Picture Credit: David Merkel, with an assist from the YouImagine AI image generator || Twitter bird happily surfs

Real Estate

• NYC’s biggest-ever office-to-housing conversion is opening in the Financial District at prices ranging from just over $1 million for a studio to $12.75 million for a four-bedroom spread https://t.co/sXCwHGAgC3  Nice, if you can afford it. Feb 24, 2023
• Home lenders are looking for ways to make 6% mortgages more appealing https://t.co/fOq3ulMZm0  Don’t do a buydown of the first-year interest rate. If you can’t afford the house on a level rate basis, don’t buy the house. What will you do when the rate rises? Feb 24, 2023
• That 3% Mortgage Just Keeps Getting Better https://t.co/mFcum8UPo1  Rather than prepay, invest prepayment money in higher-yielding safe bonds. If rates fall such it doesn’t work anymore, take the appreciated bonds and do a big prepayment Feb 24, 2023
• The US housing market lost the most value since 2008 https://t.co/qJYXFrPWp7  Has the FOMC forgotten the lessons of the Great Financial Crisis? Yes! Same errors that Bernanke committed… same certainty Feb 23, 2023
• A growing number of big office landlords are defaulting on their loans, reflecting high interest rates and the popularity of remote and hybrid work policies https://t.co/5LJIGtxPrn  Slow motion train wreck Feb 22, 2023
• Some people buying their first home will see their fees cut by about $800 a year under a new program that aims to address soaring borrowing costs https://t.co/ABVJpJfqj1  Make FHA loans more attractive by reducing the rate charged on mortgage insurance by 0.3% Feb 22, 2023
• A couple near Chicago sees investing in real estate as a way to boost their wealth. A financial pro offers advice https://t.co/lVFWXKktkX  No. Real estate is a business. Consider the value of your time, as you say you want to start a family. Buy shares in equity REITs instead. Feb 22, 2023
• Pyramid’s Crossgates Mall loans lurch toward default https://t.co/Xx2tiOqSR6  “Like most large malls across the U.S., the Crossgates business model has been crushed by the pandemic and changing shopping trends” Feb 21, 2023
• A growing number of big office landlords are defaulting on their loans, reflecting high interest rates and the popularity of remote and hybrid work policies https://t.co/5LJIGtxPrn  Office properties & lower quality retail will show increasing defaults Feb 21, 2023
• Europe’s property sector is springing cash calls and dividend cuts on shareholders. But investors in the financially stronger firms aren’t all smiles @hughes_chris https://t.co/nxWXx4cVWw  Effect is highest in Sweden, lowest in the UK Feb 21, 2023
• A California-based real-estate agent was arranging a deposit when she realized she was getting scammed. “My guy was ready to wire $70,000 to this escrow. Thank God he didn’t.” https://t.co/IRvY6Ap0fW  Bizarre real estate stories where crime was a factor. Feb 20, 2023

Odds & Ends

• Starbucks launches a range of olive oil-infused drinks in Italy to boost market share in a country where it’s struggled to gain a foothold https://t.co/qsDrYX3fHr  That will work? Feb 23, 2023
• Is tort reform in the Sunshine State even possible? https://t.co/xyLdMxeue8  Unlikely. By the state gov’t being too interventionist in market issues and yet allowing for too many tort claims to go to trial, the P&C insurance markets are broken in Florida Feb 23, 2023
• @michaelxpettis I said something like this yesterday, but not as well. Thanks. Feb 23, 2023
• The Securities and Exchange Commission is investigating whether investor-protection laws were violated as stablecoins were issued https://t.co/PAF7eJnwfF  They are akin to deposit accounts in banking, and should be regulated that way. This one doesn’t belong to the SEC. Feb 23, 2023
• Social Security Myths That Won’t Die https://t.co/BFGmcGq9GE  Mostly correct, though there are some nuances that he misses. Worth a read. Feb 22, 2023
• The pandemic wiped out decades of gains by US students. Many parents are in the dark about how far their own kids must go to recover https://t.co/MKkoW2YSuK  One big error of the COVID era was not requiring an additional year of school for students, to make up for what they missed Feb 22, 2023
• Major brokerages and news media feature technical analysis https://t.co/D6REmikOvx  Pictures grab people, because they like patterns, whether intellectually defensible or not. Feb 21, 2023
• My tweet “Clouds moving rapidly west, with strong surface winds out of the south” s/b “Clouds moving rapidly east, with strong surface winds out of the south” But what a day, now it is “Clouds moving rapidly east, with strong surface winds out of the north” Feb 21, 2023
• The Perfect Retirement Investment Nobody Wants https://t.co/27PPPYbt3k  Life insurers have gotten badly burned on LTC. Many annuity companies don’t want to offer LTC. Agents don’t like Immediate Annuities because they never get another commission from the policyholder Feb 21, 2023
• Asda is rationing sales of fruit and vegetables after widespread shortages. Here’s what UK shoppers need to know https://t.co/x7ITKaOtuU  Effects of a bad growing season in N. Africa Feb 21, 2023
• Plains, Ga., has about 550 residents—including Jimmy Carter, who is receiving home hospice care. “When I heard the news my heart hurt to know that he was going through this.” https://t.co/3Q5eSEDV6s  Liberal Baptist became a most improbable President of the US Feb 20, 2023

Non-US

• Soaring onion prices are forcing governments to protect supplies https://t.co/QpkUL7EyZN  If you want to see riots, have poor people unable to afford moderately good food. Feb 25, 2023
• New Zealand’s recent cyclone shows “the importance of physical cash still in society today,” RBNZ Assistant Governor Karen Silk says https://t.co/lxfSOZh3Th  You can’t have a society without physical currency Feb 25, 2023
• How India is shaking off its shackles and emerging as an economic power https://t.co/E7WETLSov6  This is wishful thinking. Cultures change slowly, and the Indian government is still pretty corrupt. Feb 23, 2023
• Iraq is planning to pay for private-sector imports from China in yuan, injecting foreign currency into the financial system to help ease pressure on the dinar https://t.co/IIQsGpJNbI  Will do little for the Iraq economy Feb 22, 2023
• Iran introduces fresh restrictions on foreign currency sales after a rush on euros and dollars weakened the rial to an all-time low of 500,000 against the greenback https://t.co/BCAg4mi3Om  Corruption, bad policy and sanctions create this hyperflation Feb 21, 2023
• Kazakhstan says local brokerages that snapped up Russian sovereign debt last year did so largely on behalf of clients who were Kazakh and Russian residents https://t.co/he4RkZaErR  Own Russian sovereign debt? There is liquidity in Kazakhstan. Feb 21, 2023
• Russian exports of discounted crude and fuel oil to China jumped to record levels as the re-opening of the world’s biggest energy importer gathers pace https://t.co/j6iiSMmeFT  The discounts to Brent for Urals ($13) and Espo ($8) Crude are smaller than what I have read in the past Feb 21, 2023
• Terrorists were blamed when explosives were found in an SUV parked outside the home of Mumbai’s richest man. The truth was far more alarming. https://t.co/ckyNmd6as8  Long article on entrenched police/political corruption. Another reason India will not develop Feb 21, 2023
• Japan promises radical spending to boost its birthrate. Will it work? https://t.co/judPpbjI0z  It probably won’t, but perhaps governments could reduce old-age social insurance payments to those who don’t raise children, making the systems solvent #thepunishmentfitsthecrime Feb 20, 2023

Portfolio Management

• Wagering on the bounce in stocks was always a long shot. Now it’s looking like a sucker’s bet https://t.co/Uy9U89wJBF  The problem is greater for growth stocks Feb 25, 2023
• “There’s a risk that the macro economy delivers results that markets are still woefully unprepared for,” Billionaire quant investor Cliff Asness warned https://t.co/1yPXSxPr4f  “the valuation gap between the priciest and cheapest stocks is still at the 94th percentile” #agree Feb 23, 2023
• The fixed-income market has become too bearish, too quickly https://t.co/4CyBDZevFM  Hard to say. There seems to be more demand to borrow on the long end of late. They may be wrong, but the long end of the bond market is rarely irrational. Feb 22, 2023
• Rajiv Jain is the opposite of Ark CEO Cathie Wood. He’s quietly built a stock-picking juggernaut by investing in old-school, out-of-favor companies https://t.co/JEYvyUM7WD  Difficult to get so many decisions right consistently. Feb 22, 2023
• The DJIA’s shake-up in the summer of 2020 dumped Exxon Mobil, Pfizer and Raytheon just as it was their turn to thrive https://t.co/QAnLl0umqv  The short-run effect of index inclusion/deletion is up/down, but the 2020 DJIA changes had the opposite performance over the next 2.6 yrs Feb 21, 2023
• Rising interest rates boosted corporate pensions last year. This year rising rates may boost costs. https://t.co/YctKh06Uxi  It doesn’t have to work this way. You can invest to immunize your pension costs against changes in interest rates. It’s not rocket science. Feb 20, 2023
• Biden’s SEC is coming for your investment account https://t.co/kTUj8hg9nQ  Actually, Gensler’s proposal would level the playing field, and create a fairer market structure for smaller investors. Why we have such a fragmented market system today astounds me. Feb 18, 2023

