aeropostale Inc
205862402

-11.69%

 CMVT COMVERSE TECHNOLOGY INC
G0585R106

-10.38%

 AGO Assured Guaranty Ltd.
499183804

-10.21%

 KNOL KNOLOGY INC
25490A101

-9.29%

 DTV DIRECTV-CLASS A
74165N105

-8.79%

 PRMW PRIMO WTR CORP
760276105

-8.36%

 RJET REPUBLIC AWYS HLDGS INC
440441400

-8.16%

 HRZCA HORIZON TELCOM – CLASS A
939640108

-7.94%

 WPO Washington Post
871206405

-7.48%

 SCMR SYCAMORE NETWORKS INC
647581107

-7.47%

 EDU NEW ORIENTAL ED & TECH GRP I
863236105

-7.44%

 STRA STRAYER ED INC
918866104

-7.31%

 VCI VALASSIS COMMUNICATIONS INC
532791100

-7.07%

 LNCR LINCARE HOLDINGS INC.

 

Finally, a list of the largest companies held by my investors where there is still net buying going on:

G5784H106

NA

 MANU MANCHESTER UTD PLC NEW
313549404

94.11%

 FDML FEDERAL MOGUL CORP
451100101

92.72%

 IEP ICAHN ENTERPRISES LP
25388BAD6

51.94%

 DRIV DIGITAL RIV INC
09064Y307

40.95%

 BIOF BioFuel Energy Corp.
63934E108

33.61%

 NAV Navistar International Corp
708160106

31.98%

 JCP PENNEY J C INC
254423106

31.23%

 DIN DINEEQUITY INC
584404107

29.86%

 MEG MEDIA GEN INC
64107N206

27.49%

 UEPS Net 1 UEPS Technologies Inc
06652K103

27.20%

 BKU BANKUNITED INC
86663B102

26.98%

 SNBC Sun Bancorp Inc
76117W109

24.37%

 RFP Resolute Forest Products Inc
92552V100

23.72%

 VSAT VIASAT INC
896945201

23.44%

 TRIP TRIPADVISOR INC
L00849106

23.41%

 AGRO ADECOAGRO SA
549463AH0

22.73%

 ALU LUCENT TECHNOLOGIES INC
405217100

21.86%

 HAIN HAIN CELESTIAL GROUP INC
165167107

20.76%

 CHK CHESAPEAKE ENERGY CORP
615369105

20.32%

 MCO Moody’s
912318201

20.06%

 UNG UNITED STATES NATL GAS FUND
812139301

19.92%

 ZZ SEALY CORP
874054109

18.64%

 TTWO TAKE-TWO INTERACTIVE SOFTWAR
205363104

18.40%

 CSC COMPUTER SCIENCES CORP
92927K102

17.65%

 WBC WABCO HOLDINGS INC
459028106

17.54%

 INTL INTL FCStone Inc
92343E102

17.33%

 VRSN VeriSign Inc.
42983D104

17.30%

 ONE HIGHER ONE HLDGS INC
N7902X106

17.11%

 ST SENSATA TECHNOLOGIES HLDG BV
913837100

16.53%

 USAP UNIVERSAL STAINLESS & ALLOY
194014106

15.31%

 CFX Colfax Corporation
N93540107

15.30%

 VPRT VISTAPRINT N V
760975102

14.96%

 RIMM RESEARCH IN MOTION LTD
269279402

14.84%

 XCO EXCO RESOURCES
806037107

14.56%

 SCSC Scansource Inc
79377W108

14.37%

 SKS Saks Incorporated
M25082104

14.06%

 CKSW ClickSoftware Ltd.
151290889

13.89%

 CX CEMEX SAB-SPONS ADR PART CER
45166R204

13.86%

 IDIX IDENIX PHARMACEUTICALS INC
H84989104

13.58%

 TEL TE CONNECTIVITY LTD
064058100

13.57%

 BK BANK OF NEW YORK MELLON CORP
88033G100

13.46%

 THC TENET HEALTHCARE CORP
53635B107

12.86%

 LQDT Liquidity Services, Inc.
779376102

12.63%

 ROVI ROVI CORP
121220107

12.21%

 BKW BURGER KING WORLDWIDE INC
345838106

12.16%

 FRX Forest Labs
79546E104

12.09%

 SBH SALLY BEAUTY HLDGS INC
00724F101

11.91%

 ADBE ADOBE SYSTEMS INC
65248E104

11.82%

 NWSA NEWS CORP
421933102

11.64%

 HMA HEALTH MGMT ASSOC INC NEW
24702R101

11.59%

 DELL Dell Inc
31428X106

11.54%

 FDX FEDEX CORP
62944T105

11.29%

 NVR NVR INC
741503403

11.13%

 PCLN PRICELINE COM INC
512815101

10.95%

 LAMR LAMAR ADVERTISING CO
84264A102

10.87%

 SSE Southern Connecticut Bancorp
037604105

10.57%

 APOL Apollo Group Inc Cl A
90341W108

10.51%

 LCC US Airways Group Inc
150870103

