Search Results for “insurers” – Page 21

Sorted Weekly Tweets

Posted on 25 August 2012 by David Merkel

Politics

Bernanke Letter Defends Fed Actions http://t.co/COYtCtzg Hope the election brings enough change that we end up w/a fresh Fed Chairman $$ Aug 25, 2012
Private equity tax questions for Mitt Romney http://t.co/hXaAu0sR 1) Carried interest 2) Corporate interest deductions 3)Mgmt fee waivers $$ Aug 24, 2012
Sorry, Henry Blodget, You’re Wrong About Election 2012 http://t.co/5DghXuzI Religious Conservatives r viewed as suckers 2 support the GOP $$ Aug 24, 2012
Obama Supporter Suggests Anti-Mormon Whisper Campaign http://t.co/ism2YbbR Too obvious. Democrats pay Evangelicals to describe Mormonism $$ Aug 24, 2012
The Treasury?s Oversimplified View of Its Mortgage Relief Effort http://t.co/cwm1rrX8 The program did wonderful things… for the banks $$ Aug 23, 2012
Top six myths about Medicare http://t.co/qKYGtsLT Mostly correct but #3 brings lower quality & #6 is wrong, see: http://t.co/WvPr4giZ $$ Aug 23, 2012
White House Worked With Buyout Firm to Save Plant http://t.co/KPKHvZC5 Government help to get deals done begets more of the same $$ Aug 22, 2012
Consider keeping Bernanke, top Romney adviser says http://t.co/3Kp575gA This is rhetoric, if Romney is elected, Hubbard will chair Fed $$ Aug 22, 2012
Is BUBB (breaking up the big banks) now a ?conservative imperative? ? http://t.co/exRI726x I like $BAC so much; there should b 50 of them $$ Aug 21, 2012
Why Democrats think taxes will need to rise by more than 50% http://t.co/VUlfCM6K Entitlements will drive change in America but what change? Aug 21, 2012
How the tea party beat Occupy Wall Street http://t.co/SAUzzNog No contest. The t-party organized politically, & #OWS didn’t $$ Aug 21, 2012
Lanai owner Larry Ellison used tax loopholes for payouts http://t.co/la7HJMh6 The problem isn’t Larry, it’s the politicians’ bad tax code $$ Aug 21, 2012
The Real Conservative Opportunity This November http://t.co/m5nXtCUH Urges Republicans 2 champion banking reform. $$ #nixonwent2china Aug 20, 2012
Effective protest requires wide organization and general respect for the property rights of others, which these three women did not have $$ Aug 20, 2012
Fannie and Freddie: The Walking Dead http://t.co/u0Y4CgAt Fannie & Freddie may be dead, but the US Govt’s role in housing is not dead $$ Aug 19, 2012

Companies

There?s Warren Buffett ? and then there?s the rest of us http://t.co/rgMH0kjX The new paper on Buffett’s investing has gotten attention $$ Aug 24, 2012
Take that Square! eBay still a leader in mobile payments http://t.co/CxHkNQkG Am I wrong, or is most of the value of $EBAY in Paypal? $$ Aug 23, 2012
Yellow Pages’ Last Lifeline: Clinging to Each Other http://t.co/X347LfLD $DEXO $SPMD hit sell button, internet destroys yellow pages $$ Aug 22, 2012
The Beginning of the End of Print: The Lessons of an Amazingly Prescient 1992 WaPo Memo http://t.co/hVa62p0A No one listened 2 Cassandra $$ Aug 22, 2012
Last tweet FD: long $PSX . Frankly I’m surprised that an oil refiner, transporter, marketer would help come up w/an advance on solar $$ Aug 22, 2012
Phillips 66, South China U of Technology, & Solarmer Energy Set a World Record in Solar Power Conversion Efficiency http://t.co/95ND020R $$ Aug 22, 2012
Zynga Spurning Sale Strands Owners @ Worst Web Value http://t.co/zrKw0fjv Remember u r a outside minority investor. Choose mgmts w/care $$ Aug 22, 2012

http://t.co/xW9zcuWY $AMZN does amazing things as nonprofit $$ Aug 21, 2012

Monsanto Genetic ?X-Ray Glasses? Speed Tastier Tomatoes http://t.co/AJQZDJY9 Interesting comment thread, no one defending $MON $$ Aug 21, 2012
Facebook Shares: Still Too Pricey http://t.co/z38X4OsZ The lack of a reliable revenue model makes $FB a buy at prices ~$9-15 $$ Aug 21, 2012
Barnes & Noble Falls After Second Straight Nook Sales Drop http://t.co/nWNxr3Pw $BKS losing to $AMZN . Slow-motion train wreck $$ Aug 21, 2012
Up Against Retail Giant Amazon, BufferBox Aims to Jump-Start Parcel Delivery http://t.co/MhW35CeB Any of these should team up w/USPS $$ Aug 21, 2012
Amazon Wins Race to the Bottom With Radical Pricing on Long-Term Data Storage
Facebook Investors Brace for More Shares Coming to Market http://t.co/GE7usIDt Test of how much insiders truly believe in Facebook $FB $$ Aug 20, 2012
Aetna to Acquire Coventry Health Care http://t.co/sFRdRDv3 The People’s Republic of Maryland loses another large company $$ #BDK #USFG Aug 20, 2012
Stocks: The ‘Lockup’ Effect http://t.co/SG5sZIXL A lesson learned during the dot-com bubble is forgotten & must b re-learned. $$ #lockup Aug 18, 2012

Financial Markets

Stock Market Indicators http://t.co/sf0D3BDY Interesting take from the normally bullish Ed Yardeni $$ Aug 23, 2012
Hedge funds are betting on disaster http://t.co/dDtO6Cd3 Maybe some hedge funds r putting on “big shorts” through CDS, but most avoid vol $$ Aug 23, 2012
‘Insider Trucking’ Drives Strategy at J.P. Morgan Fund http://t.co/JZyRVZ5P This brings “bottoms up” analysis to a much lower bottom $$ Aug 23, 2012
The bond bubble still has room to grow http://t.co/DNM9teW1 High yield bond defaults typically peak 2-3 years after issuance peaks $$ Aug 22, 2012
FDIC files lawsuit tied to failed bank RMBS investments http://t.co/63GYJ7Zn I know many investors that did due diligence & avoided the prob Aug 22, 2012
The Profession’s Faulty Assumptions: A Top Ten List http://t.co/lAeCIRzq A worthy article displaying common errors for financial planners $$ Aug 22, 2012
Wrong: Why hedge funds may not be right for you http://t.co/SdPmZeRN Only global macro benefits from volatility, other HFs like calm $$ Aug 21, 2012
Is Your Credit-Card Company Secretly Screwing You Over? http://t.co/7ptHex0g Excellent advice from @eddyelfenbein . Follow it & prosper $$ Aug 21, 2012
Goodbye, Growth. Hello, Dividends. http://t.co/AO2STJhx Companies pay divs get more efficient w/capital. Doesn’t slow growth much $$ Aug 20, 2012
When Wall Street Watchdogs Hunt Whistle-Blowers http://t.co/YyY6UREt Really a sad article. Try to do the right thing & many fight u $$ Aug 20, 2012
A Flock of Black Swans http://t.co/ClDRJYho Study history & other cultures &u may find possible some things considered impossible by many $$ Aug 20, 2012
Russell To Close All But One Of Its ETFs http://t.co/wjKsHrEp A trend that I think will come to most marginal ETF providers $$ Aug 20, 2012
Calpers Defends Pension Benefits While Risking Losses http://t.co/1nnyYD7t CALPERS relishes its importance, but not its performance $$ Aug 20, 2012
Five Myths about Glass-Steagall http://t.co/hgzzPkgM What’s the other side of the argument here? The Fed was hollowing out G-S b4 GLB $$ Aug 20, 2012
Revisiting Stocks For The Long Run http://t.co/b1Dz4mOk DIfficulty of using & rolling the 30-yr Tsy… it’s a very special bond $$ Aug 20, 2012
Wrong: Six Investment Moves to Make Now http://t.co/kkoarfR8 Reads like this: missed the rally, so take more risk now to make up 4 it $$ Aug 18, 2012

China

China Confronts Mounting Piles of Unsold Goods http://t.co/qXaOoX0h As w/any command & control economy, eventually get gluts & shortages $$ Aug 24, 2012
How China Sees America http://t.co/Cv0d61KI Believe US a revisionist power, seeks2curtail China’s political influence & harm its interests Aug 24, 2012
Caterpillar Cuts China Production as Digger Slump Reaches Mining http://t.co/Rprs0FS2 China’s coming slump has ripple effects $$ $CAT Aug 24, 2012
China Has Become One Big “Stuffed Channel” http://t.co/aAFwHUyj Strategies of promoting exports & forced industrialization have failed $$ Aug 24, 2012
Weak Demand Drags on Chinese Carmakers, Earnings Growth Stalls http://t.co/dvIrhc0D China slowing rapidly, also c http://t.co/po7PVA3a $$ Aug 22, 2012
For China, Too Much Steel Isn’t Enough http://t.co/af9MjbWT Economic growth happens when actions expand options 4 society as a whole $$ Aug 22, 2012
China’s Brewing Pension Crisis http://t.co/pHq4Ijgg Still at $3T, it’s a lot smaller than what the developed nations r facing $$ Aug 22, 2012
China Reluctance on Reserve Cut Signals Inflation Concern http://t.co/WcH0kKkM If inflation starts running in China, the game changes $$ Aug 20, 2012
China?s Yuan Decades From Challenging Dollar http://t.co/J3hmRaID It takes a long time to create deep/transparent capital markets $$ Aug 20, 2012
China Said to Order Action by Banks as Developer Loans Sour http://t.co/EUj63rb3 This is a liquidity crisis, not a solvency crisis, NOT $$ Aug 18, 2012

Money Market Funds

Statement Regarding Money Market Funds by Commissioner Luis A. Aguilar http://t.co/6RNScb0L Well-thought out dissent on MMFs. Good job $$ Aug 24, 2012
Wrong: The lurking dangers in money market funds http://t.co/q2X3gSe8 Another scare piece. MMFs are more stable than banks $$ Aug 23, 2012
Just sent Mary Shapiro my compromise proposal on money market funds. Hope she grabs it and runs with it http://t.co/vuNGATPK $$ Aug 23, 2012
Big Blow for Money-Fund Overhaul http://t.co/jnRnfA97 Yay! No changes for MMFs, which are better managed than banks. $$ Aug 23, 2012

Municipal Bonds

The 5 Biggest Muni Defaults Ever http://t.co/BlqI96wY Instructive. CA & OH tobacco bonds, Jefferson County, AL, American Air & WPPSS $$ Aug 23, 2012
Should Muni Investors Follow Buffett to the Exits? http://t.co/6w7wgnzg Sound advice: B selective, only buy what funds necessity $$ Aug 23, 2012
U.S. muni market riled by Fed report on defaults http://t.co/6XC0OmS8 Corrects many false impressions generated by the NY Fed muni piece $$ Aug 23, 2012
School district debt, representing lgst % of California net par insured (35.5%), is ineligible for Chapter 9 BK http://t.co/TU0uG87h $$ $AGO Aug 22, 2012
Buffett?s Exit From Muni-Bonds Signals Trouble Ahead 4 Local Govts http://t.co/Ay9eG3uj Don’t think so; Buffett still owns lotsa munis $$ Aug 21, 2012
Meredith Whitney?s Muni Prediction Gets No Boost From Fed http://t.co/hVWiQBrx Fed study focused on risky areas, non-rated & IDBs $$ Aug 21, 2012

