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Stingy News Quarterly
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Privacy Policy

The Stingy News Quarterly (Q1/2010)

New @ StingyInvestor

Top 200 Canadian Stocks for 2010
"Our five-year results are similarly stellar. If you had bought equal amounts of the All-Star stocks and rolled your capital gains into the new team each subsequent year, you'd be sitting on a 19% average annual return. By way of comparison, that's more than 14 percentage points higher than the annual return of the S&P/TSX Composite, which sported 4.7% annual gains over the same period. It's been quite the ride, and it got me to reminiscing. Several years ago a former professor of mine came to visit with my performance record in hand. 'Did you know that you've outperformed most mutual funds?' he asked. I didn't. But it was a gratifying observation. That memory prompted me to look up Canada's mutual fund performance over the past five years. It turns out that the Top 200 All-Stars beat every single Canadian equity mutual fund over that period. We topped the best by about 3 percentage points a year and the second best by about 7 percentage points a year. The median Canadian e! quity fund trailed by 14 percentage points a year."

Asset Mixer Update
"We've just updated the popular Stingy Investor Asset Mixer and Periodic Table of Annual Returns for Canadians to include both nominal and real (or inflation-adjusted) returns for 2009."

5 Stingy Stocks for 2010
"It's been a good year for Stingy Stocks. The markets still have a way to go before breaking even from the big bust, but the Stingy Stocks are very close to staging a full recovery thanks to 64.5% gains this year."

Free online tools
"Looking to add stocks to your portfolio? Free online screeners might help. Just plug in your selection criteria and the software dips into a giant database to find stocks fitting the desired metrics."

The Best of Stingy Links

Stingy Links: Academia

Odds are, it's wrong
"For better or for worse, science has long been married to mathematics. Generally it has been for the better. Especially since the days of Galileo and Newton, math has nurtured science. Rigorous mathematical methods have secured science.s fidelity to fact and conferred a timeless reliability to its findings. During the past century, though, a mutant form of math has deflected science.s heart from the modes of calculation that had long served so faithfully. Science was seduced by statistics, the math rooted in the same principles that guarantee profits for Las Vegas casinos. Supposedly, the proper use of statistics makes relying on scientific results a safe bet. But in practice, widespread misuse of statistical methods makes science more like a crapshoot."

Too many scientists?
"American science education lags behind that of many other nations, right? So why does it produce so many talented young researchers who cannot find a job in their chosen field of study?"

The new cash cows
"In other words, enrolling in college is a bit like joining a health club. And as with a health club, the revenue comes from signing people up, not from encouraging them to use the services."

The big lie about the 'life of the mind'
"Some professors tell students to go to graduate school "only if you can't imagine doing anything else." But they usually are saying that to students who have been inside an educational institution for their entire lives. They simply do not know what else is out there." [Which is a shame because there are a great many fun things to do in this world.]

Stingy Links: Accounting

The SEC enabled this charade
"The issue isn't derivatives; it's all financial transactions whose objective is to deceive or to weaken financial transparency."

The 'lost decade'
"In sum, there has been no justice, and thus, no lessons learned or changes made. And so naturally, the theme continues to roll on with products like leveraged ETFs - long on advertised promises, and short on explanations of their inherent shortcomings. After these products lose steam, the theme will be recycled with the same conclusion, that the promise of higher returns was just too good to be true."

The worst footnote of 2009
"Voting for the worst footnote of 2009 ended last night and footnoted readers have chosen the disclosure by Chesapeake Energy (CHK) that it had spent $12.1 million to purchase Chairman and CEO Aubrey McClendon.s antique map collection."

Repo 105's antecedents
"For those that don.t know Repo 105 was a sale and repurchase agreement by which Lehman parked about 50 billion in assets (presumably assets they did not want to discuss) overnight via a repo transaction so they would not appear on the balance sheet. By now anyone who does not realize that sort of accounting legerdemain is unacceptable is (a) entirely out of touch with reality and (b) self aggrandizing on a magnificent scale. Both are signs of mental illness."

Quadrophobia: rounding of EPS data
"We hypothesize that earnings management causes quadrophobia, the under-representation of the number four in the first post-decimal digit of EPS data. We demonstrate that quadrophobia is pervasive, persistent, and follows economically rational patterns. Consistent with analyst coverage being a determinant of earnings management, quadrophobia increases (declines) when companies gain (lose) analyst coverage, and is more frequent when earnings are close to analyst forecasts. Persistent quadrophobes are more likely to restate financials and to be sued in SEC proceedings alleging accounting violations. Quadrophobia, even if itself legal, therefore appears to signal a propensity to engage in problematic accounting practices."

Stingy Links: Behaviour

Be a sceptical economist
"One of the biggest problems is one that psychology has faced since it began, to do with the authenticity of its experiments. If you take a bunch of people, shut them in a darkened room and make them do odd things, out of context, you might expect them to behave a bit peculiarly. Psychologists, on the other hand, tend to live in darkened rooms and regard doing odd things in them, often involving small, furry animals, as quite normal. So they see nothing wrong in this and are quite happy to write up the results of these experiments in order to help deepen our knowledge of human behaviour."

E.I. will wreck your portfolio
"Now we learn that insensitivity training might also make you a better investor. If emotional intelligence attunes you to the moods of others it can only wreck your portfolio."

Underdogs have more motivation?
"Bosses and coaches who manage groups competing against lower-status rivals should use that fact to motivate the people at their company or team."

What happens in the amygdala
""As you get older, you get less loss-averse," De Martino says, explaining that even the older control subjects were less fearful of loss. "Your perspective on life changes because you have fewer years to live." This effect could stem from age-related reductions in the volume of the amygdala - as we age, our brains shrink. De Martino says in addition to age, other factors such as income and education are also at play."

Confirmation bias in action
"At least we can all agree it is the other guys' politics and ideologies that are twisting facts and obscuring evidence."

Garry Kasparov, cyborg
"What I love about Kasparov's algorithm - 'Weak human + machine + better process was superior to a strong computer alone and ... superior to a strong human + machine + inferior process' - is that it suggests serious rewards accrue to those who figure out the best way to use thought-enhancing software. (Or rather, those who figure out a way that's best for them; people always use tools in slightly different, idiosyncratic ways.) The process matters as much as the software itself. How often do you check it? When do you trust the help it's offering, and when do you ignore it?"