10.28%

 CE CELANESE CORP-SERIES A
66988K102

10.24%

 NCQ NOVACOPPER INC
191216100

10.21%

 KO COCA COLA COMPANY
20854P109

10.09%

 CNX CONSOL ENERGY INC
14040H105

10.08%

 COF CAPITAL ONE FINANCIAL CORP
29788A104

10.06%

 EOPN E2open, Inc.
12504L109

10.02%

 CBG CBRE GROUP INC
489170100

9.97%

 KMT Kennametal Inc.
871503108

9.90%

 SYMC SYMANTEC CORP
G02602103

9.71%

 DOX AMDOCS LTD COMMON STOCK GBP.00
30226D106

9.59%

 EXTR EXTREME NETWORKS INC
25490A309

9.48%

 DTV DIRECTV
G27823106

9.16%

 DLPH Delphi Automotive PLC
774341101

9.09%

 COL Rockwell Collins Inc.
880779103

9.08%

 TEX TEREX CORP NEW
984332106

9.01%

 YHOO YAHOO! INC
44047T109

8.94%

 HZNP HORIZON PHARMA INC
45031U101

8.88%

 SFI ISTAR FINL INC
447011107

8.68%

 HUN HUNTSMAN CORP
66987E206

8.58%

 NG NOVAGOLD RES INC
57686G105

8.58%

 MATX Matson Inc
003881307

8.54%

 ACTG ACACIA RESH CORP
887317303

8.36%

 TWX TIME WARNER INC
53219L109

8.33%

 LPNT LIFEPOINT HOSPITALS INC
808513105

8.28%

 SCHW SCHWAB CHARLES CORP NEW
751212101

8.16%

 RL RALPH LAUREN CORP
812139400

8.15%

 ZZ Sealy Corp
370023103

7.92%

 GGP GENERAL GROWTH PPTYS INC NEW
171779309

7.86%

 CIEN Ciena Corp.
73172K104

7.73%

 PLCM Polycom Inc
774415103

7.72%

 ROC ROCKWOOD HLDGS INC
07556Q105

7.69%

 BZH Beazer Homes USA Inc
31620M106

7.65%

 FIS Fidelity National Information
39530A104

7.53%

 GRH Greenhunter Energy Inc-Restric
103304101

7.42%

 BYD BOYD GAMING CORP
257559203

7.42%

 UFS DOMTAR CORP
20451N101

7.41%

 CMP Compass Minerals
125581801

7.36%

 CIT CIT GROUP INC.
45666Q102

7.27%

 INFA INFORMATICA CORP
G3157S106

7.26%

 ESV ENSCO PLC
251893103

7.23%

 DV DeVry Inc.
256677105

7.14%

 DG DOLLAR GEN CORP NEW
Y2573F102

7.09%

 FLEX FLEXTRONICS INTL LTD
439734104

6.98%

 HFBC HopFed Bancorp Inc.
20564W105

6.97%

 SCOR COMSCORE INC
302130109

6.96%

 EXPD Expeditors Int’l Wash Inc
95082P105

6.95%

 WCC WESCO INTL INC (this can?t be right)
125509109

6.93%

 CI CIGNA CORP
192446102

6.86%

 CTSH COGNIZANT TECHNOLOGY SOLUTIO
588056101

6.75%

 MERC Mercer International Inc.
232820100

6.69%

 CYT CYTEC INDUSTRIES INC
591708102

6.68%

 PCS METROPCS COMMUNICATIONS INC
90384S303

6.50%

 ULTA ULTA SALON COSMETCS & FRAG I
868536103

6.46%

 SVU SUPERVALU INC
413160102

6.44%

 HLIT HARMONIC INC
204018105

6.39%

 CPBC Community Partners Bancorp
382550101

6.24%

 GT GOODYEAR TIRE &
265504100

6.18%

 DNKN DUNKIN BRANDS GROUP INC
432589109

6.12%

 HSH Hillshire Brands Co
918194101

6.08%

 WOOF VCA Antech Inc
024061103

5.90%

 AXL American Axle & Mfg Hldgs
233326107

5.86%

 DST D S T SYSTEMS INC
58501N101

5.84%

 MDVN MEDIVATION INC
867892101

5.75%

 SHO SUNSTONE HOTEL INVS INC N
143130102

5.72%

 KMX CARMAX INC
073302101

5.42%

 BEAV BE Aerospace, Inc.
026874784

5.34%

 AIG AMERICAN INTL GROUP INC
863667101

5.30%

 SYK Stryker Corp
05615F102

5.30%

 BWC BABCOCK & WILCOX CO NEW

 

That?s all for now.? Comments are welcomed below.

 

Full disclosure: long ORCL, WFC, SPLS, ESV, TEL

Bombing Baby BDC Bonds

Bombing Baby BDC Bonds

Posted on by David Merkel

After reading Jason Zweig’s good piece, “Should You Bottle Up Your Money in ‘Baby Bonds’?” I said to myself, “But what does the prospectus look like?”? So I went to EDGAR, and pulled up the prospectus for Fifth Street Finance Corp’s 5.875% Senior Notes due 2024.

