Search Results for “Flavors of Insurance, Part” – Page 2

Flavors of Insurance, Part II (Life)

Posted on 5 December 2010 by David Merkel

Life insurance probably has the most complex accounting of any of the sub-industries. Part of this comes from the complexity of the contingencies underwritten, and most of the rest from producer compensation and the length of the contracts underwritten.

Life insurance and annuities are sold, not bought. In general, people have a mental bias toward thinking that they aren’t going to die in the immediate future. Annuities are often sold to people who won’t otherwise plan for their retirement. To overcome those biases, life insurance companies pay agents handsomely to originate policies. The commission is large enough that if the company expensed it, it would lose money on a GAAP basis every time it issued a policy. That’s why policy acquisition costs are deferred, set up as an asset, and amortized in proportion to the gross profitability of the business over the life of the business.

Reserving for term policies isn’t very complex, but reserves for cash value policies are set as the expected present value of future benefits less future premiums. Small changes in interest, mortality, and lapse rates can make large changes to reserve values. Other contingencies can affect different classes of policies as well; variable and indexed contracts rely on returns of the stock and bond markets. Higher assets under management mean higher fees.

There is a second business that most life insurance companies engage in. Since the companies would not be profitable if they invested in Treasury securities, they typically invest in corporate bonds, mortgage-backed securities, and other risky forms of debt. Some also invest in commercial mortgages and real estate. When there is stress in the credit and mortgage markets, life insurance companies do poorly.

In reviewing the performance of life companies as group from March 1994 through March 2004, one can see the effect of the major drivers of profitability. Underwriting was typically profitable for companies throughout the entire decade, so that was not a differentiating factor. Most of the shifts in profitability came from investment results. The credit cycle was generally positive to the beginning of 1999, negative 1999-2002, and positive after that. The equity market supported variable life and annuity writers until the bull market peak in March 2000, punished them until March 2003, and has rewarded them since then. The only period that deviated from this description was after the bubble popped in March 2000; life companies temporarily did better as equity investors fled technology stocks for the safety of stodgy sectors like life insurance.

The outlook for life insurance is no different than the past; it is tied to the outlook for the asset markets. If the credit and equity markets do well, so will life companies.

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Bringing it to the Present

Many of the things that I wrote back in 2004 regarding life insurers have proved prescient.? Life insurers have prospered as the asset markets have prospered, and suffered during the bear markets. On average, life insurers have done better than other financials, and better than the market as a whole since 2004.

One advantage the life insurers had 1999-2003 was that they got burned on CDOs and did not get caught in the bubble.? Even with other types of structured lending, life? insurers got more conservative 2003-2005, unlike most of the rest of the financial sector.? Life insurers noticed the poor underwriting, and stayed away.

It should be noted that there are life insurers that do a lot of variable business, and those that don’t.? Those that write a lot of variable life and annuities will be more sensitive to the stock market than those that don’t write a lot of variable business.

One final squishy spot: secondary guarantees.? With Universal Life and Variable Annuities, there are secondary guarantees where the reserving is questionable.? Also true of long-dated term policies… be aware that there might be some bombs lurking there, that will manifest in severe economic scenarios.

At present, I don’t own any pure life insurers.

Flavors of Insurance, Part I

Posted on 4 December 2010 by David Merkel

I view the insurance industry as a loosely related group of sub-industries, where knowing something about one sub-industry tells little about any other sub-industry. Even within each sub-industry, companies can be very different from each other. This article will attempt to go through the vast wasteland that is the insurance industry, and attempt to point out some of the more interesting aspects of it.

There are three major risk factors with insurers: the underwriting cycle, investment returns, and expense control.

The Underwriting Cycle

The property/casualty insurance industry, like all mature industries, is a cyclical business. Cyclical businesses revolve around pricing, which involves the relative degree of capacity available in the industry.

The P/C industry derives its capacity to write business from the amount of surplus available to support business. This creates a four-phase cycle for the industry.

1.????? When surplus is abundant, rate-cutting is prevalent, and generally poorer-quality business gets written in an effort to retain market share. Terms and conditions for insurance are loose. During this period, the prices of P/C companies fall relatively hard, as prospective estimates of profitability fall.

2.????? After enough poor quality business gets written, and premium rates decrease meaningfully, high quality companies exit lines of business, or buy reinsurance, and low quality companies begin to look impaired. At these times, the stock prices of high quality firms fall a little, and low quality firms fall more.

3.????? As the results of bad business become evident, reserves get raised, sometimes drastically, and surplus declines. When surplus is deficient, premium rates rise, and the stocks of companies that have survived the cycle rise dramatically. The best business from both a profit and risk control standpoint, gets written in this phase of the cycle Terms and conditions for insurance are tight.

4.????? When surplus becomes adequate, premium growth rate slows, and stock prices rise slowly, at roughly the rate of retained earnings. This continues until surplus is abundant.

Catastrophes, when they happen, temporarily reduce surplus, and improve pricing. The companies least affected by the cat rally, and those most affected, tend to fall, or rise little. Major catastrophes can cause the cycle to bottom, or extend the positive side of the cycle, because surplus is diminished.

The rating agencies tend to cut ratings near phase 2, and raise them near phase 4. Diminished ratings decrease the amount of business that an insurer can write, and further limit the willingness of prospective purchasers of insurance, particularly long-tailed coverages, who want to be sure that the company that they buy insurance from will be around to pay claims.

Investment Returns

Strong investment returns increase surplus. In a bull market, some companies become more aggressive about writing business so that they can earn money from investments. This is particularly true of companies that sell coverages that result in long-tailed liabilities. Strong investment returns prolong phases 1 and 4 of the cycle. Investment returns were so strong throughout the 1990s that insurers often compromised underwriting standards, leading to much of the troubles that occurred in the industry from late 2000 to early 2003. Not only were investment returns low or negative, but the results of prior poor underwriting were realized through reserve adjustments that diminished surplus.

Expense Control

Every time a premium gets calculated, there is an estimate embedded in the premium for expense. Expenses typically take three forms: policy acquisition, claims adjustment, and operational. There is a tendency for expenses to drift higher when investment returns are strong, and when the market is softening due to greater competition.

Now I will discuss each sub-industry separately. Included in each discussion is a description of products, risks, and industry performance over the last ten years. The graphs show the performance of each sub-industry over the last ten years, derived from my own proprietary indexes. At the end, I give my outlook for each sub-industry.

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Bringing it to the Present

This series was written seven years ago in an all-nighter for my new boss.? The piece never saw the light of day, which annoyed me, though I liked my boss, and I never complained about it.

As I publish the ten-or-so pieces of it, because it was long, at the end of each installment, I will try to update the insurance subindustries to the present.? But it would be useful for anyone reading this to look at my presentation to the Southeastern Actuaries Conference on the Amazing Decade for Insurance Stocks.? Aside from that, I have lost the graphs of the original presentation.? My apologies.

Insurance is an amazing business.? Insurers make promises.? Many of the promises are uncertain with respect to amount and/or timing.? That makes the accounting complex.? This is one of the reasons why examining the qualitative aspects of an insurance company to understand how a management team makes decisions is so valuable.

Anyway, more to come here, and I hope you all enjoy this series.

The Best of the Aleph Blog, Part 25

Posted on 29 July 2014 by David Merkel

In my view, these were my best posts written between February and April 2013:

Wall Street Hates You

I have a saying, ?Don?t buy what someone wants to sell you. Buy what you have researched.?

And so I would tell everyone: don?t give brokers discretion over you accounts, and don?t let them convince you to buy unusual bonds, or obscure securities of any sort.? By unusual bonds, I mean structured notes, and eminent men like Joshua Brown and Larry Swedroe encourage the same thing: Don?t buy them.

The Education of a Mortgage Bond Manager, Part III

Why being careful with credit ratings is smart.

The Education of a Mortgage Bond Manager, Part IV

Be wary of odd asset classes; they are odd for a reason.

The Education of a Mortgage Bond Manager, Part V

Where I do odd things in order to serve my client.

The Education of a Mortgage Bond Manager, Part VI

The Education of a Mortgage Bond Manager, Part VII

The Education of a Mortgage Bond Manager, Part IX

Odd stuff, but particularly insightful into some of the perverse dynamics inside investment departments.

The Education of a Mortgage Bond Manager, Part VIII

How I led the successful effort to modify the Maryland Life Insurance Investment Law, and acted for the good of the public.

The Education of a Mortgage Bond Manager, Part X (The End)

Where I explain the odd bits of being portfolio manager, while succeeding with structured bonds amid difficult markets.

Berkshire Hathaway & Variable Annuities

I explain the good, bad, and ugly off of Berkshire Hathaway’s reinsurance deal with CIGNA.

Advice to Two Readers

Where I opine on some Sears bonds, and also on flu pandemic risk at RGA.

What I Would & Would Not Teach College Students About Finance

Mostly, I would teach them to think broadly, and realize the most of the complex investment math is easy to get wrong.