In defense of home bias
"Ideally, shouldn.t investors seek out the stocks that are likely to perform the best, regardless of where they are located in our world? Ideally, yes. Practically, there are difficulties."

Justice, medieval style
"Modern observers have roundly condemned ordeals for being cruel and arbitrary. Ordeals seem to reflect everything that was wrong with the Dark Ages. They're an icon of medieval barbarism and backwardness. But a closer look suggests something very different: The ordeal system worked surprisingly well. It accurately determined who was guilty and who was innocent, sorting genuine criminals from those who had been wrongly accused. Stranger still, the ordeal system suggests that pervasive superstition can be good for society. Medieval legal systems leveraged citizens. superstitious beliefs through ordeals, making it possible to secure criminal justice where it would have otherwise been impossible to do so. Some superstitions, at least, may evolve and persist for a good reason: They help us accomplish goals we couldn't otherwise accomplish, or accomplish them more cheaply."

The self-fulfilling prophecy
"Can you convince people that something is good merely by telling them that other people like it?"

Less intuition, more evidence
"Those of us who aren't wine snobs or speculators probably don't care too much about the prices of first-growth Bordeaux, but most of us would benefit from accurate predictions about such things as academic performance in college; diagnoses of throat infections and gastrointestinal disorders; occupational choice; and whether or not someone is going to stay in a job, become a juvenile delinquent, or commit suicide. I chose those seemingly random topics because they're ones where statistically-based algorithms have demonstrated at least a 17 percent advantage over the judgments of human experts. But aren't there at least as many areas where the humans beat the algorithms? Apparently not. A 2000 paper surveyed 136 studies in which human judgment was compared to algorithmic prediction. Sixty-five of the studies found no real difference between the two, and 63 found that the equation performed significantly better than the person. Only eight of the studies found that people wer! e significantly better predictors of the task at hand. If you're keeping score, that's just under a 6% win rate for the people and their intuition, and a 46% rate of clear losses."

The hidden persuaders of fast food
"The Starbucks menu uses the "rule of three." The menu offers three sizes of coffees, given the enigmatic names of Tall, Grande, and Venti. (They're 12, 16, and 20 ounces respectively; 24 ounces for cold Venti drinks, to allow for ice.) Since Starbucks newbies won't know what they're getting, they tend to order the middle choice, Grande. In the psychology literature, this is known as "extremeness aversion" - people instinctively favor a middle choice, figuring it's safer. Guess what? You've just ordered two cups of expensive coffee. The Grande's sixteen ounces is two regular cups."

Why envy dominates greed
"Economists generally think of self interest as maximizing the present value of one.s consumption, or wealth, independent of others. Wealth can be generalized to include not just their financial assets, but the present value of their labor income and even public goods. Adam Smith emphasized a self-interest that also recognized social position and regard for society as a whole, but this was well before anyone thought of writing down a utility function, which is a mathematically precise formulation of how people define their self interest. But what if economists have it all wrong, that self interest is primarily about status, and only incidentally correlated with wealth?"

The marshmallow and the cherry
"Earlier in the year Jonah Lehrer explained in the New Yorker how cool deferred gratification is and how we need to teach it to our kids, the younger the better. Now, in the New York Times, John Tierney suggests that it's really an insidious habit for grownups, sacrificing real enjoyment for the mirage of an even better future. Can everything good be bad for you?"

Carpe Diem? Maybe tomorrow
"For once, social scientists have discovered a flaw in the human psyche that will not be tedious to correct. You may not even need a support group. You could try on your own by starting with this simple New Year's resolution: Have fun ... now!"

Stingy Links: Bonds

Obama pays more than Buffett
"Berkshire Hathaway's 1.4 percent notes due February 2012 yielded 0.89 percent on March 18, 3.5 basis points, or 0.035 percentage point, less than Treasuries, composite prices compiled by Bloomberg show. The Omaha, Nebraska-based company, which is rated Aa2 by Moody's and AA+ by S&P, has about $157 billion of cash and equivalents and about $52 billion of debt. P&G, the world's largest consumer-products maker, saw the yield on its 1.375 percent notes due August 2012 fall to 1.12 percent on March 18, 6 basis points below government debt. The Cincinnati-based company, rated Aa3 by Moody's and AA- by S&P, makes everything from Tide detergent to Swiffer dusters."

Stingy Links: Books

Michael Lewis on Charlie Rose
"An hour with Michael Lewis, author of 'The Big Short'"

Gary Gorton vs. Michael Lewis
"The basic idea is that the repo market had developed as an independent source of funds, and when some AAA rated mortgaged backed securities started to fall in price, this tainted all AAA securities, especially asset backed paper. AAA securities have a 0.01% default rate, so from a bayesian perspective, when you see a default here the probability is not that one was very unfortunate, but rather, the rating was wrong. Perhaps all ratings are wrong?!. Everyone was scrambling to understand these securities work to assess how much they are worth, and found them insanely complicated, so people naturally assumed the root cause could be anything related to 'debt', derivatives, rated securities, was complicated, etc. Everything was painted by the same brush, as when one bad cow tainted with e. coli causes a wholesale destruction of all beef products sold in the US, because one can't be sure. A run on the repo market was a classic bank run, causing the banking system to be insolvent,! and lending to sharply contract."

Hyperbolic Geometry defeats Nazi Spoons
"Worm hunters, Nazi spoons and homicidal robots were crushed in one of Britain.s quirkiest literary contests, as a book that uses crochet to introduce non-Euclidean geometry won the annual Diagram Prize for Oddest Book Title."

Quantifying qualitative factors
"I've just finished Ian Ayres's book Super Crunchers, which I found via Andrew McAfee's Harvard Business Review blog post, The Future of Decision Making: Less Intuition, More Evidence (discussed in Intuition and the quantitative value investor). Super Crunchers is a more full version of James Montier's 2006 research report, Painting By Numbers: An Ode To Quant, providing several more anecdotes in support of Montier's thesis that simple statistical models outperform the best judgements of experts."

Improve results with checklists
"What's a low-tech way to improve the performance of everyone from doctors to investors to airline pilots? According to Atul Gawande, it's the humble checklist."