Please understand — I get squeamish with the unsecured bonds of exotic financial companies.? Losses on the bonds of financial companies when they fail tend to be far worse than those of industrials or utilities.? That is a major reason why financial bonds typically yield more than similarly rated non-financial bonds.? They are more risky.

So, looking through the deal summary terms, we learn:

  • At $75 million, the deal is small.
  • It’s a 12-year deal — that’s done to confuse buyers, because it gets priced off the 10-year Treasury, giving the illusion of more spread.
  • Quarterly pay of interest which raises the effective yield a touch.
  • Senior subordinated, but…
  • effectively subordinated to all our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, including without limitation, the $206.3 million of borrowings under our credit facilities outstanding as of October 10, 2012; and
  • structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of Fifth Street Funding, LLC, Fifth Street Funding II, LLC and our SBIC subsidiaries.
  • The bonds are callable at par after 5 years.

The structural protections here are weak.? You are lending to a financial holding company where many of the assets are pledged to other creditors.? More on that in a moment.

The risk factors for a business development company like Fifth Street are significant, and can be found here, all eighteen-plus pages of them.? But the risk factors of the debt are more significant, and can be found here.? Here are the main headings:

  • The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
  • The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
  • The indenture under which the Notes will be issued will contain limited protection for holders of the Notes.
  • There is no existing trading market for the Notes and, even if the NYSE approves the listing of the Notes, an active trading market for the Notes may not develop, which could limit your ability to sell the Notes or the market price of the Notes.?
  • If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.

Unsecured holding company debt can be weak, because with some subsidiaries there may be regulatory limits or private limits to upstreaming capital to the holding companies.? That puts financial holding companies in a weak position, because when financial conditions get bad liquidity can get very tight.

And with business development companies [BDCs], which own and finance small-to-medium sized businesses, there is a lot of idiosyncratic risk including:

  • Your downside is 100%, but your upside is capped.
  • BDCs tend to be speculative investors.
  • Many of the assets held are subject to third-party security interests, which lessens the rights of unsecured lenders to the holding company.
  • BDCs, life REITs, have to pay out 90%+ of taxable income in order not to face corporate taxation.? That forces BDCs to continually go to the credit markets for financing.? But what if the market is no longer favorable for a year or two?
  • BDCs are placid weather vehicles, and more so the bonds.? One might be better off holding 30% Treasuries and 70% BDC stock.? At least you have more downside protection, and more upside.