My Theory of Asset Pricing

My replacement for MPT using contingent claims theory.

On Insurance Investing, Part 4

On finding companies with conservative insurance reserving

On Insurance Investing, Part 5

On the squishy stuff, where there are no hard guidelines.

On Time Horizons

People shorten and lengthen their time horizons at the wrong time.

The Education of an Investment Risk Manager, Part IV

On two odd situations inside a life insurance company.

The Education of an Investment Risk Manager, Part V

On how we replaced a manager of managers.

Value Investing Flavors

Explains how there are many ways to do value investing.

Classic: Using Investment Advice, Part 1

Classic: Using Investment Advice, Part 2

Classic: Using Investment Advice, Part 3

Classic: Using Investment Advice, Part 4 [Tread Warily on Media Stock Tips]

Understand yourself, understand the advisor, understand the counsel that is offered, and finally, we wary of what you here through the media, including me.

Classic: Avoid the Dangers of Data-Mining, Part 1

Classic: Avoid the Dangers of Data-Mining, Part 2

There are many ways to torture the data to make it confess what you want to hear. ?Avoid that.

Classic: The Fundamentals of Market Tops

Where I explain what conditions are like when market tops are near.

At the Towson University Investment Group?s International Market Summit, Part 5

Where I answer the question:?Where does academic theory fail in finance and in economics?

Classic: Separating Weak Holders From the Strong

Classic: Get to Know the Holders? Hands, Part 1

Classic: Get to Know the Holders? Hands, Part 2

Articles that explain the fundamental??basis that underlies technical analysis.

Classic: The Long and Short of Trend Investing

How to play trends without getting skinned.

Full Disclosure: long RGA and BRK/B

The Best of the Aleph Blog, Part 16

Posted on 9 June 201210 June 2012 by David Merkel

I try to do “The Best of the? Aleph Blog” pieces between 1-2 years after original publication.? Why?? It gives time for reflection, time for series to complete, time for me to be proven wrong/right, etc.? I would have preferred that readers do this job for me, so that I could be neutral, but I realized that I am the one that has the most concentrated interest in doing this, so that is why I do this.? The main benefit for me in doing this is when I submit free content to “Wall Street All Stars,” I know what I think is good stuff, and I utter a few words to explain how my wisdom has proven right, or fell on its face.

This episode covers the era of November 2010 through January 2011.

On Investment Modeling, Part 1

On Investment Modeling, Part 2

On Investment Modeling, Part 3

On Investment Modeling, Part 4

Investment modeling is tough, you omit some bits of reality, and deny other bits of reality.? In this four-part series, I try to explain how difficult good modeling is, and how to make it better.

Flavors of Insurance, Part I

Flavors of Insurance, Part II (Life)

Flavors of Insurance, Part III (Personal Lines)

Flavors of Insurance, Part IV (Commercial)

Flavors of Insurance, Part V (Reinsurance)

Flavors of Insurance, Part VI (Brokers)

Flavors of Insurance, Part VII (Health)

Flavors of Insurance, Part VIII (Financial)

Flavors of Insurance, Part IX (Title)

Flavors of Insurance, Part X (Conglomerates)

Flavors of Insurance, Part XI (Banks and the Insurance Business)

Flavors of Insurance, Part XII (Summary ? The End)

This was a unique series where I tried to bring my expertise to bear on a complex industry.? I wrote the original piece in 2003, and it never got published.? I used OCR to scan it and one of my brighter children to edit it, so you have my original text, plus my commentary in 2010, pointing out where I was right and wrong.

Time to Grow Up

I am an advocate for a brainy libertarianism that reflects the intelligence embedded in the Bible, coming form the Creator Himself.? I do not back what the t-party has to say, whose positions reflect personal selfishness.

Nonidentical Twins: Solvency and Liquidity (III)

Now, when a government is overleveraged, but interest rates are low, the situation is potentially unstable.? A rise in rates could tip the scales.? Market actors would conclude that they can?t survive at rates high than a certain threshold, so sell the debt now, in case rates would get so high.? That action forces rates higher, leading to a self-reinforcing panic.

Sometimes this happens in advance of a debt refinancing, leading some politicians and bureaucrats to say the forever bogus phrase, ?This is not a solvency crisis, this is a liquidity crisis.?? Sorry, if you play near the cliff, don?t complain if you happen to fall off.

Liquidity crises do not happen to governments with low debt levels.? Liquidity crises are solvency crises during the panic phase, before they are revealed to be solvency crises alone.

The Value of Fair Accounting

Why fair value accounting has value to investors.? This should be a “duh” moment, because everyone should understand this.

2010 Financial Report of the US Government

My annual post on the topic, describing the deterioration of the situation.

A Portrait of Maryland?s Public Companies

I explain why Maryland, my adopted homestate, has the mix of publicly traded companies that it does.

Why We Don?t Need the Fed

We would do better with a commodity standard, and even a gold standard.? The Fed hoodwinks us with its pretended efforts to maintain value.? I genuinely mean that we could do better without the Fed.? Put James Grant and Steven Hanke in charge of our monetary policy, and we will do well

On Human Fertility

A controversial topic, but fertility rates are falling more rapidly than the demographers expect. Why? It is politically correct to say that the planet is running out of resources, a bogus idea, but often stated.? As it is, because of changes in the way that women and men view their roles, fewer children will be born.

And as for a guy who has sired three children, and adopted five (far more difficult), I would simply say that we are better off with more children in homes that care about the results of how children turn out.

On Multiparty Transactions

Posted on 7 September 20118 September 2011 by David Merkel

I’m not an expert on game theory, but the rule of thumb I have run across is to win in games with more than two parties, you must assemble a coalition that has more than 51% of the aggregate power within the game.

Practical rule number two is that the one on the winning side that arranges/controls the communications/relationships tends to walk off with a larger proportion of the stakes won in the game.

I learned this early as a young actuary working on my pricing models, and noted that those that really made out well in insurance were the successful agents.? They brought two parties, insured and insurer together, who most of the time would not have found each other.? Then, they did policyholder service for the company and the customer controlling the flow of information in the process.? There were times when I thought it would be useful for the company to talk more directly to the insured, but marketing sometimes objected, and so we didn’t.? The agents owned all the loyalty in the transactions.

As an older actuary, I saw this writ large when I was running an annuity division.? Using regression, I did what I think was one of the industry’s most advanced studies of deferred annuity withdrawal.? The Society of Actuaries produced a similar (but broader) study roughly one year behind me.? One of the main results of the study was that withdrawal rates spike when the surrender charge ends.? The reason is because most agents try to roll the business to a new product so that they can earn another commission.? (Trivia note: I learned that those policyholders that did not roll along with the agent were very sticky business.)

Multiparty transactions exist because there is something complex going on, and the multiple parties each serve a need, providing a service, or eliminating a risk.? Let’s move to the concept of buying a house.? Here is my informal list of all of the parties:

Buyer
Seller
Realtor for the Seller — helps convince the buyer to buy.
Realtor for the Buyer, or, sub-agent for the seller — helps the buyer find a good property to buy.
Title insurer — assures that there are no mistakes in the transfer of title.
Mortgage insurer — insures mortgage lender against default when there is little equity for the buyer.
Property & Casualty insurer — protects the lender and buyer against losses from property damage, or injury to people on the property.
Mortgage lender (first lien) — provides most of the money for the purchase
Mortgage lender (second lien and beyond) — provides some money for the purchase, but in foreclosure gets paid after the first lien lender.
Appraiser — gives an estimate of the value of the property so that the first lien lender does not lend too much.
Home Inspector — finds defects in the property so that the buyer can adjust his price down.
Taxation authorities — collect taxes, so that services that make the community livable are provided.
Community Association — enforces neighborhood standards, so that property values are enhanced.
There are more, but I can’t think of them…

Note: I did the “smiley-face” version of the roles parties play in the process.? I could have done the cynical version, but didn’t.? Also note that not all of the parties are needed on a given transaction.? The complexity erupts because the buyer needs to borrow to complete the transaction, and the lender wants protection.

Now, going back to my earlier thoughts, in this case, the first-lien mortgage lender has things set up to his advantage.? Many of the parties to the sale of a house exist to protect his interests.? It is the dominant party in this sort of transaction.? This leads to two current problems:

Mortgage reinsurance captives owned by banks originating the loans.
P&C Insurance that is forcibly placed by the lender when the buyer does not make P&C insurance payments.

On the first point there was an article today that I found surprising because it is so late to the game.? Don’t get me wrong, it is a good article, but for an insurance analyst that spent time analyzing the mortgage insurers, it is old news.? As I wrote back in 2003 (and published in 2010):

In addition, lenders that originate low down payment mortgages often force the mortgage insurers to cede low-risk parts of the business to reinsurance captives controlled by the lenders. This is a continuing problem, with many of the mortgage insurers refusing to go along with the most uneconomic reinsurance deals.