Other

College Tuition’s 1120% Increase http://t.co/632ueDsX Outstrips even the rising cost medical services $$ Graph: http://t.co/bvYQljFC Aug 24, 2012
The closing of American academia http://t.co/MTQjCPQv Adjunct professors earn little&teach a lot. But getting a PhD in Anthropology: Fail $$ Aug 24, 2012
Lawyer separates variable annuity investor & annuitant, allowing him 2 benefit from the deaths of sick people http://t.co/C2xwCtRc $$ Aug 24, 2012
My Last Post – Arnold Kling http://t.co/YvJPt3RH One of the best hangs up his blogging. It’s the way of the internet, ephemeral $$ Aug 24, 2012
Blind Mice Given Sight After Device Cracks Retinal Code http://t.co/pIaxnTtH Looks like a huge advance $$ #goodnews Aug 23, 2012
Wrong: How algorithms will help us spend, spend, spend http://t.co/of3Bhyll People will start blocking it, like telemarketers $$ #FTL #fail Aug 21, 2012
Hopes for Chestnut Revival Growing http://t.co/Y58WfC9n Efforts to restore the chestnut tree seem to be succeeding $$ Aug 21, 2012
Historians, rather than mathematicians usually make better economic predictions, but that’s not saying much… http://t.co/db7NDOKf Aug 20, 2012

Eurozone

Greek Crisis Evasion to Fore as Merkel Hosts Hollande http://t.co/wlXKlz8h Not sure how this will lead to a long-term solution $$ Aug 23, 2012
Last Man Standing Means Europe Investment Banks Resist Cuts http://t.co/eIauqQj1 Total capacity must fall, the survivors get better biz $$ Aug 22, 2012
Wrong: Spain and Italy Are (Probably) Fine http://t.co/5jiC6zRQ Add in the social welfare obligations & dysfunctional politics $$ Aug 20, 2012
Finnish Euro Doubts Hide Business Plea to Commit to Currency http://t.co/rDbf5isL Euro weak 4 core EZ countries, & 2 strong 4 EZ-fringe $$ Aug 20, 2012

Around the World

First Solar to Build India Farms as Outages Propel Sun Power http://t.co/MJGiIrhj Sunshine is more reliable than India’s electric grid $$ Aug 23, 2012
The ECB: Europe’s Conditional Bank http://t.co/6abGujtg “these ideas fail to take account of a key ECB requirement: conditionality.” $$ Aug 21, 2012
A Tax Revolt in Japan, and a Bond Bubble Too http://t.co/CoL7Ticw Unrealistic view; financial claims exceed Japanese resources $$ Aug 22, 2012
What a Tangled Financial Web Terrorist Networks Weave http://t.co/84eBN6Mc In a networked era, difficult2avoid leaving digital breadcrumbs Aug 22, 2012
“The FSA warned that its [risk] survey results were based on self-assessments by individual [hedge fund] managers” http://t.co/KWb6ktQy $$ Aug 21, 2012

Energy

Think Gas Prices Are Bad Now? http://t.co/l4srlshm Between Iran & refinery outages, gas prices are rising particularly on the coasts $$ Aug 21, 2012
The Exquisite Symmetry of the Natural Gas Revolution http://t.co/QSit1HWT 10 points on how cheap natural gas is an aid 2 the economy $$ Aug 21, 2012
Methanol Wins http://t.co/yYP0Z1Qp Interesting experiment fueling a car w/methanol did not take much effort, cheaper & cleaner $$ Aug 20, 2012

Comments

“None of the things you mentioned are markets. The article above is about manipulating markets, not?” ? David_Merkel http://t.co/OcU9gn4O Aug 25, 2012
Tropical storm Isaac is likely to miss Tampa anyway, storm is consistently moving west of the forecast track of NOAA $$ Aug 24, 2012
Haiti has trouble w/rain & 40 mph winds, much less 60 mph $$ RT @AnnieLowrey: Forget Tampa. Pray for Haiti. http://t.co/eJBxmukv Aug 24, 2012
@PlanMaestro Thanks 4 passing the article along; some of those benefit designs are astounding $$ Aug 24, 2012
@BubblesandBusts I don’t think so Aug 24, 2012
@AnaCapMgmt Very good points. There are others trying to do things his way, but difficult 2 manage an insurance investing conglomerate $$ Aug 24, 2012
@ToddSullivan Yes, and here it is: http://t.co/SqXcFiqI Aug 24, 2012
RE: @bloombergview The only way medical costs will decline is to move to a first-party payer system. When its your ow? http://t.co/Dzjy8j6b Aug 24, 2012
“Impossible to manipulate markets without leaving accounting trial. Conspiracies r bunk.” http://t.co/WaXMpySm http://t.co/TPnCsHiB $$ Aug 24, 2012
RT @fundmyfund: again why is Japan stock market not up 100% of %,they did many QEs and CB can buy equity assets there.Its mostly psychol … Aug 24, 2012
plus ?a change, plus c’est la m?me chose $$ RT @munilass: So Glenn Hubbard has started blogging and Arnold Kling is giving it up. Egads. Aug 24, 2012
@rajivatbarnard Nice piece. Did not know you had written it, because my RSS reader broke 2 months ago & I have not rebuilt it yet $$ Aug 24, 2012
@ShawnMcFarlane My proposal makes MMF holders take losses in bites, and avoids “runs of funds.” U can read it here: http://t.co/vuNGATPK Aug 24, 2012
RT @merrillmatter: @ShawnMcFarlane @alephblog I disagree. They should not be FDIC insured and should be allowed to ‘break buck’ on occasion. Aug 24, 2012
@politicoroger Isaac may hit the gulf coast on FL panhandle or further west. God is not man or woman, but he represents himself as a man Aug 24, 2012
RE: @bloombergview Hasn’t worked so far. Doing the same thing repeatedly and expecting different results $$ http://ww? http://t.co/tIOtLhYh Aug 23, 2012
@nereidadin Yes, no response yet Aug 23, 2012
@foxjust Just sent it off to her. Commented on her article, but Reuters is having issues w/blogs and comments these days Aug 23, 2012
@SallieKrawcheck @Reuters Would you be willing to review my compromise proposal on money market funds? http://t.co/6vrVXVGS Thanks. Aug 23, 2012
@foxjust Been pushing this idea for 3 years, have sent it to the SEC, but I’m a disinterested nobody. Felix Salmon liked it, as have others Aug 23, 2012
@eisingerj Would you be willing to look at my compromise proposal on MMFs, & tell me what you think? http://t.co/vuNGATPK $$ Aug 23, 2012
@foxjust Would you be willing to look at my compromise proposal on MMFs, & tell me what you think? http://t.co/vuNGATPK $$ Aug 23, 2012
@merrillmatter I’ve even heard that Dihydrogen Monoxide is making is way into the water supplies! $$ #help #thereisalwaysenoughtimetopanic Aug 23, 2012
@TFMkts @The_Analyst Good points, seems to be more mkt timing than disaster, though I know of some putting on CDS trades. Pay prem & hope $$ Aug 23, 2012
@munilass Yes, that’s correct, but I could not fit that in. Aug 23, 2012
@TheStalwart Really seems like Romney was on the aggressive side of legal on taxes, but his investments aren’t unusual for a rich guy $$ Aug 23, 2012
@TheStalwart Do I have this right then: a company that Romney invested in was 1 of the lenders through CLOs to American Media Operations? $$ Aug 23, 2012
@BarbarianCap Thanks for the praise. I just try to write about what is most motivating to me on any given night Aug 23, 2012
@moorehn Read some of the comment letters at the SEC, a non-stable public NAV 4 MMFs would cause significant harm to users. $$ Aug 23, 2012
@Dvolatility Yes, I heard, that was a decade or so in the making. Actuaries sometimes joke that we keep GASB around 2 make FASB look good $$ Aug 23, 2012
@Dvolatility does that affect Poway School district’s ability to service their debt? Yes, data quality varies more with munis than corps Aug 22, 2012
@Dvolatility don’t knowhow to bring their thinking up a level of complexity, and say, if CA is in trouble, and San Diego County, then how + Aug 22, 2012
@Dvolatility Just read a few articles on overlapping debt. Interesting; love to learn. I think some investors don’t look at it b/c they + Aug 22, 2012
@Dvolatility Yes, but I am not an expert on it; as investors go, I am a generalist Aug 22, 2012
@Dvolatility What do you mean by overlapping? I just found it interesting that CA schools can’t use BK Ch 9… Aug 22, 2012
RT @TheStalwart: In the old days, the idea that None Of The Above could actually ‘win’ (thus making an office go unfilled) was promoted … Aug 22, 2012
RT @historysquared: The $Fed is like the frustrated driver who keeps pumping gas into a car that won’t start, eventually flooding the en … Aug 22, 2012
@GaelicTorus I might be inclined to the bank debt of $ZNGA or $GRPN. No way $FB goes broke; it has a franchise $$ Aug 22, 2012
@joshuademasi I’m saying that Japanese society has not yet come to grips with its inability to fund future promises, that’s all $$ Aug 22, 2012
Clever and not what I expected $$ RT @AnnieLowrey: “But at least now we know.” http://t.co/mh5Ldk62 Aug 22, 2012
Just finished complex stock screening: 28 candidates, auto parts, airlines, insurers, regional banks, infotech, retail, etc. $$ #bizarre Aug 22, 2012
“At that price, bondholders will scour the Globe 4 external assets of Belize, and place liens on them” $$ David_Merkel http://t.co/rZGmkSgQ Aug 21, 2012
“Maybe they should team up with the US Postal Service. Lotsa locations, and they need $$” ? David_Merkel http://t.co/lKe9ShxQ Aug 21, 2012
@LarryThompson5 Historically, successful political movements do 1 of 2 things: form a 3rd party, or gain influence over1 of the parties $$ Aug 21, 2012
@LarryThompson5 I would agree w/u that #OWS is not Dem-driven. Some tried to use it, couldn’t figure out how, vs repubs co-opting t-party $$ Aug 21, 2012
Catch my comment http://t.co/FHwMSyLX Yes, 4 2 reasons RT @ritholtz: Is Pension-Plan Shift Into Bonds Permanent? http://t.co/OWjdqPjH $$ Aug 21, 2012
@WatersLogan Good, keep it up. 12% of my readers are Canadian. Aug 21, 2012
@TheStalwart Here it is: http://t.co/fBvKxQXq Aug 21, 2012
@TheStalwart I wrote a data-intensive post on the Poway School Distirict, and you didn’t post it to BI, but lesser posts did make it to BI. Aug 21, 2012
@ETFProfessor1 I understand and that is fine. Aug 21, 2012
@e_d_sanders I’m interested in stopping the next crisis; I would like to end interstate branching, and hand regulation back to the states $$ Aug 21, 2012
@milktrader Thanks, nice to know it is not just me. Aug 20, 2012
Anyone else finding Yahoo Finance to be squirrelly now? $$ Aug 20, 2012
@ritholtz I live near Baltimore. B4 my father-in-law died, wud visit in-laws in La Jolla every few years. Wife’s favorite beach near Romney Aug 20, 2012
I know I have walked past it; didn’t know Romney owned it $$ RT @ritholtz: Mitt Romneys water front LaJolla shack http://t.co/ee8AwnEN Aug 20, 2012
@asymmetricinfo Most homeschoolers in Howard County, MD r secular, many r liberal; the schools r not performing well; HS kids get peer time2 Aug 20, 2012
RT @asymmetricinfo: Why worry homeschool kids won’t get socialized? It’s spending most of your time around a mob of your own age that is … Aug 20, 2012
As a class yes, some won’t gain critical mass $$ RT @GaelicTorus: but bond etf doing ok, right? low costs, asset growth – as a class Aug 20, 2012
Too much honesty there $$ RT @RNPJHP: @The_Analyst @AlephBlog RBC Dominion told me they can’t make 5% returns on client’s money! Aug 20, 2012
@wesbury @ 1st Tsy-blogger summit, I encouraged the high-level people there to do that, & what are they considering now — floaters! $$ Aug 20, 2012
@ETFProfessor1 You would probably know better than me. It seems economics of running a bunch small funds is poor. Open to your thoughts $$ Aug 20, 2012
@abnormalreturns I would consider $FB @ around $8, a touch over book value and a PEEG ratio of 50%, mainly b/c revenue model is unclear $$ Aug 20, 2012
@ToddSullivan I knew you were being sarcastic, just wanted to flesh out my thoughts further Aug 20, 2012
@ToddSullivan Of course that’s easier; I use a technique like that to try to deal w/high growth situations that r uncertain $$ Aug 20, 2012
Hard to compete against $AMZN, which doesn’t have an immediate profit motive. $BKS http://t.co/SC5gA1Ps Aug 20, 2012
“Corporate spread tightening is highly correlated w/VIX, another reason $$” ? David_Merkel http://t.co/R9vTpa7s $$ http://t.co/M7X60pC5 Aug 20, 2012
@ToddSullivan I would try this 4 $AAPL — est mkt size @ maturity, time 2 maturity, value of biz then & discount @ 12% 2 get NPV/sh $$ #swag Aug 20, 2012
“Almost no one arrives early to a fad/motif, so investing of this sort is likely to lose.” ? David_Merkel http://t.co/yCJ0K9SY $$ Aug 20, 2012
Much wisdom from Mr. Berra $$ RT @JATranfo: @AlephBlog As Yogi said, “Making predictions is hard, especially about the future.” Aug 20, 2012
“I get surprised by what gets attention when I write. To have two pieces on the top 10 list is?” ? David_Merkel http://t.co/UpaKEY0I $$ Aug 20, 2012
RE: @bloombergview Pray tell, what interest does Putin have in liberalizing? Current system favors his retention of p? http://t.co/RjR8WI0C Aug 20, 2012
@geronimo2003 It means that mortgage bonds will lose net demand, but F&F will still gtee conforming MBS. Pvt sector can absorb supply $$ Aug 20, 2012
+1 Well done $$ RT @AmityShlaes: Lobsters as metaphor for everything, including Obama trade policy: http://t.co/qDn83Fqs Aug 19, 2012
@StockTwits got the ticker wrong. Mosaic is $MOS , Monsanto is $MON . Both in agriculture… $$ Aug 18, 2012
@prchovanec They should listen to Pettis, Walter, & Shih also Aug 18, 2012
@prchovanec If they are listening to you, that is good for all of us. $$ Aug 18, 2012