Economics

• “It’s everywhere.” A bird flu outbreak has led to the death of nearly 60 million farm-raised chickens, turkeys and ducks in the U.S. Farmers fear the virus is here to stay. https://t.co/3v2NvG5N5u  A greater proportion of laying hens have died vs chickens generally in the US. Feb 23, 2023
• Which explains why egg prices have risen so much more than chicken meat prices… https://t.co/eEyGIkUTVG  Feb 23, 2023
• The world’s largest trial of the four-day work week finds a majority of companies are making the shift https://t.co/hnAky9goEQ  Color me dubious Feb 21, 2023
• The rise of kitchen table economics https://t.co/Bo6nBxqnZB  Yes, contracts are too complex and construe everything in favor of the large corporations, but you don’t have to sign them unless you are getting enough value. Feb 21, 2023
• Letter: The economic conditions that make wars more likely https://t.co/NfubUHNC8R  “A plan is needed to regulate current account imbalances, which draws on John Maynard Keynes’s project for an international clearing union.” You really want near-fixed exchange rates? Feb 21, 2023
• Presidents are tweeting about it, and it’s featuring in election campaigns: Here’s how the world fertilizer crisis became political https://t.co/in7c4UVLgO  This is over shortages of potash & phosphate. Also trade issues stemming from a few wars and their related sanctions Feb 21, 2023

US Politics

• Illinois Governor J.B. Pritzker said he’s willing to spend what it takes to keep Ron DeSantis & Donald Trump out of the White House https://t.co/V8cFk679HD  “Taking your eye off the ball.” I’ve done that. Neglects core responsibilities as governor to criticize national politicians Feb 25, 2023
• White House is considering two economists who in the Obama administration—Karen Dynan and Janice Eberly—as candidates to become the Federal Reserve’s vice chair https://t.co/IbgMLjjkiP  Please, not an economist. No academics. No former Fed or government lackeys. Feb 23, 2023
• The Defense Department and Microsoft are investigating an error that exposed military emails, highlighting the security risk of moving sensitive Pentagon data to the cloud https://t.co/w2YPXK9VCM  Happens to the best of us, and the government as well. Feb 23, 2023
• Biden’s Social Security Trap by @wjmcgurn https://t.co/o2c5ZSJQrV  There is no political will to solve OASDHI (Social Security). Thus in 2032, we will face a scenario like this: https://t.co/BXY54hjsoB  https://t.co/8YWKsnmZvX  Feb 21, 2023
• The PCAOB says it doesn’t have jurisdiction to monitor audits of privately held crypto firms. Some say there are ways to strengthen the board’s crypto oversight https://t.co/GUoKyWjYY6  Until you can say it is a deposit, commodity, or security, you don’t know how to regulate/audit Feb 21, 2023

Technology

• Germ-zapping lasers can help cut down on infections after surgery https://t.co/979qq9KSSu  Sounds promising. Feb 25, 2023
• How Rust went from a side project to the world’s most-loved programming language https://t.co/YvAvVy4H0K  Long read, but fascinating. Memory flaws are one of the biggest reasons for software crashes, and Rust eliminates that problem. Feb 24, 2023
• Apple is making major progress on a no-prick blood glucose monitoring system for its smartwatch https://t.co/fzN4nDBa1Q  Big stuff, if it works, which has been elusive so far Feb 23, 2023
• Ozempic’s popularity among people looking to lose weight has limited supplies for diabetes patients who depend on the drug to control their blood sugar https://t.co/2cFHjgLzjK  What is nice for those who want to lose weight is necessary for diabetics Feb 22, 2023
• Removing carbon from the air will be a key step in fighting climate change. But it’s plagued by problems https://t.co/IhFxHwvqYV  Interesting, if it genuinely does what they say it does Feb 20, 2023

China

• Xi Jinping is set to have more control in decisions over the financial system, with the likely revival of a powerful committee and a possible appointment of a key ally in the central bank https://t.co/eu2p8z2dpx  What good or bad comes from this is a mystery – ill-minded tinkering Feb 25, 2023
• Empty shipping containers pile up at packed Chinese port as orders dwindle https://t.co/3f8GPQ1By3  So much for the Chinese economic recovery Feb 21, 2023
• Thousands of Chinese Retirees Protest Government Cuts to Benefits https://t.co/8JmxGfyENx  Social Insurance plans fail when the ratio of workers to beneficiaries gets too low. Feb 21, 2023
• Any gains China might have anticipated from its embrace of Russia are hard to spot. But the costs are clear & growing https://t.co/F8wNl8ruWU  “Xi is trapped in a strategic dilemma, at the mercy of events. His erstwhile masterstroke is looking more and more like a losing bet.” Feb 21, 2023
• Pakistan’s creditors are demanding China take as big a haircut as them in any sovereign debt restructuring, perhaps bigger. It should @mihirssharma https://t.co/2wnXDsT4nW  If corruption is not ended, debt forgiveness won’t do much Feb 20, 2023

Companies

• Carvana’s disappointing quarterly results sent the online used-car dealer’s stock into freefall and triggered a string of warnings from analysts https://t.co/Pe6xrZjMBT  So much for showmanship $CVNA Feb 25, 2023
• BYD Most Likely Faked Its 2022 Sales Numbers, Real Ones Could Be Much Lower https://t.co/hpjoersddF  I have no idea, but if true, wow. Feb 24, 2023
• National Public Radio will reduce its staff by 10% after projecting a $30 million revenue shortfall for the coming year https://t.co/shgKfke3Xb  In the end, it is just a business, albeit a nonprofit. Good nonprofits care for their people and don’t overexpand during booms https://t.co/Tlzm6Habx1  Feb 23, 2023
• The EV question for auto executives is: How quickly should they make the shift to electric vehicles? https://t.co/8MaVClqMLB  The danger is in moving too fast on this. Let unsubsidized consumers decide. Feb 22, 2023
• Almost a decade ago, Elon Musk envisioned a passenger transit that moved at nearly the speed of sound. Where is it? https://t.co/rhGkIWdDSn  Hyperloop: Boring fantasy, not technology Feb 21, 2023

South Africa

• Eskom’s chairman says outgoing CEO behaved “reprehensibly” when he made accusations of theft and corruption within the state-owned electricity company https://t.co/dupwUx6T1U  Telling the truth is “reprehensible.” Coal thieves also a problem. Get ready for more blackouts. Feb 23, 2023
• South Africa’s rand rallies after the budget unveiled details of plans to deal with debt at the ailing state-run power utility Eskom https://t.co/TX3kvaN8PN  Unless you deal with corruption and crime surrounding Eskom, this is all for naught Feb 22, 2023
• South Africa’s finance minister will probably spend about five minutes of his budget speech Wednesday on Eskom — a tense 300 seconds for bondholders https://t.co/SBswUTR3G4  If you can’t end the corruption & sabotage regarding Eskom, the debt transfer won’t help South Africa Feb 21, 2023

Ukraine War

• As NATO’s military commander a decade ago, Admiral @StavridisJ worked productively with Russian generals. But Putin’s obstinance led to his doomed war in Ukraine https://t.co/73lA9K8J0B  The Russian military exists to make the French military look good Feb 23, 2023
• As Russia’s invasion of Ukraine enters year two & relations with China worsen, concerns persist over whether the US is ready to fight a war https://t.co/w2JbHsZNi0  “Every single person knows that what we’re doing is crazy,” said Ferrari. “But everybody is helpless to change it.” Feb 21, 2023
• Vladimir Putin should read the story of King Croesus. In fact, so should we all https://t.co/abmJ06n3qu  Almost no expected the current outcome. That said, many wars end in a stalemate. That seems to be what is happening now. Feb 20, 2023

Personal Finance

• Why don’t we talk about money? https://t.co/uYnJdKGDFs  Other reasons: looking bad by comparison, people may think you are arrogant because you have done well. I think children need to understand how the economics of the family works, so they can do it as well or better Feb 22, 2023
• Some parents aren’t waiting for retirement or urgent healthcare needs to move in with adult children https://t.co/EeBAGjFVHu  Think hard about this, and all the adults talk it through — who is in charge? How are bills paid? Privacy? There are many ways for this to go wrong. Feb 22, 2023
• Markets Weekend: When is a Banc not a bank? https://t.co/QoSdP3yFKx  When it offers bonds that function like deposit accounts. How Compound Banc could originate the loans mentioned does not make sense. Avoid. Avoid. AVOID! ht: @felixsalmon Feb 20, 2023