It got worse from there, with more mortgage insurers giving in, and lenders demanding a larger proportion of the profits.? Nominally they were reinsurance premiums, but for the most part they were closer to being commissions.? Why did the mortgage insurers go along with this?? Because the first-lien lenders were the dominant party in the transactions, controlling most of the other parties.? As a result, borrowers putting small amounts of money down ended up paying more for their mortgage insurance because of the pseudo-commission paid to the mortgage lender because of the captive reinsurer.? As I have sometimes said, “Reinsurance is the ultimate derivative; it can obscure almost any transaction.”

On force-placed insurance I have written as well, and it sounds a lot like this post.? The similarity is that the insurance is primarily designed to protect the mortgage lender, and the mortgage lender again collects a commission in the process because it is at the hub of communications.? The mortgage agreements give them discretionary power.

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My simple rule to average people when involved in complex transactions is this: be cynical.? No one is interested in your well-being, and most of the transactional terms are skewed against you.? To the extent that you can borrow less, and eliminate some of the parties that would be a part of the transaction, it is to your good that you do so.? The best situation is that you buy for cash, if you have it.

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Now, this same sort of analysis can be applied to securitizations, and other multiparty transactions.? Watch for who has control; it is a valuable option to have.? But that is an essay for another day.

Gundlach vs Morningstar

Posted on 15 July 2015 by David Merkel

I’ve been on both sides of the fence. ?I’ve been a bond manager, with a large, complex (and illiquid) portfolio, and I have been a selector of managers. ?Thus the current squabble between Jeffrey Gundlach and Morningstar isn’t too surprising to me, and genuinely, I could side with either one.

Let me take Gundlach’s side first. ?If you are a bond manager, you have to be fairly bright. ?You need to understand the understand the compound interest math, and also how to interpret complex securities that come in far more flavors than common stocks. ?This is particularly true today when many top managers are throwing a lot of derivative instruments into their portfolios, whether to earn returns, or shed risks. ?Aspects of the lending markets that used to be the sole province of the banks and other lenders are now available for bond managers to buy in a securitized form. ?Go ahead, take a look at any of the annual reports from Pimco or DoubleLine and get a sense of the complexity involved in running these funds. ?It’s pretty astounding.

So when the fund analyst comes along, whether for a buy-side firm, an institutional fund analyst, or retail fund analyst who does more than just a little number crunching, you realize that the fund analyst?likely knows less about what you do than one of your junior analysts.

One of the issues that Morningstar had ?was with DoubleLine’s holdings of?nonagency residential mortgage-backed securities [NRMBS]. ?These securities lost a lot of value 2007-2009 during the financial crisis. ?Let me describe what it was like in a chronological list:

2003 and prior: NRMBS is a small part of the overall mortgage bond market, with relatively few players willing to take credit risk instead of buying mortgage bonds guaranteed by Fannie, Freddie and Ginnie. ?Much of the paper is in the hands of specialists and some life insurance companies.
2004-2006 as more subprime lending goes on amid a boom in housing prices, credit quality standards fall and life insurance buyers slowly?stop purchasing the securities. ?A new yield-hungry group of buyers take their place, with not much focus on what could go wrong.
Parallel to this, a market in credit derivatives grows up around the NRMBS market?with more notional exposure than the underlying market. ?Two sets of players: yield hogs that need to squeeze more income out of their portfolios, and hedge funds seeing the opportunity for a big score when the housing bubble pops. ?At last, a way to short housing!
2007: Pre-crisis, the market for NRMBS starts to sag, but nothing much happens. ?A few originators get into trouble, and a bit of risk differentiation comes into a previously complacent market.
2008-2009: the crisis hits, and it is a melee. ?Defaults spike, credit metrics deteriorate, and housing prices fall. ?Many parties sell their bonds merely to get rid of the taint in their portfolios. ?The credit derivatives exacerbate a bad situation. ?Prices on many NRMBS fall way below rational levels, because there are few traditional buyers willing to hold them. ?The regulators of financial companies and rating agencies are watching mortgage default risk carefully, so most regulated financial companies can’t hold the securities without a lot of fuss.
2010+ Nontraditional buyers like flexible hedge funds develop expertise and buy the NRMBS, as do some flexible bond managers who have the expertise in?staff skilled in analyzing the creditworthiness of bunches of securitized mortgages.

Now, after a disaster in a section of the bond market, the recovery follows a pattern like triage. ?Bonds get sorted into three buckets: those likely to yield a positive return on current prices, those likely to yield a negative return on current prices, and those?where you can’t tell. ?As time goes along, the last two buckets shrink. ?Market players revise prices down for the second bucket, and securities in the third bucket typically join one of the other two buckets.

Typically, though, lightning doesn’t strike twice. ?You don’t get another crisis event that causes that class of?securities to become disordered again, at least, not for a while. ?We’re always fighting the last war, so if credit deterioration is happening, it is in a new place.

And thus the problem in talking to the fund analyst. ?The securities were highly risky at one point, so aren’t they risky now? ?You would like to say, “No such thing as a bad asset, only a bad price,” but the answer might sound too facile.

Only a few managers devoted the time and effort to analyzing these securities after the crisis. ?As such, the story doesn’t travel so well. ?Gundlach already has a lot of money to manage, and more money is flowing in, so he doesn’t have to care whether Morningstar truly understands what DoubleLine does or not. ?He can be happy with a slower pace of asset growth, and the lack of accolades which might otherwise go to him…

But, one of the signs of being truly an expert is being able to explain it to lesser mortals. ?It’s like this story of the famous physicist Richard Feynman:

Feynman was a truly great teacher. He prided himself on being able to devise ways to explain even the most profound ideas to beginning students. Once, I said to him, “Dick, explain to me, so that I can understand it, why spin one-half particles obey Fermi-Dirac statistics.” Sizing up his audience perfectly, Feynman said, “I’ll prepare a freshman lecture on it.” But he came back a few days later to say, “I couldn’t do it. I couldn’t reduce it to the freshman level. That means we don’t really understand it.”

Like it or not, the Morningstar folks have a job to do, and they will do it whether DoubleLine cooperates or not. ?As in other situations in the business world, you have a choice. ?You could task smart subordinates to spend adequate time teaching the Morningstar analyst your thought processes, or, live with the results of someone who fundamentally does not understand what you do. ?(This applies to bosses as well.)

In the end, this may not matter to DoubleLine. ?They have enough assets to manage, and then some. ?But in the end, this could matter to Morningstar. ?It says a lot if you can’t analyze one of the best funds out there. ?That would mean you really don’t understand well the fixed income business as it is presently configured. ?As such, I would say that it is incumbent on Morningstar to take the initiative, apologize to DoubleLine, and try to re-establish good communications. ?If they don’t, the loss is Morningstar’s, and that of their subscribers.

On Understanding and Valuing Financial Companies

Posted on 2 January 2014 by David Merkel

I have readers all over the world.? Here is an example:

Hi Dave

I am a 25 year old from Pretoria, South Africa. I have been reading your blog for around 2 years and I thoroughly enjoy it (especially the book reviews). I might not agree with a few things you say, but it is rare that I don’t learn something while reading your work. I love how your personality shines through in your writing…a personality based on God.

I have had this fascination with finance and investing since I ran into a popular finance magazine here in South Africa around 2008 while stile in university. Since then I have been reading everything I could on business, investing and finance. I am also about to start training with a large wealth management firm in south africa to be 1 of their financial advisors. Training I am wholeheartedly looking forward to.

In all my reading, there is something I still struggle to wrap my head around, and that’s how to value Financial companies. You are undoubtedly the most informed person on financial company investing nd financials that I read. Hence my email: I was wondering if you could suggest a few readings for me to tuck into (preferably books) as I have found most of the things I have read only scratch the surface. Reading with maths that is not too elaborate.

I hope I am not asking too much.? Thank you in advance for any suggestions you might have, and I hope you keep up the good work on your blog.

Financial companies are difficult for several reasons:

1) The cash flow statement has almost no meaning.

2) It is very hard to know how much capital is needed to keep things going.? That data gets disclosed to the regulators, and not directly to stockholders.

3) It is difficult to know the riskiness of the assets that a financial company holds.

4) With complex financials, it is difficult to tell what the “run on the bank” risk is.

I will be reviewing a book on banks this month, but I have run into few books in my life analyzing financials.? It is a real hole in the investment literature.

Financial companies are valued off of their net worth, and their expected path of earnings.? Earnings retained, rather than paid out in dividends, or used to buy back stock, adds to net worth, and is new capital that can be used for growth.

The capital of financial companies can be divided in two: that which is required by the regulators for solvency purposes, and that which is free for deployment into new business.? With banks, look at the call reports to analyze the capital needs of subsidiaries.? With insurers, get the statutory reports.

To the extent you can, analyze the quality of assets owned.? Also analyze when liabilities may require cash, particularly if assets are financed by repurchase agreements.