Sorted Weekly Tweets

Posted on 17 August 2012 by David Merkel

Note: Tomorrow (Saturday) I will be on WBAL Radio at 8:30 AM Eastern with local radio host Jimmy Mathis, talking about the markets.? If you are up, they do stream the broadcast.

Market Dynamics

Six Weeks of Green: Stocks Quietly Creep Higher http://t.co/XYxAfaOj Markets move up at half the speed they go down http://t.co/d09QUp8y $$ Aug 18, 2012
Premiums dominate in HY CEFs & loan participation CE funds, even the investment grade funds r seeing discounts fade. Too hot. $$ #yieldlust Aug 17, 2012
T. Rowe Price Small Cap Fund Veteran Preston Athey to Exit in 2014 http://t.co/Y6BRCnmW One of $TROW ‘s finest takes a less active role $$ Aug 17, 2012
Paulson Steps Up Gold Bet to 44% of Firm?s Equity Assets http://t.co/5ESGLVdl Makes me bearish on gold. Bad mkt could b a forced seller $$ Aug 17, 2012
What should I do with my money now? http://t.co/xqXtnPqb My view is this, if acctg is conservative, buy stocks P/TB < 1.5, P/E < 10 $$ Aug 17, 2012
Usage: That was a real Facebook of an IPO! 2) We really Facebooked the IPO buyers! 3) Avoid this IPO, it’s going 2b a real Facebook! $FB $$ Aug 17, 2012
Facebook puts follow-on on ice http://t.co/d2CMGLvl Avoiding adding insult to injury. Lousy IPOs in the future will be called “Facebooks” $$ Aug 17, 2012
It’s usually a bad sign when locals are selling, and foreigners buying. How do foreigners have more knowledge? $$ http://t.co/mhOHunFj Aug 16, 2012
Man overrides machine to tackle low bond yield risk http://t.co/IDTSByMr Momentum isn’t everything w/bonds, eventually mean reversion. $$ Aug 16, 2012
Whenever you mention CDS spreads, could you do us the favor of citing that spreads bonds are trading at? You are, aft? http://t.co/o3StHaG0 Aug 15, 2012
You Are Now About to Witness the Strength of Street Knowledge http://t.co/jV4bxWc4 Having a revenue model is an aid to stock performance $$ Aug 15, 2012
Even Amid the Current Turmoil, Stocks Still Beat Bonds http://t.co/fqTWnM6g Issuing this opinion: a crowded trade http://t.co/X6KGWp5b $$ Aug 14, 2012
Silver Hoard Near Record as Hedge-Fund Bulls Recoil http://t.co/gQpc19Hz Pressure for prices to fall amid ETF-based hoarding $$ Aug 14, 2012
Junk-Bond Buyers Plot Escape in Debt Gap http://t.co/lEVYDv9f Smart money moving up in liquidity & down in yield. Junk rally continues $$ Aug 14, 2012
A Green Light for Car Loans http://t.co/VqfWA4AK Banks, Finance Firms Boost Auto Lending; Fed Survey Finds Easier Standards $$ #moredebt Aug 14, 2012
Stocks: The ‘Safety’ Dance http://t.co/N9CNg4aO Defensive stock valuations high relative to cyclicals. Graph: http://t.co/Q17aYeiU $$ Aug 13, 2012
As Corporate-Bond Yields Sink, Risks for Investors Rise http://t.co/WeET5vWD Maybe. Debt-deflation has a funny way of persisting $$ Aug 13, 2012

Rest of World

Mexico’s big oil problem http://t.co/e3b6V19s Yrs of abuse &non-investment by PEMEX, milked by the govt, oil production declining fast $$ Aug 18, 2012
Iranian Currency Traders Find a Haven in Afghanistan http://t.co/Bcw8l03A Sorta fitting that Afghans make $$ breaking sanctions on Iran $$ Aug 18, 2012
Rate Cuts on the Cards for Norway and Sweden http://t.co/REReXdiF We need a new Gresham’s Law on Monetary Policy. See in next tweet $$ Aug 17, 2012
Bad monetary policy drives out good monetary policy when large countries inflate, & exporters in small countries complain about losses $$ Aug 17, 2012
You can say that again $$ RT @saraeisenFX: More signs of worsening credit quality in China http://t.co/KLAApyBy Aug 17, 2012
Aramco Says Virus Attacks Network, Oil Output Unaffected http://t.co/o0p8Rb94 What shall we call this? The Cold Techno-War? $$ Aug 16, 2012
The only way out for China: Andy Xie http://t.co/ROaF0C2S Problems only going2get worse as long as government interferes $$ #chinacrash Aug 15, 2012
Beijing Loan Guarantee Firm Teeters on the Edge http://t.co/XtapRo8W A sign of things to come, and how will China deal with the defaults? $$ Aug 15, 2012
China?s money outflow continues in July http://t.co/xpMby8WI The wealthy of China send capital abroad, so that they can survive anything $$ Aug 15, 2012
German Provinces Struggle to Lure Skilled Workers http://t.co/yN61QTaJ Europe can find work, but will have to find it in Germany $$ Aug 14, 2012
Correlation Breakdown as Proxies for Risk Boost Aussie, Kiwi http://t.co/4zQMFGQd Countries w/good $$ policy draw funds, harming exporters Aug 14, 2012
Africa’s pirates have demands – and letterhead, too http://t.co/GKbc4Jcm Not intimidation, merely “making you an offer you can’t refuse” $$ Aug 13, 2012
Mursi Sidelines Egypt?s Top Generals Amid Power Struggle http://t.co/KAOWGQdE Push is coming to shove; Military vs Muslim Brotherhood $$ Aug 13, 2012

US Economy

The case for supply-side tax cuts http://t.co/EYfStM7t Tax increase of 1% of GDP reduces output over the next 3 years by nearly 3% $$ Aug 17, 2012
London Firings Seen Surging as Finance Firms Add NY Jobs http://t.co/D0to5HSo Finance jobs grow where the regulations are lowest $$ Aug 17, 2012
5 years forward, five year inflation: http://t.co/q98ZknDn Seems to top out @ 2.7% recently, 3% longer-term http://t.co/rqFkN26r $$ Aug 16, 2012
Farmland Prices Surge Across the Plains States http://t.co/we6hZAcP Poss causes: hi grain prices & widespread use of crop insurance $$ Aug 16, 2012
The Downside of a Recovery in Housing http://t.co/BfzmDdYr “potential uptick in inflation measures, of which housing is a big component” Aug 16, 2012
Will births come back with the economy? http://t.co/sYqJjBXm Yes, people have more children when they are optimistic about the future $$ Aug 15, 2012
Wrong: What if baby boomers don’t live forever? http://t.co/kRLnHqrA Even if mortality does not improve @ prior rate, makes little $$ diff Aug 15, 2012
Mathematically Possible http://t.co/ziQNoQx4 Correcting the false assumptions of Obama’s tax gurus | Govt in DC is always dishonest $$ Aug 14, 2012
Clarity of communication is not the Fed’s problem. If you have bad policy, it doesn’t matter how you present it. http://t.co/C27MJ2QX Aug 13, 2012

Pensions

Unions protest Democrats at Illinois State Fair http://t.co/uU7twsOK Govt workers learn hard reality. Benefits not protected by ERISA + $$ Aug 18, 2012
Which means underfunded benefits may never b paid at the level promised. Taxes can’t b raised enough to make it work, either. Sorry $$ 🙁 Aug 18, 2012
@mckpartners There r 3 parties not getting blame here aside from the standard ones: 1) accountants that dreamed up lousy funding rules + $$ Aug 18, 2012
@mckpartners 2) Actuaries didn’t pushback on investment assumptions & 3) Union negotiators thot they were smart trading salary 4 pensions $$ Aug 18, 2012
Annals of dubious research, 401(k) loan-default edition http://t.co/LDLsN0f1 401k loan defaults r 2% of what widely-cited study claims $$ Aug 13, 2012

GSE Bailout Change

Fannie?s and Freddie?s Forgettable Friday http://t.co/kvfNkBcI Investment whose value is dependent on unknowable government policy $$ Aug 18, 2012
GSEs expected to unload delinquent loans after Treasury change http://t.co/2g7tiIxI Portolios to shrink through prepays/writeoffs 15%/yr $$ Aug 17, 2012
Anybody have guesses as2what $FNMA $FMCC $FNMAT $FMCCK should be worth? Pfds ~ 2 coupon pmts? Common stock ~ 0? Prob(going-away present)? $$ Aug 17, 2012
Treasury to wind down GSEs faster, only to be replaced with (insert solution here) http://t.co/mAtyKpHs Future of the GSEs in question $$ Aug 17, 2012
Treasury to Amend Terms of Fannie, Freddie Bailout http://t.co/iZcCdXML Cancels 10% div, all profits go2 Tsy. Comm stocks down 20-25% $$ Aug 17, 2012
Fannie, Freddie Pfds Sink As Treasury Amends Bailout Terms http://t.co/3pGEjsrF Down 52-55% today. That was the crunch you heard $$ Aug 17, 2012