Adani Group

• The combined market value of Adani Group’s shares have just fallen below $100 billion https://t.co/qsNPOK1xGh  The question is how much liquidity they really have, versus maturing debts and needed working capital. Paying off a few debts w/scarce liquidity could backfire Feb 22, 2023
• Almost a month after a bombshell short seller report lopped off $132B in market value from Gautam Adani’s empire, the Indian billionaire has doubled down on his comeback strategy https://t.co/7RybNimFLC  Making a virtue of necessity, while capital costs skyrocket Feb 20, 2023
• Adani Group stocks have seen more than $132 billion of market value wiped out since the explosive Hindenburg Research report, but none is hit as bad as Adani Total Gas https://t.co/3j9MzDyK5S  What a chart https://t.co/nlK8PZNAKZ  Feb 20, 2023

Credit

• The $1.8 trillion student debt bubble is about to burst https://t.co/LPQAkME8BI  Do NOT borrow money to get a degree that will NOT give you the income to repay the debts. And don’t complain unless someone forced you to go to college & take on the debt Feb 25, 2023
• An office landlord tied to money manager Pimco has defaulted on $1.7 billion of mortgage notes https://t.co/xUCEuoGkfW  Becoming a self-reinforcing cycle of skittish lenders, defaults, sagging prices for offices. Feb 24, 2023
• A quirky German debt product is gaining fans around the world. Here’s what it is all about https://t.co/FvUnDBAfLJ  Illiquid promissory notes with low disclosure and no secondary market. I can see why borrowers like it, but all the lenders get is extra yield vs a traditional debt Feb 22, 2023

Picture Credit: David Merkel, with an assist from the YouImagine AI image generator || Chibi Gautam Adani surrounded by Twitter birds

Adani Group

• “Foreign investors are clearly watching.” Billionaire Gautam Adani is battling the worst crisis of his corporate life and that’s raising big questions about India’s credibility as a destination for global investors https://t.co/zkvzRS87R6  Indian cronyism affects foreign investors Feb 04, 2023
• S&P Global slashes the outlooks on Adani Group’s credit scores to negative as investors grow concerned about potential governance risks and funding challenges https://t.co/Z2FSJfUxyB  Not so big, just neg outlook, not neg watch Feb 03, 2023
• In six trading days, Gautam Adani has lost more than Sam Bankman-Fried and had his wealth wiped out almost as fast as Elon Musk https://t.co/WXJ7aMZhPC  Easy come, easy go. Wealth does not grow that fast, unless there’s too much leverage employed. Feb 02, 2023
• Gautam Adani recently had a $147B fortune. Now, he’s facing billions of dollars in losses, a short seller’s accusations of fraud and a canceled $2.5 billion stock sale. https://t.co/7VxW1TRVgV  He never had a $147B fortune. The float is small, and the debts are high. Price<>Value Feb 02, 2023
• Adani says his ports-to-power conglomerate would examine its capital market strategy after pulling his flagship firm’s $2.5B stock offering following fraud allegations made by Hindenburg https://t.co/uUIaQfzKnm  If you think you can grow without free cash flow you are nuts Feb 02, 2023
• The flagship company of beleaguered Indian tycoon Gautam Adani pulls a record $2.4 billion share sale https://t.co/iJMW4nnV4F  Time for the financing methods of last resort https://t.co/3rqY8GgZ6e  Feb 01, 2023
• The crisis plaguing Gautam Adani takes a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the collateral he needs to cover loans https://t.co/4b2HYe4IDc  When the is no free cash flow, you can’t fight back against shorts Feb 01, 2023
• Adani Group put up $300 million worth of its shares on Friday to maintain its collateral cover on a $1 billion loan, sources say https://t.co/au2vrOHbt7  This looks risky, or at least dilutive. Why not borrow directly? Jan 31, 2023
• Abu Dhabi-based IHC says it will invest $400 million in the $2.5 billion follow-on share sale floated by Indian billionaire Gautam Adani’s flagship https://t.co/oyEscsd9yy  They are as shady as Adani Group, and are using many of their techniques. Jan 31, 2023
• A plunge in dollar bonds of Adani Group companies quickened on Monday after a rebuttal by the Indian conglomerate failed to ease concerns following a scathing report by short seller Hindenburg https://t.co/RjJU0HJcSO  If I were speculating on the bonds, I average in slowly Jan 30, 2023
• RT @AlephBlog: Billionaire Adani Says India Will Add $1 Trillion to GDP Every 12-18 Months https://t.co/FAbMGwkyV5  Not likely. When this ov… Jan 30, 2023
• Adani Group fired back at an American short seller, but the group’s 413-page response didn’t stop a slide in the shares and bonds of its companies https://t.co/72zaxIzoDE  Maybe some margin calls? Also IHC of Abu Dhabi has similar issues. Debt, complexity, fast stock price rise… Jan 30, 2023
• These are the guys who bought $400 million of stock in an Adani Group subsidiary. Birds of a feather flock together. https://t.co/HOgpd9E0sX  Jan 30, 2023
• For more on International Holding Company, look here: https://t.co/QUAfU9B2PR  https://t.co/fz6Y0WzVMv  Jan 30, 2023
• Adani says Hindenburg’s conduct “is nothing short of a calculated securities fraud” https://t.co/OskrHOfmQj  As we say near DC, “Never believe anything until it is officially denied.” Also, saying, “Same as above” many times does not answer the question. Same as *what* above? Jan 30, 2023
• Also, cheaters often label accusers they way they themselves should be labeled. Calling Hindenburg “Madoff” increases the likelihood that Adani is engaged in fraudulent activity. https://t.co/weWJnxUD9w  Jan 30, 2023
• Adani responds to Hindenburg report, but stocks continue descent https://t.co/HhxMJ4RJGn  Fascinating that Adani Group for all of its size, needs to get a measly $2B secondary IPO done. They don’t want to give up control, but they probably need liquidity https://t.co/IIDr73q2hH  Jan 30, 2023

Portfolio Management

• Cathie Wood is having a scorching start to the year and she wants investors to know it https://t.co/unUdiVze8B  Humility is not her strong suit. Feb 03, 2023
• How many stocks should a portfolio hold? https://t.co/AsYvvxPmoo  Usually, I think 20-35, but it depends on what types of stocks, and what other assets you own, and your time horizon. Feb 03, 2023
• Legendary ‘Big Short’ investor Michael Burry issues an ominous warning after the latest stock market rally: ‘Sell.’ https://t.co/fY3XdLg8IX  We are in the 97th percentile of valuations as the equity share model goes. But I don’t see weakness in financials. Analogy 2000-2002? Feb 03, 2023
• Michael Platt built an $11 billion fortune by turning his back on outsiders’ money to focus on tending his own — with some perilous losses along the way https://t.co/UQZnbki7tO  Odds of flaming-out are nonzero. Feb 02, 2023
• After the Darkest Hour Comes the Dawn https://t.co/RbSkvVGTo3  European Value looks promising Jan 31, 2023
• European de-equitisation comes of age https://t.co/d8KHqn7eR9  Interesting, probably positive for European stocks. Jan 31, 2023
• The Forgotten Lessons of 2008: Seth Klarman https://t.co/BwtgKTbq21  Worth reviewing. Valuations are still stretched, and debt levels are high, though not at the banks. Jan 31, 2023
• Heard on the Street: After an epic 15-year run, hedge fund Universa’s Mark Spitznagel says the financial system is poised for a crisis—eventually https://t.co/YobK8GMFHH  Has anyone gotten a look at what Spitznagel uses for hedging? I assume credit default swaps, but am I right? Jan 31, 2023
• How Do Active Managers Invest Their Own Money? @ritholtz https://t.co/OrOH6x4j1F  Many active managers invest passively. I invest over 90% of my liquid assets in my active strategies. It would be dishonest for me not to have significant skin in the game as an active value manager. Jan 31, 2023
• Pension-fund investment in private-market loans reached an eight-year high in 2022, even as banks pulled back on lending and default rates inched upward https://t.co/Ke7N42SMx9  If CALPERS has shown up, the bull cycle is near its peak. Jan 30, 2023

Companies

• British companies are starting to pay a premium for staff who work five days a week in the office, according to recruitment giant Reed https://t.co/S1TAegZiZC  This shouldn’t be a surprise. Being able to interact more freely is valuable. Feb 02, 2023
• A startup that sells $555,000 flying motorbikes will soon start trading on Nasdaq, making it the rare Japanese company to trade on the American bourse https://t.co/X7hU6RFRYk  Not useful in its present form, but with improvements who knows what this could bring? Feb 02, 2023
• Industrial companies like Caterpillar, UPS and Dover appear to be moving full steam ahead on investments amid chatter about a downturn https://t.co/icbGmSukui  I would be skeptical for this to persist Feb 01, 2023
• Blackstone’s $69 billion real estate trust hit a monthly redemption limit in January, ramping up the pressure on the massive vehicle for wealthy individuals https://t.co/UINfs7x4Le  Get out if you can. Feb 01, 2023
• AIG Terminates Interim Finance Chief Mark Lyons https://t.co/j5r5pNwWhy  Odd. $AIG Jan 31, 2023
• Why Does It Feel Like Amazon Is Making Itself Worse? https://t.co/18JZI92WOm  Interesting thought. As a facilitator of third party sellers, $AMZN works less well than as a first party seller. But maybe they just want to be a middleman. Jan 31, 2023
• Lawler: D.R. Horton (DHI) Net Order Price Declined “Roughly” 10% from Peak https://t.co/AofAP4Hh8C  Housing prices continue to sag Jan 30, 2023