Now over the last seven years, I have written a lot on financials, particularly insurers.? Here are the articles at my blog that would deserve attention:

A Summary of my Writings on Analyzing Insurance Stocks

A compendium of the best articles written prior to mid-2010.

Then there was the Flavors of Insurance Series.? In 12 parts, it went through the entire insurance space, explaining what make each area different.

Thinking about the Insurance Industry

Describes the changes that have happened since the financial crisis.? Bad financial models have been destroyed.

On Life Insurance and Life Reinsurance

Explains how life insurance is saturated but reinsurance is not.

On Complexity in Financials, and Insurers Specifically

Explains why complex financials are usually a bad investment.

Investing In P&C Insurers

Once you understand the model, many are simple companies, and easy to invest in.

Evaluating Regulated Financials

An attempt to explain to college students why financials are different from other companies.

On Insurance Investing

This seven-part series explained a wide number of factors in analyzing insurance stock investing.

Penny Wise, Pound Foolish

On some of the pathologies inside badly-run insurance firms.

Two Insurance Questions

On reserving and valuation questions.

On the Designation of Systemically Important Financial Institutions

Why Insurers, no matter how large, should not be considered a threat to systemic risk.? (Please ignore AIG — no other insurer was a major party in derivatives.)? Also see: On Risk-Based Liquidity, and Financial Regulation

On Captive Insurers

Explains some of the nuances of statutory reserving/capital, and why some insurers want to fuddle it.

Classic: Financials are Different

A piece from 2006 at RealMoney, describing how financials are different from industrial stocks.

That should give you a start.? There aren’t many books dealing with the intricacies of financial companies, and of what few there are they are written by the big four auditors, or the rating agencies, for their own purposes.? I don’t own any of them.

But what I have written, from that you can benefit.

Sorted Weekly Tweets

Posted on 28 December 2013 by David Merkel

Japan

Japan World-Beating Stocks Seen Repeating Gains in 2014 http://t.co/v5QR4nVKd3 Analysts follow trends; they r wrong at turning points $$ Dec 28, 2013
Abenomics Drives Japan Hedge Funds to World?s Top Performers http://t.co/fDmMBWIxgL Let’s c if Japan can survive the increase in debts $$ Dec 28, 2013
Asia: From baby boom to bust http://t.co/eaDLDS3oAL Watch Japan 4a preview of what will happen across all of Asia; it won’t b pretty $$ Dec 28, 2013

China

China Confronts Workforce Drop With Retirement-Age Delay http://t.co/TdsDKG1p5u China gets to the problem very late & way too small $$ $FXI Dec 26, 2013
China is so worried about its cash crunch that it banned the term http://t.co/y0eN3A58iB Worry when central bankers care about language $$ Dec 26, 2013
China Credit Squeeze Eases as Central Bank Resumes Using Regular Cash-Injection Tool http://t.co/D5UNiQuQSv Papers over solvency issues $$ Dec 26, 2013
China’s Pain Points http://t.co/Ry2XaZHYT8 underfunded health&pension systems; environment probs; water shortages; corruption; rigged courts Dec 26, 2013
China Promise Clashes With Clampdown on Foreign Business http://t.co/ycKPAWqGa2 They want the best of both worlds, and can’t get both $$ Dec 26, 2013
PBOC?s Opacity Leaves Markets Guessing Amid Cash Crunch http://t.co/TsgynBHdo6 No guess what PBOC policy will b, makin’ it up as they go $$ Dec 26, 2013
China Cash Crunch Pushes Up Short-Term Rates http://t.co/MgWmHwdQuC The fragility of the Chinese financial system comes into view $$ $FXI Dec 23, 2013
Was 2013 the Year We Lost China? http://t.co/Fmz3RixLW7 It’s difficult 2 say whether we ever “had” China, it pursues its own goals $$ $FXI Dec 23, 2013

PPACA / Obamacare

Obamacare Hits Snag in States as US Site Finds Footing http://t.co/3q1SnLxu59 Surprised that some of the states would do worse than Feds $$ Dec 28, 2013
Obamacare’s Web site Exchange Woes Trace to Cato’s Michael Cannon http://t.co/SDhb9sdATZ One Q is whether the natl exchange can subsidize $$ Dec 26, 2013
What to Do When ObamaCare Unravels http://t.co/w2iNS1HhWd Cute alternative 2 PPACA, but I think it could b even more expensive than PPACA $$ Dec 26, 2013
Rule Change on Health Insurance Rattles Industry http://t.co/Fyntbs0rjS The lowball estimate of what Obamacare would cost comes back2bite $$ Dec 23, 2013
Obama Repeals ObamaCare http://t.co/0RerlzDqA2 It was bad enough under Bush, y does Congress tolerate a president behaving like a king? $$ Dec 23, 2013

Rest of the World

Thai General Refuses to Rule Out Coup as Unrest Drags On http://t.co/PfqhKwIpSD A Thai friend of mine said military is needed in politics $$ Dec 28, 2013
BlackRock Buys Turkey Shares After Turmoil Spooks Markets http://t.co/bbcxmWIXHM $TUR down >26% in 2013 http://t.co/cHkL6E2TUd; $$ Dec 26, 2013
Iranians Pile Into Stocks as Nuclear Deal Spurs 133% Gain http://t.co/mZ7J47vnPp Wall Street getting slow; no $IRAN ETF available yet $$ Dec 26, 2013
Even in Straitened Times, Portugal Loves Its Bimby Cooking Robots http://t.co/j8a732IuKA Y isn’t this sold in the US? It does it all $$ $SPY Dec 26, 2013
Jihadists in Syria Draw Children of Muslims Who Settled in Europe http://t.co/r5suj7cZ6l Romantic youths want their lives 2b more than $$ Dec 26, 2013
UN to nearly double peace-keepers in South Sudan as violence explodes http://t.co/X9Z94O0mXF UN always increases malfeasance, bad 4 all $$ Dec 26, 2013
Ukraine Upheaval Spurred by 28% Rates Limiting Buyers http://t.co/5VFiYvnpRk Capital flees when civil disturbances arise, thus high rates $$ Dec 26, 2013
US Plans to Ask UN for More Troops in Turbulent South Sudan http://t.co/I60iRC1Nmb UN is not a lot of help in situations like this $$ Dec 26, 2013
Swiss Banks Employ Army of Advisers for US Amnesty Plan http://t.co/qRLXTt1JS7 Differing strategies as US exposure & reporting varies $$ Dec 26, 2013
South Sudan Refugees Swell As Americans Are Evacuated http://t.co/Iq2VxuFYNz Throw a bunch of warlords together, call it a govt & u get? $$ Dec 23, 2013
Russia Crisis Haunts Deutsche Bank?s Smith Seeing China Bust http://t.co/nRm4PPTlvA Suspect a China debt crisis would not affect US $$ Dec 23, 2013
Venezuela Devalues Bolivar for Tourist Dollars by 44% http://t.co/rOdpVu4xRd Almost 2 the point where the dollar will replace the bolivar $$ Dec 23, 2013

NSA

Report on NSA ‘secret’ payments to RSA fuels encryption controversy http://t.co/1YTaHu4mfK Put in a backdoor so that NSA could access $$ Dec 28, 2013
Edward Snowden, after months of NSA revelations, says his mission?s accomplished http://t.co/MdMFbSKaYK His life’s work is complete @ 29 $$ Dec 26, 2013
The One Big Question About RSA and Its Relationship With the NSA http://t.co/vR7GCsCa38 RSA builds “backdoor” 4 NSA 2 use, gets secret $$ Dec 26, 2013
NSA Struggles to Make Sense of Flood of Surveillance Data http://t.co/0gjztWYMSM Inside look at how data surveillance got out of control $$ Dec 26, 2013
Finnish Security Researcher Cancels RSA Talk in Protest http://t.co/v0hsM2y548 RSA deliberately built faulty random number generator 4NSA $$ Dec 26, 2013
Snowden Criticizes US Panel Overseeing Surveillance http://t.co/kLI7XmeKlN Panel exists 2whitewash bad behavior of intelgnc establishment $$ Dec 23, 2013