So put me in the camp of those that have no interest in BDC debt.? It is a weak instrument, and regardless of what the rating agencies say, they are not investment grade risks.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Politics & Policy

 

  • Was the Budget Deficit Worth the Fight? http://t.co/jDn9r7DC Budget deficits are an assault on the quality of our money & savings $$ @carney Nov 24, 2012
  • None Dare Call It Default http://t.co/4o0lnQoe A nicer term for what’s about to sock the middle class is ‘entitlement reform.’ $$ Nov 24, 2012
  • Judge Pens New Bankruptcy Chapter http://t.co/6V5cUQjS US BK Court Judge Thomas Bennett takes on the Jefferson County, AL Ch 9 filing $$ Nov 24, 2012
  • Banks reportedly lining up against Elizabeth Warren committee spot http://t.co/YRAId5TQ & http://t.co/LFXTCZEb I say give her a chance $$ Nov 21, 2012
  • Globalism goes backward http://t.co/h6kt67Lz As global growth slows, so does its handmaiden, globalization. $$ Nov 21, 2012
  • 2013 Looks a Lot Like 1937 in 4 Fearsome Ways http://t.co/iZjmM1ZA Pre-election spree, post-reduce deficit, class war, prior laws bite $$ Nov 20, 2012
  • FHA running out of money http://t.co/L1M7lRIK ?We take the findings of the independent actuary very seriously…? loss reserves too low $$ Nov 20, 2012
  • Pension cuts could boost state?s Social Security costs http://t.co/61jicHRM If benefits drop below certain level, have 2 pay SS/Med taxes $$ Nov 19, 2012
  • Special Dividends Surge Fourfold as US Tax Increase Looms http://t.co/vPVaLNFU Last chance 2 reward shareholders w/low div tax rates $$ Nov 19, 2012
  • http://t.co/LJnienxh San Bernardino: How California law, police/firemen, CALPERS, dysfunctional politics, & bad pension acctg rules killed Nov 19, 2012

 

Monetary Policy

 

  • Soros Buying Gold as Record Prices Seen on Stimulus http://t.co/pJ5FTplo Gold prices react2cost of carry; neg in real terms now $$ #zoom Nov 24, 2012
  • Paula Broadwell?s Radar Tracks Generals, Not Fed http://t.co/WglEhJFo Bernanke’s/Yellen’s ideas will crumble from stagflation $$ @cabaum Nov 24, 2012
  • Abe threatens to turn BOJ into an unlimited piggy bank for the government http://t.co/LxWwmlyP Eventually the real economy will rebel $$ Nov 21, 2012
  • It’s a Good Bet the Fed Doesn’t Know What It’s Doing http://t.co/zG6mepy0 Couldn’t pick a worse Fed 4 crisis: imagines it knows what 2 do $$ Nov 19, 2012

?

Hewlett-Packard

 

  • Hurdling H-P: Oracle Shows Way in M&A http://t.co/fiJvmT2N Point is $ORCL ‘s older deals have been productive, $HPQ ‘s not. $$ FD:+$ORCL Nov 23, 2012
  • H-P?s Deal Process Bypassed CFO Pre-Whitman http://t.co/WfawtYfh Note that Cathie Lesjak opposed the Autonomy purchase. Smart lady $$ Nov 21, 2012
  • Goodwill Hunting http://t.co/ghFrEDlY @epicureandealmaker takes down a generally cruddy Bloomberg article on $HPQ & Goodwill accounting $$ Nov 21, 2012
  • Note to all writing about Hewlett Packard: the ticker is $HPQ, not $HP, which is Helmerich & Payne, which drills oil and gas wells $$ Nov 20, 2012
  • Ironic in many ways. HP should have been happy with their engineer-driven pre-Fiorina culture. It did a lot… http://t.co/rqXEW5Bi Nov 20, 2012

?

Loose Monetary Policy Harms Fringe Nations

 

  • Debt Burden Adds to Won Gains in Crimping Korea Rebound http://t.co/y6uHfFEw Loose monetary policy creates debt bubble in S. Korea $$ Nov 24, 2012
  • S&P: Australia is Spain in waiting http://t.co/usllSlBt Heavily indebted financial systems can be like the snowpack prior 2 an avalanche $$ Nov 21, 2012
  • Prison of Debt Paralyzes West http://t.co/ofJXWyLu Government debt after a point does not stimulate, but perpetuates unproductive policy $$ Nov 20, 2012
  • Purple Palace Abandoned Shows China Shadow-Banking Risk http://t.co/tmg6jPhy China is like Japan 23 years ago: fearsome & malinvested $$ Nov 20, 2012

?