Non-US

• Ghana plans to convert an estimated $3.3 billion of loans owed to its central bank into bonds, making it the single biggest holder of domestic government securities and exposing it to an ongoing debt restructuring, sources say https://t.co/eHkTOgg9bB  No free lunch Feb 03, 2023
• Maybe sending tanks and escalating in Ukraine is the only way to end the war. But Western leaders haven’t earned the benefit of the doubt https://t.co/3YG0EfLg4M  This does need to be talked about more as the EU & the US are depleting stockpiles of armaments… is this worth it? Jan 30, 2023
• Parts of Johannesburg are being subjected to renewed water-supply cuts as ongoing electricity shortages disrupt pumping operations https://t.co/HpuzaIrv3j  Theivery & corruption plague Eskom. When will S. Africa’s leaders focus on the good of the nation and clean up Eskom? Jan 30, 2023
• Will accusations of dirty governance tactics in India spur global investors to change course? @shuli_ren https://t.co/HqEmEeOSFX  Given the complex holding company structure, how much debt might not be disclosed because of joint ventures, etc? Jan 30, 2023
• For Russian gas to reach India, it will have to build pipelines through Afghanistan and Pakistan, writes @JLeeEnergy. Good luck with that. https://t.co/ZQuFDe6PN6  Putin does not care for his own people. He has semi-permanently damaged his own economy. Jan 30, 2023

Central Banking

• Understanding the FOMC through the eyes of a child https://t.co/yV3G6wDvV8  Avoiding bravery and panic — be humble. https://t.co/OrNU6vBsyS  Feb 01, 2023
• ‘Colossal’ central bank buying drives gold demand to decade high https://t.co/enUPd28Dad  Gold is a nice neutral asset to hold, particularly during wars and trade wars Jan 31, 2023
• Banks tighten lending standards in an uncertain economy https://t.co/qF6FEzgBQ6  Credit deteriorating on the low end Jan 31, 2023
• The Goose That Stopped Laying Golden Eggs https://t.co/8P3aOUZE4g  Central Banks should keep their assets short, and not play around with the yield curve. Jan 31, 2023
• The Fed Is Asleep At The Wheel And Americans Are Feeling The Consequences https://t.co/qRWqSx032A  Falling M2 and ODL, inverted yield curve, weakness in housing and autos. Time to cut rates. Drive through the windshield, not the rearview mirror Jan 31, 2023

Legal

• A former Allianz fund manager says the lawyers who were engaged to represent him in a fraud investigation switched sides to become government informants https://t.co/YA8HSihKdn  Maybe we are getting to the point where employees need to purchase their own E&O policies. Feb 03, 2023
• A derivative lawsuit in Delaware seeks to hold McDonald’s directors and officers liable for failing to sufficiently intervene in a sexual-harassment scandal. https://t.co/9vAJDklSRo  If appealed, it will likely be reversed. In other news: D&O insurance premiums rise again. Feb 03, 2023
• A court ruled that Johnson & Johnson can’t use the bankruptcy system to administer tens of thousands of talc claims because the fund the company created to pay claimants had too much money. https://t.co/ZLQ19Ldgrh  To me it seems like a form of fraudulent conveyance of a liability Feb 03, 2023
• Johnson & Johnson will probably face years of litigation in courts around the US before it can resolve baby-powder lawsuits https://t.co/utpZ8D5wyq  Until now, it has been difficult to deny a bankruptcy petition, even from solvent entities Feb 03, 2023

Crypto

• New York Digital Investment Group, one of the largest crypto lenders, is repossessing 27,403 mining machines from bankrupt miner Core Scientific https://t.co/J44Dyp7kW8  If selling the machine isn’t profitable, why should running them be profitable? Feb 03, 2023
• A trader faces criminal charges for allegedly manipulating the decentralized exchange Mango Markets and draining more than $110 million of cryptocurrency https://t.co/Lv4MUKJAoE  Some may think “code is law,” but there are more general laws that exist outside computer code Feb 03, 2023
• When a one-time TV and film producer’s company bought Farmington State Bank, it got a name change and a new shareholder: Sam Bankman-Fried’s Alameda Research https://t.co/3iqIKi0PVl  Could be wrong, but crypto can’t be a reserve asset at a bank. Maybe it could be held as surplus Feb 03, 2023
• Crypto’s Tax Shelter Problem https://t.co/V6X2S0G0Mo  Secrecy on the part of tax havens compounds the difficulty of getting money back Feb 01, 2023

Financial Plumbing

• The glitch at the New York Stock Exchange has become a pawn in the ongoing battle over a rewrite of stock-trading rules proposed by US regulators https://t.co/JsCnvxwy2x  One central order book would be nice Feb 02, 2023
• “We are at the beginning of a reckoning.” Scott Peng, one of the first people to call out Libor, is now sounding the alarm over its successor https://t.co/3ot0DVxfzm  “Corporate borrowers… can’t enter into paid term SOFR swaps, given the ARRC’s recommendations” #liborwasbetter Feb 01, 2023
• Smart money is betting on insurance money to fund fast growth https://t.co/zJyogt1VbS  The bad old days for life insurers returns. Insurers/reinsurers are taking too much asset risk. Some regulators should disallow reserve credits for insuring asset performance by weak reinsurers Jan 31, 2023
• if I wanted to talk to an institutional expert on deep out-of-the-money put options, who should I talk to? Feb 01, 2023

Politics

• Biden administration proposed an end to an exemption allowing health plans to exclude coverage of no-cost birth control on moral grounds, part of work to protect access to contraception since Roe v. Wade was overturned https://t.co/yPPi43RP3n  Supreme Court already ruled on this Feb 03, 2023
• How Biden Officials Bungled a Better Vaccine https://t.co/xgUujkehiy  Argues that C19 isn’t merely seasonal, & that the J&J vaccine offers more durable immunity FD: + $JNJ Jan 30, 2023
• Missouri Camping Ban Squeezes Rural Homeless Population https://t.co/ENuahUJzJX  This fits my ruralization of poverty theme, and now rural areas fight back. Jan 30, 2023

Personal Finance

• Most Americans stayed the course with their retirement savings in 2022, even as the stock market fell and inflation rose https://t.co/1kmr4sqigB  Retail investor driving through the rear-view mirror, which is temporarily self-reinforcing Feb 03, 2023
• Penalties on early 401(k) withdrawals stop some workers from putting money away because they fear they won’t be able to access it https://t.co/wpMqKLcr68  This is the price of getting tax deferral. Sorry, this is fair. Feb 02, 2023
• In the event of an emergency, you can crack your nest egg, but financial advisers say it should be a last resort. https://t.co/keHuFmuUWF  Think hard before doing this. It might be better to do a home equity loan, or borrow from the 401(k). But sometimes the present trumps future Feb 02, 2023

Energy

• Models of collapsing oil demand look increasingly at odds with short-term trends https://t.co/YDN6mmjV4c  If the end of 2022 didn’t teach us that the transition will be slow, what will? Feb 02, 2023
• Diesel prices have receded from record highs, but pressures on supply signal that gains at the pump may have run out. https://t.co/IoGwx0s6yD  Diesel supplies are tight, especially on the east coast, which spills into jet fuel pricing https://t.co/n7X7Me2SGi  Feb 02, 2023

Credit

• Another company could be pulling a J. Crew https://t.co/IGsDlbtsYa  What you get for lending without significant protection from covenants Jan 30, 2023
• Worries loom for used-car market https://t.co/rK8o23mFYT  More downward pressure on prices Jan 30, 2023

Odds & Ends

• 17 Most Dangerous Toys of All Time – Banned Kids Toys https://t.co/l1tbGC3HCP  I remember catching a Jart in my hand after an errant throw had it flying at my face. That hurt a lot, but healed well. That said, it was a fun game, and played it many times without accident. Feb 03, 2023
• The 31 Most Hard-to-Pronounce Words https://t.co/NozETlULPg  Aside from 2 ridiculous words that I never heard of, I think most well-educated people pronounce these correctly Feb 03, 2023
• 26 Ridiculously Hard Jeopardy! Questions to Stump Your Brain https://t.co/Evqk8kqQ28  I got 5 right, 3 wrong, and 18 I had no idea Feb 03, 2023
• This ‘airliner of the future’ has a radical new wing design https://t.co/L3NZBQvFrs  Looks flimsy. Feb 03, 2023
• “The more you put in the store, the more bandwidth it requires,” said Ahold Delhaize USA CIO Rom Kosla https://t.co/dYXVUeYEgs  Tech equipment is inexpensive for what it can do & there are many alternatives for how to do it. This shouldn’t be so tough. Feb 02, 2023
• U.S. home prices declined in November from the prior month as higher mortgage-interest rates made home purchases less affordable for home buyers https://t.co/Kaufh1fxEW  Absent economic weakness, mortgage rates are at their lowest level in 5 months. Price declines should slow Feb 02, 2023
• “Miracle Mineral Solution,” or MMS, is easy to find on Amazon despite FDA warnings on how toxic and dangerous the potion can be https://t.co/R3khPhWkz2  Astounding that people would drink bleach. Feb 01, 2023
• It’s the new chicken-and-egg question: Should I just buy some birds? Some shoppers thought that was the answer to record egg prices. It’s often not so simple. https://t.co/ILUzbLmmSk  There are simpler ways to save money. Jan 31, 2023
• Medical Schools Bail on Academic Merit and Intellectual Rigor https://t.co/Lzp8C3xNMU  This is a place where you should value competence over ideology. Jan 30, 2023