Municipal Bonds

Bondholders, insurers challenge San Bernardino bankruptcy http://t.co/WE2vRb6e They allege SB finances are not in a state of emergency $$ Aug 18, 2012
That really stinks, can’t comment there also $$ RT @Tubulus: @munilass I think your head will slam into your desk – http://t.co/8G1e0plE Aug 16, 2012
The Untold Story of Municipal Bond Defaults http://t.co/2UKKOIUA Trivial thots from researchers @ NYFed, my comment: http://t.co/EP5aUq29 $$ Aug 15, 2012
Looking for Higher Yields? Try ‘Junky’ Municipal Bonds http://t.co/qo9DfZKt Safer than corporate junk, but less liquid. Be careful $$ Aug 13, 2012

Other

Apple judge: ?I see risk? and 7 more newsmaker quotes http://t.co/wyBoToT7 Notable quotes in the business world $$ Aug 17, 2012
The Valley of Free Food: How One Firm Caters to California’s High Tech Giants http://t.co/cijDNgdC Companies r armies; travel on stomach $$ Aug 17, 2012
Texas Seeks Seizure of Life Partners http://t.co/MWofrEv2 ‘Bout time. Life settlements should b illegal; no insurable interest $LPHI $$ Aug 17, 2012
More trial, less error: An effort to improve scientific studies http://t.co/i2PLAD5h Why I am skeptical of much biometric research $$ Aug 16, 2012
when $AMGN ‘s scientists tried to replicate 53 prominent studies in basic cancer biology … they were able to confirm the results of only 6 Aug 16, 2012
Mobile pay war: Wal-Mart and others vs. Google http://t.co/Q30PZQGP So much innovation in payment systems; wonder which will win? $$ Aug 15, 2012
Nassim Taleb: Stay Out of the Investment Industry http://t.co/ZyomTwjB Superinvestors of Graham & Doddsville r @ work & still making $$ Aug 15, 2012
Deep ocean lure grows as high-tech drilling pays off http://t.co/P4UP4ZWs The technology for extracting oil grows ever more complex $$ Aug 15, 2012
Buyers Beware: The Goodwill Games http://t.co/eA7XEXjr Check the cash from operations. Should exceed earnings if Goodwill is valid. $$ Aug 14, 2012
CLEAN UP THE BALANCE SHEET: GET RID OF DEFERRED TAXES http://t.co/DTfT8bRg Future income or losses can’t be assured, so not asset or liab $$ Aug 13, 2012

Comments

@BarbarianCap The firm I was with sold $AIG the day it went into the Dow. Close to a “top tick.” $HIG , did not do hearly as well 🙁 $$ Aug 18, 2012
@The_Dumb_Money @pkedrosky is a bright guy. Many got it right, but fads suck people in. Aug 17, 2012
RE: @boingboing Not too surprising. Many corporations pay low taxes b/c of govt incentives. Relationship 2 mgmt pay s? http://t.co/KoChJizm Aug 17, 2012
@Breakingviews The sooner the euro dissolves, the less will be the pain for all involved. It was a mistake from the start. $$ Aug 17, 2012
@pelias01 Many thanks for the many times you have asked people to follow me. I really appreciate it. Aug 17, 2012
@JimPethokoukis I’m reading it now; that’s a fair assessment. Beyond that, it reinforces how hard it is to do anything in DC $$ Aug 16, 2012
RT @PragCapitalist: Pushing up stock prices does not make underlying assets more profitable. The whole premise of the Bernanke Put is f … Aug 16, 2012
@FeeOnlyIndy I try to be fair, I don’t always succeed, and I do have my biases, so take me with a grain of salt, but thanks $$ Aug 16, 2012
@izakaminska Whenever I go to Boston, I always take the Water Taxi from the airport. Lets me off in Downtown –beautiful view of the city $$ Aug 15, 2012
@munilass Glad u said: “The Fed really ought to be embarrassed that it published something like this.” I didn’t say that & should have $$ Aug 15, 2012
@The_Analyst true… too much quantitative talent went to Wall Street, applied the wrong model: physics, rather than right model: ecology $$ Aug 15, 2012
My friend Eric Hovde sadly didn’t win the Wisconsin Republican Senate primary; Eric would’ve shaken up DC. Thompson is business as usual $$ Aug 15, 2012
“Proppants prop open cracks when hydraulic fracturing is done. $$” ? David_Merkel http://t.co/OuqTSMAc Aug 14, 2012
?I wasn’t that impressed w/Inker’s analysis. Does not take into account dollar-weighted returns. $$ http://t.co/C5Gh0pOl Aug 13, 2012
@nancefinance I was pretty nerdy, though not withdrawn, back then. My mom was a self-taught investor. I caught the bug from her. $$ Aug 13, 2012
When I was a teenager, I remember looking through the bond tables, noting that almost all prices were below 100. Today it is the opposite $$ Aug 13, 2012
@japhychron @Peter_Atwater You were more than mostly right, it’s a great book. Only wish it could have been bigger. $$ Aug 12, 2012

Sorted Weekly Tweets

Posted on 10 August 2012 by David Merkel

Life Insurance Secondary Guarantees

Hartford Mulls Client Buyouts to Cut Risk Buffett Called Ungodly http://t.co/Nv4jRlUC Advice: don’t take the Variable Annuity buyouts $$ Aug 10, 2012
The original: Buffett Says Insurers Took ‘Ungodly Amount of Risk’ http://t.co/pXfXv8ME Warren Buffett again is prescient cc: @PlanMaestro $$ Aug 10, 2012
@PlanMaestro Thanks4 flagging this. Together w/companies scaling back gtees 4 new prods, the buyout offers show the probs in the life biz $$ Aug 10, 2012
@PlanMaestro I am not in favor of peer review. Actuaries call themselves a “profession,” but they really technicians. Aug 09, 2012
@PlanMaestro Regulators not crazy for this, because they can’t understand it, & almost makes the companies self-regulating. Peer Review? $$ Aug 09, 2012
@PlanMaestro But actuaries are trying to get regulators to cmove to a Canadian-style principle based approach. In Actuaries we Trust! $$ + Aug 09, 2012
@PlanMaestro But the devil is in the details, and GAAP reserving does not always reflect antiselection. Stat tries to do that, but + $$ Aug 09, 2012
@PlanMaestro But you’re right, the 10Ks do contain approximate partial sensitivity data on economic value for most important variables $$ Aug 09, 2012
@PlanMaestro In 1999, I saw a VA that guaranteed 7% minimum return if held till death or annuitization $$ Aug 09, 2012
@PlanMaestro I said “Wow, how do you guarantee the better of 5%/yr and performance of the underlying 4 just 2.25%?” $$ Aug 09, 2012
@PlanMaestro I have a friend who is a $PRU agent. One day he showed me his hottest-selling VA product, and ask me how I liked it. $$ + Aug 09, 2012
@PlanMaestro Acctg can get really screwy if you hedge NPV or FMV; gets really noisy because the results pile up in the current year $$ Aug 09, 2012
@PlanMaestro hedging long-dated options, w/complex contingencies built into them. Do you hedge next few years, or NPV sensitivity? $$ + Aug 09, 2012
@PlanMaestro I was an ALM actuary for many years, typically we hedged partial durations; fixed income hedging is easy, what’s hard is $$ + Aug 09, 2012
@PlanMaestro many exposures are impossible to hedge b/c the contracts r long-term, and hedge instruments r usually far shorter $$ Aug 09, 2012
@PlanMaestro That’s one of my concerns about the life industry; secondary guarantees r virtually impossible to reserve, getting big now $$ Aug 09, 2012

Insurance Industry

@ReformedBroker Good post, same thing happens with young life insurance agents to a degree http://t.co/LbMyo48G $$ Aug 10, 2012
@Bonfire_Sherman P&C – P/TB vs ROTE, adjusted 4 business mix, reserve life & conservatism, mgmt quality, U/W cycle, never premiums $$ Aug 09, 2012
@Bonfire_Sherman Most of it is change in required capital. Life actuaries typically calculate “distibutable earnings” reflting stat & RBC $$ Aug 09, 2012
Anytime anyone talks about Financial Cos & tells u about Free Cash Flow, ask how they did the calc. C if they mention chg in req capital $$ Aug 09, 2012
Wrong: 3 Life Insurance Stocks Undervalued By Levered Free Cash Flows http://t.co/gF5HYRZb GAAP financials don’t have data4 FCF calcs $$ Aug 09, 2012
Aviva profits fall as it cuts the value of its US unit http://t.co/t816IjAZ Amerus IR was annoyed @ me 4saying the orignal deal expensive $$ Aug 09, 2012
@PlanMaestro HIG is next on my list Aug 09, 2012
@PlanMaestro Thanks, I know where to get them, but I have enough GNW on my plate for now, I took me two weeks to write my AIG piece. $$ Aug 09, 2012
@PlanMaestro Have not looked at HIG, after I am done with GNW may take a look. If u r looking at stat acctg, look @ pg 5 indiv annuities $$ Aug 09, 2012
@PlanMaestro That’s the thing, like AIG prior to the crisis, and Scottish Re, they are capital constrained; things have 2go right 4 them $$ Aug 09, 2012
@PlanMaestro & not so sure about the rest if investing for more than five years. $$ Aug 09, 2012
@PlanMaestro Aye, agreed. Oddly, my interest stemmed from a reader who asked me if I would invest in GNW bonds. Yes 4 GIC-MTNs + Aug 09, 2012
@PlanMaestro I’m going to write a broad piece about it, but follow it up, with a narrow piece focusing on the specific problems. $$ Aug 09, 2012
@PlanMaestro Intercompany surplus notes and preferred stock too. Aug 09, 2012
@PlanMaestro There’s a ton. Underreserving, capital stacking, capital interlacing, intercompany reinsurance, & I’ve ony been looking 2 hours Aug 09, 2012
@Bonfire_Sherman Good guess, I need to look at the life co stmts someday, esp. page 5 for Indiv annuities Aug 09, 2012
Ding! We have a winner! RT @RennieScinto: @AlephBlog gnw? Aug 09, 2012
I’m a fun guy, looking @ statutory statements of a major US insurer, though AIG in 2008 looked worse, this company doesn’t look good $$ Who? Aug 09, 2012
Online Dating for Homes Stumps Insurers http://t.co/R2fmztPa Y not have both deposit $$ w/the insurer plus a premium payment? #wouldwork Aug 08, 2012
Regulators Probe ‘Captives’ http://t.co/xbXQ5aYO How to bend life insurance reserves. Catch my comment: http://t.co/9WQWYZ3W $$ Aug 06, 2012
Berkshire Trims Municipal-Debt Bet http://t.co/9zhhbdtD Meredith Whitney, no. Buffett, yes. But even he is only selectively reducing $$ Aug 05, 2012