Money for nothing
"Should you really take financial advice from someone foolish enough to write for a living? Run the numbers. If a typical author earns, say, $3 per book sold and the book sells 20,000 copies, then that's $60,000 in gross income -- before costs. But that may be for a year's work. We're talking maybe $30 an hour."

Money for nothing
"I'm not even Andrew Ross Sorkin, the superstar financial writer at the New York Times. The advance for my new book wasn't in the millions of dollars. It wasn't even in the high six figures. Instead, we're talking more the, um, low five figures. After you deduct my agent's commission and the costs involved in research and writing, my take was in the very low five figures. This is, I'm sorry to say, more typical for authors. Indeed, most writers don't get published at all. Only giants like Sorkin or Palin command the great publishing sums. It raises a question that financial writers, for obvious questions, rarely ask: Should you really take financial advice from someone foolish enough to write for a living?"

Stingy Links: Brokers

The yes-man problem
"The problem: Financial planners are yes-men and -women, asserts a report co-authored by Sendhil Mullainathan, a Harvard professor and top behavioral economist. Most planners, his report finds, reinforce our bad investment behaviors instead of fixing them. And the problem, he says, may be harder to solve than the fee issue."

Technology not always a godsend
"If you're a client of the online brokerage Scotia iTrade, you'll have an idea of what I'm driving at in warning about technology risk. Scotia iTrade is what Bank of Nova Scotia renamed E*Trade Canada after scooping it up back in 2008. Last month, Scotiabank set about merging iTrade's back office record-keeping operation with the bank's own system. Complaints to this column from iTrade customers began rolling in on Dec. 11 and they've continued right into the new year."

Stingy Links: Buffett

Buffett takes on Chicago chokepoint
"Chicago, whose railroads made it hog butcher for the world a century ago, is a tangle of bottlenecks where a quarter of the nation's rail freight stalls while trying to navigate the city. 'We can't keep running trains from Los Angeles to Chicago in 55 hours and then take 36 hours to get a rail car from one side of Chicago to the next,' said Matt Rose, chief executive officer of Burlington Northern Santa Fe Corp. 'We either need to fix Chicago or avoid it.'"

Berkshire Hathaway 2009 report
"Long ago, Charlie laid out his strongest ambition: 'All I want to know is where I'm going to die, so I'll never go there.' That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled 'Invert, always invert' as an aid to solving difficult problems. (I can report as well that this inversion approach works on a less lofty level: Sing a country song in reverse, and you will quickly recover your car, house and wife.)"

Lizard Ballad: Where's Warren?
Buffett channeling Axl Rose

Buffett casts a wary eye on bankers
"Mr. Buffett's letter made a bold suggestion that isn't sitting well with the establishment. 'When stock is the currency being contemplated in an acquisition and when directors are hearing from an advisor, it appears to me that there is only one way to get a rational and balanced discussion,' he wrote. 'Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through.' Of course, acquirers often hire more than one banker to advise a board, to act as a check on the other. But all too often, both banks are given the incentive to recommend the deal."

Buffett gets Krafty
"The billionaire's warning against a bid for Cadbury could actually help Kraft nab the chocolate maker."

Buffett on farming superhighway
"Buffett became the second-richest American by investing in businesses he expects to grow for decades. He's said his $26 billion takeover of railroad Burlington Northern Santa Fe Corp., announced in November, will benefit Berkshire 'over the next century.' CTB, which Berkshire bought in 2002, may produce profits beyond the year 2200, Buffett, 79, said in the video."

Buffett in the boardroom
"Who wouldn't love to pick up the phone and ask Warren Buffett for advice? People have spent more than $1 million just to have lunch with the man. He was voted the most admired corporate director in America by Directorship magazine in 2008. Chief executives of companies he has a stake in laud his patience, foresight, and ability to capture the essence of a complex financial situation in just a few words. They also like the fact that he usually leaves them alone as long as they're getting the job done. Sometimes Buffett emerges from behind his desk and shows a side of himself that's far less familiar. When he sees something he doesn't like in a company whose shares he owns, the famously passive investor can swing into action to protect his investment - jawboning behind the scenes, scolding, cutting opportunistic deals, even hiring and firing CEOs. For some of those on the receiving end of his activism, it can feel a bit like being attacked by Santa Claus."

Stingy Links: Crime

Earl Jones: In Trust
"Disgraced Montreal financial advisor Earl Jones awaits sentencing for orchestrating a Ponzi scheme that defrauded his investors of $50 million for more than two decades. The fifth estate investigates Jones' life, how he created his scheme and how he was able to get away with fraud for so long."

Toyota hybrid horror hoax
"Journalism schools are supposed to teach that skepticism is paramount. "If your mother says it, check it out," goes the old adage. Yet comments on Web sites across the country reveal that practically everyone thought the Prius incident was a hoax--though they couldn't prove it--except for the media. They have been as determined to not investigate Sikes' claims as Sikes was to not stop his car. It's a Toyota media feeding frenzy and the media aren't about to let little things like incredible stories and readily-refutable claims get in the way."

Paying zero for public services
"For people to speak up against corruption that has become institutionalized within society, they must know that there are others who are just as fed up and frustrated with the system. Once they realize that they are not alone, they also realize that this battle is not unbeatable. Then, a path opens up - a path that can pave the way for relatively simple ideas like the zero rupee notes to turn into a powerful social statement against petty corruption."

Stingy Links: Debt

Could California really default?
"One reason these investors had fled new issues, of course, is because munis are supposed to be conservative investments that offer only a modest return to their holders in exchange for being able to sleep peacefully at night. A loss of confidence in this market doesn't occur quickly but is a long-term process, and politicians can exacerbate the uncertainty when their rhetoric becomes more and more bombastic and their assurances steadily more unrealistic, something that's now becoming commonplace among California officials."

Better off deadbeat
"While most Americans with unpaid bills dread the collector's call, Cunningham sees them as lucrative opportunities. Many collection and credit card companies, intentionally or not, violate little-known consumer rights laws, and Cunningham's favorite pastime is catching them doing so and then suing them. In fact, it's a profitable side job."

Lowering the boom on leverage
"For those who worry that limiting leverage is somehow inconsistent with American tradition, it is worth remembering that the nation's founders strictly limited bank leverage in their own time, frequently at less than 4-to-1. Although bank runs remained a problem in early America because of the absence of deposit insurance, the dangers of high leverage were already well appreciated. Let's not lose sight of that wisdom now."