Companies

• Intel shares slid in late trading after the chipmaker gave a dire forecast for the current quarter https://t.co/hClfp9Y1C9  $INTC lost its way in the 2000s, and did not respond effectively to changes in new chip designs & uses. Most of my computers don’t have Intel chips. Jan 27, 2023
• The rate of returns at U.S. retailers more than doubled last year from 2019. What are the best ways for companies to deal with this flood? https://t.co/nTbNIGFKam  Well-written article. Makes perfect sense. Jan 27, 2023
• The legacy of Jack Welch lives on as forced rankings endure despite controversy https://t.co/KDR5e2EYxM  It’s true that putting constraints on surveys makes them more accurate on average, but the effect on culture is bad because it harms teamwork. Jan 27, 2023
• Elon Musk is upending the way that Twitter works. Ella Irwin is in charge of making his impulses a reality. https://t.co/9B2KrhbjNv  This will eventually result in lawsuits and laws limiting Twitter. Self-regulation is the best defense against external regulation Jan 27, 2023
• When you can’t speak to the manager — or anyone https://t.co/B23satO6kM  In the short-run it saves money not having a call center. In the long run you lose customer loyalty, and don’t get feedback on how to improve. Jan 26, 2023
• It takes an enormous amount of processing power to keep ChatGPT running https://t.co/tCtpfQ3aLh  So OpenAI stays near $MSFT — it minimizes their costs Jan 26, 2023
• Giving four months’ notice or paying to quit has workers at a health-care company feeling trapped https://t.co/mfYdvI5P8s  If training is specific to the company, it benefits the company, so the laborer does not benefit, and should repay. Opposite for general skills Jan 26, 2023
• Heard on the Street: Johnson & Johnson’s consumer business was the only division to deliver growth in the fourth quarter https://t.co/AjchC9YOkO  Surely they could have come up with a better name than Kenvue? Jan 25, 2023
• Crypto companies seeking to go public over the past year have faced increased scrutiny from the Securities and Exchange Commission https://t.co/e5Bod8Y4jp  Highly speculative companies get more scrutiny. Jan 24, 2023
• Twitter is being sued for allegedly not paying the rent on its headquarters, adding to the legal battles between the social-media company and vendors since Elon Musk took over https://t.co/uAtdtLWBzT  Elon likes to see what he can get away with. You can’t cut your way to greatness Jan 24, 2023
• Allstate plans to tap the pool of recently fired tech workers to help the insurer overhaul its business https://t.co/Jtc6c76qx6  Most IT developers would find most insurers to be pretty stifling. In all the insurance firms I worked, only one division of one company got IT right. Jan 23, 2023

Market Structure Issues

• Meet the 11 ordinary twenty-somethings with $250 billion riding on their lives https://t.co/l69SlZqLwC  This is bizarre. Sometime between 2070 and 2110, this will have to be restructured $SPY Jan 27, 2023
• Heading into Tuesday, a NYSE employee failed to properly shut down a disaster-recovery system — leading to a disaster https://t.co/ZUFpA84Eag  If you always trade with limit orders, this wouldn’t be a big deal. Market orders are risky. Jan 26, 2023
• About 9% of outstanding US leveraged loans tied to Libor have no successor listed, but businesses may use extensions past the June 30 phaseout deadline https://t.co/Qr9PdTxJQp  Five months left on the grand experiment. Will SOFR be able to absorb the stress and hedging? Jan 26, 2023
• Wall Street firms that help issue ABS wouldn’t be able to bet against those products under a Securities and Exchange Commission plan https://t.co/kfi4j40i6Y  Sometimes dealers sell bonds to clients via shorting as a service to clients that wanted more. Is that disallowed? Jan 26, 2023
• Private companies desperate for cash as economic conditions sour are cutting confidential deals to avoid a dreaded down round https://t.co/cPbAL1K7GK  Kicking the can down the road, or, living to play for another day? Jan 25, 2023
• Josh Kushner is richer than Donald Trump after billionaires back his investment firm. https://t.co/38CuybHp7I  be careful of measuring wealth off of small financing rounds, or stocks with small floats. Jan 25, 2023
• Question of using term SOFR for ABS remains unresolved in 2023 https://t.co/hU1QhKLfVC  Lenders want predictability, even if there is some amount of basis risk — thus the desire for term rather than floating. This should get ironed out through futures markets. #LIBORwasbetter Jan 25, 2023
• A Depression-era backstop that Wall Street banks use for short-term funding is the latest corner of traditional finance to be ensnared by upheaval in the crypto industry https://t.co/IEnVkbTpoq  The Federal gov’t has too many entities that lend money, guarantee, etc. Jan 25, 2023
• A chaotic open for some stocks listed on the New York Stock Exchange sent chills across Wall Street, leaving some investors frustrated and others clamoring for an explanation https://t.co/81wbDOjyrV  I had two stocks halted. No big deal. Wait a little, and markets were normal. Jan 24, 2023
• The last time hedge funds and asset managers were this split on the future for benchmark Treasuries was when the Fed’s tightening cycle was about to peak in late 2018 https://t.co/0R3k0DViL7  Usually the guys that are levered up lose Jan 23, 2023

India

• India’s integration into the global economy means the next big scandal may well be London or Singapore, rather than Mumbai, @andymukherjee70 writes https://t.co/iuLYhx1a8m  Much as the SEC has its weaknesses, isn’t the Securities and Exchange Board of India considerably worse? Jan 27, 2023
• Talk of cronyism misses the point. If Adani didn’t exist, the Indian government would have had to invent him in order to fulfill its development ambitions https://t.co/rxffQ1B6uW  Relying on “big men” to run businesses is dangerous to any economy. It’s one reason India stays poor Jan 27, 2023
• India’s Adani slammed by $48 bln stock rout, putting share sale at risk https://t.co/OvQLXRe2sz  Complex holding company structures with lots of debt are inherently fragile, dependent on liquidity being easily available. Jan 27, 2023
• “Largest Con in Corporate History?” Nate Anderson’s Hindenburg is betting on it as the firm targets Asia’s richest person Gautam Adani https://t.co/ss3SZwlpVC  Any complex company that compounds at too high of a rate for its industries is suspicious. Think of Enron. Jan 26, 2023
• India’s Adani Group explores legal action against US investor Hindenburg Research after its report accused firms owned by billionaire Gautam Adani of “brazen” market manipulation and accounting fraud https://t.co/FtdOdF9GhZ  Fighting short-sellers is often a sign of weakness Jan 26, 2023
• Adani Group’s shares fall after Hindenburg Research issued a report and said it had taken a short position in the company https://t.co/qT29MJsgZf  Conglomerate, price rise too rapid, lots of debt –> too much risk. Jan 26, 2023
• “India is on the cusp of huge change.” How soon can a country once synonymous with red tape become a $10 trillion economy? https://t.co/PlD05lJ2S9  This isn’t likely. India has deep cultural problems that hinder them from developing. India is an empire more than a nation. Jan 23, 2023
• From soap to paint, optimism for a harvest-led revival is laced with nervousness about urban spending https://t.co/0r1WHEABFN  Among other problems, “India’s software-exports industry — a large employer in metropolises — has become wary of hiring because of slowing global growth.” Jan 23, 2023

