Portfolio Management – Page 67

Weekly Sorted Tweeets

Posted on 28 April 201229 April 2012 by David Merkel

Federal Reserve

Long Term U.S. Credit Boom Chart http://t.co/Ywub8HQH By bailing out short-term credit cycles, the Fed created a big asset bubble $$ Apr 28, 2012
Quantitative Deleting: The Fed’s $400 Billion ‘Gift’ http://t.co/qavtYcQy Fed’s actions lower cost of funding the US Treasury’s deficit 4now Apr 26, 2012
Bernanke Takes On Krugman?s Criticism Ignoring Own Advice http://t.co/AZ37nx1W Blind & Blinder $$ Apr 26, 2012
I think Ben needs one too. Barkeep, make that a double for the the Fed Chairman! $$ RT @soooouuuuurrrrr: @AlephBlog I need a drink. Apr 25, 2012
That’s all folks — the FOMC show is over!! $$ Apr 25, 2012
Stocks loving Bernanke, who says he doesn’t act to please markets, but I think that he does, b/c he aims to reduces rates & spreads $$ Apr 25, 2012
Good Qs on Labor force participation rate and the “bond bubble.” Bernanke obfuscates. Apr 25, 2012
But the real canard here with the enhanced guidance is that the Fed is poor at forecasting & consistently drags toward current conditions $$ Apr 25, 2012
When will Fed “transparency” finally be understood to not mean “increased reliability?” Apr 25, 2012
Interesting that long Treasuries r rallying off of the FOMC second stmt after falling on the first. Not much difference between the 2. $$ Apr 25, 2012
So, short-term inflation up, LT unch. ST Unemp down, LT unch. ST GDP up, 2013-4 down, LT unch. Tightening 6 mos closer than Jan, FF path up Apr 25, 2012
Central tendencies and ranges of economic projections, PCE average change 2012-14 +0.22%, +.10%, +.09%, longer run 0% (natch) $$ Apr 25, 2012
Central tendencies and ranges of economic projections, unemployment average change 2012-14 -0.40%, -.21%, -.08%, longer run -.01% $$ Apr 25, 2012
Central tendencies and ranges of economic projections, GDP average change 2012-14 0.16%, -.08%, -.24%, longer run 0% $$ Apr 25, 2012
The enhanced guidance of the FOMC is causing more confusion than enhancing understanding $$ Apr 25, 2012
Overview of FOMC participants’ assessments of appropriate monetary policy; Appropriate Timing of Policy Firming 6 months sooner than Jan12 Apr 25, 2012
Target Federal Funds Rate at Year-End average change 2012-2014, +.015%, +.044%, +.206%, long-run -.015% $$ Apr 25, 2012
PDF isn’t as friendly as HTML… but that’s probably intentional on the part of the Fed. $$ Apr 25, 2012
here they are, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents http://t.co/OzeYZbRa $$ Apr 25, 2012
Clocks must be slow at the Fed’s website… Apr 25, 2012
Bond/stock trading bots set loose within the next minute! Apr 25, 2012
@bondscoop When the FOMC said they would do this, I said “Do they really get what they are setting themselves up for?” Tight coupling. Apr 25, 2012
@bondscoop Thanks. I’ve got the ancillary data loaded into a spreadsheet to make a quick comparison Apr 25, 2012
@bondscoop That’s not out yet, right? Apr 25, 2012
Redacted Version of the April 2012 FOMC Statement http://t.co/wJbPNf5P Shaded up views on housing, inflation & global financial risk. $$ Apr 25, 2012
Of course, that can only last so long as inflation stays low. Brian Wesbury thinks inflation might be rising http://t.co/YfLFURA3 $$ Apr 24, 2012
Gundlach Says Fed Won?t Preemptively Raise Rates http://t.co/YTfjQ6Wj W/debt building up 1 thing saving us: interest rate collapsing $$ Apr 24, 2012
There r historical accidents. The worst that we r dealing w/is Ben Bernanke as Fed Chairman with his mistaken views on the Great Depression! Apr 24, 2012
Awash in money and piles of debt http://t.co/C9hbSWmf Up next: More QE, financial repression, inflation, deficit spending -> stagflation $$ Apr 23, 2012
$$ Coming soon +1 RT @ReformedBroker: Hilsenrath: After-Hours Sell-Off in Netflix Pushes Fed Governors Toward to Further Easing… $NFLX Apr 23, 2012

China

Are these companies feeling the Chinese slowdown? http://t.co/bIO0m2vF Machinery companies: Volvo, ABB, $CAT seeing China orders fall $$ Apr 26, 2012
China Internet Crackdown Silences Another http://t.co/ukw0qzWg More closure of accts found 2b spreading ?malicious political rumors.? $$ Apr 26, 2012
Why Wukan Will Remain a One-off http://t.co/LO3tK7kT Optimistic piece shows when there is enough pressure in China, change can happen $$ Apr 26, 2012
China Tire Demand Slows as Economy Decelerates, Bridgestone Says http://t.co/yUK3UEye Q is how much things slow for the Chinese economy $$ Apr 26, 2012
China Escalates Crackdown On Internet Amid Scandal http://t.co/QblN4v3S China wants the internet 4 its economy, but not its politics $$ Apr 26, 2012
China and Social Media Today vs. Japan bubble in 80s http://t.co/0uxQ40xV Vitaliy Katzenelson shares his reasoning on bubbles $$ Apr 26, 2012
Why China’s Economic Policies Are a Failure: Andy Xie http://t.co/WZjILv4J Building redundant capacity, cronyism, recipe for disaster $$ Apr 25, 2012
China Hidden Liabilities for Central Government Seen @ CNY10.94Trl http://t.co/gaqD4suu Opaque governments w/lots of debt can b trouble 2 $$ Apr 25, 2012
Shide Group Mired in Financing Crisis, Massive Debt http://t.co/Iws3h9Ec Beware complex companies w/lots of debt. Default probs higher $$ Apr 25, 2012
The Startling Plight of China’s Leftover Ladies http://t.co/WWK3en7R Leftover Chinese men r not good enuf 4 them, even w/sex ratio tilted $$ Apr 24, 2012
Behind a Chinese City’s Growth, Heavy Debt http://t.co/6eKX3kJp Bo Xilai leaves behind a legacy of debt 4 taxpayers to fund $$ #surprise Apr 23, 2012
Cities get a sinking feeling: report http://t.co/xQE2d46k If China’s cities aren’t careful about their water tables, they’re sunk 😉 $$ Apr 23, 2012
Can China Reflate the Housing Market? http://t.co/rMtYHX0Y Maybe one more time, but eventually you can’t resuscitate a corpse $$ Apr 23, 2012
US barnyards help China super-size food production http://t.co/38GkPJ0T China builds protein industry by purchasing live animals from US $$ Apr 23, 2012
Beijing’s Cracked Consensus http://t.co/1Xep2j6s Don’t assume the fall of Bo Xilai 2b 2big; the CC Party still fights 4 the CC Party $$ Apr 23, 2012
Farmers Retool to Feed China http://t.co/c0loHf82 Dairy processors make longer-lasting milk powder 2sell2 China. They like almonds 2 $$ Apr 23, 2012
China May Finally Let Its People Move More Freely http://t.co/fiTQgY5c Of hukou: how China uses household registration 4 control purposes Apr 23, 2012
The End of China’s One-Child Policy? http://t.co/dK7sUMTq China is getting old before it gets rich. Toxic combo. Watch wages rise. $$ Apr 23, 2012
The China Rising Leaders Project http://t.co/QuKsr7w2 Very long piece giving very detailed info on next generation of China’s leaders $$ Apr 23, 2012
China?s Biggest Banks Are Squeezed for Capital http://t.co/uveB69fJ Too much and overaggressive lending strains their balance sheets $$ Apr 24, 2012

Eurozone

Spain’s current unemployment rate exceeds the US rate during the Great Depression http://t.co/bj86umZp Ugly chart: http://t.co/M6uchbAx $$ Apr 28, 2012
Why Spain Won’t Reform http://t.co/aIuYUctZ Cultural argument that Madrid historically does not act on problems outside of Madrid $$ Apr 28, 2012
Rising Italy-to-Spain Yields Keep Banks on Life Support http://t.co/kSdshke5 Many banks simply cannot refinance their maturing debt $$ Apr 25, 2012
Continuing flow of capital out of Greece http://t.co/psvzWbJk E.g. Greek refineries r unable to obtain credit & rely on Iran for crude $$ Apr 25, 2012
Spanish property crisis will require Ireland-style banking system recapitalization http://t.co/pDLNF2X7 But who has the money 2do it? $$ Apr 23, 2012
Bundesbank?s Weidmann Says What No EU Politician Wants to Hear http://t.co/ecLHlLIJ EZone monetary policy loose; fiscal union negligible Apr 23, 2012
Holland, Not Hollande, Is Europe’s Latest Worry http://t.co/AeQtOIVv If Dutch don’t care 4 austerity, little hope 4 rest of the EZone $$ Apr 23, 2012

Pensions

How Retirement Benefits May Sink the States http://t.co/oIEsAWhh Companies emigrate 2 states where future tax pressures r lower $$ #bye Apr 28, 2012
Point Man on Pensions http://t.co/DaXsdkgx PBGC director has experience in restructuring; serves him well negotiating w/dud companies Apr 23, 2012
Tidbit in last article: FV of DB pension liabs for $SWY > market cap. Actuarial profession goofed on DB plans valuations; ests r liberal $$ Apr 23, 2012
The Multiheaded Pension Monster http://t.co/oBDNBZYN Multiemployer DB plans- not enough coverage: moral hazard, low PBGC guarantees $$ Apr 23, 2012

Energy

Chevron sticks with oil. And it pays off. http://t.co/uUlsjbBK FD: + $CVX | That said, buy & hold conventional NG could b good idea now $$ Apr 28, 2012
Tough Talks Loom at Chesapeake http://t.co/OkMGyu8J Having a CEO who has differing interests from common shareholders is a risk $CHK $$ Apr 28, 2012
Saudi oil puzzle, continued http://t.co/z76fSKTZ Prices r high, but the Saudis keep stockpiling oil. Why? $$ #idunno #gouging #painfreak Apr 25, 2012

Information Issues

Saudi Clerics Out-Tweet Liberals Forcing King to Balance http://t.co/A1TcHeSJ Don’t underestimate the influence of Wahhabi Islam. $$ Apr 26, 2012
Google Stores, Syncs, Edits in the Cloud http://t.co/BrRSauno Walter Mossberg likes $GOOG Drive, thinks $MSFT Skydrive worth a try $$ Apr 25, 2012
PGP Creator Phil Zimmermann Has a New Venture Called Silent Circle http://t.co/KNJQJ4X4 There?s also a promise of no backdoors 4 anyone $$ Apr 24, 2012
A New Email Encryption App Your Network Admin Might Not Like http://t.co/7b967z7e Enlocked can encrypt email w/a click, could go viral $$ Apr 24, 2012
Surveillance State evils http://t.co/BKkmM78J Don’t say anything that you don’t want the government 2 know. Repeal the Patriot Act! $$ Apr 23, 2012
Astounding. Reprogram it $$ RT @AnnieLowrey: This essay awarded a perfect score by a robo-grader is just delightful. http://t.co/Vc1ORC8T Apr 23, 2012