Poway School District

Article near issuance of Poway School District CAB http://t.co/kxAWCNxT Letter from CA AG: http://t.co/UiZM0j3K cc: @munilass @jamessaft $$ Aug 06, 2012
@jamessaft I’m not a muni expert like @munilass, but no, I would try to find another way to refinance prior debts. $$ Aug 06, 2012
Ideal buyer4the preceding bond would b Buffett, or a P&C company w/long-tail liabilities. Prospectus 4 wonks only http://t.co/nIKJvJje $$ Aug 06, 2012
Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools http://t.co/IPaABoXY Paying 7.6% IRR at a duration of 25. Astounding! $$ Aug 06, 2012
@munilass Also, I found the prospectus here: http://t.co/nIKJvJje Last Q: Do county tax levies into a sinking fund ever fail to work? $$ Aug 06, 2012
@munilass I get the holder taxes now. Poway was structured as a series of zero coupon notes, followed by 2 series of long lottery bonds $$ Aug 06, 2012
@munilass Used to be an asset-liability manager, so I look for that. 1 question: do you know how holders are taxed on a deal like that? Aug 06, 2012
@munilass This is just a crude estimate, but the IRR on the Poway deal is around 7.7%, and is nonrefinancable. Duration estimate 25 years $$ Aug 06, 2012

Rest of the World

China Export Growth Slides as World Recovery Slows http://t.co/u4YEUPQB China sneezes & the world catches a cold? no, important anyway $$ Aug 10, 2012
India?s Biggest Corporate Loss Shows Singh?s Dilemma on Deficit http://t.co/6xl7lsZD Force oil company to lose $$, eventually lose oil co. Aug 10, 2012
Housewives With Frying Pans Protest Japan Tax Hike as Debt Soars http://t.co/z3aeqjEv Taxes to double; can’t keep borrowing 4ever $$ Aug 10, 2012
Virus found in Mideast can spy on finance transactions http://t.co/V2GgyjpV Can spy on financial transactions, email & social networking $$ Aug 09, 2012
Toronto Condo ?Roller Coaster? Peaks as Flaherty Acts http://t.co/c6sJ0CqE Is Canadian housing a basketball (sss) or a bubble (pop)? $$ Aug 08, 2012
Iran?s Big Crisis: The Price of Chicken http://t.co/WXlUIIdL Describes some the economic difficulties of Iran under sanctions $$ Aug 08, 2012
Article makes a good point. The industries where China has overcapacity are power-intensive & are shrinking. Simple. http://t.co/IzyV0Bxe Aug 08, 2012
China’s answer to subprime bets: the “Golden Elephant” http://t.co/MP7LviwT Illiquid investments touting high returns w/lousy business $$ Aug 07, 2012
RE: Things are getting less equal in the US, because we allow more freedom here.? Globally, things are getting more e? http://t.co/WeGEEJF9 Aug 07, 2012
Presidential candidate up by 15%+ in August will win. If merely ahead, 9 times out of 12 he will win the Presidency http://t.co/soCj7Kf9 Aug 08, 2012
Swiss Banks Face Slow Death as Taxman Chases Assets http://t.co/13I9NkiQ Life’s tough when u can no longer help people cheat the taxman $$ Aug 06, 2012
Germany has the most to lose from a meltdown http://t.co/9JTwRfii Basically encourages an inflationary “solution.” Prob won’t work $$ Aug 06, 2012
If policymakers are worried about this, they are worried about the wrong thing. EU does not have that big… http://t.co/eCBlZg5I Aug 06, 2012
Summary: greater structural unity, mutualization of sovereign debts and a weak euro $$ Tough order for the… http://t.co/KN9pc0Pt Aug 06, 2012
Rogoff Sees World Wishing It?s America Year After S&P Downgrade http://t.co/MpStm7ww Relative flexibility pays off $$ Aug 06, 2012

Fixed Income

Lending in the offshore markets developed because of bad regulations here. It is outside US control & we should not m? http://t.co/C8y9rVFw Aug 10, 2012
In hunt for yield, hybrids flourish anew http://t.co/GCugG6A6 Credit rally revsup ppl grab yield in exchange 4 higher poss loss severity $$ Aug 09, 2012
Please, no $$ RT @CapitalCityIFR: In hunt for yield, hybrids flourish anew http://t.co/ZWbdRRl5 Aug 09, 2012
For a bad 30-yr Tsy auction, nice rally since then $$ Aug 09, 2012
A Greek banker, the Shah and the birth of Libor http://t.co/ibvVs9mE ht: @alea_ Started w/a loan 2 the Shah. Inauspicious start 4a big # $$ Aug 09, 2012
Definitely a weak auction, surprised long end not selling off $$ RT @ritholtz: 30 yr bond auction weak as well http://t.co/1gU89HMb $$ Aug 09, 2012
“Credit default swaps are easily manipulated. Rather, watch the bond market; it’s much bigger. $$” ? David_Merkel http://t.co/tESmTJsK Aug 09, 2012

Politics

The Neocon War Against Robert Zoellick http://t.co/vZreHf1n If Romney wins, pragmatic Zoellick could be influential on foreign policy $$ Aug 11, 2012
Christie Does Tenure http://t.co/J8krPlim Tenure is one of those sacred cows that hides the intellectually weak from consequences $$ Aug 10, 2012
In New York City, Microsoft Really Is Watching You http://t.co/trNOkU2d Interesting partnership w/NYC & $MSFT Civil liberties? $$ Aug 09, 2012
Postal Service $1 Million-an-Hour Loss Puts Abyss in View http://t.co/FVXMn5Di Raise stamp prices & costs 2 $FDX & $UPS $$ #simple Aug 09, 2012
Here’s The Real Reason The Feds Are Furious At The NY Regulator Going After Standard Chartered http://t.co/OmpwBILH Made Feds look dumb $$ Aug 08, 2012
RE: @bloombergview Dream, the Republicans will block this because it favors blue states over Red. $$ http://www.bloom? http://t.co/jT7EmSS0 Aug 08, 2012
I think it is a fair tradeoff to lose 2% of GDP in 2013 in order to get the economy growing. I agree with… http://t.co/mwuvnogX Aug 07, 2012
The Numbers Inside a Hot-Button Issue http://t.co/Fwois4YN Something to make everyone unhappy. Me: Don’t focus on rates, but deferral $$ Aug 07, 2012

Pensions & Endowments

State Pensions Get High Fees, Low Profits-Study http://t.co/3LRIL23c Add to that the lack of adequate funding &you have a serious crisis $$ Aug 10, 2012
Cornell, MIT Scale Back Aid Even as Endowments Rise http://t.co/WUoWDLLB Endowments provide less when rates r low, future cashflows smallr Aug 10, 2012
Defined contribution assets hit all-time high despite conservative shift http://t.co/7s9Stabd Amazing 2c bond alloc rising w/low rates $$ Aug 06, 2012
U can say that again $$ RT @e_d_sanders: @AlephBlog now this is an issue I know something about. Public pensions for execs are a nightmare Aug 05, 2012
Police Chief?s $204,000 Pension Shows How Cities Crashed http://t.co/ZorpuSjX Sloppy pension negotiating leads2 L-T cash flow crises. $$ Aug 05, 2012

Energy

Let the market decide.? If people want to pay a lot for gas, let them.? Why is Obama discouraging consumer spending? http://t.co/VT8xCyU0 Aug 10, 2012
Refiners Awash in Shale Oil Offer 10 Times Exxon Returns http://t.co/IIw9xXlb Buy cheap shale oil, ship to coasts, refine, sell & make $$ Aug 10, 2012
Louisiana sinkhole roils local natural gas network http://t.co/IkZxHLAs Now, who could have seen that coming? Risk is pervasive. $$ #sloorp Aug 09, 2012
Coal stocks typically have a lot of debt, beware $$ RT @MKTWBurton: Don?t mine this coal stock – Chuck Jaffe – http://t.co/nCQWfYzQ Aug 09, 2012

Other

Passed 10,000 tweets today. I quit Twitter after my first month, but came back to it after I saw its usefulness. Thanks 4 reading me $$ Aug 10, 2012
Heavy rain in Baltimore w/sleet and sunshine. Really weird weather. Sleet is neat, is hard to beat & will repeat, to make me tweet. $$ #ugh Aug 09, 2012
After Moods & Markets, Bailout is my next book to review. http://t.co/zkioUQ5N Aug 09, 2012
5 Questions Great Job Candidates Ask http://t.co/JpnpVWtu Questions show initiative, intelligence, & give u good jump pts 2 sell yrself $$ Aug 09, 2012
Novel Cure for Ailing Hearts http://t.co/RAiv4FYj Nanotech combines w/vascular endothelial growth factor to grow new heart muscle $$ Aug 09, 2012
Wrong: Business Is Booming in Empirical Economics http://t.co/aTNu4qfu U might get cute papers out of it, but nothing that generalizes $$ Aug 07, 2012

Companies

Yahoo Reviewing Business Strategy, Alibaba Proceeds; Shares Tumble http://t.co/ikk3dpeC Marissa Mayer has plans, & they require $$ Aug 09, 2012
Why Honda?s New Accord Looks Like the Old One http://t.co/6Ez8uL5i FD: + $HMC Designers tire of their designs long b4 users do $$ Aug 09, 2012
The WARN Act dilemma http://t.co/ilbxFsXD Defense, Fiscal cliff, DOL Guidance Letter saying ignore WARN act on 11/1, & elections $$ Aug 09, 2012
Hewlett-Packard?s Whitman Dismantles Hurd-Era Empire http://t.co/ySeeVM9w FD: + $HPQ She seems 2b evaluating each biz separately $$ #good Aug 09, 2012
The New York Times Is About to Say Goodbye to About,com http://t.co/frzrVlUq gives more details on the lossesv$$ Aug 08, 2012
New York Times Shares Rise on Deal to Sell About,com http://t.co/k5GarxXV Amazing how much $NYT lost on it, capital losses, neg income $$ Aug 08, 2012
Judge in Google, Oracle case seeks names of paid reporters, bloggers http://t.co/7vhmK5N3 Fascinating 4bloggers 2b paid $$ by corps quietly Aug 08, 2012
I do not get how http://t.co/ROsNYak3 could be worth $270M. What’s the revenue model? Ads? $$ http://t.co/n1ddWxvU Aug 08, 2012
Wrong: The PC looks like it’s dying http://t.co/IqeVAbi6 Like most tech, when it matures, it finds & stays there. Think of “dead” radio $$ Aug 07, 2012
Amazon Is No Wal-Mart…Yet http://t.co/cmEjPHHu Relatively neutral article on $AMZN by Martin Sosnoff; prob: treats AMZN as retailer $$ Aug 07, 2012
Why FedEx and UPS Want the Postal Service to Survive http://t.co/MAaCfOXQ Solution: raise stamp prices, and prices to $FDX and $UPS $$ #easy Aug 05, 2012

Monetary Policy

Fisher Says More Stimulus May Overburden Central Banks http://t.co/5ZMlKO5G 3-time winner of coveted “FOMC loose cannon award” speaks $$ Aug 08, 2012
Economic Musings – Fed eyeing a new kind of twist? http://t.co/aUezU2XE $$ Extending duration in MBS; creating larger losses later $$ Aug 08, 2012
RE: @bondtrader83 That’s not all that much different than the 1st Twist. It’s duration extension in MBS. Wait till ra? http://t.co/PrMHBSGh Aug 08, 2012
How about quantitative easing for the people? http://t.co/inHK9NF2 Would work better than current QE/Twist etc, but this frightens me. $$ Aug 08, 2012
Wrong: Bernanke to Economists: More Philosophy, Please http://t.co/9638QlHo Been down this road; utility theory doesn’t explain mankind $$ Aug 07, 2012