Portfolio Management

• Happy 30th birthday to the ETF* https://t.co/m1hGrVswFV  Nathan Most, the man who changed the structure of fund investing by creating $SPY. Jan 27, 2023
• The Buck Stops Here https://t.co/ukhvcQG0nt  Worth considering. The US has outperformed for a long time, and the US Dollar is weakening as the Fed decelerates Jan 26, 2023
• Vanguard’s 10-Year Equity Outlook https://t.co/SjTITqtoqg  All the non-US equity estimates are at least 3%/yr too high, commodities & non-US could be accurate. Jan 26, 2023
• ChatGPT was asked to create a market-beating ETF. Turns out AI has a long way to go https://t.co/kMJB59xPJc  ChatGPT is remarkably humble. Jan 26, 2023
• Adding to that, bond ladders are the all-weather strategy for handling all aspects of interest rate risk. https://t.co/7ggbuMnL0q  Jan 25, 2023
• Beware: even cash and bonds can land you in a fix https://t.co/tjEGYtnD1Z  A good introduction to the concept of reinvestment risk. In this environment, you get a higher yield by investing short, but when the bond matures, will you get a good yield to reinvest at? Jan 25, 2023
• This Changes Everything for Hedge Fund Managers https://t.co/Uj4vuyEKcl  ‘“The higher the cost of money, the lower the competition,” says Avenue Capital’s Marc Lasry on the risk-free rate.’ You have to be more selective as to who can afford the high interest rate Jan 25, 2023
• Why Invest in Stocks When Bond Yields Are Higher? by @awealthofcs https://t.co/DxUb55SwmD  Probably the only ones buying long bonds at the rates peak in 1981 were those that had to defease/hedge long liabilities. Everyone else was too scared. So life insurers, DB pensions… Jan 25, 2023
• The Bank of England warned that life insurers are taking an “optimistic” view of how easily they could ditch assets in tough times https://t.co/Wk4gHZp8Mr  Depends on how big the positions are relative to the market, & sadly, the article does not give that stat. Jan 23, 2023

Fraud

• $4 Billion Accounting Scandal Exposes Supplier Finance Risks https://t.co/TpXAL3MToM  Caldor returns! Jan 27, 2023
• Crypto Speculators Are Betting On Ethereum’s Shanghai Upgrade Risks https://t.co/LM0ndJEhyJ  Ask where the yield comes from. These strategies blew up in 2022, and will do so again in 2023-4. Jan 27, 2023
• What the poet, playboy and prophet of bubbles can still teach us https://t.co/qQu5XrPyGH  How Charles Mackay, author of “Extraordinary ­Popular Delusions and the Madness of Crowds” described bubbles, but couldn’t see the biggest one of his time: railroad securities. Jan 26, 2023
• The Getty Family’s Trust Issues https://t.co/KkeXoSFnnn  Very long. I knew half of this, and it reinforces two of my beliefs: tax all income types equally, and abolish all tax deferral. Jan 25, 2023
• Digital-asset wallet linked to one of crypto’s biggest hacks has moved over $150 million of stolen funds to tap a trade involving a derivative of Ether https://t.co/2F69VAZahc  From crypto news today, remember that security is always weakest at endpoints, where transfers are made Jan 24, 2023
• Spyware that can turn even the most secure of phones into surveillance devices has become affordable enough that lawmakers are starting to do something about it https://t.co/yEy28x3oon  Is there really no way to scan for these zero click hacks? Jan 24, 2023
• Thinking of buying crypto on the dip? @LionelRALaurent suggests you take note of authorities’ accelerating crackdown https://t.co/2dX3L3FbB3  No social value to crypto, aside from ransoming yourself from authoritarian regimes Jan 23, 2023

Energy

• Scientists Are Turning Abandoned Mines Into Gravity Batteries https://t.co/PoAugP2e3Z  Physical batteries have a lot of advantages Jan 27, 2023
• Man-made graphite isn’t very green, so battery makers want the mined, natural mineral. The problem is there isn’t enough. https://t.co/7yQesrsNHf  “It’s the largest raw material in the battery.” Though not the most expensive… it can be synthesized if mines can’t produce enough Jan 25, 2023
• This giant underground battery is a $1-billion clean energy solution https://t.co/6Wg88Q7SqW  Compressed air drives a turbine when power is needed. Clean, right? No one would argue against this? Wrong. Jan 25, 2023
• Construction of wind and solar installations has slowed to a crawl in the US, despite billions of dollars in federal tax credits and investor enthusiasm for clean-energy projects https://t.co/yxrYY84yWR  When many want to do the same thing, bottlenecks appear & delay ensues Jan 24, 2023
• Nuclear reactors are being pushed to operate for more than double their intended lifespans. It’s a risky experiment with global consequences https://t.co/JtYhXZEWbB  Choices, choices — do the maintenance well. Schedule downtime. Jan 24, 2023
• An increasing number of wind turbine malfunctions are indicative of green power’s growing pains https://t.co/RJLwfqIW20  There is probably a limit to how large you can make turbines without smallish flaws cascading into large failures. Jan 23, 2023

CMBS / CRE

• Office Dominates New Transfers as CMBS Special Servicing Declines in December https://t.co/DyFCFkzQGO  One year ago, I bet the owners did not think rates would get this high. Jan 25, 2023
• Refinancing Tough as CMBS Maturities Pile Up in New York City https://t.co/EJrmmDrDEA  Facing the end, of extend, and pretend. Jan 25, 2023
• CMBS Realized Losses Increased in December https://t.co/ToWWYtZkPt  Interesting. Many of the losses took 5+ years to work out. The biggest loss took over 10 years, with 100% severity. Jan 25, 2023
• Expiring Interest Rate Caps to Fuel Distressed Property Sales https://t.co/jZyDmEP7Jx  Will your rents cover higher financing costs? Jan 25, 2023
• $9B plunge in NYC commercial real estate sets up brutal political fight over shrinking tax pie https://t.co/x27iLbUJqc  Not so many office buildings are needed as before Jan 25, 2023
• Surge In ODCE Fund Withdrawals Is Another Worrying Sign for Commercial Real Estate – https://t.co/VlYRaEtnvP  You will get money… just not as much as you would like, nor as quickly. Jan 25, 2023

Non-US

• Brazil and Argentina’s presidents have launched discussions on a common currency, but their plans are nothing like the euro, which replaced national currencies like the lira, franc and deutsche mark entirely https://t.co/O2LZY7UWXb  Much ado about nothing. Jan 26, 2023
• Countries with established auto industries have been blindsided by China, which is poised to become the world’s No. 2 car exporter https://t.co/HpomO1RNmH  China does not lack for labor. Odd to promote a capital-intensive industry Jan 26, 2023
• Zimbabwe’s leader seeks investment for a new capital just down the road from an impoverished and overcrowded Harare https://t.co/aGxTgu773Y  Better to focus on improving agriculture & infrastructure for public well-being. The Saudis may have money for folderol, Zimbabwe doesn’t Jan 26, 2023
• The UK faces a brutal reality: either taxes are raised, free NHS services are cut, other government departments are effectively scrapped — or the health service breaks https://t.co/k2vS4P6TK9  If you think healthcare is expensive now, wait until it is free Jan 24, 2023
• The on-off talks are back on again: Brazil and Argentina Are Discussing Whether to Combine Currencies https://t.co/XEDcxjHXGN  Would likely fail. Argentina can’t peg to anything given its lousy economic policies. A euro-like currency fails if much of the zone runs large deficits Jan 23, 2023

Personal Finance

• Only one in three Americans can comfortably cover a $400 emergency expense, according to new survey data https://t.co/EWpFVnxe4q  Make good choices when you are young, apply yourself to school and work, and don’t overspend. Jan 24, 2023
• Couples often grow more alike over time in their approach to spending, saving and risk, researchers say https://t.co/ag4MfeMC3b  Opposites can work if communication is good, or if one party lets the other do it. Otherwise it can be a disaster. Jan 24, 2023
• The trouble with ‘buy now, pay later’ https://t.co/ZnEhIhILnD  People forget the 1920s, where BNPL was common and it led many into bankruptcy. Those who ignore history are fated to repeat it. Jan 23, 2023
• Used car prices drop 12pc but bargains a long way off https://t.co/q0s8tZ9w6C  Yes, used car prices have fallen, but they are not cheap yet. Jan 23, 2023

US Economy

• Seven Signs That Economic Growth Is Starting to Falter https://t.co/UkiMH7p2Eo  Mostly employment, retail, and low-end consumer credit Jan 25, 2023
• Employers are shedding temporary workers at a fast rate, a sign that broader job losses could be on the horizon https://t.co/oBZIbci9tj  Labor markets may be weakening. Jan 24, 2023
• The pride of central bankers has taken a battering as inflation has soared. But they need to prioritize growth over restoring their dented credibility https://t.co/3pfEivyJTQ  The inverted yield curve is the markets telling the FOMC “your forecasts of inflation are wrong.” Jan 24, 2023

US Politics

• U.S. weapons industry isn’t prepared for a China conflict, a report says https://t.co/7no7A9cZqE  Will defense spending be a priority or not? What allies are you willing to give up on? Jan 25, 2023
• Democratic congressman Khanna says Biden administration might have to take unilateral action to head off US debt default https://t.co/MBz3DDAvWz  Gimmicks might affect acctg, but never the real economy. We need to stop running primary deficits & then all deficits to avoid crisis Jan 24, 2023
• The Biden administration’s analysis of the tax code by race is in. It shows White Americans disproportionately gaining from lower rates on capital gains and dividends https://t.co/wf5qjfddGr  This isn’t about race, but class. That said, tax all income equally. Jan 23, 2023