Company Issues

Heat Turned Up on Falcone http://t.co/zaiW1Jzu The deal w/the devil comes due for payment; Falcone faces checkmate or LS bankruptcy $$ Apr 28, 2012
Woes at Law Firm Deepen http://t.co/to4dZbJY Dewey & LeBoeuf’s troubles w/debt & revenue shrinkage. Law does not work well 4 big biz $$ Apr 28, 2012
Health Insurers to Give Back $1.2 Billion, Goldman Says http://t.co/VX0V9sL9 health overhaul limits <20% premium for expenses & profit $$ Apr 26, 2012
US Airways Said to Approach AMR Bondholders on Merger http://t.co/iArkC4nq The unsec bondholders r the economic equity of $AAMRQ now $LCC Apr 25, 2012
Genworth Credibility Eroded as Australia Plan Shelved http://t.co/oyJJ4OCC I’ve almost always ben a sceptic on $GNW. Toxic lines of biz $$ Apr 24, 2012
Google Unveils Drive Storage Service http://t.co/5R1CAkR0 I use Microsoft Skydrive as a real time backup of my files. $$’ Apr 24, 2012
MGIC Posts $19.6 Million Loss as Borrowers Struggle on Loans http://t.co/fvoY6cZN Regulators should halt $MTG’s ability 2 write new biz $$ Apr 23, 2012

Rest of the World

Bubble Down Under? http://t.co/jk4UBFzA ?Name a credit bubble built on a commodity bull market built on a bigger Chinese credit bubble?? Apr 26, 2012
North Korea Poised to Rattle Region With Nuclear Blast http://t.co/MJmALgYi Will believe when it happens; NK always seems 2 get tech wrong Apr 26, 2012
Swiss housing market inching towards bubble http://t.co/KCbYrs6x Makes me wonder when the Swiss Central Bank will break its Euro peg $$ Apr 24, 2012

Financial Markets

Conference Notes http://t.co/VF5FIPOg On 4/13, Chicago Booth held its 7th Annual Distressed Investing & Restructuring Conference. $$ Apr 26, 2012
No surprise when they only put 3.5% down $$ RT @pdacosta: Falling home prices drag new buyers under water http://t.co/bayZVELO Apr 26, 2012
TARP Profit A Myth, Claims TARP Inspector General Christy Romero http://t.co/iv77kkne Q is related to foreclosure prevention aid & GSEs $$ Apr 26, 2012
My Sister?s Pension Assets and Agency Problems by Jeremy Grantham http://t.co/ANDMdZae On the value of a non-constrained mandate $$ Apr 25, 2012
Force Fed by Ben Inker of GMO, last 3 pgs of http://t.co/ANDMdZae Goes through the problems of Asset Allocation with yields so low $$ Apr 25, 2012
Wall Street Promotes Junk Bonds as Europe Erupts http://t.co/5kIRG7Oi grabbing for yield — it’s the national pastime! $$ Apr 25, 2012
US 10 Year Bond Yielding 0.5% http://t.co/Zrnj9zdL Japan scenario for the US? The 10Y at 0.5% seems farfetched, but everyone hates bonds $$ Apr 25, 2012
REITs Spring an Unnerving Surprise http://t.co/qgStDii0 I’ve warned b4 on Private REITs http://t.co/liQr20vq More bad surprises coming $$ Apr 25, 2012
So, if Egan-Jones did do ABS & governments, that would have been news to me. Surprising to see the SEC going after them $$ Apr 25, 2012
Credit Rater Egan-Jones Lied, SEC Charges http://t.co/c1ym3feC Firm was known 4 its corporate bond ratings by a contingent claims model $$ Apr 25, 2012
Misleading ETFs http://t.co/Z8uKHfA7 Buyer beware, read your prospectuses and semi/annual reports; go to the sponsor websites 4 more data $$ Apr 24, 2012
Who Gets the Equity Risk Premium? http://t.co/gqdPYexG LT holders, brokers, taxes, firms that issue & retire shares at inopportune times $$ Apr 24, 2012
Commodities don’t provide “diversification” in a crisis http://t.co/7ue9vvjJ Commodities provided diversification when few did it; no more Apr 23, 2012

Catastrophe Bonds

@merrillmatter If I ran a life insurance portfolio, a closed end fund, an open end HY fund, I would buy cat bonds, u need a balance sheet $$ Apr 24, 2012
@merrillmatter With all the goofy ETFs issued, surely someone could create $CATB, the Cat bond ETF. Would b very tough 2 source bonds 4 $$ Apr 23, 2012
@merrillmatter That’s why many high yield funds buy them w/both hands. Also special hedge funds that tear Cat bonds apart 2 get the best $$ Apr 23, 2012

The Perils of Sitting

On the sitting kills you piece, would like to get a copy. Est’d increase in death rate from 0.76% to 1.06%/yr. Big %, not so big absolute $$ Apr 23, 2012
Confirmed: He Who Sits the Most Dies the Soonest http://t.co/aif1e8xX I found this article worrisome. I sit > half of my waking hours. $$ Apr 23, 2012

US Economy

New Mad-Cow Discovery Stirs Fears http://t.co/DPm6aLzI This story will have legs, 4 2b exact. 😉 Beef will b down until scope clears $$ Apr 25, 2012
On the Social Security 2012 Report to Congress http://t.co/RPG3qz1p Age <53 today can expect to get 75% of the value a baby boomer got $$ Apr 24, 2012
Rosenberg: U.S. Clients View Canada as ?51st State? http://t.co/EqVvLFpX Careful, w/rates so low, housing is looking bubbly & banks?? $$ Apr 24, 2012
Fees and Anger Rise in California Water War http://t.co/9GjE5jwx Bad geography to get water to, unless you want to try desalinization. $$ Apr 24, 2012
@moorehn Heidi, I was 1 of the 8 bloggers @ the 1st blogger summit at the Treasury, & not 1 of the noisier ones. I spoke twice in the 90mins Apr 24, 2012
@moorehn So here is my Q4 Geithner: How do we get out of the entitlements crisis? We have promises equal to 4-5x GDP!? [Amid the deficit] $$ Apr 24, 2012
Housing market no longer yours for a steal http://t.co/xb2E2JIy Low end res RE is not accepting lowball offers to buy as it used to $$ Apr 23, 2012
You Won’t BELIEVE How Bearish Investors Are On Treasuries http://t.co/q9t2sZdE 2% bullish, 81% bearish in Barron’s poll. FD: + $TLT $$ Apr 23, 2012

Miscellaneous

US College Education Bubble, Planning for the Wrong Future http://t.co/BScEbQJI But many smaller job fields req college & pay well. $$ Apr 28, 2012
Hong Kong Glued to ?Bride Wannabes? http://t.co/6p9RCs0X Reality TV aids lovelorn 30-something women, ending w/a mass marriage 4 some $$ Apr 26, 2012
But really, with Agriculture doing so well in the US, isn’t it time to finally cut farm subsidies? And beef up (oops) USDA food safety? $$ Apr 25, 2012
Government Keeps Picking Winners, Losers on the Farm http://t.co/PKiJBHIp Farmer complains healthy food gets less subsidy than unhealthy Apr 25, 2012

Book Review: The Golden Revolution

Posted on 24 April 2012 by David Merkel

This book is highly optimistic that we will restore a gold standard to our world.? Much as I would like it, because it restrains the power of governments that increasingly behave like thugs, I don’t think a gold standard is likely to replace the status quo.

The book has many good areas to commend it, where it deals with history, explaining the problems of the past.? It trashes the concept of the SDR of the IMF, it is the Euro on an even weaker footing.

But the book is weak, because it does not recognize that the standard for money and the regulation of banks are separate issues.? Merely instituting a gold standard will not bring stability.? One must regulate heavily the degree that banks borrow short and lend long.? We had many crises during the gold standard in the 19th century, none as bad as the Great Depression, but they all stemmed from a lack of bank regulation.? I have no sympathy for the concept of “free banking.”? Anyone that is making a large number of promises needs to be regulated; he is a systemic risk.

Chapter seven is the critical chapter of the book, and it fails because it doesn’t go far enough.? In the chapter, Russia adopts a gold standard, and requires payment in gold for exports.? Fair enough, but as other nations attempt to adopt a gold standard, they would find their exporters objecting, leading to no adoption of a gold standard.

Chapter seven is the only thing that makes this book unique, and it is why I requested it from the publisher.? That makes this book a “fail.”

On the bright side, I now know that a gold standard would be difficult to appear, unless hyperinflation drove people to a commodity standard.? (And the odds of that are better than 20% over the next 20 years.

Quibbles

I do not recommend this book.

Who would benefit from this book: No one.? If you want to, you can buy the book here: The Golden Revolution: How to Prepare for the Coming Global Gold Standard.

Full disclosure: I asked the publisher for the book and he sent it to me.

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

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

Sorted Weekly Tweets

Posted on 23 April 2012 by David Merkel

Busy week last week.? Here’s the economic and other news:

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China

Bloomberg: Inflated Notions http://t.co/hvMoIFH6 Patrick Chovanec questions whether Chinese economic statistics are correct. $$ Apr 22, 2012
China?s Political Stability Questioned, while Deposit Withdrawals Accelerate http://t.co/X9kJ9oZb Deposits exit China’s banks; many worry $$ Apr 22, 2012
Asia dominates new treasury purchases http://t.co/BXvgGQRi If you want to favor your exporters, you have to suck in the debts of the buyers Apr 22, 2012
China?s Achilles heel http://t.co/3TPxHEvL Very difficult to change the practice of having fewer children once it is entrenched $$ Apr 22, 2012
Son is a good man, more worthy than Dad $$ RT @mprobertson: & the first wife had a son. http://t.co/dFzgm1kp extra extra, read all about it Apr 19, 2012
Chinese Move to Wealth Products May Undermine Bank Stability http://t.co/bYK4qImP Disintermediation happening increasing shadow bank risk $$ Apr 18, 2012
Chinese Officialdom Indulges in the Almost-Free Lunch http://t.co/tTMkP8JK A modest subsidy/perk looks big if the 1 looking in is poor $$ Apr 18, 2012
The Power Shift in China http://t.co/bgxN7t8h Shifts: 1.weak leaders < strong factions 2. government < interest groups 3. party < country $$ Apr 18, 2012
More Chinese get US green card http://t.co/ZU30ahwF They know where they’ve got it good, not in the Socialist worker’s paradise! $$ Apr 18, 2012
So many Chinese officials r arrested 4 embezzling funds through Macau that 2 scholars devoted a study to the subject http://t.co/YZbDqX57 $$ Apr 18, 2012
That?s Governor Zhou to you http://t.co/AkXcHbPZ Check out chart of central bank balance sheet growth http://t.co/VG0bySGA China leads $$ Apr 18, 2012
China widens the range 4 currency fluctuations. Is it really making x-rate more flexible? http://t.co/Rv79vI0q PBOC still targets x-rate $$ Apr 18, 2012
Rotting From Within http://t.co/vAwKBTzb Investigates the massive corruption of the Chinese military; makes corruption in the US look small Apr 18, 2012
Bo Xilai’s first wife gets her revenge at last http://t.co/UsrGejSF Some Chinese r very good @ maintaining a grudge 4a long time $$ Apr 18, 2012
China Doubling Yuan Band Signals Drive for Convertibility http://t.co/FK9OohMh Importance overstated; will not have a big effect on x-rate Apr 18, 2012
China Adds Treasuries for Second Month on Reserve Growth http://t.co/Ev9Fqi8s Export earnings have 2b invested somewhere $$ is best of bad Apr 18, 2012
China New Yuan Loans Surge in March as Money Supply Quickens http://t.co/DmXg6QB5 Sounds inflationary, if not 4 goods, then 4 assets $$ Apr 18, 2012