Market Impact

A Fund That Invests Like Buffett http://t.co/u9duSaR9oA I’m impressed; I’m putting their firm on my 13F list to track them quarterly $$ $SPY Dec 28, 2013
Our Outlook for the Stock Market http://t.co/N1IV6w32dj Morningstar gives their relatively bullish view of what 2014 will hold 4 stocks $$ Dec 28, 2013
Muniland?s ?Best of 2013? http://t.co/KhaiAVmjzg @catelong is one of the best on municipal bonds & here is her summary of 2013 $$ $MUB Dec 28, 2013
40% of fund managers surveyed r overweight euro-area equities http://t.co/vPYGQFvagC Bull Calls United in Europe, Strategists C 12% Gain $$ Dec 26, 2013
So, I’m skeptical of the article in the last tweet, unless the managers r long term investors & value players b/c flexible $$ runs in crises Dec 26, 2013
Half & Half: Why Rowing Works http://t.co/h46bRNMLAR A 50-50 mix of stocks & bonds w/rebalancing outperforms 100% stocks in choppy mkts $$ Dec 26, 2013
You Too Can Invest Like Warren Buffett?Maybe http://t.co/FU6MZzsmyj U would have to able to predict moats & not lever up too much $$ #tricky Dec 26, 2013
Investment Strategy Rises From Obscurity http://t.co/O8yIIqjTpZ US Govt loses $7B/yr on MLPs; Article features $IEP $CVR $CVRR $KMP $ETP $$ Dec 26, 2013
Wall Street Landlord Loses Round 1 in Ohio School Tax Fight http://t.co/FgKOrnq283 Maybe school district should pass landlord profits tax $$ Dec 26, 2013
Companies Binge on Share Buybacks http://t.co/JyW5QaRRP4 2% divs +3% buybacks ~5% shareholder yield. Is that enough reward 4 equity risk? $$ Dec 26, 2013
The TSC Streetside Chat: Robert Wilson, Part 2 http://t.co/IzzNlzE776 13 years old but prescient; he died in a suicide yesterday $$ Dec 26, 2013
Financial Scammers Increasingly Target Elderly Americans http://t.co/raIvTr0B9a Tonight’s topic @ Aleph Blog – watch out 4 older friends $$ Dec 26, 2013
How Investigators Untangled the ‘Wolf of Wall Street’ Scandal http://t.co/AJwcx4XONC Penny stocks, overtrading, market manipulation $$ Dec 26, 2013
The Buyback Rally http://t.co/ZkBJsWBpe4 From @eddyelfenbein : 2% dividend yield + 3% buyback yield = 5% total yield on the market $$ Dec 26, 2013
Hunt for Returns Prompts IPO Renaissance as US Leads Way http://t.co/dVURwoYGkn Capital will b deployed unproductively as the rally ends $$ Dec 26, 2013
Secret Handshakes Greet Frat Brothers on Wall Street http://t.co/0t2zWLzL1A Part of what led to the crisis- connections&no smarts $$ $MS $GS Dec 23, 2013
Junk Loans Top ?08 Record as Safeguards Stripped http://t.co/9uZAwYeEaN Amazing how much biz u can do if u just leave aside risk control $$ Dec 23, 2013
The lavish lifestyles of placement agents http://t.co/0NU8cD5yl0 With pension monies, there is almost never a reason to pay commissions $$ Dec 22, 2013

Companies & Industries

Twitter Posts Biggest-Ever Decline After Macquarie Downgrade http://t.co/zopyq0AKeb $TWTR needs 2show real income to validate valuation $$ Dec 28, 2013
Twitter?s Ballooning Market Cap http://t.co/vm1xl8MRwb Every sell is a good sell. At worst, wait for relative strength to shift $TWTR $$ Dec 27, 2013
GM Robo-Glove to Meat Hook Smooth Human-Machine Teamwork http://t.co/G0dbUgbXIc The future of manufacturing: human-robot teams $$ $SPY $TLT Dec 26, 2013
$AMZN Makes Up to Customers After Backup Hits $UPS http://t.co/UUNGKJVJvI It is possible to overload the shipping system; $20 giftcards $$ Dec 26, 2013
Panasonic Debt Goes to First From Worst on Revamp http://t.co/MsBhqKmMee Amazing what can happen when a mgmt team rationalizes businesses $$ Dec 26, 2013
Bug Bites Cut Florida Orange Crop to Lowest in 2 Decades http://t.co/0muOIlUFmI Fortunately Brazil is having a good crop; citrus greening $$ Dec 26, 2013
Reactors on Slow Road to Demolition http://t.co/jd3sbJiMHk Much hangs on creating a long-term site for storing nuclear waste $$ $D $EXC $ETR Dec 26, 2013
Twitter?s Ballooning Market Cap http://t.co/mhik2Xp8Nn The price discounts more than the future, it discounts the hereafter $$ $TWTR $SPY Dec 26, 2013
If Cadillac Keeps Growing Like This, It’ll Be America’s Bestselling Luxury Car http://t.co/YnijUf5SiC We r talking $GM; they will fail $$ Dec 26, 2013
Wind Farms in Maine Stir a Power Struggle http://t.co/lhpmyeD75l I’m sorry, most people know that they don’t own their view, give it up $$ Dec 26, 2013
V.F. Corporation Common Stock Stock Chart http://t.co/5zEipUBEWf; Interesting 2c @Bloomberg & @yahoofinance mess up on $VFC ‘s 4 for 1 split $$ Dec 23, 2013

Financial Sector

Banking Needs a New Regulatory Structure http://t.co/tgx7X4lSrq Rather, end interstate branching, & hand bank regulation back2 the states $$ Dec 28, 2013
Will the Regulatory Screws Loosen in 2014? http://t.co/vxkuqAUCe9 Both sides r dreaming. Neither the regulators or banks r giving up $$ Dec 28, 2013
FDIC Recommendations to Curb Interest Rate Risk http://t.co/uRJw5tTcNS But will they bifurcate repo 2reveal the interest rate risk inside $$ Dec 28, 2013
Examiners-in-Residence Should Be Pulled Out of Megabanks http://t.co/UcrvNoAmzu They will resist pressure better if they work together $$ Dec 26, 2013
How Thomas Curry Is Trying to Redeem the OCC http://t.co/iIbFR7Lqqv U can get a lot done in DC if u don’t care who gets the credit $$ $TLT Dec 26, 2013
Target?s Redcard Proves Less Vulnerable to Data Breach Than Bank Cards http://t.co/GDBN5KHvsK Added security makes the card harder2hack $$ Dec 26, 2013
Angry Bart Takes His Parting Shot http://t.co/Wi5YChLExh How Wall St fights regulation: Direct kill; defund; exemptions; litigate $$ $GS $MS Dec 26, 2013
Why the US Leaves Its Credit-Card System Vulnerable to Fraud http://t.co/QN4egphZ8c Expensive to add more security & change hardware $$ Dec 23, 2013

Politics & Policy

Deaton on US inequality and the Pareto criterion http://t.co/pdhMXzehju Hard to equalize; rich families have more resources 4 their kids $$ Dec 28, 2013
Moguls Rent South Dakota Addresses to Dodge Taxes Forever http://t.co/4IYvqqrr66 Our own tax haven in Black Hills; set up a trust in SD $$ Dec 28, 2013
Government Pulls in Reins On Disability Judges http://t.co/psmXNK7fXZ Disability Trust fund goes bust in 2016, judges urged 2b stricter $$ Dec 28, 2013
Five Lessons of 2013, Guaranteed to Be Forgotten http://t.co/dCXEniOv8U I like # 3. The law of the land is subject to executive action. $$ Dec 26, 2013

Other

The marriage gap: Think again, men http://t.co/T45sDRYDFC People who r single rely on government more, v. married who rely on each other $$ Dec 28, 2013
Two trends I’m watching next year http://t.co/Cx1gKdLaSR Cultural changes may limit HH formation & much capital formation is intangible $$ Dec 28, 2013
Detroit Wins $55M in Concessions From 2 Banks http://t.co/wOEsceACAR Derivatives around munis usually have something crooked w/them $$ $MUB Dec 26, 2013
The LEET Pure PC – A PS4 And Xbox One Killer For Your Entertainment Room http://t.co/3mDBrtTHb0 Pretty cool. Powerful, flexible & stylish $$ Dec 26, 2013
White Chocolate, a Blank Slate for Flavor, Wins Converts http://t.co/WflwRKYYJg A platform to allow other flavors to show their stuff $$ Dec 26, 2013
Colleges Trim Staffing Bloat http://t.co/bRtEMsnfqG Finally the bloat of making college into “country clubs” starts to decline $$ Dec 26, 2013
Most Twitter User Have Few Followers – Study http://t.co/ghZfDqVjUJ U have 2get2 over 2000 followers b4u can b certain that any1 listens $$ Dec 26, 2013
A Pill to Cure Addiction? http://t.co/ORYsOeoNXN “huge amount of progress understanding what drives alcoholism & makes it difficult2stop” $$ Dec 26, 2013
Are Cranberries a Better Way to Long Life? http://t.co/o0YJDa0Uhy The antioxidants in cranberries may prolong your life $$ Dec 26, 2013
Fake Knee Surgery as Good as Real Procedure Study Finds http://t.co/Ucvi50nsqW Result Likely2Fuel Debate Over Common Orthopedic Operation $$ Dec 26, 2013
Study: Eating Nuts in Pregnancy May Lower Child’s Allergy Risk http://t.co/X2IQwj1QfN Something new 4 children 2 blame their mothers over $$ Dec 24, 2013
Almond Spike Hits Germany’s Markets http://t.co/DpEJXxwWir Bad weather in California & Spain & demand in China push prices 2 record highs $$ Dec 23, 2013
Unwanted Memories Erased in Electroconvulsive Therapy Experiment http://t.co/nfo3lDmHDH Great. Another way to remove humanity from people $$ Dec 23, 2013

Wrong, Etc.