Odds & Ends

• The Duck Brigade Behind a Farmer’s Plentiful Rice Harvest @atlasobscura https://t.co/yV9IupsDg3  The ducks eat the weeds. At the end of the season, people eat rice and ducks. Jan 27, 2023
• “We are not out of drought in California, but this certainly makes a significant dent,” said Karla Nemeth, director of the California Department of Water Resources https://t.co/hWv12RqjE6  That there are far fewer farmers than before also makes a dent in water demand. Jan 27, 2023
• Transcript: What the Heck Is Going on With Egg Prices “Let’s crack open the story.” https://t.co/32vZBDCrQc  From the avian flu to feed costs to holiday demand Jan 25, 2023
• Getting a divorce in Japan is relatively simple. But it can sometimes result in single-parent custody, leaving one parent largely excluded from a child’s life https://t.co/p0efdka5eN  If you want to get sad, read this. Jan 24, 2023
• New Paper Says Crypto Is Just A Hot Ball of Momentum-Chasing Money https://t.co/1kD0RxVDH8  So are Ponzi schemes Jan 24, 2023
• Earth’s inner core may have reversed its rotation, potentially shortening the length of the day by a fraction of a millisecond over the course of a year https://t.co/UwtynNMmgk  Uncertain hypotheses Jan 24, 2023
• Steelmaking is a major source of planet-warming emissions. A group of British scientists have come up with a way to avoid them. https://t.co/fkR7F76rr2  Cheaper, too — could be interesting. How prevalent is perovskite? Jan 24, 2023

Picture Credit: Marco Verch Professional Photographer || Being a financial analyst is being a competent generalist in business

Let me tell you why I am writing this, roughly three years later than I said I would. It started with a post I entitled Limits. The post itself is not why I am writing this, but in the the comments there was great criticism of the CFA Institute. They asked me what I thought of the criticisms and I said I would write about it.

I suspect no one will like this post. I will mention that I served on the board of the Baltimore CFA Society for 12 years, serving nine years as its Secretary, and two years as its programs chair. I am grateful that I earned my CFA credential in 1996, which enabled me to transition from being a life actuary, to being an investment actuary, to being a a financial analyst with actuarial skills.

Four weeks ago, I gave a talk at the Baltimore CFA Society’s Charter Award Dinner. The title of the talk was “The Value of Ethics –The Value of a CFA Charter.” The main point of my talk was that the uniqueness of the CFA Charter did not stem from the “Body of Knowledge” imparted in the exams, but rather from the emphasis on ethics. The men who created the “National Federation of Financial Analysts Societies” in 1947 wanted financial analysts to be competent and ethical. After all, the Great Depression soured many people on investing, considering all of the unsavory tactics that many speculators used.

So what made me decide to write this tonight? My friend Tom Brakke made the following post at LinkedIn. He laments the decline in the teaching of the “Body of Knowledge” at the CFA Institute. I agree with him. The leadership of the CFA Institute seems weak to me, and gives in to political and cultural trends. Two examples: first, adding cryptocurrency to the “body of knowledge,” when it has no intrinsic value. Second, adding ESG to the body of knowledge, when it is ill-defined, useless, and not in the interests of those served by fiduciaries.

What should the CFA Institute do with respect to the “Body of Knowledge?” Investment knowledge is not a monopoly of the CFA Institute. You can get the same knowledge through many different sources. For me, I learned 90%+ of my investment knowledge before I took my first CFA exam. That’s why they were so easy for me. Many CFA Charterholders don’t like me saying the exams are easy, but I will say, “Have you taken an actuarial exam? There is no comparison.” Even the penultimate president of the CFA Institute said to me, “They have an amazing qualification process.” (Something like that…)

What should the CFA Institute do to create its “Body of Knowledge?” Choose the most compact and important knowledge that an intelligent investor needs to know, and then pursue it in a written exam format, not using computers. Why written? Because investing requires the ability to be able to write. The Society of Actuaries made a similar mistake when it eliminated their English exam, which turned their candidates into math nerds who often could not understand qualitative features in insurance. Actuaries once were CEOs of insurance companies, and that is rare now.

Does the CFA Institute’s Body of Knowledge need reform? Definitely. Clear out the crud, and make more room for the basics. Also, emphasize ethics, because that is what differentiates CFA Charterholders from other investment workers.

But Back to the Original Reason for Writing this

So what of people who pass the CFA exams, get a job, stop paying their CFA dues, and say that they passed the CFA exams, but not explicitly calling themselves CFA Charterholders? Are they cheating the system?

Yes, they are cheating the system, and if the CFA Institute had an ounce of courage, they would take them to court, saying that they agreed to the CFA Institute’s standards when they took the exams and received the Charter. If they are not doing so now, they can’t say they passed the exams. It might be true, but it is an obfuscation to have some benefit of a CFA Charter while not continuing to hold to its code of ethics. If you are not subject to the CFA Code of Ethics, you should not be allowed to mention that you were once a CFA.

The same is true for me. I never say that I am a Fellow in the Society of Actuaries, though I passed all of the exams and was inducted. I haven’t paid dues for over a decade, nor have I done their continuing education (that was the bigger issue). Do I still know their body of knowledge? I was a leader in asset-liability management inside life insurers, and I would still be a leader there.

To close this article, I would simply say to those who have dropped their CFA charters, but still try to benefit from them: pay the money and observe the code of ethics. Be a real CFA Charterholder. We are the ones that are supposed to be cleaning up the financial industry. This is our ethical obligation that you agreed to when you received your CFA Charter. Don’t be a cheapskate, and don’t be unethical by avoiding the duties that you accepted when you took the CFA exams.

Image Credit: Aleph Blog with help from FRED || Believe it or not, I used FRED before it was a web resource — it was a standalone “bulletin board” that I woul dial into on my computer modem

I’ve talked about this here:

• Estimating Future Stock Returns, December 2021 Update
• Time for Another Convexity Crisis?
• The First Priority of Risk Control (2009, this tells the story of what I did during the 1994 crisis.)

And recently I have tweeted about it.

Mortgage rates are surging faster than expected, prompting economists to lower their home sales forecasts https://t.co/IiX2gPlAnI 1994 scenario re-occurring. Falling prepayments makes MBS lengthen, leading indexed bond managers to sell low-coupon MBS forcing rates still higher

— David Merkel (@AlephBlog) March 22, 2022

We may be in the 1994 scenario where mortgage durations are extending, dragging the long end of the yield, as those that hedge duration are forced to sell, setting up a self-reinforcing move up in yields.

— David Merkel (@AlephBlog) March 22, 2022

The MBS coupon stack is a lot flatter in 2022 than in 1994. There is more than 4X the mortgage debt now than in 1994. Lots of pent-up negative convexity. I lived through that in 1994, and made money off it.

— David Merkel (@AlephBlog) March 22, 2022

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

“In 1992-1993, there were a number of bright investors who had “picked the lock” of the residential mortgage-backed securities market. Many of them had estimated complex multifactor relationships that allowed them to estimate the likely amount of mortgage prepayment within mortgage pools.

Armed with that knowledge, they bought some of the riskiest securities backed by portions of the cash flows from the pools. They probably estimated the past relationships properly, but the models failed when no-cost prepayment became common, and failed again when the Federal Reserve raised rates aggressively in 1994. The failures were astounding: David Askin’s hedge funds, Orange County, the funds at Piper Jaffray that Worth Bruntjen managed, some small life insurers, etc. If that wasn’t enough, there were many major financial institutions that dropped billions on this trade without failing.

What’s the lesson? Models that worked well in the past might not work so well in the future, particularly at high degrees of leverage. Small deviations from what made the relationship work in the past can be amplified by leverage into huge disasters.“

Finally from the piece What Brings Maturity to a Market:

Negative Convexity: Through late 1993, structurers of residential mortgage securities were very creative, making tranches in mortgage securitizations that bore a disproportionate amount of risk, particularly compared to the yield received. In 1994 to early 1995, that illusion was destroyed as the bond market was dragged to higher yields by the Fed plus mortgage bond managers who tried to limit their interest rate risks individually, leading to a more general crisis. That created the worst bond market since 1926.

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I am not saying it is certain, but I think it is likely that we are experiencing a panic in the mortgage bond market now. Like 1994, we have had a complacent Fed that left policy rates too low for too long. Both were foolish times, where policy should have been tighter. This led to massive refinancing of mortgages, and many new mortgages at low rates.

But when that happens with most mortgages being low rate, if the Fed hints at or starts raising rates, prepayments will fall and Mortgage-Backed Securities [MBS] will lengthen duration while falling in price. Bond managers, most of whom are indexed and want a fixed duration, will start selling long bonds and MBS, leading long rates to rise, and the cycle temporarily becomes self-perpetuating.

This is likely the situation that we are in now, and it very well may make the Fed overreact as they did in 1994. All good economists know the monetary policy acts with long and variable lags. But the FOMC for PR reasons acts as if their actions are immediate. Thus they become macho, and raise their rates too far, leading to a crash. (Can we eliminate the Fed? Gold was better, if we regulated the banks properly. Or, limit the slope of the yield curve.)