Energy

Peak oil goes mainstream (again) http://t.co/BijPuVFG Oil & Gas will never run out, but the price to get them could get high $$ Apr 22, 2012
Feeling peaky http://t.co/4mefPCBR “But there is a simpler explanation: that supply is inadequate to keep up with rising demand.” $$ Apr 22, 2012
Could US natural gas run out of storage capacity? http://t.co/8R1aYxjM Yes, it could, and we could see the price of spot gas go 2 zero $$ Apr 22, 2012
Delta?s Oil Refinery Plan Flies Against Economic Sense http://t.co/0xAnIV2z It rarely makes sense to be vertically integrated. $$ Apr 22, 2012
Obama’s oil market plan more politics than substance http://t.co/w2vwKhNx Crude oil market is so big; would be difficult 2 game secretly Apr 18, 2012

Eurozone

Odds of bankruptcy http://t.co/v0xBexrW Short table of bankruptcy odds: European banks = E-Zone Fringe > US Banks > Other nations $$ Apr 22, 2012
The bank-sovereign linkage in the Eurozone http://t.co/9q7Sx9cn Not 2 surprising; governments & banks comprise most systemic risk $$ Apr 22, 2012
Spain’s loan delinquencies accelerate http://t.co/3Nlf2QDu Really ugly graph: http://t.co/iJVux7fj The Spain issue is not dead $$ #ezonedead Apr 22, 2012
Paulson Said to Short Europe Bonds Amid Spain Concern http://t.co/hJQwSc9n This one isn’t as easy as shorting subprime. Be careful $$ Apr 18, 2012
Modell Deutschland ?ber alles http://t.co/DtrBNHDL Suggests EZone imitate German labor rules, but not austerity $$ Apr 18, 2012
French Campaign Enters Final Week With Hollande Extending Lead http://t.co/whQhmUb1 & widening recently; could make Ezone matters messy $$ Apr 18, 2012
Downgrades Loom 4 Banks http://t.co/EdDRDGQa Moody’s Weighing Ratings Cuts to 114 Institutions in 16 European Countries $$ #lookoutbelow Apr 18, 2012
Spanish Minister Asks ECB to Buy Bonds as Crisis Deepens http://t.co/cUcLRHLW Things r calmer now but this is the path of least resistance Apr 18, 2012
Spain?s Surging Bad Loans Cast New Doubts on Bank Cleanup http://t.co/QQT2BSsB NPLs /totallending jumped to 8.16% in February, <1% in 2007 Apr 18, 2012
Weidmann says not ECB job to tackle Spain’s problems http://t.co/kRUWSfyQ Famous last words $$ ECB only entity w/flexbility 2act fast Apr 18, 2012
Ray Dalio’s Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO http://t.co/nVMDpG5c It’s a solvency, not a liquidity problem Apr 18, 2012
GEORGE SOROS: The Euro Crisis Just Entered A ‘Less Volatile But More Lethal Phase’ http://t.co/uzIev7nm LTRO papers overinsolvency probs Apr 18, 2012

Rest of the World

Argentina’s shadow FX rate shows total loss of confidence http://t.co/RVRicp1p Dishonesty in one area makes others distrust u elsewhere $$ Apr 22, 2012
Cristina: she is not alone http://t.co/gBWcllwU Many nations engage in expropriation from foreigners. $$ Apr 22, 2012
Pakistan And India To Go To War Over Water? http://t.co/2mx9a7u9 Whiskey’s for drinking, water’s for fighting over — Mark Twain $$ Apr 18, 2012
Unlikely but never say never RT @SCMITHA: @AlephBlog Sir No chance of war bet India & Pakistan both Nuclear Army Chief Kayani wants peace Apr 18, 2012
Mexico Manifesting its Own Destiny http://t.co/kLwx5A6l “Mexico has clearly stood out to me for its relative and absolute strength.” $$ Apr 18, 2012
Japan?s Teachers Fund to Start Investing in REITs, Hedge Funds http://t.co/9nKnY0zM Trend following; late to the alternative assets party Apr 18, 2012

US Tax Policy & Pensions

Congress Eyes 401(k)s Again http://t.co/nRL9IkeO Interesting article on some possible/unlikely proposals to change 401(k)s $$ Apr 22, 2012
How to Pay No Taxes: 10 Strategies Used by the Rich http://t.co/ljjgefpc The main problem is defining income, not tax rates on the rich $$ Apr 22, 2012
Occupy defined-benefit pension funds! http://t.co/eQooNetC Employees would be better off with DB plans, even if had to fund them themselves Apr 22, 2012
New Suits Over Do-It-Yourself IRAs http://t.co/B6UYpG5m They aim for the wrong target; the custodian is only a conduit, not a referee $$ Apr 22, 2012
As population ages, institutions reduce equity holdings http://t.co/rPfescwH A first: US pensions have allocated more to bonds than equities Apr 18, 2012

Miscellaneous

The New York Times Company in 2015 http://t.co/qp451VDA An optimistic view of $NYT three years from now. I will not buy it. $$ Apr 22, 2012
Joel Kotkin: The Great California Exodus http://t.co/WOvr2BFE Y California is in deep trouble & will shrink as better places r found $$ Apr 22, 2012
Contra: Climate Change Has Nothing to Do With Al Gore http://t.co/GO0S60J3 Misinterprets Lk 16:2, & I am to believe he is a Christian? $$ Apr 22, 2012
The Celestial Event That Sparked a Revolution http://t.co/Kn3E9XJb Fascinating tale on the transit of Venus across the Sun $$ #June6th Apr 22, 2012
The Downside of Cohabiting Before Marriage http://t.co/a1fFySzW For a man & woman 2 live together long run requires decisive commitment $$ Apr 18, 2012
Amazon’s knock-off problem (35 Shades of Grey, anyone?) http://t.co/oRJNKhVB Fascinating that some r knocking off books & selling on $AMZN Apr 18, 2012
Median age for first marriage spikes to record, holding back family formation http://t.co/Uf2SbCTI Long-run effect on society won’t b good Apr 18, 2012
To Pay Off Loans, Grads Put Off Marriage, Children http://t.co/G72NieZI Far better to skip college than put off marrying & children $$ Apr 18, 2012
The 101 Finance People You Have To Follow On Twitter: http://t.co/pIaCWK1n A good list, but where’s @moorehn, @interfluidity, @edwardnh $$ Apr 18, 2012
Dark Meat Getting a Leg Up on Boring Boneless Breast http://t.co/7BDSaTru “Every single day we have shortage of dark meat.” Who knew? $$ Apr 18, 2012
?Pink Slime? Furor Means Disaster for U.S. Meat Innovator http://t.co/uGwKSIhw The other side of the story; fighting bacteria in beef $$ Apr 18, 2012
RAIL TRAFFIC CONTINUES TO SOFTEN http://t.co/EnhWT7Ay Economy slowing; just another straw blowing in the wind. $$ Apr 18, 2012
Freeport Deal Talk Intensifies on Cheap Copper http://t.co/DH26Nf1s Would be a big deal & difficult to pull off; Interesting idea tho $$ Apr 18, 2012
Taxes are filed and now I have some time to tweet, making up for lost time… Apr 18, 2012
@danprimack Private Investment Limited Partnership. Features: asset & profit-based fees. Limited liquidity & information. Aims high gets low Apr 17, 2012?(DM: defining ?hedge fund? in 140 chars)

Economics & Finance Theory

Is modern portfolio theory bunk? http://t.co/NrplQvbp Low volatility anomaly says bunk; if you didn’t know MPT was bogus alre ady-> #hopeless Apr 22, 2012
U.S. money supply growth offers bullish signal http://t.co/aqV6oP0c It is bullish in nominal terms for risk assets; not bullish for the rest Apr 22, 2012
Slump Taught Profligate Americans Value of Saving http://t.co/22jWf3OL Having slack assets & not being in debt is a virtue not a vice $$ Apr 22, 2012
The Great Depression as a Credit Boom Gone Wrong http://t.co/OBXRGeY2 Until the great depression is viewed as the bust after a credit boom + Apr 22, 2012
…we won’t get policy right. The credit cycle is real, & the Fed ignores it, providing liquidity as if it were not a structural problem. $$ Apr 22, 2012
El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail? http://t.co/pRcdN42N Goal: print enough credit until promises -> 0 Apr 18, 2012
Deflation Does Not Lead to a Depression, suggests Research http://t.co/2VTu2bAd Separate probs; falling inflation vs systemic impaired debts Apr 18, 2012
Depression is a choice http://t.co/F4YdBn8x Every creditor wants 2b paid off @ par; many debtors would like compromise, enabling econ growth Apr 18, 2012
Difficulties in forecasting the impact of shadow inventory on the housing market http://t.co/xcALioOb Mtge > value makes sales slow, $$ low Apr 18, 2012