Wrong: The Air of Unreality in NSA Reform http://t.co/8psN0iSI1r Being a free country means we have 2 allow 4 possibility of bad events $$ Dec 26, 2013
Disagree:Snowden Says Surveillance Is Worse Than Orwell Envisioned http://t.co/2AEb3tNk0G It may b more pervasive but it is low intensity $$ Dec 26, 2013
Central Error: that inflation & real growth are positively correlated [1970s] http://t.co/yLXk2UnQWu Dec 23, 2013
Wrong: GOP lawmaker: NSA spying in US could have prevented 9/11 http://t.co/cHAnKSOsqY At best, fighting the last war; live free or die $$ Dec 23, 2013

Comments, Retweets & Replies

Commented on The Economist | The 2016 election: Flight of the Huckabees http://t.co/Yh3tym96OO Dec 27, 2013
‘ @SonofGodMovie The 2nd Commandment says it’s wrong to portray God. Your movie makes Jesus a mere man; you can’t portray his divinity $$ Dec 26, 2013
@ReformedBroker Nailed it. Dec 25, 2013
RT @minefornothing: The economy of Cyprus is now also experiencing a major credit crunch http://t.co/uRMUjaUCyf Dec 24, 2013
http://t.co/60MjQwGbNz “It’s the thought that counts, which is worth more than money.” ? David_Merkel http://t.co/Ij9Ttfesye $$ Dec 24, 2013
RT @michaelsantoli: Trust me, in Dec ’87 no one said “Only 1/3 done” RT @CiovaccoCapital: Bull Markets can last a long time – see 82-’00 h? Dec 24, 2013

Sorted Weekly Tweets

Posted on 15 April 2013 by David Merkel

Market Dynamics

The Scary Risks of Safety Bubble Up http://t.co/Tv3tG8TwSH Never forget that dividend stocks r stocks & that assets r risky if overpriced $$ Apr 11, 2013
Cheap Mortgages Are Hiding the Truth About Home Prices http://t.co/bQoXGHWVwO If Mtge rates r artificially low then housing prices r high $$ Apr 11, 2013
Suckers! Tech Execs Selling Stock as Nasdaq Hits High http://t.co/6lPnjk7sxu Fed is the tide; who will b found swimming naked when it ebbs $$ Apr 11, 2013
Banking Business: Complexity Cubed http://t.co/N1itJvjmbx If you want to simplify corporate structure, start simplifying the tax code $$ Apr 11, 2013
The 14% Rate of Corporate Profits Will Eventually Revert 2 Mean, Spoiling the Party http://t.co/6TZXKn29uX Don’t use P/E 2 measure cheap $$ Apr 10, 2013
Most big companies, unless they r simple start to underperform at mkt cap > $100B. Managing the complexity is virtually impossible. $$ Apr 10, 2013
How The Equity Q Ratio Anticipates Stock Market Crashes http://t.co/2LiEi9zFzR & The Q Ratio and Market Valuation http://t.co/9tM6srmneq $$ Apr 10, 2013
Check Here to Tip Taxi Drivers or Save for 401(k) http://t.co/cNg8wSSDmh Stupid efforts at manipulating behavior eventually fail $$ #quitit Apr 10, 2013
Questions to Ask Your Adviser About Fees http://t.co/78kLdmlTGN Main things what do you pay & find out who else is paying him Apr 09, 2013

Europe

Merkel?s No-Nuke Stumble May Erode Re-Election Support http://t.co/B8c0441GDR An unforced error; far better 2 invest in Nuke plant safety $$ Apr 11, 2013
Swedish Banks Make Money Ditching Cash as Krona Goes Virtual http://t.co/pcWOQztjwL It is a mistake to make $$ disappear. Ask Cyprus why $$ Apr 11, 2013
Economic Crisis Hits the Netherlands http://t.co/63VuWJta03 Imagine a nation where 120% LTV loans & trading homes every 3 yrs is common $$ Apr 10, 2013
ECB Survey Challenges Image of Poor Southern Europe http://t.co/ITmwyBr5ng I suspect this study is wrong or measuring the wrong thing $$ Apr 10, 2013
Why Thatcher Wouldn?t Succeed in Our ?Lean In? Culture http://t.co/CKpMa4GYov U have to + in the concept of killing sacred cows w/courage $$ Apr 10, 2013
Portugal austerity plan frays http://t.co/ukBVsCYNeE Top court struck down wage cuts and lower pensions for state workers; what now, Troika? Apr 09, 2013
Soros: Europe faces ‘slow death’ Japan is trying to escape http://t.co/SEtqiNEBBU Seems 2 argue for massive QE, but no sign that QE works Apr 08, 2013
Why Rescue Fragile Banks? Outsource Them Instead http://t.co/ixYB95jHug Exile TBTF banks to the E-Zone; let them pay 4 the bailouts Apr 08, 2013
Europe Builds Own Chapter 11 http://t.co/kHrgFmMHc2 Moves closer to the US, but still is not as flexible in rehabilitating corporations Apr 07, 2013

Credit Markets

Foreclosures Jump in New York as US Sees Decline: Mortgages http://t.co/oaz5prhQVA Judicial f/c states catch up w/the rest of the US $$ Apr 11, 2013
Pimco’s Gross Turns Positive on 10-Year Treasurys http://t.co/8uBxkzWxgK Guessing what central banks will want 2 buy, mug’s game Apr 10, 2013
Bank Investors Press Breakups to Add Value, Burnell Says http://t.co/DQefb93MB5 Biggest banks r worth more broken up; can’t manage well $$ Apr 10, 2013
Banks rethink the branch, but will it work? http://t.co/JwDHF22Re4 This article is just another way 2say there r2 many banks & branches $$ Apr 10, 2013
The leverage story banks want to hide http://t.co/yebYHRCxn5 To avoid bank insolvency focus on liquidity of assets/liabs in stressed times Apr 09, 2013
Contagion Starts Small http://t.co/0PeQhSd6Qb Small->large requires domino debt failures, needing liquidity for illiquid, or safety mismatch Apr 09, 2013
Time bomb to the next crash is ticking as debt sales surge http://t.co/zn41h2eJ8E Investors requiring safety mismatch buying unsafe debt Apr 09, 2013
Where Bank Regulators Go to Get Rich http://t.co/hGnGn3hpwt An astounding array of former regulators aiding “end arounds” on regulation Apr 08, 2013

Rest of the World

Ghost of Suharto Seen in Boomtowns Leading Indonesia Growth http://t.co/nYsu2yuN5L Indonesia often booms near end of global econ cycle $$ Apr 11, 2013
Low bond yields luring global central banks into equities: survey http://t.co/HoeVX2qHbY This is so unorthodox & cronyist it beggars belief Apr 09, 2013
Why Capitalism Won?t Change North Korea?s Regime http://t.co/dSxzrFaCgz Current leaders will lose out if people learn how badly they live $$ Apr 10, 2013
Clashes Highlight Egyptian Divide http://t.co/oaMtZkIbjC Hippocratic Oath applies to diplomacy w/”regime change:” “First do no harm!” Apr 08, 2013
Is the Global Economy Slowly Falling Apart? http://t.co/zMQx2ih1vE Good list of some of the major problems; overstated title/weak conclusion Apr 08, 2013

China

A Day in the Life of a Beijing ‘Black Guard’ http://t.co/P8ElsIJPMM Secretive groups stop Chinese citizens complaining about local govts $$ Apr 11, 2013
China Exports Miss Forecasts as ?Absurd? Data Probed http://t.co/Ycch2uQu04 Will b interesting 2c how people revise views on Chinese data $$ Apr 10, 2013
In China, off-balance-sheet lending risks lurk in the shadows http://t.co/Vg4tBss9gV Tough Q: how do the shadow banks & municipalities fund? Apr 09, 2013
New Bird Flu Seen Having Some Markers of Airborne Killer http://t.co/8QrkkXKaY5 No sign of mammal-to-mammal transmission, would not worry Apr 07, 2013
China Says It Can Manage H7N9 Virus as Infections Rise http://t.co/mfgn75pOIY No human-to-human transmission yet, SARS-like most likely Apr 08, 2013

Japan

Japanese Rush to Sell Gold as Price in Yen Jumps http://t.co/Hd8ZIANSrE Selling valuable Gold assumes that current devaluation fails $$ #FTL Apr 10, 2013
Japan PM Abe aide: BOJ has further easing options http://t.co/JB7Ea2qC0d Dangerous loonies in Japan lead world devaluation $$ #currencywars Apr 10, 2013
The Japanese Abenomics Experiment: A Fukushima Kind of Result! http://t.co/c5hj2l8tPL Waiting for the BANG moment when rates rise, can’t pay Apr 09, 2013
Japan: http://t.co/koNpj8ZmO0 & http://t.co/bQfnsDTUM3 & http://t.co/eAsUZqUkcX Starting twist, 99 yen = $$ & Current acct surplus Apr 08, 2013