Stingy Links: Derivatives

Derivatives should be banished
"The only firms that will be able to sell the insurance will be firms deemed too big to fail. That is, you wouldn't buy this kind of insurance from a firm you believed might also face a liquidity risk. You would only buy it from a firm you thought was protected from liquidity risk, and that kind of protection ultimately must come from the US government. So, ultimately, the sellers would be making private profits from the existence of public guarantees. They get all the upside, while the taxpayer gets all the risk."

Stingy Links: Dividends

You should get a bigger slice of earnings
"No investor can be certain that a company will be able to keep creating value in the future. Often, however, you can be sure that a company can safely distribute value in the present. It is high time for companies to cut shareholders a bigger slice of the pie."

Loosen up, tightwads!
"Many big companies with the financial wherewithal to pay dividends are being stingy about payouts -- for no good reason. By hoarding cash, the likes of Apple, Google, Cisco, Amazon, eBay, IBM and Amgen are doing their shareholders a disservice -- and it's time for that to change."

Stingy Links: Dorfman

Ten stocks I wouldn't touch
"These companies, in my judgment, have some of the worst balance sheets in the U.S. The first five companies mentioned above have negative net worth; that is, their liabilities exceed their assets. Among the 727 U.S. companies with a stock-market value of $3 billion or more, only 17 have that unfortunate distinction. The next five companies have positive net worth (stockholders' equity) but their total debt is at least five times equity, a trait shared by 26 of those 727 companies."

Hated stocks beat loved stocks
"For 11 of the past 12 years, I have studied the performance of analysts. four favorite stocks, and the fate of the four they most scorned. My analysis covers 1998 through 2009, except for 2008, when I was temporarily retired as a columnist. Their favorites, on average, were flat during those years while the four stocks they hated most gained about 6 percent annually."

Stingy Links: Economics

Hayek vs. Keynes Rap
"'Fear the Boom and Bust' a Hayek vs. Keynes Rap Anthem"

The economic 'experts'
"In much the same way, economics is a science which employs some of the world's most intelligent people and most powerful computers in order to prove the bleeding obvious. When I first started writing about the subject, one excited academic told me to look into behavioural economics, which he described as the most "exciting and radical" of all the fields of economic research. Its most edgy, controversial finding? That people occasionally behave irrationally, driven by emotion rather than reason. Well, duh."

Stingy Links: Economy

A map of vanishing employment
"The economic crisis, which has claimed more than 5 million jobs since the recession began, did not strike the entire country at once. A map of employment gains or losses by county tells the story of how those job losses first struck in the most vulnerable regions and then spread rapidly to the rest of the country."

Canadian family finances
"Average debt loads climbed to $96,100 in 2009 - In contrast to past recessions, households continued to borrow more this time. The debt to income ratio jumped to a new high of 145%."

Probability of recession
"The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For January 2010, the recession probability is only 0.82% (less than 1%) and by a year from now in January 2011 the recession probability is only .043%, the lowest reading in more than 26 years (since September 1983)."

The disposable worker
"When employment in the U.S. eventually recovers, it's likely to be because American workers swallow hard and accept lower pay. That has been the pattern for decades now: Shockingly, pay for production and nonsupervisory workers - 80% of the private workforce - is 9% lower than it was in 1973, adjusted for inflation."

When do smart prices get dumb?
"Tomorrow's power will come from renewables via a $7-billion deal with Samsung to install wind turbines in the Great Lakes, and to provide solar energy as well. Many will applaud the addition of this clean and renewable source of power to the grid. Fewer will applaud the 19-cent-per-kilowatt-hour price tag that'll come along with it. As they say in stock brokerage, find a strong enough wind, and even pigs can fly. Pay 19 cents per kilowatt hour for power, and you can let the wind turn on the lights. But at that price, how long will you leave them on?"

Stingy Links: Fun

Stop your spaniel eating the milkman
"As we know, one man once got on one plane in a pair of exploding hiking boots and as a result everyone else in the entire world is now forced to strip naked at airports and hand over their toiletries to a man in a high-visibility jacket. In other words, the behaviour of one man has skewed the concept of everyday life for everyone else. And we are seeing this all the time."

Money just a shared illusion
"The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct."

Efficient markets theory disproved
"But I'm a connoisseur of economic irrationality. And so I bent down and picked up the paper. On one side, the grim visage of Queen Elizabeth. On the other, Charles Darwin. It was a 10 pound note, worth about $16.25. Just lying on the floor, unmolested by Nobel Prize-winning economists, CEOs of Fortune 500 companies, and financial journalists."

Stingy Links: Funds

Reward for punishment
"Short-term redemption fees may prevent investors from frequently trading in and out of mutual funds, which results in an implicit wealth transfer from long- to short-term fund investors. This paper studies the impact of short-term redemption fees of various structures on long-term fund performance. We observe that fund performance is increasing in the magnitude of the fee and the time period during which an investor would be subject to it. Redemption fees are associated with up to a 327 annualized basis point increase in average abnormal returns."

Keys to success
"Berkshire has really figured out how to behave with large insurance exposures that could potentially pay out billions from catastrophic events. There is a huge benefit to having so many non-insurance operating businesses affiliated with their insurance businesses, especially large utilities and railroads, where you are highly confident that you are not going to take a big hit. You can't have a bunch of operating businesses that could potentially lose much and also face a Katrina or a Wilma. That's where you have brilliance."

Currency-neutral trap
"Over the past 4 years, XSP has trailed the returns of IVV by an annualized rate of 2.99%. A Canadian investor betting that the C$ would appreciate against the USD and opting XSP over holding IVV directly would have been right on the first count but made no money on the bet. The C$ appreciated at an annualized 2.73% against the USD but the tracking error of XSP wiped out all the gains."

Stingy Links: Government

What's a bailed-out banker worth?
"How people are paid at the top in a free-market system has always been a contentious issue, especially in bad times. Babe Ruth.s most famous quip was not about baseball but about salaries. When asked in 1930 if it was right that he should be making more money than President Hoover, he replied, 'I had a better year than he did.'"