Financial Markets

Are fixed income ETFs the new “securitization” product? http://t.co/6qo2U7Zg Shows the many ways that sponsors make $$ off of ETFs Apr 22, 2012
Time for the SEC to institute new disclosure rules on CEO leverage http://t.co/nMJZslXg Insider CEO deals r material & should be revealed $$ Apr 22, 2012
Fear Barometer Bubbling http://t.co/HjXre23p Puts getting more expensive relative to calls on the S&P Apr 22, 2012
Is This the Book that Inspired Jamie Dimon’s Warnings About Regulation? http://t.co/ikzuXwlD Regs make banks behave alike ->systemic risk $$ Apr 22, 2012
@historysquared One question I always ask is how mgmt/directors treat outside passive minority shareholders. Do we ride the back of bus? $$ Apr 18, 2012
@historysquared Yeh, don’t let management control audit, nominating, or compensation committees. Split Chairman & CEO, etc., etc., etc… $$ Apr 18, 2012
Regulators should encourage more diversity in the financial system http://t.co/xhfvsTlS Consistent regs create less diversity forces conform Apr 18, 2012
In New Funds, Old Flaws http://t.co/h931mglc Some have high fees, longer-term tracking error, hidden counterparty risk, enable stupidity Apr 18, 2012
Why Investors Should Pay Attention to the JOBS Act of 2012 http://t.co/kk9seYVH Here’s what Hunter thinks are the positives of the JOBS Act Apr 18, 2012
Fannie Mae Fix Said to Retain Some US Mortgage Role http://t.co/YPAFyygs Crazy people @ UST. 2much debt on housing in general->instability Apr 18, 2012
Wells Fargo, JPMorgan Label More Junior Liens as Bad Assets http://t.co/QpwE2S43 Wow, this took a long time to finally happen $$ #reality Apr 18, 2012
Structured-Note Fees (etc) http://t.co/rYf5WXBS IBs must disclose likely value of securities, fees incurred in creation of the notes $$ Apr 18, 2012
Citadel, Millennium Above $115 Billion With Rule Change http://t.co/j53AMUGG Many hedge funds have borrowed lots; now we know how much $$ Apr 18, 2012
Year’s first outflows from HY bond funds http://t.co/mUmIq0Yw May eventually lead to $$ weakness Apr 18, 2012
Green Light for Hedge-Fund Ads Means Caution on Main Street http://t.co/4mh9LNgW Most people will not fare well w/complex investments $$ Apr 18, 2012
Doing the Right Thing: Upside? Zero. Downside? Financial Ruin? http://t.co/eZlNDJJA We aren’t paid 2b sheriffs a la: http://t.co/egqIsb9V $$ Apr 18, 2012
Do Jubilee shares make any sense? http://t.co/2LxtggJ1 I don’t think so. Unnecessary complexity; increased illiquidity; would not work $$ Apr 18, 2012
12 Intriguing Insights on Mutual Funds http://t.co/6U3JZegh Interesting mutual fund trivia from Morningstar $$ Apr 18, 2012
Interesting post. But a successful spec on 1 risk can morph into credit risk post-crisis. … http://t.co/Vzlb5xdT Apr 17, 2012
Falcone looks like a one-trick pony who made one lucky bet and won. Now he loses regularly. http://t.co/dsivgMCs Apr 16, 2012

Tickers for the Current Rebalancing

Posted on 14 April 201215 April 2012 by David Merkel

When I look at what stocks to switch to as I manage my assets, and those of my clients, I look for assets that may be more valuable than the market currently believes.? Most of that involves looking at industries and valuations, but that has led me to the following group of tickers:

ABC ACCL ADTN AET AKAM ALTR AMKR APA ARB ARKR ARO ARRS ARTNA AVY BBY BDX BEAM BGS BHP BIDU BLT BSX BX BZ C CACH CAG CAH CBG CCH CELL CF CFN CLF CMVT CNQR CODI COV CP CPB CPE CPSI CREE CSCO CSTR CSWC CTRP CZZ DD DFS DGX DHT DLPH DLX DRIV DVN DVR EBAY EEP EFC EFX EPAX ERIC FBHS FCX FDP FORR FSLR FTE FUJIY GD GKK GLDD GLW GNRC GOOG GT GTAT HAL HII HNZ HOGS HON HRC HWCC IACI IART IN IRE ISIL ITRI ITT IVC JBL JCI JCP JNPR K KFN KKR KLAC KNM KOP KRA LDR LIFE LLTC LMCA LOW LPS LSI LVLT MASI MCHP MCK MDCI MDRX MKC MOS MPC MRVL MS MSI MTG MWW NAV NE NFG NFLX NILE NLY NOK NTGR NTI NTIC NTK NTRI NUVA NVDA ONNN PC PCLN PHG PLCM PTNR QCOR QGEN QLGC QSII RAH RIMM RMD RUK SEMG SGX SIGI SLM SNE SNX SOHU SPLS SPN STE STJ STM STX SWKS SXT T TFX THOR TNDM TNS TRGT TRIP TSM TSRA TXN UTHR VAR VFC VOLC VPRT VRX VZ WBMD WBSN WDC WMB WMGI WNR WPI WST XRAY YHOO ZINC

Other ideas are solicited, but I think these companies as a group? will outperform over the next three years.

Sorted Recent Tweets

Posted on 14 April 201215 April 2012 by David Merkel

Miscellaneous

“When women stay home and they raise their kids & maintain the household, it is a job. It’s a job of love.” http://t.co/NV1JddlL #wellsaid Apr 13, 2012
@historysquared Have not seen anything definitive on that, but production from fracking decays faster than conventional production. $$ Apr 13, 2012
10 Things I Hate About Tax Day http://t.co/SvezPoPV “There is absolutely no defense for it – none – & yet it persists, year after year.” Apr 11, 2012
@TimABRussell It varies. Most of the books I review are within a year of (re)publication. Some are as old as the 1960s. >95% last 10 yrs $$ Apr 09, 2012
So, you did an article ghostwritten by Robert Berman, Cinium’s CEO? Lovely. He gets around. But what does Smartmo… http://t.co/usg0buic Apr 09, 2012
Voices: Phil Cioppa, On Hiring Advisers http://t.co/zNN92rP4 Most sales positions have high turnover, particularly w/intangible products Apr 11, 2012
McDonald?s Pursuit of Perfect Fries Risks Overpromising http://t.co/DWDuesyG Harder 2 assure consistent quality if $MCD locally sources $$ Apr 09, 2012

China

Agree that America declines, but China also RT @historysquared: Historian warns of sudden collapse of American ?empire? http://t.co/Z4hVtKkk Apr 13, 2012
Shadow Banks on Trial as China?s Rich Sister Faces Death http://t.co/dJfEanEw It is morally wrong to put someone 2 death 4a property crime Apr 11, 2012
Is China slowing down? http://t.co/IJA8jobS From the AEI, very clueless piece: China should raise its exchange rate & lower the central rate Apr 11, 2012
Hong Kong?s Tsang ?Highly Concerned? About Property Price Bubble http://t.co/XHRBLgY5 Devel Nations monetary policy fuels many bubbles $$ Apr 10, 2012
‘Jackie Kennedy of China’ at Center of Political Drama http://t.co/MvIPw1oy The politics of China r dirtier than the US & more secretive Apr 10, 2012
China Inflation Exceeds Forecast http://t.co/Z9hnKj1Y Too little attention paid here; too much confidence in Chinese central bankers $$ Apr 09, 2012
@valuewalk Yes, saw it and the followup bet. I owe a decent amount of my intl economics thinking to Pettis, but not my errors 😉 $$ Apr 09, 2012
The ways China can rebalance http://t.co/2ZtRG4F2 Michael Pettis on the constraints the China faces as it tries 2 rebalance its economy $$ Apr 09, 2012

Newspapers

+1 RT @The_Analyst: I feel like unless its a special situation, everyone who “gets” newspapers would never make a LT investment in them Apr 12, 2012
Buffett “didn’t get tech.” I don’t get newspapers. $$ RT @WSJDealJournal: Warren Buffett Building Newspaper Empire? http://t.co/jDx5goqw Apr 12, 2012
I don’t get the economics of the newspaper biz $$ RT @WSJDealJournal: Warren Buffett Building Newspaper Empire? http://t.co/jDx5goqw Apr 12, 2012

Electronic Bond Markets

BlackRock’s Street Shortcut http://t.co/JO4Wm5sY Would work better 4 stocks than bonds. Most bonds r held a long time & do not trade $$ Apr 12, 2012
If the buyside created their own internal stock exchange, they could reduce the effect of the HFTs on the market & make life harder 4 retail Apr 12, 2012
But an internal bond exchange as proposed by $BLK won’t do that much, institutional transaction costs aren’t that hi 4 commonly traded bonds Apr 12, 2012
When I was a bond mgr 1998-2003, aside from obscure & illiquid bonds my commissions were $1/32nd or $1/64th per $100 — 1-3 basis points $$ Apr 12, 2012
@TFMkts So I would ask you, have comm rates 4 bonds gone up since 2002? My normal trade size back then was $5-20Mil, comms 1-3 bps then $$ Apr 12, 2012
@TFMkts Most bonds don’t trade, though. When I was a bond mgr, I needed guys who could find bonds. Always paid them; never let them cross2me Apr 12, 2012

Delta Airlines

It is usually a bad sign when a company can’t manage its current business well, & it tries to enter a difficult unrelated business. $DAL $$ Apr 11, 2012
Best quote: “Edward Hirs…says he can think of one reason why Delta would try to get into the refining business: ‘because they?re stupid.'” Apr 11, 2012
Why Buying A Refinery Could Be A Disaster For Delta Air Lines (Even With JPMorgan’s Help) http://t.co/MDvs9D26 & http://t.co/gJ0G44Uo $$ Apr 11, 2012

Rest of the World

Qatari Bright Lights Prompt EU?s Hedegaard to Urge Climate Plan http://t.co/0zjAmGit Another reason why multilateralism doesn’t work. $$ Apr 12, 2012
Kenyans Almost Dead on Worst Roads Getting New Highways http://t.co/Szcs1Tcy Next time u r stuck in traffic b thankful u r not in Kenya $$ Apr 11, 2012
These Charts Point to Trouble for Australia http://t.co/F00FtbpW Housing bubble, co-dependent relationship w/China, & large pool of hot $$ Apr 10, 2012
It’s rich 2c Dilma Rousseff criticizing Obama. But Brazil is further down the line in the devel nations game of monetary crack-the-whip $$ Apr 10, 2012
Rousseff Tells Obama Rich Nations? Policies Harm Growth http://t.co/Akm14Ifs Devel nations force emerg nations 2 swallow loose $$ policy Apr 10, 2012
Bank of Canada stressed about housing http://t.co/4kC0JW3D Nothing like a debt financed housing bubble 2 make a central banker flinch $$ Apr 09, 2012

Economics

Good Jobs News: More People Are Quitting http://t.co/1BlIvqOj The job market is more healthy if people are quitting to take other jobs. Apr 12, 2012
Obama?s Fantasy Budget Suggests Tax Hike Surprise http://t.co/03tkRMjZ Obama would likely b more radical in a 2nd term #nothing2lose $$ Apr 11, 2012
Tax Breaks for Wealthy Should Be Cut, Paul Ryan Says http://t.co/QppnNGQz “focus our poverty-eradication policies on treating root causes” Apr 11, 2012
@DavidSchawel I don’t think the paper changes my main point, it will be very difficult for the Fed to remove “stimulus.” Apr 11, 2012
Bernanke Gives College Lecture Series High Marks http://t.co/hu0WNLXq H/L overstates: ?I was very happy with the lectures,? he said. $$ Apr 10, 2012
The Fed sold half its short-term notes via Operation Twist http://t.co/Lag2CYWs Will have no short assets if the pace continues 4 6 mos $$ Apr 10, 2012
Job Gains in US Trail Most-Pessimistic Forecasts http://t.co/ELesokyT People asked me y I was more pessimistic than most, well… $$ Apr 08, 2012

