May 24th
Great column in this past Saturday’s Washington Post from one of my favorite financial bloggers, Barry Ritholtz. He opines on the multiple “job descriptions” of successful investors – 5 by his count, including:
His full column is here.
May 20th
Although I don’t disagree…
Today from NPR’s Planet Money series (one of the better pieces of investigative / educational journalism extant):
Read and/or listen to the story here.
My earlier thoughts on gold (soon to be updated).
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UPDATE: Tuesday 24 May 2011
Column in today’s NY Times amplifies the point made by the NPR story, and in my earlier scribblings:
May 20th
A friend forwarded this humorous mini-rant that sounds like something my friends from Challis Idaho (or other parts of the American West, and in the South where I was raised) would offer. Good for a chuckle on a beautiful late Spring afternoon.
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1. Pull your pants up. You look like an idiot.
2. Turn your cap right, your head ain’t crooked.
3. Let’s get this straight: it’s called a ‘gravel road.’ I drive a pickup truck because I want to. No matter how slow you drive, you’re gonna get dust on your Lexus. Drive it or get out of the way.
4. They are cattle. That’s why they smell like cattle. They smell like money to us. Get over it. Don’t like it? Take I-84, go east or west. You’ll find I-5 or I-15, go north or south. Just pick one and go.
5. So you have a $60,000 car. We’re impressed. We have $250,000 Combines we drive only 3 weeks a year.
6. Every person in the Wild West waves. It’s called being friendly. Try to understand the concept.
7. If that cell phone rings while a bunch of geese/pheasants/ducks/doves are comin’ in during a hunt, we WILL shoot it outta your hand. You better hope you don’t have it up to your ear at the time.
8. Yeah. We eat trout, salmon, deer and elk. You really want sushi and caviar? It’s available at the corner bait shop.
9. The ‘Opener’ refers to the first day of deer season. It’s a religious holiday held the closest Saturday to the first of November.
10. We open doors for women. That’s applied to all women, regardless of age.
11. No, there’s no ‘vegetarian special’ on the menu. Order steak, or you can order the Chef’s Salad and pick off the 2 pounds of ham and turkey.
12. When we fill out a table, there are three main dishes: meats, vegetables, and breads. We use three spices: salt, pepper, and ketchup! Oh, yeah … We don’t care what you folks in Cincinnati call that stuff you eat… IT AIN’T REAL CHILI!!
13. You bring ‘Coke’ into my house, it better be brown, wet and served over ice. You bring ‘Mary Jane’ into my house, she better be cute, know how to shoot, drive a truck & have long hair.
14. College and High School Football is as important here as the Giants, Yankees, Mets, Lakers & the Knicks. They’re a dang site more fun to watch.
15. Yeah, we have golf courses. But don’t hit the water hazards – it spooks the fish.
16. Turn down that blasted car stereo! That thumpity-thump ain’t music, anyway. We don’t want to hear it anymore than we want to see your boxers! Refer back to #1!
Dr. Brian Greber, Director of Boise State University’s Center for Business Research and Economic Development, lists among his many responsibilities the teaching of an MBA economics class, to which I was honored to guest lecture on Tuesday 26 April. The topic, “Macroeconomic Drivers of Stock Market Valuation”, owes a great deal to Crestmont Research and other firms whose work I follow closely and that has informed my own.
The slides from the presentation are here.
My impression is that not that many experienced practitioners, including yours truly, slavishly subscribe to the doctrine after it’s been shot full of holes past few years, but for those of us raised on Modern Portfolio Theory it’s dogmatic that US Treasury bonds are THE credit risk-free asset that underpins valuation calculations for everything else. I mean, EVERYTHING else – stocks, bonds, commodities, whatever, fair value calculations start with a risk-free rate to which risk premia are added.
Caused me to do a double-take, then, when I saw this graphs from the IMF (not some tin-hat blogger like yours truly, the IMF!) that shows a credit premium – the pink area on the graph – beginning to appear, according to their models in 2008.
On the other hand, anyone who’s not been on another planet, in a CIA black-ops prison or a coma knows that the gold ol’ US Treasury note just isn’t what it used to be (case in point, S&P’s spectacularly un-newsworthy downgrade of US debt - that horse is so far out of the barn he’s over the horizon and in the next county).
An excellent write-up of the graph and related info is on Barry Ritholtz “The Big Picture” blog.
Editor’s note: I no longer subscribe to the MPT / EMH doctrine as it was taught nearly 20 years ago when I waded through the CFA program. Sometimes you have to learn the theory so you can understand why it doesn’t always work in practice…
Hat tip: Global Macro Monitor for the graph
Apr 25th
Sorry to be such a downer – gotta call them as you see them, not as you wish they were…
Anyone who’s read this blog or spoken with me about the subject knows I have no love for most tv financial commentators. Their breathless and hyperbolic “reporting” mostly amplifies the market noise rather than providing investors much substance – “financial pornography” is a great phrase for much of their content. That said, I’ll give credit where it’s due: MSNBC has partnered with Moody’s Analytics to produce the interesting (if not immediately useful) “Adversity Index” that uses several pieces of economic data to assess the state of the economy at the state and city levels.