Inflation won't solve our debt problems
"The more powerful argument against inflating away debt is that it will not work, says Alan Auerbach, an economics professor at the University of California, Berkeley. Why? Because so much of our long-term spending obligations are indexed to inflation."

Crony Capitalism
"John Stossel's program on crony capitalism."

The states and the stimulus
"Remember how $200 billion in federal stimulus cash was supposed to save the states from fiscal calamity? Well, hold on to your paychecks, because a big story of 2010 will be how all that free money has set the states up for an even bigger mess this year and into the future."

Cut pay for government workers
"Imagine a company that dominates its field. It's been No. 1 in its industry as long as anyone can remember. But lately it's fallen on hard times. Revenue has dropped dramatically. The only thing keeping it afloat is record borrowing based on its stellar credit rating, earned many years ago. Meanwhile, independent analysts have shown that workers at this company earn higher than average wages. Moreover, the workers have skills that are not easily transferable. If this were an airline or an automaker, the solution would be a no-brainer: It would be time for a big pay cut. If the company didn't cut pay, or increased it, creditors and investors would question the seriousness of management."

Leviathan stirs again
"The gap between American public spending and Canada's has tumbled from 15 percentage points in 1992 to just two percentage points today."

Loan effort adding to housing woes
"The Obama administration.s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good."

Paul Volcker
"In mid 2009, he joked that the only useful recent banking innovation was the invention of the ATM; by late last year, this was no longer presented in jest and he was deploring excesses in risk-taking and bonuses."

Elders favor more regulation
"Put aside for a moment the populist pressure to regulate banking and trading. Ask the elder statesmen of these industries - giants like George Soros, Nicholas F. Brady, John S. Reed, William H. Donaldson and John C. Bogle - where they stand on regulation, and they will bowl you over with their populism."

Illinois enters a state of insolvency
"The sharp rise in pension payments is the biggest factor pushing Illinois toward what a legislative task force last November called "a 'tipping point' beyond which it will be impossible to reverse the fiscal slide into bankruptcy." The little-noticed report on the state's pension problems warned that "the radical cost-cutting and huge tax increases necessary to pay all the deferred costs from the past would become so large that many businesses and individuals would be driven out of Illinois, thereby magnifying the vicious cycle of contracting state services, increasing taxes, and loss of the state's tax base.""

Seven states of energy debt
"I've identified seven large US states by four criteria that are sure to cause trouble for Washington's political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of kicker, I've thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world's financial crisis it's instructive to identify those US states that will struggle for years against the rising tide of higher energy costs."

Government replaced jobs
"In the just-so story of the evolution of our economy, our old manufacturing based economy has been replaced by an innovative knowledge economy. That's not quite true."

Fix the mistake on the lake
"Like all too many American cities, Cleveland seems locked into a death spiral, shedding people, jobs, and dreams like nobody's business. When it comes to education, business climate, redevelopment, and more, Clevelanders have come to expect the worse. Is a renaissance possible?"

The trillion dollar gap
"A $1 trillion gap. That is what exists between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay for them, according to a new report by the Pew Center on the States. In fact, this figure likely underestimates the bill coming due for states. public sector retirement benefit obligations: Because most states assess their retirement plans on June 30, our calculation does not fully reflect severe investment declines in pension funds in the second half of 2008 before the modest recovery in 2009."

Stingy Links: Graham

Japanese liquidation value
"The fundamental problem in 1932 America, according to Graham, was that investors weren't paying attention to the assets owned by the company, instead focussing exclusively on 'earning power'"

Stingy Links: Health

The cost conundrum
"As America struggles to extend health-care coverage while curbing health-care costs, we face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now. The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions. If we don't, McAllen won't be an outlier. It will be our future."

Lessons of a $618,616 death
"Terence's treatment was expensive. The bills for his seven years of medical care totaled $618,616, almost two-thirds of which was for his final 24 months. Still, no one can say for sure if the treatments helped extend his life."

Most medical studies are wrong
"In a survey of the recent literature, he found that 95 percent of the results of observational studies on human health had failed replication when tested using a rigorous, double blind trial."

Everything is dangerous
"Epidemiologists have as their statistical analysis/scientific method paradigm not to correct for any multiple testing. Also, as part of their scientific paradigm they ask multiple, often hundreds to thousands, of questions of the same data set. Their position is that it is better to miss nothing real than to control the number of false claims they make. The Statisticians paradigm is to control the probability of making a false claim. We have a clash of paradigms. Empirical evidence is that 80-90% of the claims made by epidemiologists are false; these claims do not replicate when retested under rigorous conditions."

Stingy Links: Indexing

ETFs may hide tax surprise
"Do your research. You really do need to read the fine print in an ETF's prospectus. Ary Rosenbaum, an associate attorney with the law firm of Meyer, Suozzi, English & Klein says there are three questions to ask yourself: "What is the capital gains treatment of the ETF? What is the tax implication of the ETF that may influence end of or beginning of the year tax strategy? And if the ETF is not plain vanilla, what are the tax rules for the underlying assets within the ETF?""

ETFs were off the mark in 2009
"In 2009, ETFs missed their targets by an average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they posted in 2008, according to a study of ETF returns released this week by Morgan Stanley."

Maida runs new AlphaPro ETF
"Mr. Maida, who will pick stocks for HAP North American Value ETF HAV-t , is the founder of investment counselling firm Patient Capital Management Inc. that caters to institutional and wealthy clients. In 1999, he left Trimark Financial Corp. where he ran the giant Canadian stock funds."

Stingy Links: Law

4 ways to fix a broken system
"The land of the free has become a legal minefield, says Philip K. Howard -- especially for teachers and doctors, whose work has been paralyzed by fear of suits. What's the answer? A lawyer himself, Howard has four propositions for simplifying US law."

Stingy Links: Management

Food fighter
"The right-wing hippie is a rare bird, and it's fair to say that most of Whole Foods' shoppers have trouble conceiving of it. They tend to be of a different stripe, politically and philosophically, and they were either oblivious or dimly aware of Mackey's views, until the moment, this summer, when Mackey published an op-ed piece in the Wall Street Journal asserting that the government should not be in the business of providing health care. This was hardly a radical view, and yet in the gathering heat of the health-care debate the op-ed, virally distributed via the left-leaning blogs, raised a fury."