Rest of the World

 

  • Egypt Presidential Decree Sparks Protests http://t.co/a5YUcvtN Anyone surprised that the Muslim Brotherhood came out on top? State Dept Nov 23, 2012
  • Can Xi Jinping bring about the change China needs? http://t.co/i3XGKZBJ Long article on the new Chinese leader; very tough road to travel $$ Nov 21, 2012
  • Pipeline Would Loosen Russian Stranglehold On European Natural Gas Supply http://t.co/3zPUInTZ Where there is a will there is a way $$ Nov 20, 2012
  • Misconstruing Germany Will Prove to Be Death of the Euro http://t.co/nCJ7rLiZ Germany won’t want a banking union; their banks have issues Nov 20, 2012
  • http://t.co/MSqwtq4u China unlikely to make shift to consumption, b/c it means granting freedom to the people & reducing party cronyism $$ Nov 20, 2012

 

Personal Finance

 

  • After Sandy damage, insurance adjusters may bring more bad news http://t.co/GTAhE9x3 If odds of getting flooded > 1% get flood insurance $$ Nov 24, 2012
  • Tax Moves to Make Now http://t.co/TmoaGOCC Balanced piece; worth a read. Assumes we don’t go over the fiscal cliff: a deal is struck $$ Nov 24, 2012
  • Lenders Rev Their Engines http://t.co/5jz3pt3l Surge in Demand for Auto Loans Spurs Push Into Sector; Subprime Is a Big Draw $$ Nov 23, 2012
  • For ‘Credit Invisibles,’ A Market Takes Shape http://t.co/4l849dmK A blast from the past; using payment histories 2 establish credit $$ Nov 20, 2012
  • apparent mojo http://t.co/lDNmxD1s @researchpuzzler does homework, comes to correct conclusion on a tiny junk fund featured in the WSJ $$ Nov 20, 2012
  • Draining Away! http://t.co/hQAqzE9M Universal life policies suffer from low interest rates. B sure 2 check the gteed minimum rate $$ Nov 19, 2012

 

Miscellaneous

 

  • The Great Thanksgiving Hoax http://t.co/kwbE39ee Strangers were the lazy ones; like the Hutterites the Saints could have made socialism work Nov 21, 2012
  • Archbishop Says Church Lost Credibility on Women Bishops http://t.co/n7XkjfDM The “laity” understands the Bible better than the priests $$ Nov 21, 2012
  • Why One Poll Says 45% Would Rather Skip Christmas http://t.co/zwwqY00R Costs a lot; nativity means much to Christians, Christmas is made-up Nov 20, 2012
  • Windows 8 killed my PC http://t.co/slcTSRVA No operating system should expect 2b equally good touch vs keyboard, tablet vs laptop, etc $$ Nov 20, 2012
  • Kill the Password: Y a String of Characters Can?t Protect Us Anymore http://t.co/jPoLzKpK Long but worth it; multifactor ID is the future $$ Nov 20, 2012

 

Market Dynamics

 

  • Kyle Bass gives it to us with both barrels http://t.co/yZLt36kW Very long. Worth it if you want to see what he is up to in investing. $$ Nov 21, 2012
  • Mismeasurement of Pensions Before and After Retirement http://t.co/DwE869Js The full paper, & you don’t have to pay NBER a cent $$ Nov 19, 2012
  • In a Slow Market, Wait for Compelling Values Says Johnson http://t.co/lf891lb5 Expects 5%-ish returns 2013; unusual 2 get small returns $$ Nov 19, 2012
  • Tech Sets Correction Course http://t.co/ct7yaWcb Largest sector of the market is feeling soggy, which does not bode well 4 the rest $$ Nov 19, 2012
  • Why Mutual Fund Guardians Are Failing http://t.co/UMvk4AAB Old/good article on the flaws of mutual fund governance; skewed incentives $$ Nov 19, 2012
  • Investment Falls Off a Cliff http://t.co/GVqnEdLH US Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty; unstable policy Nov 19, 2012
  • Buy on the rumor, sell on the news $$ RT @BloombergNews: S&P 500 rises most in two months amid budget deal optimism | http://t.co/yyR2uiSi Nov 19, 2012

 

Other Companies

 

  • I know the basics on a lot of companies but is the first time I have heard of Schiff Nutrition International $SHF http://t.co/jxHIdf1v $$ Nov 21, 2012
  • Hostess Judge Sees Return to ?Liquidation Scenario? http://t.co/OeDI3sTX Twinkies will survive, but many who produce them will not $$ Nov 21, 2012
  • Hostess Seen Attracting Bids for Assets From Flowers http://t.co/vAu1o7Wv The brands will get bought; the value is there, not in plants $$ Nov 19, 2012
  • Drillers Begin Reusing ‘Frack Water’ http://t.co/nOiR3sy5 Energy Firms Explore Recycling Options 4 Industry That Uses Water Like Chicago Nov 19, 2012