US Politics & Policy

Options Few as US Leaders Told Saturday Mail Can?t End http://t.co/317ANktRxp Raise all postage prices, & double 4 junk mail $$ Apr 11, 2013
Boomers Push Doctor-Assisted Dying in End-of-Life Revolt http://t.co/kTfahFMOwh It’s almost like the Boomers want to corrupt everything $$ Apr 11, 2013
Medical School at $278,000 Means Even Bernanke Son Has Debt http://t.co/VrYkFx2Lcr Bad idea 2 invest where rules can b changed against u $$ Apr 11, 2013
Obama seeks to reduce US subsidy of crop insurance http://t.co/LfxfYeC63n It is time 2 end ALL Ag subsidies; just goes 2 Big Agriculture $$ Apr 10, 2013
FOMC Minutes Show Several Members Saw QE Over by Year-End http://t.co/xkcGOm2ly1 Don’t think so, but if true, lighten up on risk assets $$ Apr 10, 2013
Andy Kessler: The Pension Rate-of-Return Fantasy http://t.co/MzvTrYHBFh Excellent piece: bad pension assumptions; will lead2 benefit cuts $$ Apr 10, 2013
Interview with Harvard Economist Carmen Reinhart on Financial Repression http://t.co/XkB8Mf5R1Z Sane words amid macroeconomic snake oil $$ Apr 10, 2013
USDA asks White House to approve sugar-for-ethanol program http://t.co/g2Ldt5ge3s Utter corruption, $$ in the pockets of the US Sugar lobby Apr 09, 2013
A Primer for Understanding Obama’s Budget http://t.co/O9DgmLFQQD This is y Federal Debt always goes up by more than the planned deficit Apr 09, 2013
Evangelicals Push Immigration Path http://t.co/KCaNhFnhGd Governments limit immigration 4 selfish reasons; migrants come b/c desperation Apr 09, 2013
U.S. Plans New Laser Weapon for Persian Gulf http://t.co/ZdzZZTwSs4 Don’t get too excited; it only works at short range #studyphysics Apr 09, 2013
O?Malley Wins on Guns, Taxes Seen as 2016 Resume-Packing http://t.co/74fFr0oKkf Raided liability funds 2 finance current spending #phony Apr 09, 2013
How Obamacare Will Distort the Health-Care Market http://t.co/o0yHYcgESu This was easy2c in advance; ability to adjust premiums very limited Apr 08, 2013
Rhode Island’s Scary State Treasurer http://t.co/ib56cMDhWI Raimondo fires back after Forbes contributor attacks her http://t.co/qHeAUIw7P7 Apr 08, 2013
Workers Stuck in Disability Stunt Economic Recovery http://t.co/G0gqpP8pLM Many of these people should be called unemployed, not disabled Apr 08, 2013
Chicago Mayor’s Pension Conundrum http://t.co/iE5grwyd14 Tip of the iceberg; this is going on in different ways in all US states Apr 08, 2013

Wrong

Wrong: This Underused Metric Points To Big-Name Bargains http://t.co/MpAgxDmzsN 4 of 8 “bargains” r insurers; no way 2calc free cash flow $$ Apr 10, 2013
Wrong: Kill the 30-Yr Mortgage http://t.co/XKm9fRJXaR You don’t finance long-term assets like homes w/short-term debt. Badly thought-out $$ Apr 10, 2013
A better long-term solution to make the residential RE mkts more stable would be to ban mortgage insurance & second lien mortgages (HEL) $$ Apr 10, 2013
Wrong: Stalking the Silent Financial Killer in Our Midst http://t.co/HVOm4GCjHM Please kill this while little: LTC not underwritable $$ Apr 10, 2013

Other

Mmm, the Flavors of Fermentation http://t.co/i7sNTIixK4 Interesting article that points out the many ways we use fermentation 4 flavoring $$ Apr 11, 2013
Gates Helps Australia?s Richest Man in Bid to End Slavery http://t.co/UMUOLJ8nvT Noble goal 2 free those who r essentially kidnapped $$ Apr 11, 2013
How Thatcher Saved Britain http://t.co/Re3BWfPvPx She did not give in 2 the Unions, nor Argentina, nor USSR, nor the media; she stood alone Apr 10, 2013
Wood: the fuel of the future http://t.co/QZC54Ud6gy Having lived in a town where wood was the most common winter heat source, air was dirty Apr 09, 2013
Tour Data Suggest Tiger Woods Owes His Comeback to One Basic Skill?Sinking Putts http://t.co/WSOTrhn0iU Drive 4 show; Putt 4 dough. Apr 09, 2013
Label Decoder | Protein Additives http://t.co/HAx2Ta4UEu I think we are creating more health problems by eating processed foods Apr 09, 2013
10 Insanely Overpaid Nonprofit Execs http://t.co/gH0Fa7EszO Caught btw managing a large enterprise & charitable mission; fight each other Apr 08, 2013
The Golf Shot Heard Round the Academic World http://t.co/EeFl5NFoMz Multiculturalism that cannot tolerate the ideas of conservatives Apr 07, 2013

Insurance

As an aside, SCOR’s balance sheet is more levered than it seems. Reminds me a little of Scottish Re (spit, spit) RGA’s looks solid FD:+ $RGA Apr 11, 2013
RGA, Scor in final race for Generali US unit-sources http://t.co/MUbVuvMpZv SCOR aggressive, will likely overpay | FD: + $RGA $$ Apr 11, 2013
Ace?s Greenberg Says Takeover Spree Beats Share Buybacks http://t.co/lwYLCLUg45 Seems like Evan is trying 2 create a mini- $AIG $$ $ACE Apr 11, 2013
Record levels for global reinsurer capital http://t.co/y70eA0H6Xz Listen 2 1Q conf calls, listen 4 pricing, divs, buybacks. EZ $$ been made Apr 10, 2013
Metlife on Offensive Against Systemic Tag http://t.co/NgBhd6I1p7 Life Ins cos shouldn’t b SIFIs unless they have short-dated funding $$ $MET Apr 10, 2013
Insurers see promise in pay-for-performance health plans http://t.co/Hrpy0KEk4M Skeptical: does not remove incentives 4 overuse by doctors Apr 09, 2013

Banks

Banks Are Not as Bad as You Think: Pettis http://t.co/rPWAZy1GbD Afraid I have to disagree, bad banks set back growth in 1870s & 1930s $$ Apr 11, 2013
Crapo Says He Opposes Setting Capital Standards With Legislation http://t.co/SshephsE7y Far better2focus on liquidity analyses under stress Apr 09, 2013

Technology

Regulators Feeling ‘Social’ Pressure http://t.co/sylIMHMQ65 In Age of Twitter, Old Rules That Don’t Address New Media Pose Challenges $$ Apr 11, 2013
Drug Conjugates: ‘Guided Missiles’ to Treat Cancer http://t.co/eA3EatBo7M Drug conjugates attack tumor cells, rather than just any cells $$ Apr 10, 2013
The Future Of Mobile [SLIDE DECK] http://t.co/iLu3Cr3uQ7 Long, but data-packed & a breezy read. cc @hblodget thanks, I learned some stuff Apr 09, 2013
Sponsors Now Pay for Online Articles, Not Just Ads http://t.co/wDOd0t57nd I get ~10/week of these at my blog. Have never taken any of them. Apr 09, 2013
We Just Took A Big Step Toward Having Super High-Definition Desktop Displays http://t.co/VL5LYGWACt So fine u won’t notice the pixels Apr 09, 2013
This Simple App Could Put E-Books On Millions Of Phones In The Third World http://t.co/wOFojOf6N2 Software & Cheap phones promote literacy Apr 09, 2013
Hypothermia Cure: Cooling Infants to Battle Brain Damage http://t.co/EG0o8qRu1H Interesting & Odd technology may benefit 0.1%+ of births Apr 09, 2013

US Economy

Murdoch-Diller Showdown Threatens to Make Fox Cable-Only http://t.co/pcIriVUDYw Endgame for the separation of content & transmission $$ Apr 11, 2013
North Dakota Undergoes Refining Renaissance http://t.co/UTFF2277sz U know things r hot when a new crude refinery is built from scratch $$ Apr 11, 2013
You Got In; Now, Please Come http://t.co/GWCQyqnIGV Speaks 2 the overcapacity problem in colleges; high fixed costs r driving pleading $$ Apr 10, 2013
?Everyone believes that, given where we are with interest rates, the only eventual direction is up” I c this said daily maybe more $$ Apr 10, 2013
US Transports Economic Pulse : Trucks — Boats – Planes – Trains http://t.co/0kriEgfKnt Two up, two down — all in all, we muddle along Apr 09, 2013
I am become Ron Johnson, Destroyer of Worlds http://t.co/YUxa84LUKT @reformedbroker sets up future biz school case study. I + my $0.02 $JCP Apr 09, 2013