Asset Markets

Does ?Sell in May? Really Work? http://t.co/kBNPaslt Reality is more complex than adages. The rule should be sell September, buy November $$ Apr 12, 2012
Gunning for yield and “quality” leaves little room for error http://t.co/HW90vwkj High quality junk does not offer enough yield 4 risks $$ Apr 12, 2012
High-Yield Bond ETF Breaks March Low http://t.co/lLB2qX19 I sold a lot of my credit-sensitive bond investments today. Market feels weak $$ Apr 11, 2012
@munilass @carney High earned & discount rate assumptions did lower contributions by assuming investment earnings would carry the load $$ + Apr 10, 2012
@munilass @carney & many municipalities substituted benefit increases 4 salary increases, b/c no immed $$ effect; many factors in play here Apr 10, 2012
Flouting Risks, Investors Gorge on Fat Yields of Emerging Market Debt http://t.co/5zZV03Jb Will eventually end badly; Russia 1998 $$ Apr 10, 2012
Retweet after me. I HATE HFT TRADING BOTS 😉 RT @merrillmatter: Repeat after me. I HATE HFT TRADING BOTS $$ Apr 09, 2012
How to Improve the Potential of Less Volatile Stocks http://t.co/90gHiISj Adding a quality screen further improves returns & risk/vol $$ Apr 09, 2012
A Laugh http://t.co/IcFMDnbb @brucekrasting suggests that clearinghouses will concentrate risk rather than dissipating it. $$ #nomagic Apr 08, 2012
The Dividend-Fund Dilemma http://t.co/MYdoxPJh I buy dividend-paying stocks because they generate good cash flows, not for the dividend. Apr 08, 2012

M&A

Much $$ stuck overseas MT @ThemisSal: Just 5 companies, $AAPL, $MSFT, $CSCO, $GOOG and $PFE now hold nearly 25% of all corporate cash, $250B Apr 09, 2012
Yeh, like dat. 2 much $$ chasing 2 little value RT @The_Analyst: @AlephBlog another brilliant cerberus deal like chrysler, gmac? Apr 09, 2012
AT&T to Sell Majority of Yellow Pages Business to Cerberus http://t.co/RIAX6dwb Cigar butt industry; internet changes everything published Apr 09, 2012
Both MT @ktbenner: who’s overpaying now: The Zuck or Steve Feinberg… @Pfro: $T sells Yellow Pages 4 ~$1bn 2 Cerberus http://t.co/IGLXXUrp Apr 09, 2012
$AOL to Sell Patents to $MSFT 4 $1.1B http://t.co/upBaZBRo Too much $$ chases a legal arms race in Infotech Intellectual property #waste Apr 09, 2012
@ReformedBroker I didn’t know Instagram that well, but they don’t seem to have a revenue model. What could $FB do with it? $$ Apr 09, 2012

Insurance

RE: @marketfolly He compares AIG to P&C companies,? but the life companies are a valuation drag here.? Not a fair com? http://t.co/J4aCu4tf Apr 12, 2012
Property insurance rates rising worldwide – Marsh http://t.co/CZOHLGfG When surplus is reduced at (re)insurers, premium rates rise $$ Apr 11, 2012
Statutory Statements under Affiliated party transactions. Regulators would b annoyed if terms indicate transaction that’s not “arm’s-length” Apr 10, 2012
A Costly Toy Subsidized by Others http://t.co/iJea3rTt If Guggenheim is using its insurers 2 fund Dodgers purchase, will show up in + $$ Apr 10, 2012

Eurozone

Spain’s spreads breaking away from other risk indicators http://t.co/SulecZWv “we r in an uncharted territory with respect to this widening” Apr 11, 2012
Has bad implications for EZ sustainability $$ RT @pdacosta: Who’s peripheral now? French economy grinds to a halt http://t.co/VSsZtaWI Apr 10, 2012
Currency disunion http://t.co/ApXlpMXK Why Europe?s leaders should think the unthinkable; EZ can breakup on own terms, or unfavorable terms Apr 09, 2012
Eurozone’s banks cutting dollar businesses http://t.co/wX1kHu8G European banks will never again rely hard on US MMFs to finance their $$ ops Apr 09, 2012
Euro Was Flawed at Birth and Should Break Apart Now http://t.co/ZxPy0vId All the things that I predicted have come true & more. Bye, Euro. Apr 08, 2012

Politics

Wind Power Seen Surging as Custom Barges Cut Set-up Costs http://t.co/XA96RbEj Don’t see how this makes the cost of wind power economic $$ Apr 10, 2012
For Feds, ‘Lying’ Is a Handy Charge http://t.co/2tLcdyKQ Law in the US becomes more arbitrary; crimes can b dreamed up by bureaucrats $$ Apr 10, 2012
Complexity Is Bad for Your Health http://t.co/v9pLQi1V Antonin Scalia & Stephen Breyer agree (!): Obama’s health care law unreadable $$ Apr 09, 2012
High-Speed Rail Takes Californians 4 a Ride http://t.co/fZlC3MQx Rail makes sense in densely populated areas, won’t work in California $$ Apr 09, 2012

Book Review: The Most Important Thing Illuminated

Posted on 13 April 201213 April 2012 by David Merkel

I previously reviewed The Most Important Thing.? Great book, but can a great book be made better?? Yes, but only by a little bit.

The illumination of this book comes from comments from Christopher Davis, Joel Greenblatt, Paul Johnson and Seth Klarman, an estimable bunch of investors and investment thinkers.? Howard Marks offers a few more comments as well.

None of the comments are bad, but also, none of them disagree with Howard Marks.? Then again, I didn’t find anything to disagree with in the original book, so maybe that’s not a negative.

Many of the comments are brief, and most of them serve to intensify what Howard Marks wrote, e.g:

This is a really important point.
This is an excellent summary of the idea.

Relatively few of the comments really expand the discussion, so here is my advice for you: if you already own The Most Important Thing, you don’t need this.? Borrow it at your library if you must.? If you don’t own it, you will get a slightly richer experience with this book than the original.

I recommend this book to all who aspire after value investing.

Quibbles

Again none.

Who would benefit from this book: All value investors, and those who want to be value investors can benefit from this book.? Those that want to understand how the economy really works will benefit as well.? If you want to, you can buy it here: The Most Important Thing Illuminated.

Full disclosure: The publisher asked if I wanted to read the book electronically.? I said ?yes? and I downloaded it and read it.

A Brief Note on Earnings Yields (2)

Posted on 11 April 2012 by David Merkel

My last post on this focused on trailing earnings.? Trailing earnings have the advantage of being objective, but analysts try to estimate the future.? To some degree they succeed, and that becomes the bar by which we measure the progress of companies.

Now fewer companies have analysts following them, and the database that I use is not as reliable on earnings estimates for foreign companies trading on US exchanges.? The following table covers a huge percentage (98%+) of the market cap of domestic stocks trading in the US.

Definitions:

FE Yield: forward earnings yield for the next full 12 fiscal months.
E Yield: trailing earnings yield for the last twelve months.
D Yield: dividend yield given the current price.
F Payout %: what percentage of the next fiscal year’s earnings is comprised by dividends.
E Growth: how much do the estimated earnings of the next fiscal year increase over the earnings of the last 12 months.