The sweetest usurious bastards
"But it was the nature of the people I met that most stuck in memory. This was a business where if Jesus was alive he would pull down the Temple over them. It was precisely the sort of business the bible rails against. It offended my decency. But the people were lovely. I met management and a store owner - and - frankly they seemed exactly the sort of people you would like to have Friday drinks with. I liked them. This alarmed me of course - because I expected them to be scum. And maybe they are - but I couldn't tell. They were the sweetest usurious bastards (notwithstanding allegations in consumer complaints about the company)."

Stingy Links: Markets

What drives long-term returns?
"The MSCI World Index annualized gross index return for the total 35-year time span was 11.0%. The biggest component of this return was inflation at 4.2%, contributing more than one third of the total return. Other important components were dividend income (2.9%), emphasizing the importance of dividend reinvestment in long-term investing, and real book value growth (2.0%). Price to book growth contributed the least (1.5%)."

Hoisington Q4 letter
"In 2009, the book This Time is Different.Eight Centuries of Financial Folly, by Reinhart and Rogoff, shed new light on the role of debt by compiling a database that looked at financial crises in 66 countries over a period of 800 years. The main standard in explaining more than 250 crises studied is whether debt is excessive relative to national income, even though idiosyncrasies apply in each case. They reiterate that this old rule (excessive debt) continues to apply, and this time is not different."

Reflection on a crisis
"Daniel Kahnemann and Nassim Taleb discuss biases, the illusion of patterns as well as the perception of risk and denial."

The Canadian banking fallacy
"Advocates for a Canadian-type banking system argue this success is the outcome of industry structure and strong regulation. The CEOs of Canada's five banks work literally within a few hundred meters of each other in downtown Toronto. This makes it easy to monitor banks. They also have smart-sounding requirements imposed by the government: if you take out a loan over 80% of a home's value, then you must take out mortgage insurance. The banks were required to keep at least 7% tier one capital, and they had a leverage restriction so that total assets relative to equity (and capital) was limited. But is it really true that such constraints necessarily make banks safer, even in Canada?"

Volatility, the last anomaly
"Despite the mysterious case of the missing anomalies there's one that resolutely refuses to go away, squatting in the middle of the markets like a recalcitrant and extremely ugly toad. Rather ungraciously stocks continue to bounce around like a jitterbugger on speed. Regardless of everything else it's volatility, the last anomaly, that keeps on giving. And then taking away. And then giving back again."

Quants' risk-free ideas sink market
"To become a potentially market- destroying 'it' group on Wall Street, you need some arrogance, enough brains to justify making huge financial bets, utter cluelessness about lessons learned from finance's booms and busts, and a sincere belief that your unique contributions to Wall Street will mean, ahem, that this time it really is different, so old truths can be ignored."

The 'other' imbalance and the financial crisis
"I argue instead that the root imbalance was of a different kind: The entire world had an insatiable demand for safe debt instruments that put an enormous pressure on the U.S. financial system and its incentives (and this was facilitated by regulatory mistakes). The crisis itself was the result of the negative feedback loop between the initial tremors in the financial industry created to bridge the safe - assets gap and the panic associated with the chaotic unraveling of this complex industry. Essentially, the financial sector was able to create 'safe' assets from the securitization of lower quality ones, but at the cost of exposing the economy to a systemic panic."

Reported earnings versus "owner earnings"
"Importantly, the ability of companies to increase book value over time has been a critical determinant of long-term earnings growth, and is likely to be even more important in an economy where debt financing is increasingly constrained. The long-term relationship between earnings and book value is very clear, with actual reported earnings fluctuating reliably around a cyclical norm of about 13.6% of book value. Economic booms can certainly boost return on equity (earnings / book value), and recessions can depress return on equity, but over the full economic cycle, it is dangerous to assume that these temporary departures from the norm will be sustained for long."

Tell me I'm wrong
"One thing is indisputable: the rally in financial markets worldwide has outpaced the fundamentals. At the beginning of 2009, most onlookers expected a generally weak economy and were concerned that the behavior of consumers and banks would remain conservative. They were 100% right, and fundamentals are still tenuous. And yet, the rally has exceeded all expectations of which I'm aware."

Spending on clothing falls below 3%
"With significantly falling prices in real terms, clothing has become more and more affordable almost every year, requiring smaller shares of our income, which has freed up disposable income that can now be spent on other consumer goods (think electronics, travel, entertainment, etc.)."

The lost decade
"Mr. Shiller says our mass psychology is much more one of speculation and risk-taking than it was a generation or two ago. We've come to rely on rising markets to create our wealth and well-being, at the expense of savings. The result? An increasingly rapid succession of boom-and-bust markets."

America's broken equity culture
"Why did investors respond to a nearly 70% rally by pulling money out of domestic-equity mutual funds? The picture that is now emerging, courtesy of the latest data, is positive for the stock market over the short-term, but worrisome for the longer-term."

Think again about commodities
"You've probably heard over and over again that commodities provide a great hedge against inflation. It sounds plausible - until you look at the evidence."

What is liquidity?
"The great Peter Lynch would buy small cap stocks for Magellan, with strict orders on price. Then he would let them sit, while they gained in value on average. Marty Whitman buys in 'safe and cheap' small cap stocks that are illiquid and holds them until their value is recognized. If you have a strong balance sheet or patient investors, take advantage of it, and buy investments that are less liquid, where value may take a while to obtain."

Stingy Links: Media

A Capital Idea
The Canadian Capitalist blog moves in with Money Sense magazine.

Stingy Links: Montier

Was it all just a bad dream?
"This is where we encounter a lot of the pseudoscience of finance, e.g., measures such as Value-At-Risk (VaR). The idea that if we can quantify risk we can control it is one of the great fallacies of modern finance. VaR tells us how much you can expect to lose with a given probability, i.e., the maximum daily loss with a 95% probability. Such risk management techniques are akin to buying a car with an airbag that is guaranteed to work unless you crash! Talk about the illusion of safety."

James Montier interview
"Process is the one aspect of investing that we can control. Yet all too often we focus on outcomes rather than process. Yet ironically, the best way of getting good outcomes is to follow a sound process. The research shows that holding people accountable for outcomes tends to lead to suboptimal performance, generally because they spend all their time worrying about the things they can't control. I'd advise a far better approach to assess people on the criteria of adherence to process."