 

Wrong

 

  • Bad Headline: Wall St Kept Winning on Mortgages Upending Homeowners http://t.co/fuKDx4ss Most tricky mtges not originated by Wall St $$ Nov 19, 2012
  • Wrong: S&P 500 in Cheapest Bull Market Since Ronald Reagan http://t.co/jNJ1x0SU When will they learn *not* 2 use P/E 4 mkt valiuation? $$ Nov 19, 2012

 

Replies

 

  • @PlanMaestro Thanks — missed that. Nov 23, 2012
  • @PlanMaestro I just can’t believe the 1.5 Billion figure for the Earth’s carrying capacity; even the Club of Rome is more optimistic, no? Nov 23, 2012
  • “How many lines can be drawn in a 2D plane such that they are equidistant from 3 non-collinear points?” 3… http://t.co/QQkn7IcR Nov 23, 2012
  • Grantham is outside of his skill set here, and should be ignored. Also, global population will top out at… http://t.co/ZACbqPQO Nov 23, 2012
  • Nothing against Bill McBride. He deserves praise from all of us. There are three missing pieces though, and… http://t.co/Dfs50uGQ Nov 21, 2012
  • . @Dvolatility H-P CDS Curve Flattens on Write-Down http://t.co/9vWEDzcZ Early buyers of $HPQ protection made decent money, late less $$ Nov 21, 2012
  • @Dvolatility $HPQ CDS spreads did forecast the spread widening, but not the magnitude. It also forecast the stock price move also $$ Nov 21, 2012
  • @japhychron @TFMkts @dvandeventer @Dvolatility Or, does the negative tangible book have an impact on modeling? $HPQ $$ Nov 21, 2012
  • “You can count beans and trace them back to their sources, good. But can you adequately question the?” $$ David_Merkel http://t.co/JS3Jbtnb Nov 21, 2012
  • @dvandeventer @Dvolatility Any read on the level 5Y CDS is trading at? Used to have a BBG terminal, but don’t now… Nov 21, 2012
  • @Dvolatility Where does the $HPQ CDS trade now? Nov 21, 2012
  • @qusmablog Much of the world has to go through a “failure cycle” before “normal growth” can reboot. Many entrenched interests don’t want it. Nov 21, 2012
  • @Nonrelatedsense @researchpuzzler Also not good for the WSJ 2 write about a small fund w/short track record… bigger problem $$ Nov 20, 2012
  • @Nonrelatedsense @researchpuzzler Apologies, Chou Income did beat the Barclays Agg since inception http://t.co/VwYvIVYj Carry does it $$ Nov 20, 2012
  • @CEOofmyFUTURE longer term measures like the Q-ratio, CAPE10, Price to resources, & Hussman has a measure also Nov 19, 2012
  • @BloombergNews Who’s in charge of this page: http://t.co/2sJ5NEDK They changed it last week and made it less useful $$ Nov 19, 2012

 

Retweets

 

  • Notable & Honorable $$ RT @Nati2de: Larry Hagman was married to the same woman since 1954. Impressive, especially for a Hollywood actor. Nov 24, 2012
  • Growth comes when capital, labor & resources have fair prices RT @BloombergView: Greece needs growth, not austerity | http://t.co/f620QBRU Nov 21, 2012
  • RT @retheauditors: #1 cause of accounting fraud is revenue recognition issues and #1 industry for accounting fraud is technology/softwar … Nov 20, 2012
  • Gracias, no se habla $$ RT @besanson: #FunAndFinance Interest Rate Swaps and LIBOR in 5 minutes // Thanks or RT http://t.co/zu2LP7Nx Nov 20, 2012
  • Torture data until it confesses something $$ RT @Alea_: Does ?Statistical Significance? Imply ?Actually Significant?? http://t.co/BBTfUThF Nov 20, 2012
  • RT @finemrespice: The Federal Housing Administration stands against all prior biological evidence that primates are capable of forming m … Nov 19, 2012
  • Buy on the rumor, sell on the news $$ RT @BloombergNews: S&P 500 rises most in two months amid budget deal optimism | http://t.co/yyR2uiSi Nov 19, 2012