Industry	FE Yield	E Yield	D Yield	F Payout %	E growth
0906 – Broadcasting & Cable TV	28.27%	5.85%	1.47%	5%	384%
0436 – Tires	21.00%	15.81%	0.72%	3%	33%
1106 – Airline	19.29%	1.80%	0.08%	0%	971%
0709 – Insurance (Life)	14.46%	13.36%	1.77%	12%	8%
0412 – Auto & Truck Manufacturers	14.11%	26.47%	0.57%	4%	-47%
0966 – Retail (Technology)	14.05%	-8.68%	2.33%	17%	-262%
0724 – Money Center Banks	12.42%	9.33%	1.41%	11%	33%
1027 – Office Equipment	12.30%	10.85%	2.55%	21%	13%
0124 – Metal Mining	12.02%	11.23%	4.18%	35%	7%
0606 – Oil & Gas – Integrated	11.22%	11.04%	2.39%	21%	2%
1015 – Computer Peripherals	11.10%	9.27%	0.21%	2%	20%
0706 – Insurance (Accident & Health)	11.06%	9.11%	1.22%	11%	21%
0509 – Crops	11.05%	9.06%	1.23%	11%	22%
0930 – Printing Services	11.04%	2.80%	4.37%	40%	295%
0121 – Iron & Steel	10.73%	3.33%	2.48%	23%	222%
0809 – Major Drugs	10.49%	5.80%	3.60%	34%	81%
0118 – Gold & Silver	10.46%	1.78%	1.53%	15%	487%
0518 – Office Supplies	10.40%	8.42%	2.51%	24%	24%
0133 – Paper & Paper Products	9.99%	8.15%	2.19%	22%	23%
0206 – Construction & Agricultural Machinery	9.70%	7.02%	1.56%	16%	38%
0730 – S&Ls/Savings Banks	9.57%	2.35%	1.18%	12%	308%
0106 – Chemicals – Plastics and Rubbers	9.51%	7.13%	2.04%	21%	33%
0727 – Regional Banks	9.46%	7.27%	1.57%	17%	30%
0415 – Auto & Truck Parts	9.45%	7.75%	1.38%	15%	22%
0603 – Coal	9.33%	8.55%	2.95%	32%	9%
0609 – Oil & Gas Operations	9.29%	6.98%	1.48%	16%	33%
1024 – Electronic Instruments & Controls	9.26%	7.48%	0.98%	11%	24%
0130 – Non-Metallic Mining	9.11%	8.66%	0.54%	6%	5%
1006 – Computer Hardware	8.92%	6.34%	0.14%	2%	41%
0203 – Aerospace and Defense	8.80%	8.37%	2.23%	25%	5%
0927 – Printing & Publishing	8.59%	3.34%	2.12%	25%	158%
1112 – Railroads	8.59%	6.78%	1.72%	20%	27%
1021 – Computer Storage Devices	8.57%	4.69%	0.00%	0%	83%
0109 – Containters & Packaging	8.50%	4.22%	1.57%	18%	102%
0612 – Oil Well Services & Equipment	8.40%	6.16%	1.62%	19%	36%
1033 – Semiconductors	8.28%	6.05%	1.70%	21%	37%
0409 – Audio & Video Equipment	8.22%	4.33%	0.30%	4%	90%
0969 – Schools	8.17%	10.21%	0.76%	9%	-20%
0951 – Retail (Department & Discount)	8.16%	5.72%	1.96%	24%	43%
0127 – Misc. Fabricated Products	8.08%	7.02%	1.00%	12%	15%
0703 – Consumer Financial Services	8.08%	6.05%	1.89%	23%	33%
0954 – Retail (Drugs)	8.08%	6.99%	1.52%	19%	16%
0218 – Misc. Capital Goods	7.99%	5.92%	1.12%	14%	35%
0715 – Insurance (Property & Casualty)	7.97%	8.27%	0.83%	10%	-4%
0921 – Motion Pictures	7.92%	7.80%	0.98%	12%	2%
0924 – Personal Services	7.81%	6.61%	1.98%	25%	18%
0718 – Investment Services	7.67%	4.89%	1.86%	24%	57%
0103 – Chemical Manufacturing	7.54%	5.92%	1.77%	23%	27%
0209 – Construction – Supplies and Fixtures	7.53%	4.47%	2.09%	28%	69%
0406 – Appliances & Tools	7.50%	5.34%	1.72%	23%	40%
0806 – Healthcare Facilities	7.49%	5.18%	0.10%	1%	45%
0503 – Beverages (Alcoholic)	7.45%	5.40%	1.52%	20%	38%
0512 – Fish/Livestock	7.45%	6.55%	2.17%	29%	14%
1018 – Computer Services	7.44%	4.48%	0.71%	10%	66%
1003 – Communications Equipment	7.39%	4.95%	1.06%	14%	49%
1103 – Air Courier	7.36%	5.54%	2.04%	28%	33%
0957 – Retail (Grocery)	7.35%	4.43%	1.85%	25%	66%
0221 – Mobile Homes & RVs	7.25%	5.78%	1.19%	16%	25%
0903 – Advertising	7.16%	6.26%	1.63%	23%	14%
1036 – Software & Programming	7.14%	5.24%	0.93%	13%	36%
0524 – Tobacco	7.08%	5.61%	3.90%	55%	26%
1030 – Scientific & Technical Instruments	7.04%	5.33%	1.35%	19%	32%
0433 – Textiles – Non-Apparel	7.00%	3.95%	0.09%	1%	77%
0812 – Medical Equipment & Supplies	6.98%	5.53%	1.02%	15%	26%
0430 – Recreational Products	6.97%	4.56%	1.49%	21%	53%
0803 – Biotechnology & Drugs	6.92%	4.31%	2.11%	30%	61%
1203 – Electric Utilities	6.85%	6.32%	3.89%	57%	8%
0515 – Food Processing	6.79%	4.26%	2.40%	35%	59%
0945 – Retail (Apparel)	6.76%	5.01%	1.23%	18%	35%
0421 – Furniture & Fixtures	6.72%	4.99%	1.73%	26%	35%
0963 – Retail (Specialty Non-Apparel)	6.61%	5.44%	0.75%	11%	21%
1115 – Trucking	6.56%	2.90%	0.61%	9%	126%
0960 – Retail (Home Improvement)	6.55%	4.81%	1.86%	28%	36%
0403 – Apparel/Accessories	6.55%	4.20%	0.77%	12%	56%
0939 – Rental & Leasing	6.55%	3.07%	0.53%	8%	113%
0112 – Fabricated Plastic & Rubber	6.53%	2.58%	0.74%	11%	153%
0712 – Insurance (Miscellaneous)	6.44%	5.00%	1.99%	31%	29%
0303 – Conglomerates	6.39%	1.87%	0.31%	5%	241%
0521 – Personal & Household Products	6.37%	5.03%	2.65%	42%	27%
0506 – Beverages (Non-Alcoholic)	6.32%	5.55%	2.61%	41%	14%
0909 – Business Services	6.29%	5.06%	1.13%	18%	24%
0936 – Recreational Activities	6.29%	4.56%	2.04%	32%	38%
0975 – Waste Management Services	6.22%	4.43%	2.15%	35%	40%
0972 – Security Systems & Services	6.19%	-1.48%	1.33%	21%	-519%
0942 – Restaurants	5.99%	4.98%	1.93%	32%	20%
0915 – Communications Services	5.98%	1.28%	4.73%	79%	368%
1209 – Water Utilities	5.86%	5.93%	3.19%	54%	-1%
0418 – Footwear	5.64%	4.51%	1.07%	19%	25%
1109 – Misc. Transportation	5.62%	4.04%	1.23%	22%	39%
0918 – Hotels & Motels	5.44%	3.77%	0.86%	16%	44%
0215 – Construction Services	5.08%	2.21%	1.10%	22%	130%
0424 – Jewelry & Silverware	5.01%	3.56%	0.04%	1%	41%
0427 – Photography	4.99%	1.72%	0.00%	0%	189%
1206 – Natural Gas Utilities	4.91%	3.56%	4.01%	82%	38%
1012 – Computer Networks	4.76%	0.87%	0.28%	6%	445%
1118 – Water Transportation	4.62%	-0.91%	0.75%	16%	-607%
0912 – Casinos & Gaming	4.57%	6.23%	1.14%	25%	-27%
0948 – Retail (Catalog & Mail Order)	3.91%	2.86%	0.01%	0%	37%
0933 – Real Estate Operations	3.03%	2.79%	4.01%	132%	9%
0115 – Forestry & Wood Products	2.14%	2.13%	2.60%	121%	1%
0212 – Construction – Raw Materials	2.11%	-1.93%	1.38%	65%	-209%

And here it is by sectors:

Sector	FE Yield	E Yield	D Yield	F Payout %	E growth
06 – Energy	9.94%	8.60%	1.93%	22%	16%
07 – Financial	9.44%	7.21%	1.48%	21%	31%
04 – Consumer Cyclical	9.15%	10.61%	1.06%	10%	-14%
09 – Services	8.85%	4.32%	2.18%	50%	105%
01 – Basic Materials	8.67%	6.43%	2.02%	31%	35%
11 – Transportation	8.60%	4.99%	1.49%	30%	72%
Grand Average	8.39%	5.97%	1.81%	30%	41%
02 – Capital Goods	7.98%	6.14%	1.72%	28%	30%
10 – Technology	7.89%	5.53%	0.84%	15%	43%
08 – Health Care	7.38%	4.79%	1.88%	39%	54%
05 – Consumer Non-Cyclical	6.72%	5.15%	2.79%	54%	30%
03 – Conglomerates	6.39%	1.87%	0.31%	16%	241%
12 – Utilities	6.13%	5.30%	3.93%	74%	16%

Some of the percentages for earnings growth are inflated because the last 12 months include writeoffs, disappointments, etc., but forecasted earnings are typically optimistic, and anticipate no errors.

I would encourage you to view this where you look down the list, and say, “Wait. That doesn’t look right. That industry shouldn’t be that high/low relative to other industries.”? Then dig in and try to analyze for individual companies where there might be real advantage in the industries with good relative prospects.

Being forward-looking is an advantage if you have an ability to discern where industry trends are going to change; I may have that to some small degree, which is why when I invest, I look at trailing earnings and forward earnings.? Have one foot in reality, and the other foot in hope/analysis.? Things change less than expected, but things change.

As for me, I’m happy with my energy, insurance, and technology stocks, even if I haven’t been rewarded well over the last three months.? They are cheap, and have decent pricing power.? I stress patience, and so I hold after poor results, and I might increase the stakes.

On Book Reviewing, Part 2 (What not to write if you want a good review from me)

Posted on 10 April 201210 April 2012 by David Merkel

Most of the time, when a book is bad, I don’t write a review.? Sometimes it will inspire me write a screed against a certain topic that the book was about, and occasionally a negative review.? But most often I say nothing.

What to avoid if writing a finance/investments/economics book?

1) Don’t claim you are an expert when you have a thin resume.? If you are writing, you better have some real accomplishments behind it.? Particularly irritating are vigorous self-promoters and newsletter-writers that are facile writers — they say lots of clever things, but they are not subject to market discipline in the same way that a portfolio manager is, who manages real money, and has real results, good or bad.

2) If you are merely pushing the services of your firm, don’t write a book.? It is very annoying to read a book where the says, “This is the broad outline, but if you want the whole enchilada, buy my service.

3) Don’t advertise your book as popular if it is academic.? Please don’t raise the hopes of people if they find by the middle of the book that they can’t understand it.

4) Don’t write a book that has already been written unless you have a very, very special gift for teaching that makes the concepts far more accessible to the average person.

5) Just because it is a “little book” does not mean it deserves to see the light of day.

6) You may think you have boiled down the concept for dummies, idiots, whatever.? In investing, dimwits tend to lose — no amount of simplification will replace study.

7) Books that forecast total destruction get no play with me, because they assume that we can’t adjust.

8 ) Books that are a series of essays from “experts” don’t grab me.? Good books take a position and argue for it.

9) Books that do an extended series of stock screens in order to show the best one are just an exercise in torturing the data to make it confess.

10) Books that force you to study abstract philosophy that I can’t follow means that most people won’t follow it.? Useless.? (I have studied philosophy to a high degree.)

11) Books written by a group of academics rarely make for good reading, unless the editor forces them to interact with each other, which is rare.

12) If you write a book on a controversial area, and you don’t interact with the criticisms of the topic, you lose major credibility with me.

13) If you aren’t an expert, don’t write.? There are a lot of newsletter writers, or radio talk show hosts who know little about the areas they talk about.? Avoid them.? Okay, do research.? Do they really have talent, or are they just facile talkers?

14) Please don’t advertise the past as being the future.? History is not prologue, and by the time your book is published, it is time for those who believe you to lose.

15) Don’t write a book where you tell people that they ought to read your last book or books.? Make your book readable, so that you give a quick summary of the relevant information.? Every book should stand on its own; no one should have to buy another book to read your book.

16) If you are describing a bunch of quirky people who made money deploying small amounts of capital, do not declare them to be great investors, and don’t write about them.

17) Simulations off of past data have little relevance to the future, unless carefully done.? Most are not carefully done.

18) If you are writing a policy book, try to be fair.? If you are a liberal or conservative, that will win a lot of points with me, because it means you have really looked at the issue.? Few things are totally clear.

19) Please, please, don’t write another book on a basic topic where you have nothing new and good to say — asset allocation is a good example for me, and few books get a good review from me as a result.

20) Don’t write books saying that you only need one asset class in order to do well.

Beyond that, I would say, write something unique, and well-researched.? Create a good theme and follow it.? Even if academic, don’t settle for dull writing.? Find a way to make the topic live, and after that, explain the complexities.? Above all else, explain what could go wrong.? Most strategies fail at some point, so explain where failure can happen for the good of your readers; it will give you greater credibility.

There may be another part to this series, but at present, I think this could be all.