Moody’s adjudicates Idaho to be “At Risk” of returning to recession. The statewide figures, according to the website (data as of Feb 2011):
The interactive site allows the user to scroll through the past 16 years and drill down on states and municipalities nationwide. An explanation of the Index is here.
Hat Tip: Dr. Pat Shannon, Dean of Boise State University College of Business and Economics (and member of Harmonic's advisory board)
Andy Borowitz is one of the funniest guys around. I don’t suggest this kind of thing often, but the faux news he distributes through his email list and Twitter feed are worth subscribing to if you enjoy quick-witted irreverence. Today’s post:
NEW YORK (The Borowitz Report) – A threat to the fledgling presidential campaign of Donald Trump emerged today, as a group of activists charged that Mr. Trump is not eligible to hold the nation’s highest office because his hair does not originate from the U.S.
The group, who call themselves “Balders,” claim that the hair-like substance that crowns Mr. Trump’s head is from a foreign country, which would mean that the candidate is less than one hundred percent American.
“Time and time again, Donald Trump has refused to produce a certificate of authenticity for his hair,” said Leeann Selwyn, a leading Balder. “This is tantamount to a comb-over of the truth.”
But if in fact Mr. Trump’s distinctive mane turns out to be of foreign origin, such a revelation need not be fatal to his presidential hopes, says Professor Davis Logsdon, who has studied the history of presidential hair at the University of Minnesota.
“Remember, several of our greatest early presidents, like George Washington and Thomas Jefferson, had hair that originated elsewhere,” Mr. Logsdon says. “The only thing that could kill Trump politically is if his hair turns out to be from France.”
At a GOP event in Iowa, Mr. Trump made no reference to the Balders controversy, and instead sounded an upbeat theme: “If I am given the chance to do the same magic I did for NBC, America will be the number four country in the world.”
In a piece of good news for Mr. Trump, a new poll showed a majority of likely voters agreeing with the statement, “Donald Trump being sworn in as President would be a great last scene in a Planet of the Apes remake.”
Apr 22nd
Remember the shockwaves created by Lehman’s collapse in September 2008? (I certainly do – I phoned from the Sawtooth wilderness to coach my panicking then-employer how to buy 1 week T-bills at negative interest rates.) While it’s a little hyperbolic, Annie Lowry’s piece in today’s Slate.com proposes a similar global market reaction if the US defaults on its Treasury debt.
Among the cascade of problems she foresees on that fateful day:
I’d add to the list the headache of bank capital and liquidity levels coming into question since many financial institutions maintain large Treasury note positions. Municipalities, pension funds and other large institutional investors are also required to hold certain percentages of their pools in high quality assets, so would feel the effect of deteriorating credit quality (not to mention the painful price markdown.)
Read the full article here.
ADDENDUM 5.38pm MST, 25 APRIL 11: A JP Morgan research piece echoing most of Lowry’s points can be read here -> JPM Domino Effect
This post from BusinessPundit.com is kind of funny, but with an unsettling kernel of truth.
http://www.businesspundit.com/10-things-you-can-do-to-prepare-for-economic-collapse/
May 26th
Skyscrapers & Stocks
Author: Kenn Lamson
Comments: 0
Gunter Loffler, of the Department of Mathematics and Economics in the University of Ulm (Not “ummm”, Ulm, in Germany. I didn’t know where it was either.) published a recent paper postulating a connection between the construction of world’s tallest skyscrapers and financial market returns. His thesis is, essentially, that periods of time when humans have the hubris (and commercial real estate funding) to build massive skyscrapers are the same periods when stock prices become overvalued.
Looks like he’s actually on to something. From the abstract:
This papers shows that construction starts of record-breaking skyscrapers predict subsequent US stock returns. In the three to five years after the construction of a record-breaking new skyscraper began, per annum stock market returns are around 10 percentage points lower than in other years. The predictive ability is significant and relatively stable.
In fact, the predictive power of his “skyscraper index” (my phrase, not his) actually beats more commonly used metrics. Again, from the abstract:
It exceeds that of alternatives such as the prevailing historical mean, predictions based on dividend ratios, and recently suggested combination forecasts. The findings are robust against a wide range of specifications. Further analyses show that tower building also predicts international stock market returns.
If I’d have just known that it was as simple as selling stocks when the construction for new world’s tallest skyscrapers was begun…
The paper’s abstract is here, and the full paper is here: SSRN-id1787517
hat tip: CXO Advisory