Housing & Related

Public-Housing Parking Lots Make Everyone Poorer http://t.co/2gensCd8 Set rates to achieve 15% vacancy; Rather than lots, have garages $$ Aug 08, 2012
Home Prices Climb as Supply Dwindles http://t.co/hMoZBsNZ Good news for the low end of the market, high end will take time $$ Aug 08, 2012
Fannie Mae profits rolled into rainy day fund http://t.co/bDWphSuE Good for Fannie & Freddie preferred, not worth anything 4 the common $$ Aug 08, 2012

Financial Companies & Markets

NYSE in talks with SEC to settle data probe http://t.co/FkxBtlbz Wow, faster data feeds 4 some special clients; level the playing field $$ Aug 09, 2012
Are Diamonds an ETF?s Best Friend? http://t.co/RHbSghCw Bad things happen when you take something illiquid and try to make it liquid $$ Aug 08, 2012
Richest Family Offices Seeing Fastest Growth as Firms Oust Banks http://t.co/NqY9650P UberWealthy get $$ talent; tax savings >> costs Aug 07, 2012
4 ETF Lessons From Knight http://t.co/st6wbNgR Lead Market Makers matter, Markets Work, Settlement Works, Illiquid ETFs Need Helpers $$ Aug 06, 2012
Other problem: active etf gives away trading information it might rather not divulge, leading to front-running. $$ http://t.co/q4XXZwRv Aug 06, 2012
A Tale of Two Fund Giants: American Funds vs Vanguard http://t.co/46rFsL9e Key advantage for Vanguard was embracing ETFs early $$ Aug 06, 2012

Repos

Banks? Liquidity Hinges on Risky Assets http://t.co/45Iw5Dz9 Repo lending is subject2runs during credit panics which depress collateral $$ Aug 08, 2012
Good one $$ RT @pdacosta: Watch out for the grim repo-er RT @cate_long Banks? liquidity hinges on risky assets http://t.co/9lk0GjA0 Aug 08, 2012
The danger of repo http://t.co/mZDG9Ocb Repo is weak financing in crisis; 3-mo T-bills would b a better index 4 Tsy floating rate notes $$ Aug 06, 2012

The Equity Premium

That would get the advantage of stocks over high quality bonds down to ~1-2%/year. Outperforms with a *lot* of noise $$ Aug 11, 2012
Bill Gross Is Wrong About Stocks: GMO http://t.co/c6gJwfUB Truth inbetween; have GMO adjust 4 $$ -weighted returns, not time-weighted Aug 11, 2012
Bonds for the Long Run http://t.co/MmkoYk3U @ritholtz nails it. Advantage of stocks over bonds is ~1%/yr over the long haul. Limited data $$ Aug 10, 2012

Comments

@LDrogen After reading this, I have more certainty that airbnb has already worked out some of the bugs http://t.co/Xx3ztVZv $$ Aug 10, 2012
@LDrogen Fine, Leigh, I hope it works. When single party lending gave way to securitization, it was unstoppable, until lending stds died. $$ Aug 10, 2012
RE: @ldrogen Multiple party economic dealings have their issues.? Consider: http://t.co/Z2rRNeTS? http://t.co/gCrEYzX2 Aug 10, 2012
‘ @TheOneDave In a word: depletion. Costs are rising to incremental barrels of oil, and ounces of gold. $$ Aug 09, 2012
@PlanMaestro $CLD LTD/E ~89%, take a look at $HNRG Hallador Energy. I’m not looking @ coal names until I see a few go BK, like steel 2002 $$ Aug 09, 2012
@PragCapitalist Depends on slope of demand curve 4 Tsys. Compare it2the former on-the-run. Jump of 6 bps high for that spot on the curve $$ Aug 08, 2012
@groditi Effective Yield series. Was trying to show that junk yields don’t compress as much when HQ-yields are low. Would have liked OAY $$ Aug 08, 2012
@PragCapitalist If it gets enough assets to survive $$ Aug 08, 2012
@footnoted …and maybe adjs for a year, but large writeoffs mean that prior earnings were overstated; testifies to bad mgmt quality $$ Aug 08, 2012
@footnoted That’s one reason why I tell investors to look at LT growth in BV + Divs rather than op income. I accept adjustments 4 a qtr + $$ Aug 08, 2012
RE: @bloombergview The single period cost to fix might be small, the continuous transfer cost would be considerably l? http://t.co/9gyFVvh4 Aug 08, 2012
RE: @bloombergview When games change from two players to three players, things get messy if no single player has most? http://t.co/TU09OZml Aug 08, 2012
Most pessimistic he’s been on China debts RT @groditi: Wow. I’m used to Pettis’ Euro-pessimism, but he’s not holding back here. U MAD, PROF? Aug 07, 2012
Always a great read RT @groditi: yaaaaaay new Pettis! Aug 07, 2012
@AnaCapMgmt Ain’t true. The foolish models of economists do not take into account political realities, and when inflation runs, no ammo. $$ Aug 05, 2012
@LisaCNBC Ask him how confident he is in India’s power grid. After that, the water supply. $$ Aug 05, 2012
‘ @pvitha Gold moves inversely to real interest rates, a.k.a. cost of carry, that’s all I know. $$ Aug 06, 2012
‘ @WTOP Romney shouldn’t worry about the Fed; they are out of ammo. QE is a joke, as is Operation Twist, and forward fed funds guidance. $$ Aug 05, 2012
+1 I like to say that 🙂 RT @BarbarianCap: “there are more debt claims than resources to pay them at par” Aug 05, 2012

On the Poway School District

Posted on 10 August 201210 August 2012 by David Merkel

I am not an expert on Municipal Bonds, so if an expert reads this, and has corrections for me, please leave corrections in the comments.

In general, I am a conservative guy who avoids situations with a lot of debt.? I am also an actuary and a financial analyst who has a lot of experience with long dated assets.? I know how illiquid they can be, and how violent the price moves can be when they happen.

Most of the discussion here stems from this article: Where Borrowing $105 Million Will Cost $1 Billion: Poway Schools.

There are a few other notable writers who have picked up on this:

But unlike them, I want to give you more data, and less opinion.? For a start, here is the dense prospectus, should you want to review it.

As an aside, I looked at buying a house in Poway back in 1989, when I was considering a job in San Diego with the soon-to-be gone First Capital Holdings.? Poway was what I could afford in such an expensive area.

Financial crises always come at the wrong time.? In 2007, the Poway School District borrowed money to fix up the physical plant of the schools.? They financed it short-term, then in early 2009 issued the “A” notes, financing much of the project, encumbering tax revenues out to 2032, and allowed the rest to float via General Obligation Anticipation Notes.? The “A” series were also capital appreciation bonds, which means they are zero coupon bonds, and the interest comes from buying the bonds at a discount to the face value, and receiving the face value at maturity.? The time period was shorter then the “B” notes, so they were cheaper, and hence less odious.

Given that they had already encumbered tax revenues all the way out to 2032, and had a large amount of debt that they needed to refinance, they needed to issue more permanent debt.? They were already at their maximum level of what they could expect given assumed growth in the property tax base, so what could they do if they wanted to issue more general obligation debt without raising the tax rate?

After getting the assent of the voters in February 2008, to extend tax rates for an estimated additional 11 to 14 years, they issued the “A” notes, and then in 2011, the “B” notes.? The “B” notes picked up where the “A” notes left off.? They would make payments from 2033 through 2051.

Now, anyone who has worked with long duration fixed income (there aren’t many of us) know a few things:

It’s illiquid because there aren’t that many that can fund it for so long.?? It becomes the province of strong balance sheets and speculators.
It’s rare for people to give up current income for capital appreciation over the long haul.? Most people need income over the next 20-30 years.
Slight changes in the interest rate can make a lot of difference to the value of the debt.
When you issue very-long-dated credit-sensitive notes, expect to pay a high yield.? Poway SD is rated Aa2/AA-.? That’s a high rating, but when you say you will pay nothing for 20 years, that injects a lot of uncertainty/risk into the likelihood of payment.

After all, what will the courts be like 20 years from now?? What will the nation be like?? What will we default on or inflate away?? I know that present rules make it difficult for any entity to not repay General Obligation debt, but 20 years from now, things could be different.

The “B” notes, capital appreciatin bonds, that they offered in 2011 refinanced prior debts, and left $21 million to be used as they wished, which raised the hackles of the California Attorney General, though nothing came of that.? Letter from the Attorney General Article on the topic — Second article on the topic

Take a look at the sources an uses of funds:

ESTIMATED SOURCES AND USES OF FUNDS

The proceeds of the Series B Bonds are expected to be applied as follows:

Sources of Funds

Principal Amount of Series B Bonds??? $105,000,149.70
Original Issue Premium?????????????????????????????? 21,360,189.45
Total Sources???????????????????????????????????????????? $126,360,339.15

Uses of Funds

Deposit relating to partial payment of
Lease Revenue Bonds(1)????????????????????? ?? ? $98,707,473.55
Deposit for full payment of 2010 Notes 26,270,000.00
Costs of Issuance(2) ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??? 569,114.44
Underwriter?s Discount????????????????????????????????????? 813,751.16
Total Uses????????????????????????????????????????????????? $126,360,339.15
____________________
(1) Includes $98,327,473.55 for partial payment of the Lease Revenue Bonds and $380,000 for payment of costs associated with refinancing the Lease Revenue Bonds.
(2) Includes, among other things, the fees and expenses of Bond Counsel, the fees and expenses of Disclosure Counsel, the fees and expenses of District Counsel, the fees and expenses of the Paying Agent, the fees and expenses of School District consultants, rating fees, the cost of printing the preliminary and final Official Statements and other costs associated with issuing, selling and delivering the Series B Bonds, as well as costs associated with refinancing the 2010 Notes.

I would note that the premium was entirely applied to the reduction of existing debts.? They may not be debts of the same class, and that makes me wonder.

Now capital appreciation notes are politically controversial.? Here is a White paper from the LA Treasurer, and here is an article about it.? It’s not that different than what you have heard already.? Borrowing using long zero coupon notes is expensive.

Let me show you the cash flow table for the “A” and “B” bonds.

Year	Series A	?	Compounded	Series B	Total
Ending	Total Annual	Principal	Interest	Total Annual	Combined
August 1st	Debt Service	Payment	Payment	Debt Service	Annual
?	?	?	?	?	Debt Service
2012
2013
2014
2015
2016
2017	$3,720,000	$3,720,000.00
2018	4,580,000	4,580,000.00
2019	5,525,000	5,525,000.00
2020	6,560,000	6,560,000.00
2021	7,690,000	7,690,000.00
2022	8,925,000	8,925,000.00
2023	10,275,000	10,275,000.00
2024	11,745,000	11,745,000.00
2025	13,355,000	13,355,000.00
2026	15,095,000	15,095,000.00
2027	17,005,000	17,005,000.00
2028	19,070,000	19,070,000.00
2029	21,350,000	21,350,000.00
2030	23,800,000	23,800,000.00
2031	26,455,000	26,455,000.00
2032	48,960,000	48,960,000.00
2033	16,615,000	6,570,615.00	23,929,385.00	30,500,000.00	47,115,000.00
2034		9,192,225.60	37,487,774.40	46,680,000.00	46,680,000.00
2035		8,803,904.00	39,516,096.00	48,320,000.00	48,320,000.00
2036		8,305,119.90	41,464,880.10	49,770,000.00	49,770,000.00
2037		7,923,383.30	43,086,616.70	51,010,000.00	51,010,000.00
2038		7,522,497.40	44,507,502.60	52,030,000.00	52,030,000.00
2039		7,107,169.80	45,702,830.20	52,810,000.00	52,810,000.00
2040		6,607,225.80	46,732,774.20	53,340,000.00	53,340,000.00
2041		6,072,404.70	47,537,595.30	53,610,000.00	53,610,000.00
2042		5,268,942.40	48,470,788.40	53,739,730.80	53,739,730.80
2043		4,900,657.60	48,974,867.45	53,875,525.05	53,875,525.05
2044		4,557,796.80	49,449,334.50	54,007,131.30	54,007,131.30
2045		4,239,633.60	49,909,078.80	54,148,712.40	54,148,712.40
2046		3,942,536.00	50,332,464.00	54,275,000.00	54,275,000.00
2047		3,237,210.90	51,177,273.40	54,414,484.30	54,414,484.30
2048		3,000,734.10	51,554,365.20	54,555,099.30	54,555,099.30
2049		2,780,993.25	51,904,836.75	54,685,830.00	54,685,830.00
2050		2,577,771.00	52,248,044.00	54,825,815.00	54,825,815.00
2051		2,389,328.55	52,575,671.45	54,965,000.00	54,965,000.00

The “B” bonds kick in after the “A” bonds give out, which means that if future politicians want to do capital improvement projects in the Poway school district, they will have to wait a while, until debt gets paid down.? The present has stripped flexibility from the future.? Who should be surprised, this is the USA.