Stingy Links: Munger

Basically, it's over
"Of course, the most effective political opposition to change came from the gambling casinos themselves. This was not surprising, as at least one casino was located in each legislative district. The casinos resented being compared with cancer when they saw themselves as part of a long-established industry that provided harmless pleasure while improving the thinking skills of its customers."

Charlie on the crisis
"Charles T. Munger, the Vice-Chairman of Berkshire Hathaway Corporation, discusses the current economic crisis with Professor Joseph A. Grundfest."

Stingy Links: Real Estate

International housing affordability
"Vancouver remained the least affordable market of any size in the surveyed nations, at 9.3, worsening from 8.4 last year. Toronto joined Vancouver as severely unaffordable, with a Median Multiple of 5.2. However, Barrie, within the Toronto region was moderately unaffordable, at 3.4. Victoria, Abbotsford and Kelowna (all in British Columbia) were also severely unaffordable. Housing affordability continues to deteriorate in Montreal (Median Multiple of 4.9), where an agricultural urban growth boundary has seriously constrained development on the urban fringe. The most affordable major market in Canada was Ottawa, with a Median Multiple of 3.8 (moderately unaffordable). However, housing affordability has deteriorated materially in Ottawa-Gatineau, which was affordable as late as 2007 (Median Multiple of 3.0). The most affordable markets in Canada were Thunder Bay and Windsor (2.2), followed by Moncton (2.5), Saguenay and Saint John (NB) at 3.0."

All those little Stuyvesant Towns
"In a letter warning Vantage of impending litigation, Mr. Cuomo's office contended that Vantage, which has bought more than 125 buildings in Queens, Harlem and other areas since 2006, had engaged in a 'systemic pattern of harassment' to generate significant tenant turnover. Increasing turnover was central to Vantage's business strategy, the attorney general's office said, so that it could charge much higher rents after renovating the newly vacant apartments."

A bust with precedent
"The original wave of securitizations took place in the 1920s, when the United States went on the greatest building boom ever. Many investors saw how rapidly real estate prices were rising and wanted in on the action. The builders and brokers were only too happy to oblige."

Underwater, but will they leave the pool?
"A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a 'norm asymmetry.' In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It's as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical."

Unlock the housing market
"In the United States, you can find and bid on a house using an iPhone. So why is it that in Canada, much of the information prospective home owners need is a tightly held secret, unlocked only by real estate agents? It's the question at the heart of a dispute between the industry and the Competition Bureau -- the resolution of which could radically change how houses are bought and sold"

Walk away from your mortgage!
"Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment - surrender of the property. The borrower isn't escaping the consequences; he is suffering them."

Global household leverage
"Household leverage in the United States and many industrial countries increased dramatically in the decade prior to 2007. Countries with the largest increases in household leverage tended to experience the fastest rises in house prices over the same period. These same countries tended to experience the biggest declines in household consumption once house prices started falling."

Why Canada's housing bubble will burst
"Reading the newspapers these days, you have to wonder whether Canada was on another planet when the global credit crisis hit. House prices have actually increased in some provinces and now there is a shortage of houses for sale in southern Ontario. Credit is flowing everywhere. But what few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world."

U.S. housing aid winds down
"Over the next six months, the federal government plans to wind down many of its emergency programs for housing. Then it will become clear if the market can function on its own. People here are pretty sure the answer will be no."

Flaherty's mortgage changes
"On Tuesday, the Department of Finance announced three changes to the standards governing government-backed mortgages, that come into force April 19. Here are a summary of the changes." [Too little too late]

A new bubble
"As the U.S. struggles to get out of its housing slump, its neighbor to the north faces a different challenge: Canada's housing recovery has been so rapid that some here are worrying about a bubble."

Foreclosures seen still hitting prices
"Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers eventually will redefault."

Stingy Links: Retirement

Low savings are the problem
"The average contribution to a RRSP was $5,412 but the median contribution was only $2,780. The contributions used up just 6.0% of total contribution room available. The data suggests that the vast majority of Canadians have accumulated vast amounts of RRSP contribution room. Only a tiny fraction of Canadians have used up all their contribution room and would benefit from any boost in RRSP limits."

Optimal withdrawal rates
"Our main practical conclusion is that counseling retirees to set initial spending at constant 4% of their nest egg is consistent with lifecycle theory only under a limited set of mortality-risk aversion and time preference parameters. We show exactly how the optimal behavior in the face of personal longevity risk is a plan that adjusts consumption downward in proportion to survival probabilities - adjusted for pension income and risk aversion - as opposed to blindly withdrawing the same inflation-adjusted income for life."

Stingy Links: Stocks

How Visa dominates a market
"Every day, millions of Americans stand at store checkout counters and make a seemingly random decision: after swiping their debit card, they choose whether to punch in a code, or to sign their name. It is a pointless distinction to most consumers, since the price is the same either way. But behind the scenes, billions of dollars are at stake."

The restaurant-failure myth
"His research - consistent with similar studies - found that about one in four restaurants close or change ownership within their first year of business. Over three years, that number rises to three in five."

Selling puts naked
"Like other Canadian insurers, Manulife was sideswiped during the financial crisis due to its exposure to guaranteed annuity products it had sold to clients across North America and Asia. Most have issued significant amounts of new shares to raise their capital levels since stock markets plunged in the fall of 2008. A major player in the business, Manulife hadn't hedged its segregated funds. That exposure created a capital risk that attracted the attention -- and intervention -- of the Office of the Superintendent of Financial Institutions (OSFI), Canada's financial services regulator."

Stingy Links: Taxes

An immodest proposal
"In other words, the estate tax is really a capital gains tax, but triggered by death, not sale of the capital asset. So why not eliminate the estate tax, but then have the heirs inherit not only the stock in Amalgamated Widget but granddad's cost basis as well? Then, when Junior sells a million shares in order to pursue his dream of winning back the America's Cup or whatever, he has to pay a substantial capital gains tax on those shares. A possible compromise would be to set the capital gains on inherited assets at a higher rate than on assets bought by the person himself. This would allow the Democrats to feel all warm and fuzzy for having still socked it to the rich and allow the Republicans to claim credit for having eliminated an unfair, arbitrary, expensive, and economically pernicious tax."