Sorted Weekly Tweets

Posted on 6 April 2012 by David Merkel

Valuations

High Yield Closed End Funds 68% over NAV, 3% avg premium. Loan Participation CEFs 40% over NAV, -1% avg discount. Conditions r medium hot $$ Apr 07, 2012
Why Stocks Look Too Pricey http://t.co/TWqZzGg3 Various Indicators Suggest the Market Is No Longer a Bargain, at best fairly valued $$ Apr 07, 2012
Contra: The alarming fall in syndicated lending http://t.co/hiGK9UoK With the high yield mkt running hot why not avoid restrictive banks $$ Apr 06, 2012
Not so new… Eddy Elfenbein said something similar 4 months ago: http://www.crossingwallstreet… http://t.co/mhIxGGwt Apr 04, 2012?(on inflation expectations driving stock prices in the short run)
Time to take some risk off the table http://t.co/sCuYxc6u Trends breaking globally, US looks okay. Humble Student has made good calls lately Apr 04, 2012
The Dangers of an Interventionist Fed http://t.co/thKsHa8J QE Removal: what happens to banks if Fed does & 2 inflation if Fed doesn’t $$ Apr 03, 2012
Junk Bonds ? Getting Risky for a New Reason? http://t.co/7bJ08JxT Record pace of junk issuance bodes ill 4 performance… 3 yrs from now. $$ Apr 03, 2012
Two Pros Weigh In on U.S. Stocks: Ben Inker’s Bearish View http://t.co/iJ7742P5 Katie Nixon’s Bull View http://t.co/Zn9jj503 $$ Apr 02, 2012
Eichengreen on Credit Bubbles http://t.co/bSs0MHPA Leading indicator of finl stress in em mkts: loan growth > 2x GDP growth 2 yrs earlier $$ Apr 01, 2012
Taking the High Out of High Yield http://t.co/WYIvHb0n Nonprofessionals are the ones buying junk at the margin. This won’t end well. $$ Apr 01, 2012

Central Banking

The ECB has completely lost control over the monetary policy for Greece http://t.co/MHNTXLHo Massive liquidity drain; total credit failure Apr 07, 2012
Post-war financial repression is back http://t.co/JGLo9Aic If the post-war experience is any guide, savers face many years of suffering. Apr 06, 2012
Bernanke – I’m Slowing Down the Ship http://t.co/TJcJl20n Stocks don’t like less inflation coming and so they fall. But bonds rally. $$ Apr 06, 2012
Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive http://t.co/rREDdqrW LTRO can only go so far; can solve liquidity, not solvency Apr 06, 2012
The Market?s Obsessive Fixation on The Fed & QE http://t.co/W6kg1n7k Runs through a Fed tightening scenario, thinks Fed won’t sell bonds $$ Apr 04, 2012
Oest.. Nationalbank follows Bundesbank in refusing some periphery collateral http://t.co/96xx0xg7 Not so big in itself; Tear in EZ fabric Apr 04, 2012
Draghi Tested as German Pay Deals Add to Euro Divergence http://t.co/glKumOZx Inflation rising @ core? May even labor productivity some $$ Apr 04, 2012
@federalreserve Tried using your Data Download Program today http://t.co/vRroRPMt I managed 2get the data I needed, but it was tough 2use Apr 03, 2012
Bernanke – ‘The Fed never makes mistakes’ http://t.co/JBgRHqx2 He goes, speaks to soft audiences, argues that no one could have known #dope Apr 01, 2012

China

Coup Rumors in China Have Deeper Meaning http://t.co/QaoDxKFF Small fissures appearing in the Communist Party’s hold on power $$ Apr 07, 2012
Australia?s Export Slump Intensifies Rate-Cut Pressure http://t.co/sIDzeteW China sneezes, Australia catches a cold, mate. $$ Apr 06, 2012
China doomsayer sees crash coming http://t.co/2QatU1ps Hardly a crash, but GDP shrinking. Wait, that *is* a crash for China? $$ Apr 06, 2012
The Revenge of Wen Jiabao http://t.co/nw5qvCNa Long read. Eye-opening. Formal system of Comm Party eclipsed by family coalitions that war $$ Apr 04, 2012
The informal aspects of how China is governed relies on rival coalitions of elite families over the long run. Short-run, Comm party rules $$ Apr 04, 2012
China Accelerates Markets Opening as QFII Quota Doubles http://t.co/yrXVDcdR May prove 2b significant due to unintended consequences $$ Apr 04, 2012
China Manufacturing Gain Masks Exporters? Woes http://t.co/VyeN9AWF Goods unneeded by the rest of the World build up in China $$ #glut Apr 03, 2012

United States

When safe assets return http://t.co/QLUPuj1j Long piece on the status of money-like instruments, public and private. Many questions. $$ Apr 07, 2012
Income Inequality Is Killing the Economy, Obama Says?Is He Wrong? http://t.co/xrA4pGu2 Going up in developed world, going down globally $$ Apr 07, 2012
And I don’t get it as well, Josh.? I’m as Libertarian as they come, but with financial services, I know that trickery? http://t.co/lIJDCr1Y Apr 05, 2012
More woes in Fedl subsidized solar power: http://t.co/83ch2YUM & http://t.co/6XaEjl10 ht: @zerohedge | Send bureaucrats 2study physics? $$ Apr 04, 2012
The return of the US manufacturer http://t.co/75WCMyPi Manufactured goods represented 61 per cent of all US exports during 2010 $$ Apr 04, 2012
+1 RT @ReformedBroker: ADP is the Diet Arizona Iced Tea of Employment gauges. Like, we’ll take it if it’s there but no one’s looking for it Apr 04, 2012
When does the US Treasury bubble burst? http://t.co/8agHomQH “Pomboy pointed out that Treasury yields are less than current CPI rates” $$ Apr 03, 2012
Why Are the Fed and SEC Keeping Wall Street?s Secrets? http://t.co/bZYF3LgV Fed & SEC view those they regulate as their clientele $$ Apr 02, 2012
US consumers dipping into savings http://t.co/757XDPuW Implies that the recovery is weaker than presently posited, demand comes from savings Apr 01, 2012
Obama Campus Fervor Losing 2 Apathy as Students Sour on 2012 http://t.co/kcyQbWKI Students thought they were getting change, got Bush-plus Apr 01, 2012
How Stockton, California Went Broke in Plain Sight http://t.co/ggOzSOmV If you hand out benefit increases like they are candy… $$ Apr 01, 2012

Finance

Quants: The Alchemists of Wall Street http://t.co/L0CzLQVN Recommend this video, features Paul Wilmott, Matthew Goldstein, & more $$ Apr 07, 2012
The 401(k): Americans ?just not prepared? 2 manage their own retirement funds http://t.co/8Tr0wggt Conclusions similar http://t.co/etCEp8BT Apr 06, 2012
Hedge Funds Accomplishing Very Little in the Aggregate? http://t.co/pxqjw2kk HFs tend 2b volatility-averse, weaker funding than long-only $$ Apr 04, 2012
Ackman SPAC a nice touch, no? RT @ReformedBroker: Private Equity-held Burger King coming public again. “Hooray!” said no one to no one else Apr 04, 2012
Performance persistence in hedge funds http://t.co/zORfjAts How do hedge funds differ v unlevered value investors? $$ gets pulled vals drop Apr 04, 2012
ETN Double Dipping With GAZ? http://t.co/Uo9y1T5p Interesting piece. An ETN issuer can make more $$ stopping creation & lending shares Apr 04, 2012
Loan classes “season” over 10-30% of the life of loan… defaults/prepays stabilize. Large cohorts 4 bond issuance go bad in the 3rd yr $$ Apr 03, 2012
Merrill, Morgan Stanley seen losing grip on rich http://t.co/44mW7ki0 Top 4 brokers mkt share 56% in 2007, 45% in 2011 & still falling $$ Apr 03, 2012
Low Vol Underperforming http://t.co/NYqjw2Fp Every valid strategy has times when it doesn’t work, to shake out the weak hands $$ Apr 03, 2012
Corporate pension funds break away from equities http://t.co/EMPaDGea Yes, when yields r low, DB plans move 2 bonds. Brilliant. $$ Apr 03, 2012
Does Danger Loom for Multiemployer Pension Plans? http://t.co/VpfDZ04m Plans that are <80% funded must take steps 2 nurse plans 2 health $$ Apr 01, 2012
Credit Suisse Opened Volatility Bets to Small Investors http://t.co/ZLMGANXh Wall Street produces products 2 benefit itself, not retail $$ Apr 01, 2012
Keynes: One Mean Money Manager http://t.co/WJ2jESFE “The board of King’s College gave him uncontested authority to invest as he wished.” Apr 01, 2012

Japan

Just a guess, but after Japan’s Current Account goes into deficit for ~2 years, the big adjustment down in the Yen will happen. $$ #ouch Apr 06, 2012
@valuewalk Probably because so many have lost money shorting the yen, & some have made $$ long the yen, that many just trust the momentum $$ Apr 06, 2012
@valuewalk long-dated yen currency puts have fairly low vol 😉 Not doing that either, but… someone will. Apr 06, 2012
Yen Forecast: Xie Sees 40% Drop, Japan Bubble Bursting http://t.co/EjI7hytt Wow. Thinks Japan near tipping point 4 internal financing fail Apr 06, 2012
Japan?s Strongest Storm Since 1959 Slams Into Tokyo Region http://t.co/CCOVz7C6 Very unusual 4 Tokyo 2 have such strong winds w/no typhoon Apr 03, 2012
Yen Losing Most Since ?95 Not Enough for Toyota http://t.co/IT0g84s8 Japanese Industry cheerleaders 4 “penny parity” $$ #race2thebottom Apr 02, 2012

Insurance

Advisers, B-Ds retreat from Hartford http://t.co/garB6Bwn Not offering new annuities means can’t roll to $HIG products when surr chg ends $$ Apr 03, 2012
Agents will try to get holders of $HIG annuities to roll elsewhere when surr charge ends (new commission $$ ), but be careful if you own an+ Apr 03, 2012
annuity from $HIG, b/c one reason they are getting out of the biz, I think, is that some of the secondary gtees were 2 generous + Apr 03, 2012
there is probably a business in analyzing secondary gtees, b/c some r quite valuable, &u wouldn’t want 2get tricked into rolling it by agent Apr 03, 2012
Contra: Rising equity markets to drive US life insurers-Barclays http://t.co/S6JtPun7 Catch my comment at the end, didn’t get new DAC issue Apr 02, 2012
Insurance Fees, Revealed http://t.co/mLzhpT6V NY State says agents must disclose how compensated & offer to provide full details #woohoo Apr 01, 2012

Personal

Sinkhole at the bottom of my street after a water main break. The water is more than 5′ deep & and hollowing out the road beneath. Apr 07, 2012
Street is one way, so I took my son who is a Police Explorer 2 talk to the policeman there. They knew each other. It’s a one-way street so + Apr 07, 2012
I asked the policeman (who was short handed) if he would like us 2 block street 2 traffic. Gratefully “yes.” We set up the safety gear. Apr 07, 2012
This is the opposite of last summer where we didn’t have power 4 6+ days, but we had water. We have power but no water. Hope it won’t b long Apr 07, 2012
Three Year Anniversary http://t.co/0HDD3iyD Congratulations, Hunter! @DDInvesting is our internet guide to all distressed debt $$ Apr 04, 2012
LinkedIn Events: Towson University Investment Group – Markets Summit http://t.co/kpgkDTto I’ll b participating on a panel. See you there! $$ Apr 04, 2012
@Frank_McG @volatilitysmile As I said to my wife today, “Take care of your wife, and she will take care of you.” Worked for the last 25 yrs Apr 02, 2012