Now one should argue over whether the expenditures reflect the life of the bonds.? Poway SD says that structures have a 45 year lifespan, and this fits inside that.

But maybe there was a cheaper way to fund this.? Rather than using Capital Appreciation Bonds, maybe a mortgage-style note could have done it, even over 40 years, and at a much cheaper rate.? Even accepting the premium boosted the combined yield of the “B” notes from around 6.9% to 7.6%.

As it is the deal bets on the appreciation of real estate:

Right now, the district receives about $11 million a year from homeowners towards paying off its bonds.

So, to be able to afford its debt payments 20 years from now, the total assessed value of property within the taxed area would have to quadruple.

That’s about 7%/year, which is not impossible if inflation comes.? It is still a difficult target to manage against.

Personally, I think it would be cheaper to do with out the improvements, or add user fees, or raise taxes.? The benefits are going to those living there in the short run, taxes should be similar.

Finally, I would like to note that the “B” bonds appreciated dramatically from their issue prices.? You can see it here: data for the “B” series.? My view is that it was a period of falling interest rates, but that the rate on the Poway “B” note fell more.? Whoever bought and held has made a lot of money, and at the expense of Poway SD taxpayers, who will have to pay more, because of the lame way that the district borrowed.

That said, if you think your area is in better shape, spend some time digging into the numbers, and prove it.

PS — Who would buy a bond like this?? P&C insurers with long tail liabilities, like asbestos and environmental.? But Buffett is cutting down on his munis.

On Credit Scores

Posted on 5 August 2012 by David Merkel

To give credit where credit is due, this post was triggered by an article at SmartMoney, 10 Things Credit Scores Won’t Say.

In 1996, I got a call from a recruiter suggesting there was a real opportunity with the Philadelphia-based corporation Advanta.? They were looking for an actuary with investment knowledge that could help them in their joint venture with The Progressive to use credit scores in underwriting auto insurance.? Since I was local, and known to be a “nontraditional actuary” with some degree of talent, and my situation at Provident Mutual was deteriorating because of a management change, I accepted the interview.

Being a life actuary, I didn’t know much about P&C insurance, but my career had been one of growth.? I may not know everything there is to know about a given topic, but I learn rapidly, and bring allied knowledge to the table that others may not possess.? The interview was interesting.? If you are a life actuary, you don’t expect interviews like Advanta. Credit cards were reaching their apex, and some clever people were trying to figure out other ways to apply the data from individuals using credit cards.? I ended up being Advanta’s “second choice.”? Bad for them, good for me.? Two years later, I would join the St. Paul’s Investment department in Baltimore.

The key idea was that credit scores were highly predictive regarding personal insurance losses, particularly when combined with traditional underwriting metrics.? The idea was a surprise to me when I first ran into it, but it quickly made sense to me.? Let me explain.

Honoring agreements that you have entered into is an important indicator of your personality.? Those who do not repay are on average less moral than those that repay.? Those that are net creditors on average made efforts that net debtors did not.

Credit scores are important.? In a specific way, they measure your willingness to keep your word.? Anytime you enter into a debt contract, you make a promise to repay.? If you fulfill your promise to repay, you impress others as one of good moral character.? If you don’t repay, it is vice-versa, you appear to be of low moral character.? (Note: I am excluding those that got hoodwinked by lenders that defrauded borrowers in a variety of ways.? That said, if you can be hoodwinked, that says something else about you, and that may have an impact on your creditworthiness as well.)

Now, before I continue, these concepts work on average, and not always in particular.? I have helped some at the edge of society with gifts and loans.? In some cases there is a cascade of bad events that the most intelligent would have a hard time facing.? Being wise helps, but there are some situations that would tax the soul of anyone, and be difficult to claim that they were blameworthy; it’s just the way things happened.

That said, that concept of a “credit score” traveled rapidly to insurance, because moral character is highly correlated with how a person drives.? People who are sloppy with their debts tend to be sloppy with their driving.? As with everything in this post, this is only a general tendency.? It applies on average, it does not always apply.

Some US states were offended at P&C companies using credit scores, and so the companies moved to use “insurance scores,” which were little different from what they aimed to replace.? The insurance companies took the disaggregated data behind the credit scores, did a little more research, and discovered which variables were most predictive of insurance claims, in concert with their own data.

The same is true for many other uses of credit data.? Different parties want different aspects of the underlying data.? Whether it is employers, lessors, lenders, insurers, etc., in an impersonal world, where there are fewer shared ethical values than in the past, economic actors rely on semi-public data to get comfortable about who they are dealing with.

Two final notes:

1) It’s easier to go down than up with credit scores.? But that is similar to many things in life.? One big mistake can undo a hundred lesser things done well.

2) Those who pay off debts rapidly are rewarded with discounts, as many companies want to avoid bad debts.? You might remember my piece, Build the Buffer.? Be wise, and have enough cash around to get discounts over those that pay things monthly/quarterly.

I am happily debt-free aside from paying off the debts regularly on my few credit cards.? The simple truth is that living within your own means, and having enough of a buffer to deal with minor crises is the best place to be.

On Life Insurance and Life Reinsurance

Posted on 30 July 2012 by David Merkel

I get good questions from readers.? Here’s one from this post:

Is there a reason why life reinsurance companies are better positioned then life insurers?

Don?t they face the same problems that they won?t be able to generate as they roll their portfolios into lower yielding bonds going forward (since rates have come down so much)?

Basically just wondering why you think RGA is cheap at 84% of AOCI adjusted book but not the rest of the life insurance industry at 35%-75% of tangible book?

Is it mostly due to your opinion of management?

I started to leave a reply and the normally reliable software glitched, and I lost it. Dejected, I decided to make it a post.

First, life reinsurance is much less competitive than life insurance.? Globally and in the US, the top 5 life reinsurers have ~80% of the market share.? Life insurance is far more fragmented, and has a decent slug of mutual insurers who don’t have an explicit profit motive.? (Note: many of the large mutuals are exceedingly well run, which makes the competition even stiffer.

Second, life reinsurance is mostly mortality exposure-based, versus life insurers which are mostly investment spread based.? The law of large numbers favors the life reinsurers over the insurers.? Low interest rates will not affect reinsurers as much as insurers.? Hint to those who analyze life insurers and reinsurers: look in the statutory statements, which have a lot more data than the GAAP statements for odd reserves that indicate a significant chance of losses if interest rates continue to remain low.

Third, life insurers have weaknesses in reserving practices for variable products with secondary guarantees.? There is no good way to calculate what a proper reserve should be.? The implied options are odd, and have no natural hedges.

That’s why I only own one life insurance company; one that has simple products.? Aside from low interest rates, valuations are low at life insurers because of lack of certainty over reserves.

So, much as I like RGA management, they are not the main reason why I like the company.? RGA executes well, and has an excellent reputation in its industry.

Here’s another question that I received via e-mail:

Prices of financial services stocks are too cheap for me to resist these days. ?I see companies like Citigroup as being just given away by Mr. Market.

?Within insurance, my equity exposure is limited to AIG, which I consider to be well managed, misunderstood, and priced attractively enough to continue holding. ?Over the past month other insurers have started to grab my attention (HIG, MFC, MET, PRU). ?HIG stands out as being the least sensitive to the possibility of a decade of financial repression. ?Do you have any favorites that you would care to share? ?This topic could make for a timely blog posting.

I responded:

Value trap.? Focus on sustainable ROEs that will validate book value.? The accounting of AIG is a quagmire, even after their disposals.

There is a further difficulty with life insurers at present.? The GAAP accounting standards do not fairly reserve for secondary guarantees on insurance and annuity policies; truth, as a life actuary and a financial analyst, the options offered are so complex and long-dated, that I?m not sure there is a way to value them.? Over the last 10-20 years, we knew that this could be an issue, but we are now seeing the issue creep in as stock performance ebbs.

But if you disagree, consider PNX, it has all of the issues, and then some.? Be sure to get the Statutory books of the companies you buy here, because that drives dividend payments to the indebted holding company.

And one more e-mail:

Hi David,?? I have enjoyed reading your blog for many years (even before GGG recommended it)

I have two questions for you about insurance companies in general — I know you are very busy, I am just hoping you can point me to some websites where I can do my own homework.

(1) If I want to check the financials of a number of mutual insurance companies, is there a consolidated source??? Do I need to pull the annual statements of each one and are the different state accounting rules comparable?

(2) As I understand it (and I am quite new to this so I may have this wrong) — mutual insurance companies use “statutory accounting”, which is different from US GAAP.??? Is there a website or library book that explains the differences between these two methods????? Does statutory accounting differ from state to state?

Again, I am sure you are very busy and I will have to do my own research / homework.? You seem to be more knowledgeable than most about insurance accounting, and I am hoping you can point me to some documentation that will help me gain a better understanding.

My response:

1a)? Consolidated source: https://eapps.naic.org/insData/ , but most companies will send it to you if you ask.? Haven?t been turned down yet, aside from Berkshire Hathaway? and I?m working on that.

1b) Generally, you have to pull each one.? Some companies will do a combined set of schedules for their investments.? When I got AIG 3 years ago, there were 60+ books?

1c) There are slight differences by state, but most of the time you can neglect that.

2a) Mutual companies use statutory accounting, but so do stock companies for the state?s analysis of insurance subsidiary solvency.? And, though stock companies use GAAP for reporting to shareholders, many mutual companies will have an internal pseudo-GAAP basis for analyzing long-term profitability, and for management bonuses, yeh.? Statutory accounting is in some ways more critical than GAAP even for stock companies, because that determines how much cash can be distributed to the holding company, which is crucial if the holding company needs to make interest payments, or wants to make dividend payments.? This is one reason why actuaries often price products by calculating marginal distributable earnings.

2b) I have attached what I think is a short primer on GAAP vs Stat accounting.? This is a big topic, and the NAIC sells all manner of resources at high prices with all of the gory details.? This should give you a good start.? I general, the volunteers from the actuarial societies put out some good summary stuff, but you have to hunt for it.

Keep fighting the good fight.? Bloggers are the conscience of Wall Street and DC?

=-=–==-=-=–=-=-=-=-=-=-=-=-=-==–=-=-=-=-=-=-=-=-=-==-=-=-=-=-=-=-=-

Life insurance is tough because there is uncertainty on claim payment on timing, and uncertainty of investment earnings.? The latter is usually more serious, because the law of large numbers does not help.? Add in the valuation issues, and now you know why a life actuary primarily invests in P&C insurance companies, life reinsurers, and simple life companies.