 

Blog News

 

  • My week on twitter: 75 retweets received, 4 new listings, 50 new followers, 92 mentions. Via: http://t.co/SPrAWil0 Nov 22, 2012

 

On Hedge Funds

On Hedge Funds

Posted on by David Merkel

I don’t think hedge funds are an optimal way to manage assets.? Here are some of my reasons:

  • The fees are too high.? Why pay 2% of assets, and give up 20% of the profits?
  • Hedge funds, aside from Commodity Trading Advisers and Global Macro funds, tend to be correlated, yield-seeking, and volatility-averse.? Why pay up for correlated performance?
  • The statistics behind hedge fund marketing suffer from backfill bias, survivor bias, and a few other biases.

Actual returns from hedge funds trail buy-and-hold returns by a significant margin.? Investors in hedge funds are poor timers of investment.? Though past results do not indicate future returns, investors act like that.? No one will add money to a losing fund, even if that is the point where it might start to do better.

To me it seems that we are running into the limits of arbitrage.? Shorting is unnatural, and so are many derivatives.? How much do you have to pay up to get someone else to take the other side of the trade?

Only so much stock/bonds, etc., can be lent out and shorted with no additional cost.? Beyond that, shorts have to pay up, and that crimps their profits.

This is one big reason why I am happy to be a long-only value investor.? I only have to focus of businesses making money versus their current share price.? I don’t have to deal with the games surrounding shorting.? That simplifies my decision making considerably.

Charlie Brown the Retail Investor

Charlie Brown the Retail Investor

Posted on by David Merkel

 

Last week I tweeted:? Professional investors would be sad if retail left the mkt. Lucy would feel the same if Charlie Brown gave up trying to kick the football.

Now, I don’t like being cynical, but there is smart money and dumb money.? Some of the smart money is retail.? My mother and my late Father-in-law would qualify as “smart money.”? Most retail investors do not qualify as smart money.

Alice Schroeder spoke to the Baltimore CFA Society last week, on 11/7, and talked about Warren Buffett and his thought processes on investing, and the degree of focus he brings to his work.

No, average people can’t do what Buffett does.? 99.9%+ of people can’t do what Buffett does.? Buffett leads the league in terms of the number of dollars of excess return he has created.

Most retail investors would be better off outsourcing to an investment advisor running separately managed accounts, which is more tax-efficient than mutual funds, and letting them brave the vicissitudes of the markets.

It is not that the investment advisor will beat the averages, but if he has a long enough time horizon and does not give in to panic and greed as most retail investors do, he will provide value to his clients.? He protects them from human nature.

That said, many investment advisors are subject to the same pressures, because they fear the reactions of their clients, if they underperform.

You might argue, “But I can buy index funds, lower my expenses, and live with modest underperformance, rather than greater underperformance on average from active managers.”? If you can do that, and control your emotions, good.? Most can’t.? They sell in a panic at the bottom, and allocate more near the top.? People can argue over rebalancing, but it does help people make better investment decisions, on average.

Though I am not fully happy with my performance for my clients, I have not changed my methods that worked so well for me in the past.? My methods that have worked well will work well again.

What I can say is that toward the end of a fiscal year, I sell one significant loser.? My clients gain the tax benefit of a long-term capital loss.? I may buy it back after the wash sale rules expire.? If I buy it back, it will be after significant study.? I don’t fall in love with stocks, though I usually hold them for three years on average.

As it is, whatever my clients get, I get.? I am the the single largest investor in my ideas, and clients get a clone of my portfolios, whether stocks or bonds.

Those who invest with me get my slowness to act.? My portfolio turnover is around 30%/year, versus 120% for most mutual funds.? Most investment decisions take time to work out, and retail investors leave before the workout occurs, and after disappointment.

I am not asking you to invest with me.? I am encouraging you to think more long term with your investments, and also consider how you can incorporate a margin of safety in your investing.

Aim for “pretty good” investing, and you might succeed.? Aim for “best” investing, and you will likely fail.? That’s the way of the market, on average.

And if I were Charlie Brown (who reminds me of my father) I would say to Lucy, “Okay, hold it there!”? And then, I would walk home, hug Snoopy and Sally, and get a good night’s rest in bed, and let Lucy suffer from holding the ball.

Theme: Overlay by Kaira.