Miscellaneous

Reprise: The Elfenbein Gold Model http://t.co/r3rHvZw3 @eddyelfenbein at his best, I fully subscribe to his model, reflecting cost of carry Apr 06, 2012
Matzo Ball Soup, Check. iPad, Check. For Passover, Jews Try Techie Seders http://t.co/xUW3izZl I dislike technology in religion. Yuck $$ Apr 06, 2012
Flying Auto Reviving Dreams of Chitty Chitty Bang Bang http://t.co/WixQb8AV Cheap @ $279K, this one might actually work $$ Apr 06, 2012
This discussion has problems because there is no agreed upon definition of what “free will” means.? As with all quest? http://t.co/NoMpZf0U Apr 04, 2012
Here Come Tablets. Here Come Problems. http://t.co/ezFK4Wfu Five common mistakes: a slow rollout is better to get the bugs out. $$ Apr 03, 2012
Gene Maps Are No Cure-All http://t.co/JOLTtWTK Study Warns That DNA Scanning to Predict Disease Can Mislead; ‘Not a Crystal Ball’ $$ Apr 03, 2012
Ten Claims in Support of IFRS Adoption by the SEC ? & Why They are False http://t.co/nj2PZ1pd & http://t.co/4YrMSvaH & http://t.co/7lLtioGo Apr 03, 2012
The Mighty Mathematician You?ve Never Heard Of http://t.co/9Qp1NqOB Never heard of her & her impact on physics was as great as that of math Apr 01, 2012
Mangled Horses, Maimed Jockeys http://t.co/6Dl1gEmJ Maybe there is a public policy reason to close down racetracks, & after that boxing $$ Apr 01, 2012

Energy

Australia LNG Boom Threatened by US Shale Exporters http://t.co/qleN6sVd Cheap US Hydrocarbons invert prior economic certainties $$ #shale Apr 04, 2012
Shale oil: from curse to cure for East Coast refiners? http://t.co/MdlXvjIb US Shale oil is high quality; challenge is delivery2refineries Apr 04, 2012
Repsol Worst Debt Swaps on YPF Seize Threat http://t.co/BewpJA4p Argentina not 2b trusted; would buy $REP bonds on weakness, stock a ?? $$ Apr 04, 2012
Encana in Play as Petronas Seeks Natural Gas http://t.co/SEx832F1 Petronas looking long-term, b/c prospects for natgas pricing r poor $$ Apr 04, 2012
Why high gas prices at the pump? The answer is BICS http://t.co/LopjaesG Brazil, India, China, & Saudi Arabia have increased gasoline demand Apr 03, 2012
The rapidly shifting supply fundamentals in US natural gas http://t.co/myofZrQD Injection cycle starting early w/supplies high already $$ Apr 03, 2012

Rest of the World

Contra: The Buck Stops Here: A BRIC Wall http://t.co/RYykjXXr The BRIC nations r2 statist 2 link 2 gold. Good idea, doesn’t fit the politics Apr 06, 2012
Germany Asked to Forgo $1.3 Billion Deutsche Telekom Payout http://t.co/b8cvOOlB Interesting how Capex constrains euro-telcos, not US $$ Apr 04, 2012
Europe?s Ratings Revenge Founders on Market Reality http://t.co/D3dNu7sF Eurocrats stumble in dark; will return 2 old system; it worked $$ Apr 04, 2012
How A Baby Bust Will Turn Asia’s Tigers Toothless http://t.co/VE78u9tu Economic growth is partially population growth; sterile societies $$ Apr 01, 2012
Swedish High Street Rebound Ends Bets for Riksbank Cuts http://t.co/jYioq0NN A relative bright spot in Europe; having the Knonor helps $$ Apr 01, 2012

Company News

RE: @emergingmoney Never been crazy about firms that perpetually run w/neg working capital. Interesting idea, though. http://t.co/Xx6yFf8v Apr 04, 2012
Optical Delusion? Fiber Booms Again, Despite Bust http://t.co/9QiAmZOH Whouda thunk it? I knew this was getting close, demand 4new fiber Apr 04, 2012
Scarred Avon Is Takeover Target http://t.co/f2T9E7V7 Don’t think $AVP is a good takeover target: toss dist syst or incompatible syst $$ Apr 03, 2012
Technology obsoletes too easily, particularly in hot sectors. Very difficult to get to $1T of?Market Cap. Bit-by-bit? http://t.co/XjGU9ouG Apr 03, 2012
$AAPL ‘s War on Android http://t.co/ILGQVAZD Long, fascinating article; perversely, attempts to enforce patent can invalidate patents $$ Apr 02, 2012
Dude, is There any Value Left in $DELL ? http://t.co/iG5q5iea U know your marketing is stale when people reference advertising >10yrs ago $$ Apr 02, 2012

Housing

The rebound is now http://t.co/l4coNvgt Worth watching, but I would wait until the foreclosures have been mostly cleared, b4 saying bottom Apr 07, 2012
Home Prices Seen Dropping 10% in US on Foreclosures http://t.co/BBjzxKiU Once f/cs clear out, the market will normalize maybe even rise $$ Apr 03, 2012
McClellan on Lumber?s tendency to leading housing stocks http://t.co/cevWyVTs If past is prologue, housing prices are set for another dip $$ Apr 01, 2012

Funds

I’ve owned this in the past, but not now.? It’s been around for 19 years as a CEF — just have to watch the premium/d? http://t.co/XMVs6RBS Apr 06, 2012
Why I Won?t Be Buying TAGS http://t.co/2S8bqcQJ Expense ratio does not include the expenses paid on underlying ETFs owned by $TAGS $$ Apr 04, 2012

Financial Distress

Reddy Ice Considers Filing for Bankruptcy http://t.co/IgpYjHue Is it just me, or are we seeing an uptick in insolvencies? $$ Apr 04, 2012
Hostess Serves Up New Batch of Cuts http://t.co/fHBXwHes Future failure as people don’t buy so many of the “sugar fat bombs” 4 kids $$ Apr 02, 2012
Failures: Pinnacle Airlines http://t.co/BXkJ8v9j AFA Foods http://t.co/xs4wsFEE Airlines & Meat renderers r born 2 fail $$ Apr 02, 2012

Gold does Nothing

Posted on 6 April 20129 April 2012 by David Merkel

Gold does nothing, and as Warren Buffett said in his recent annual report:

Today the world?s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce ? gold?s price as I write this ? its value would be $9.6 trillion. Call this cube pile A.

Let?s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world?s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today?s annual production of gold command about $160 billion. Buyers ? whether jewelry and industrial users, frightened individuals, or speculators ? must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops ? and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it?s likely many will still rush to gold. I?m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Buffett misses the point on gold, something he doesn’t often do in economic matters.? Gold is valuable because it is beautiful, and it can’t be used for much aside from beauty.? Gold can only be used for things that are not necessary (with a few small exceptions), and is thus a luxury item.? Wait, doesn’t Buffett own a scad of jewelry stores, and he doesn’t get this?? Jewelry is not a necessity, but something to please those we love with something of beauty.

Beyond that, gold is divisible, easily melted down, and doesn’t weigh a lot relative to its value.? It is an ideal store of value.

Gold does nothing, and that’s good.? We need some things in this hectic world that do nothing.? What is the value of doing nothing?

Quietness.? Pause.? Repose.? Reflection.? Measurement Standard.

Fiat currencies change every day, and the price of gold relative to chose currencies changes similarly.? Gold doesn’t change; it’s like God in that way.? We don’t measure it.? Because it doesn’t change, it measures us, because we do change.

I’m not a gold bug.? I own no gold, aside from my small wedding ring and? few other odd bits of jewelry.? But there is a lot of value to a pretty commodity that has little usefulness aside from beauty.? Think of silver for a moment.? Whether in electronics or photography it has significant industrial value.? Though both are used as currencies, and stores of value, silver responds more to the economy, and gold just sits there.

Maybe that’s what Robert Zoellick meant when he talked about gold as a reference point for the global economy.? Unlike fiat currencies, which are manipulated by finance ministries and central banks, gold can’t easily be manipulated.? Gold is the measuring rod of economics, whether we like it or not.

That brings me to Eddy Elfenbein’s Gold model, and my refinement of it.? Gold reacts to real interest rates.? As real interest rates rise, gold falls, and vice versa.? Think of it this way: when real interest rates go down, there is less loss to holding gold, because fiat currencies suffer from financial repression.

Gold can’t easily be repressed; it is far less susceptible to government manipulation because it is something real and tangible — far harder to manipulate.

Some have suggested that gold could back the currencies of major emerging markets, and I think that would be a good idea, but I think none of the large emerging markets except Russia would dare or even want to do it.? Statists like fiat currency, because it gives them one more lever of control over those that they rule.? Gold-backed currencies are for limited governments, and in general, most emerging market governments don’t think that way.

With Mr. Buffett, I will agree, I would rather have the businesses and the farmland [pile B].? They will likely be more valuable in the long run than the gold.? But I might take the $1 trillion of “walking around money,” and use it to buy 10% of the cube of gold [pile A], leaving me with a piddling $40 billion of walking-around money.? I might look at the gold, and think how beautiful it is.

Fondle it?? Nah.? Just admire how unchangeable it is.? Businesses change; technologies obsolete whole industries as they create new ones.? Companies can be mismanaged, or outcompeted.? Very few last longer than a generation; they change a lot, and require constant management.

Farmland depletes unless you take the time to maintain it, and cheap potash supplies are getting scarce.? Besides, perhaps one of my great-grandchildren will note 100 years from now how the global economy has a hard time with the population shrinking globally.? At that point, with less pressure to increase yields, farmland might not be as valuable.? I’m not predicting this; it’s only possible — I’m only saying that arable land, another really scarce resource in the world could in some scenarios become less valuable in real terms.

The real value of the gold would be as a hedge against governments and central banks that financially repress their populations by holding interest rates, making it difficult for savers to preserve value.? And that’s what gold does best, preserving value, as it sits there, beautiful, doing nothing.

So, when governments and central banks debase their currencies, as in the ’70s, the 2000s, and create conditions where real interest rates are negative, gold flies in terms of the debased currencies, and then crashes back down if you get a Paul Volcker-type, and policy normalizes after a lot of pain, which this generation seems unwilling to take.? Until it does take the pain, there will be the tendency for gold to go higher, and more so, if real interest rates remain negative.

So, sit back and and watch the gold measure the policies of governments, central banks, even us.? Gold does nothing except sit there and look beautiful, and that’s what makes it so valuable.