Full disclosure: long RGA

Missing Earnings Estimates

Posted on 28 July 201229 July 2012 by David Merkel

Missing earnings estimates hurts in the short run, but it doesn’t mean much if there is no indication that the overall earnings trend has changed.? If the overall trend in earnings has turned down watch out.? Prices can fall as for Zynga and Facebook.

Then you have something like Reinsurance Group of America [RGA].? It recently missed earnings by 12 cents. $1.77 expected, $1.65 actual.? You should want your companies to miss estimates every now and then.? It raises the probability that the accounting is honest.? With a company like RGA, earnings comes down to how many/few large value life insurance policy deaths they have in a quarter.? You are subject to the “law of small numbers” even with the second largest life reinsurance block in the world, because it is the big policies that matter.

Even this does not qualify as a bad quarter for RGA.? Can’t remember a time when they lost money, but they have missed by far more.? Often I have bought shares on such a day; I did not get any on the brief lousy open after the earnings announcement.

With RGA, I hope the price goes down.? I will buy more.? Why?

It rarely misses earnings.? The company is conservative with guidance, and usually beats.? Cumulatively, over 2 years it always beats.
Life Reinsurance is an oligopoly.? It is one of the less competitive areas of the insurance industry.
It is valued at less than 8x current earnings, which are expected to grow, and less than book value, and even book value less AOCI.
You have actuaries running the place.? Actuaries have an ethics code.? I’ve met the management; talked with them on the phone.? Occasionally been on their conference calls.? They seem honest and competent.? I have worked for dishonest and/or incompetent insurance management teams occasionally.? I know what they feel like.? One thing dishonest insurers do is always make earnings by shorting reserves, and then, when the reserving imbalance is too great, deliver a lollapalooza of a bad quarter which more than erases the seeming excess earnings.

That RGA would deliver a slight miss is encouraging to me.? The accounting is honest.? RGA is the #2 or #1 firm globally in what it does.? Unlike the deceased Scottish Re, it was conservative in M&A.? It let Scottish Re overpay for deals, while it sat back and saw an undercapitalized competitor cobble together a life reinsurance block nearly as large, but one that was unprofitable, because of the high prices paid to get it, and the opaque holding company structure (worthy of AIG in miniature).

More generally, when a company misses earnings:

Does it revise current guidance?? If it doesn’t it may be temporary, and a fluke of accounting rules.? Look at the accruals to give you a clue.
How are industry dynamics?? If everyone is missing estimates, there is a reason to mark future prospects down.
Analyze where companies in similar industries have been taken private.? That serves as a ground floor for where valuations could go.

And with that, I leave you with RGA.? I have argued for years that Buffett should buy it.? Excellent company, does not need guidance.? Could take over his inferior #5 position in life reinsurance which has lost money and become #1 … and then the life reinsurance industry will have no more pure plays.? Kind of sad, but logical, because larger P&C reinsurers benefit from the diversification.

So RGA missed earnings.? Who cares?? A little lower and I load the boat.

Full disclosure: long RGA

On Aviva, Six Years Later

Posted on 5 July 2012 by David Merkel

I note this article about Aviva plc.? I took grief from Amerus Group’s IR department during the merger six years ago for my commentary at RealMoney.? Here is an example of my writing that theStreet,com made public.? Thanks, TSCM.

Like many foreign acquirers of US life insurers, the bids were too aggressive, and Aviva paid far too much for Amerus Group.? Overpaying for US life companies, particularly for newcomers to the US is not uncommon; Old Mutual did even worse with F&G Life back in 2001.? (And if you like, look at the amount of capital they pumped in, before selling it to Harbinger Group for a 90% loss. Ouch, Ouch, OUCH!!!)

So Aviva is not the worst, but has done badly.? Would that they had listened to intelligent advisors, instead of destroying value via the Amerus purchase.? The price is down 60%+ since then.

Do Insurance Stocks Do Better than Average Over the Long-Run?

Posted on 27 June 201227 June 2012 by David Merkel

Why should insurance companies be such a good place to invest?? That’s a great question, and I will try to outline an answer.? Before I do, let me draw a few distinctions:

I’m not talking about life companies, they are far more capital encumbered then P&C companies.
I am also not talking about title, mortgage, or finance insurers.? They are too risky, and that was my opinion in the early 2000s.
Health insurers have a different model, much more subject to regulation.
Many insurance companies that don’t survive 10 years as a public company do poorly.? They did not underwrite well.
Small companies tend to fail disproportionately.
We aren’t talking about specialty companies.

What I am talking about are non-microcap companies with stable P&C liability structures and conservative reserving.? Boring, maybe.? Simple, somewhat, but you try setting up a competitor to them.? It takes some doing.? That is the competitive advantage; it is the barrier to entry.? Few companies have diversified liabilities; fewer reserve conservatively.

Thus I highlight P&C companies with ten year track records.? Here are the good ones: ACE, Chubb, Cincinnati Financial, Donegal Group, HCC Insurance, Markel, ProAssurance, RLI, Selective Insurance, Travelers, United Fire Group, W.R. Berkley, Arch Capital, Alterra Capital Holdings, PartnerRe, Everest Re, Renaissance Re, White Mountains, Progressive, State Auto Financial, and Erie Indemnity.

And here are the trailing ones: American Financial Group, Baldwin & Lyons, EMC Insurance, Navigators Group, XL Group, Allegheny Corporation, American National, Allstate, and Horace Mann.

And two really lousy ones: CNA Insurance and Meadowbrook Insurance Group.

On the whole, the outperformers more than absorb the underperformers, though I can’t prove that, for these reasons:

Hasn’t happened much in a while, but P&C insurance companies do occasionally die & disappear.? Think of Reliance Insurance Company.
Sometimes P&C companies make very bad underwriting decisions, lose a dramatic amount of money, and their stock prices fall enough that they get taken over, e.g., PXRe would be an example.
I may be guilty of selection and survivor bias by sticking with diversified bigger firms that are at least 10 years old.? I know of a lot of smaller firms that flame out because they take too much underwriting risk due to hubris and/or inexperience.

To do a complete study, we would have to use the CRSP database, which has all of the data for stocks not currently living.? We would see the losses from insolvencies, and the losses/gains fhereof.? It would take place at the halfway point for US efforts, which would be 4 seconds ahead of the Greeks as they hurried to compete/complete at constant speeds.

That’s what would happen.? Now before I go, I want to leave charts behind for the stocks mentioned:

Above

Below

Well Below

So though I know many value investors think a lot of P&C insurers, my answer on whether they are a generally good industry to invest in is “possibly,” but not “certainly.”? There are advantages for sophisticated investors that can understand complex accounting and its limitations, as well as those that can sense whether a management team is conservative or not.? That may be part of the reason for how I limited the selection of companies above; I was trying to mimic what sort of companies tended to last a long time; they tend to be conservative.

That’s all for now; criticism is welcome.

Full disclosure: Long HCC , TRV

PS — I will be gone the next three days, and posting will be irregular, as it has been recently.

Modified Glass-Steagall

Posted on 16 June 201217 June 2012 by David Merkel

If you’ve read me for more than two months, you probably know that I am an actuary, though not a practicing actuary at present.? I grew up in the life insurance industry.? It’s an unusual place for an investor to start, but there are some advantages:

You learn some of the most complex accounting rules in business.
You learn the value of having a strong balance sheet, because when it slips, it is hard to get back.
You learn the value of simplicity, because many companies that wander from that die.
You get to know a lot of people with different bits of specialized knowledge, which you the actuary have to tie together.? And, respecting the older people in dead-end jobs which they do well goes a long way toward getting significant cooperation.
If you are a corporate actuary, as I sometimes was, potentially you become a good risk manager.
If are an investment actuary, you learn that risk control is far more difficult than it seems, and so you learn not to take obscure risks, and test a variety of modeling assumptions, because models can go wrong.
You build in margins for error if you are a pricing actuary, as I often was, and review actual results when setting assumptions.
You get to see regulation up close and personal, because you have to interact with 51 different regulators if you do valuation, cash flow testing, pricing, etc., with your home state regulators leading the way.

There’s more, but my topic this evening is financial regulation generally.? I’ve been thinking about it, and I have had a moderate shift in my views: I think it would be wise to reinstitute a modified version of Glass-Steagall, but modeled after the way that insurance regulation is done today.? For solvency regulation, insurers are much better regulated than banks.? The banking industry should imitate the insurance industry in a number of ways.

Here’s the main idea: Allow financial holding companies to own all manner of financial subsidiaries, but disallow:

Stacking of subsidiaries.? No A owns B, B owns C.? This allows capital to be stretched thin.
Cross-ownership and cross-lending: subsidiaries may not interlace their capital.
There may be no reinsurance or derivative agreements across subsidiaries.

This would bar complex ownership charts.? There would be a big box at the top, with lines to little boxes below, but only one level of depth, and no lines between subsidiaries.

Also:

Each subsidiary must be subject to its own regulator.? There must not be an overall regulator for “financial supermarkets.”? Keep it simple and focused.? Remember, the Fed has never been a good regulator.
Since financial holding companies die if they don’t get dividends, make the payment of dividends from any subsidiary to the parent company subject to the discretion of the regulators.? Regulators should not care about the holding companies, but only about the solvency of subsidiaries.
If a company is presently in two businesses with different regulators, the company must divide the business into two subsidiaries which each regulator can separately regulate.
Subsidiaries do not get to choose their regulators.? If there are potentially duplicate regulators, merge them and create one regulator if that makes sense.? Otherwise, make rules so that there is no ambiguity on who regulates what.

The view of the government toward financial holding companies should be this: we don’t care if you fail.? We do care if your subsidiaries fail, so if the solvency of any of them is getting marginal, dividends to the holding company will be cut off.

Now, I would prefer the rest of the financial industry mimic the insurance industry, in that State regulation is better than Federal regulation.? If you want to end too big to fail, split up banks into state subsidiaries.? Each state regulator would separately determine solvency issues, and would limit dividends back to the holding company.

Remember, we don’t care if holding companies go broke.? If a holding company goes broke, and all of the subsidiaries are solvent, the subsidiaries will easily be sold to other holding companies.? The creditors of the bankrupt financial holding company will divide the spoils after a year or so.? Cost to the taxpayers: zero.

And maybe, mimic the guarantee funds of the insurance industry, and let the financial subsidiaries self-fund the losses of their fallen competitors.? Cost to the taxpayers: zero.

Under this sort of arrangement, you can have “financial supermarkets,” but they would be very different, because the solvency of each part would be separately regulated.? You don’t want macro-regulators, they are far easier to fool; specialization in financial regulation is a plus; don’t give any credit to those who use a diversification argument.? We are focusing on risks, not risk.? Failure does not happen from risk in abstract, but from particular risks that were underrated.

Finally you need risk managers inside all regulated financial institutions that are either FSAs [Fellows in the Society of Actuaries] or CFAs [Chartered Financial Analysts].? I am both, though my FSA status is inactive, because I don’t pay the dues.? Why is this valuable?

You need organizations with ethics codes to teach and monitor the behavior of those within.? There are failures amid FSAs and CFAs, but society and legal punishment tends to decrease the occurrence.

If we did this, financial companies would be much more stable, and we would reduce the need for the FDIC.? There would be personal ethics standards among risk managers inside financial companies, and less reason for regulators to compromise from political pressure.

This is my modified version of Glass-Steagall, which gives financial industries most of what they want, but offers solvency protections far beyond what we have today.? Is this a good compromise, or what?