I’m planning on making money on the opposite side of this trade if I am right. I will buy long Treasuries after the peak. I am watching this regularly, and will act when it is clear to me, but not the market as a whole, which in late 1994 to early 1995 did not know which end was up.

Anyway, that’s all. The only good part of this environment is that my bond portfolios are losing less than the general market.

Picture Credit: Wiley Publishing || Ah, the golden umbrella!

This is a tough book to review. I don’t like the writing style — it is pompous, and drags you through a variety of “rabbit trails” that aren’t necessary to the core ideas of the book. Simplicity is beauty, so going on a travelogue of your philosophical interests detracts from the presentation of this book. As I have often said, the book needed a better editor who could overrule the author and say “That’s not relevant.” “That’s boring.” “Get to the point.” and “This is thin gruel.”

Quoting from pages 4-5:

Then there are the modeling issues — a decent part of the book assumes that yearly returns are essentially random. Market returns are regime-dependent. There is momentum. There is weak mean reversion. The results in prior years affect the current year, both positively and negatively.

Toward the end of his analysis the author recognizes the problem and then uses 25-year blocks of S&P 500 returns 1900-2019 (or so), without noting that it gives undue weight to the years in the middle that get oversampled.

The grand problem is that we only have one history — and is it normal or an accident? We assume normal, but how can we know? Also, though we have 120 or so reliable years of performance for the pseudo-S&P 500, for options on the S&P 500, we only have ~35 years of data. For more esoteric diversifying investments, we have 10-40 years of data. We have no strong data on how they might have performed prior to their inception. Also, their modern presence may have affected the performance of the S&P 500.

Simulation analyses have to be done ultra-carefully. It’s best to develop an integrated structural model, deciding what variables are random and how they correlate with each other. Then use pseudo-random multivariate values for the analysis. I used these to great value to my employers 1996-2003 when I was an investment actuary.

What I Liked

But I like the book in some ways. He makes the important point that hedging when the cost of the hedge is fair or even in your favor is an advantage. And this is well known by regulated financial companies. There are two ways to win. 1) Source liabilities at favorable terms. 2) Buy assets on favorable terms. This book is about the first idea: insure your portfolio when it pays to do so. Happily, the insurance costs the least during bull markets, when everyone is hyperconfident. It costs the most during bear markets, where everyone is hyper-scared. So hedge more when it is cheap, and less when it is expensive. Simple, huh? But the book leaves this idea implicit. It never states it this plainly.

Second, I like his idea that the safest route is the one that maximizes expected wealth over time. That is underappreciated by asset managers.

Third, I appreciate that he brings in the Kelly Criterion, which is one of the best ways to deal with the risk-reward question, which in this case, is how you size your hedges.

Finally, he talks about maximizing the fifth percentile of likely outcomes, which in a well-structured model will keep the investor in the game, allowing the investor to cruise through bear markets, and stay invested. Hey, many actuaries have been doing that for life insurers over the last 25 years. Welcome to the club.

The Central Conundrum

He classifies his hedges as store-of-value, alpha, and insurance. Store of value is short-term savings that has no possibility of loss, which oddly he has at 7%/yr. That might be a long term average, or not, but when modeling the future, variables have to be forward-looking. There is no sign of 7% on the horizon at no risk.

He includes gold in this bucket, and thinks it is a genuine diversifier, with which I agree. Then there is alpha, which for him is commodity trading advisors who are trend followers, who do well when volatility is high. He also briefly touches on a variety of investments that he has tested, and finds they don’t aid the growth of terminal net worth on average.

Then there is insurance, which he never spells out exactly what it is, and the author says it is the most effective way to hedge, and profit. He hides his trade secrets.

What he should have told you I will reveal here. The insurance he is probably talking about is put options on stock or corporate bond indexes (particularly high-yield), or paying for protection on indexed credit-default swaps (best, but only institutions can do this). Imagine paying a constant percentage portfolio value by period to protect your portfolio. When valuations are high, implied volatility is low, and the insurance is cheap when you need it. When valuations are low, implied volatility is high, and the insurance is expensive when you don’t need it. In that situation, your existing hedges might have appreciated so much that you sell them off and go unhedged. Implied volatility can only go so high, before it mean-reverts. When option prices get high, potential hedgers and speculators who would be option buyers sit on their hands, and don’t do anything.

Quibbles

Already stated.

Summary / Who Would Benefit from this Book

If you have read this book review, you have learned more than the book will give you. I really don’t think many people will learn much from this book.

Full disclosure: The publisher kind of pushed a free copy on me, after I commented that I wasn’t crazy about the author’s last book.

Photo Credit: Mindy Georges || The umbrella belongs to Travelers

This is a bug in my bonnet, and I have written about this for at least 13 years, and maybe as long as 16 years, but insurance conglomerates don’t work well. After suggesting at least three times that AIG should break itself up, we are finally to the last stage of it doing so.

There is a saying in the industry “Life Insurance is sold, P&C Insurance is bought.” They are different markets, and there is no reason for shareholders to own a company that does both. But some companies diversify. Who does that benefit?

The main beneficiary is the management, as it gives them cover for underperformance. They can always blame transitory factors for underperformance of one division or another.

And much as Hank Greenberg blamed his successors for the failure of AIG, the main cause of longer-term underperformance stemmed from the purchases of SunAmerica and American General at high prices.

AIG was highly profitable in 1989 with its foreign and domestic P&C operations, and its foreign life operations. What should it have done with its profits?

It should have paid a higher dividend, bought back stock, and shrunk the company as many other successful insurers have done. Companies is mature industries should return capital to shareholders.

Big companies develop a culture, and it makes them less willing to change. That was true of AIG. Hank Greenberg should have eliminated all life companies early on, and run a domestic P&C company with high underwriting standards. Then maybe it would not have had to rely on Berkshire Hathaway to reinsure them.

Just as GE has suffered, so has AIG. Both CEOs were lionized, then despised. The main idea to take away from this is conglomerates where businesses have different sales models don’t work.

Image Credit: Aleph Blog || Running on empty, running dry… what will happen when obligations can’t be met?

Welcome to Blunderland, boys and girls. At the end of the fourth quarter, the S&P 500 was priced to return 1.29%/yr for the next ten years, with no adjustment for inflation. You might say, �But David, you�ve reported levels that low in the past, and you were concerned, but you never said �Blunderland.’�

True, but the market has rallied further since the end of the quarter, and the level of the S&P 500 now is priced to return 0.54%/yr for the next ten years, with no adjustment for inflation. That�s in the 98th percentile of valuations. Another reason I didn�t say �Blunderland� in the past was that we did not have a situation before where the only values comparable came from core of the the dot-com bubble. Thus, welcome to Blunderland.

Now, the valuation levels of the Blunderland era lasted for 2 years and 3 months, from the beginning of the fourth quarter of 1998 to the end of the fourth quarter of 2000. It was a period where monetary policy was extremely loose, before tightening enough to send the market into a tailspin, even as many claimed that interest rates have no effect on growth stocks.

Okay, I’m done imitating my last article on the topic. We are in the midst of a full-fledged mania. What is different no versus the dot-com bubble was that value only took off as the market began to implode. At present, value is outperforming even as valuations are at nosebleed levels. And for any who care, you would be better off buying a 10-year Treasury Note than buying the S&P 500 at present. There is an alternative… to lose less in purchasing power terms.

Of course, you could do what I did in mid-2000, and what I am doing now… own a bunch of cheap stocks that have been neglected over the last ten years, and hold them through the coming disaster. Many of them are cyclicals so they like inflation. Others are life insurers — they want long term interest rates to rise.

But will that be the path? Who can tell? And even with that path, I had gains in 2000 and 2001, and bruising losses in 2002, before rocketing out of it in 2003.

It will be different this time. It is always different. That said, valuations are very high. If you are wealthy and can pay on credit default swaps, no is the time to do it. If you are at the low end of the 1% like me, it is time to own more bonds and safer equities.

Yes, there are other possibilities. You could:

• Short SPY
• Buy puts on SPY
• Buy puts on HYG and JNK
• Short QQQ
• Buy puts on QQQ

You get the idea. If I were to do any of the above I would buy puts on HYG and JNK. I’m not doing that at present. This is the poor man’s way of paying on credit default swaps.

Yes, this is one of those rare times where you will lose is you own the broad market indexes like the S&P 500. note that the above is prices only, and does not include dividends. I think anyone invested in the S&P 500 will earn a tiny amount over the next ten years, and less than the ten-year Treasury Note or the CPI.

I can make this “advice” which is not investment advice in the technical sense simple: sell growth stocks and move to value. Sell stocks generally, and move to bonds.

Now I am not doing that. I am sticking with my cheap stocks with strong balance sheets, in industries that have lagged. And i have roughly 30% of my portfolio in investment grade bonds.

This is a good position to be in amid a mania. Maybe you should imitate me, lest you find that accidentally you became a financial maniac.