Replies, Comments & Retweets

Commented on StockTwits: Not really. At present I own the following for clients & me: $NWLI $RGA $AIZ $SFG $AFL &… http://t.co/q0v0UYfVRp Apr 11, 2013
Ouch RT @ReformedBroker: Gundlach: Forget Fed Minutes, QE is not stopping anytime soon, talk is just talk. Yellen’s down to do this til 2025 Apr 11, 2013
RT @ReformedBroker: “Japan is important to watch, it’s a pace car for stock market peaks, weird policy responses and currency debasement … Apr 11, 2013
I think so too $$ RT @ReformedBroker: Gundlach: “Emerging market corporate debt is THE best area of investment grade fixed income right now” Apr 11, 2013
@fundmyfund If “Everyone Ought to be Rich” then who will deliver the pizzas? 😉 Apr 11, 2013
@LaurenLaCapra Another idea: http://t.co/Gw1UKjS66Q DB available 4 pay: http://t.co/L2kLOZUlr0 League Tables cost $6 http://t.co/EG0FGgb6pu Apr 11, 2013
@LaurenLaCapra Thy this http://t.co/L9ZkQztxzD and if that’s not enough try this Google query: http://t.co/mO3CEmQwiM Take care Apr 11, 2013
‘@PensionDialog 2003 vs now, interest rates were higher & valuations 4 risk assets lower. Pension returns will b lower over next 10 years $$ Apr 10, 2013
@ritwik_priya Saw that, though housing values have fallen across much of Europe, particularly where mortgage debt is high Apr 10, 2013
@PensionDialog That’s backward looking, while interest rates are forward looking. In 2003, 10Y Tsy yields were more than 2% higher than now Apr 10, 2013
‘@EMostaque To some degree, others will let funding levels stay low (& hope), some will pay more $$ , some will cut benefits where possible Apr 10, 2013
@IraApfel Sadly, proposal will reduce assets in MMFs, which r usually more stable than banks in a crisis. Better: http://t.co/nC8D4TetbQ $$ Apr 10, 2013
Yes RT @asymptotix: So, if anyone must leave, it should be Germany (and Finland), not Italy, Greece, Ireland, Portugal or Spain.. Apr 09, 2013
@jarrodwilcox A free trade zone in Europe is a good thing & might prevent war; a common currency, the way it is going could start one Apr 09, 2013
@jarrodwilcox But I think WW 3 is a boogeyman. Sandwiched between Russia/USSR & the US, that big of a war wouldn’t be likely 2 happen. Apr 09, 2013
Probably the latest peak blossom since I’ve been here RT @EddyElfenbein: Cherry blossoms in DC http://t.co/IG9XiDIYrc Apr 09, 2013
RT @jarrodwilcox: @AlephBlog Euro looks like a disaster until you remember WWII. Political will to overcome divisions may still be will … Apr 09, 2013
Those are succinct insights in why the Euro would fail. There were other saying similar things at the time… http://t.co/7B0cpWcIhO Apr 09, 2013
RT @AndreCimini: @AlephBlog Yes, absolutely. Here’s a couple of very interesting articles on Canada: 1) http://t.co/HEXt7c8HKH 2) htt … Apr 09, 2013
@AndreCimini Cam Hui is a good guy; I usually agree w/him. Second article makes some very good points; I learned from it, tho I knew some Apr 09, 2013
@AndreCimini It was an interesting article. Interesting to contrast US/States v Canada/Provinces. Provinces do more; linked tighter2Canada Apr 09, 2013
RT @AndreCimini: @AlephBlog Here’s why CDN gov’t debt deceiving; add in provincial debt and total debt is around 86% of GDP. http://t.c … Apr 09, 2013
@AndreCimini Thanks, I had forgotten that. Apr 09, 2013
1 straw blowing in the wind, some go other ways RT @ReformedBroker: Forward Earnings Estimates Set a New Record High http://t.co/4OxyGoYQcX Apr 08, 2013
@groditi Also factor in the drag from pension liabilities, reductions from spending rules from lower interest rates; I think it washes Apr 08, 2013

FWIW

My week on twitter: 34 retweets received, 2 new listings, 61 new followers, 34 mentions. Via: http://t.co/cPSEMLXpb8 Apr 11, 2013

Six Years at the Aleph Blog!

Posted on 28 February 20131 March 2013 by David Merkel

Thanks to all of my readers, whether you read me via RSS, e-mail, twitter, or natively at the website.? But I have a favor to ask… if you read me elsewhere, drop by the site every now and then, because not all of my commentary gets republished by those that reprint my work.? Also, not that we get a ton of comments at Aleph Blog, but I appreciate the quality of almost all of the comments we get here, even if I may disagree with some of them.? If you read me elsewhere and want to comment, come to Aleph Blog and do so, or, just e-mail me.

Now for a few housekeeping items.? 1) People sometimes ask me for books to help explain insurance stocks, and in the past I have pointed to my own writings, especially this one.? My flavors of insurance series helps also.? I’ve also pointed to works from the Society of Actuaries, Casualty Actuarial Society, LOMA, CPCU, and others.? But now, I think this piece could be useful to some readers.? It’s relatively comprehensive, and not that long.? It’s not the way I do it, but it is well thought out.? It suffers from the same problem as one using the models of Aswath Damodaran; it’s too detailed.? I can’t think of anyone that uses such a model — it is overkill.? But maybe readers could what I would do with such a model: boil it down into something simpler.

That is what I am trying to do with my current series on analyzing insurance stocks.? There are three or so more parts left to write, and I should get them out in coming months.

2) Some people ask me how they can read the articles in my Major Article List, and I wish I could read them too.? Trouble is, TheStreet.com has lost them.? They are there, maybe, somewhere in their computer systems, but since they changed the way that they named files, the links to most pre-2008 posts has been lost.

Now, if any of you think you have a way to find those posts, let me know.? There are pieces on that list that are gold, silver, and bronze.? I would at least like to get the gold ones back.

3) Sometime soon, I will create a small website for my business.? It will explain what I do for a living for those that might want me to manage money for them.? I will not link to it here; I try to keep a separation between the blog and my business.

4) I write about a lot of topics, and I tend to go in streaks on given topics.? It’s not what I intended when I started this, but I can understand why I have readers follow me and leave me.? My blog is consistent over a long period, but over intermediate periods it concentrates on one area, then another.

5) I’m not out of things to write about.? Here’s what I am planning for the future:

Completion of my work on a new asset pricing model
Completion of my “On Insurance Investing” series
More posts on the idiocy of US & Global macroeconomic policy
Buffett’s Shareholder Letter and Annual Report.? (Note: the letter gets more press, but the Annual Report has more substance.)
Commentary on new ideas from the CFA Institute… some good, some bad…
More commentary on investments that rip people off.
And more, I have a long list of ideas to write about, and many book reviews to publish

6) I would have never expected? it, but February 2013 was my highest readership level at the blog directly, despite the short month.? Thanks to all who read what I wrote.? I try to write good stuff; I do not aim to be controversial, though I know that some of my views are controversial.

7) When I started this six years ago, I would have never dreamed how much I would end up writing.? I thought I wrote a lot for RealMoney.? If anything, I have written four times as much per unit time, which means that as prolific as I was at RealMoney, I have written 4-10x as much here.? And it all started with an extended conversation with readers on Jim Cramer’s “blog,” which led me to do what I had resisted for two years — start my own blog.

As I have developed this blog, I now earn more than I did writing for RealMoney.? That’s not much, but every little bit helps.

8 ) You can’t believe how many people write me asking to do a guest post at my blog.? It happens about 15 times per month.? Then there are the scummy advertisers, who don’t want their advertisements to be labeled as such.? I have a strict policy that all advertising should be identified as such.? Why?? Because I never want to scam my readers.? When you come here, I want you to be comfortable that I am saying what I say for reasons of truth, not profit.? Profit is incidental here.? Truth is paramount.? I know how I could make this place more profitable, and I reject it because I would compromise my message.

9) I began with thanks to readers; I end there as well.? Truth, I treasure all of the emails giving me praise, but my internal response is “Wow, you’ve all been so great to me over the years.? It really gets to me, you know.? I hope I always make you proud.? That’s all.”? (What the Flash said to the citizens of Center City… yeah I know, a little dumb, but you had to see it.? Start it at 8 minutes.)

My main focus is on ethics in investing, and secondarily explaining how things work.? I hate seeing people ripped off by investment firms, or their dishonest governments.

I have no idea how long I will continue this blog, but I would love to do it as long as I live.

Sincerely your friend,

David