Special interest
"It's the time of year when a young man's fancy lightly turns to thoughts of deductions and write-offs. One select group of Americans, though, has a more pressing tax-season task on its mind: preserving a lucrative loophole in the I.R.S. code. The provision allows money managers at privately held partnerships - like hedge and private-equity funds - to treat most of the money they make as capital gains rather than as ordinary income. That means that their income is often taxed at fifteen per cent, a much lower rate than it otherwise would be."

Tax system full of it
"Canada's tax system has become so complex and confusing, and revenue staff so unsympathetic, that a judge has awarded legal costs to an Ontario couple despite ruling against their case with the Canada Revenue Agency."

Six RRSP pitfalls
"It's RRSP season, and you're going to get a lot of advice about how to maximize your contributions, borrowing to contribute, the benefits of contributing, and how to invest inside your registered retirement savings plan. It's all good stuff when the advice comes from the right sources. But I want to talk about the six most common mistakes that people make with their RRSPs. If you avoid these blunders, you'll save tax, create greater retirement savings for yourself, and protect those assets."

$10 an hour with 2 kids? IRS pounces
"Rachel Porcaro knows she's hardly rich. When you're a single mom making 10 bucks an hour, you don't need government experts to tell you how broke you are. But that's what happened. The government not only told Porcaro she was poor. They said she was too poor to make it in Seattle."

Comparing taxes on RRSPs and TFSAs
"Comparing marginal effective tax rates across income levels suggests that many Canadians with savings in tax-deferred vehicles, like Registered Retirement Savings Plans, should put more future saving in tax-prepaid savings plans, particularly Tax-Free Savings Accounts."

Stingy Links: Thrift

Why so many Americans are broke
"Bookstores are full of books about getting out of debt. Why, then, are so many Americans struggling to get by? One reason, according to Connecticut College Psychology Professor Stuart Vyse, is that when it comes to money, people are not as rational as many economists - and authors - think. In his book Going Broke: Why Americans Can't Hold on to Their Money, Vyse cites studies that consistently show that people commonly make mental mistakes when it comes to their money. This realization is the foundation of behavioral economics, which holds that people behave differently than in the supremely logical fashion that classical economics predicts."

Economists are cheapskates
"Academic economists gather in Atlanta this weekend for their annual meetings, always held the first weekend after New Year's Day. That's not only because it coincides with holidays at most universities. A post-holiday lull in business travel also puts hotel rates near the lowest point of the year."

Doing the math on coupons
"If motivation is an issue, the next time you find yourself facing a stack of coupon booklets and flyers don't ask yourself if you can be bothered. Try asking yourself if you'd like to earn more than $100 an hour for a job you can do, at home, while sitting on the sofa watching TV."

Your banking may be more expensive
"When you lose your job, the last thing you need is for your expenses to increase. Yet, at some banks, that's exactly what can happen with your checking account."

Stingy Links: Value Investing

Sir John's prophetic memo
"Obsolescence is likely to have a devastating effect in a wide variety of human activities, especially in those where advancement is hindered by labor unions or other bureaucracies or by government regulations. Increasing freedom of competition is likely to cause most established institutions to disappear with the next fifty years, especially in nations where there are limits on free competition. Accelerating competition is likely to cause profit margins to continue to decrease and even become negative in various industries."

Chou's 2009 letter
"we believe that investment and non-investment grade corporate bonds are now fully priced. It is similar with equities. Most stocks are now close to being fairly priced and it is harder to find bargains. Although we won't likely see the lows that we saw in February/March of 2009, the risks of investing in equities are greater now."

McElvaine annual
"Going forward, I expect that you will see more money invested outside of Canada and in larger companies. This is not particularly a change; I'm just going back to my Cundill roots to some extent. In the past couple of years, when Canadian ideas were slim, rather than invest outside of Canada, I superconcentrated and stayed invested in small caps. This clearly had painful results. While we will continue to have a significant small-cap portfolio, I am now finding interesting large-cap non-Canadian ideas."

Vito Maida Interview
"Jonathan Chevreau interviews Vito Maida of Patient Capital Management."

Chanticleer's Q4
"Waiting for the undiscovered, undervalued stock to approach intrinsic value can seem like you're a fisherman waiting for the fish to bite. Sometimes you just don't know when or how value will be realized but you suspect that dinner will eventually find its way into your boat."

Patient Capital Q4 letter
"In essence do valuations reflect the risk of the current environment and do they provide an acceptable rate of return given those risks? In our estimation, current aggregate equity prices have run far ahead of economic fundamentals."

Could investors use a little magic?
"Graham implied that he had back-tested this formula, saying that investors could expect a 15% or more annualized return plus dividends and minus commission expenses, but he didn't provide clear statistics in his interview for how his formula actually performed. However, according to investment firm Tweedy Browne's pamphlet "What Has Worked in Investing," finance professor Henry Oppenheimer ran Graham's screen for stocks listed on the NYSE and AMEX from 1974 through 1980. Oppenheimer found that an investor employing Graham's method over that time achieved an annual return of 38% compared with 14% per year return calculated by the Center for Research in Securities Prices, or CRSP, of NYSE-AMEX securities. A seven-year period doesn't completely prove the validity of a formula, but that time frame is arguably long enough to suggest that the formula may be onto something."

Buying earnings and book value
"The paper shows that book-to-price facilitates the determination: for a given earnings yield, book-to-price indicates additional return associated with expected growth."

Betting on the blind side
"Michael Burry always saw the world differently - due, he believed, to the childhood loss of one eye. So when the 32-year-old investor spotted the huge bubble in the subprime-mortgage bond market, in 2004, then created a way to bet against it, he wasn't surprised that no one understood what he was doing. In an excerpt from his new book, The Big Short, the author charts Burry's oddball maneuvers, his almost comical dealings with Goldman Sachs and other banks as the market collapsed, and the true reason for his visionary obsession."

Sears letter
"Some contend that there is an inherent conflict between labor and capital, yet they fail to appreciate that without investment there will be no growth and no jobs. For there to be investment there needs to be an expectation of profit, and, for there to be an expectation of profit, there needs to be hope and belief in the future and confidence in the rules of the game."

Stingy Links: World

What Toronto can teach New York and London
"This tendency to react to the mere mention of Canada with either yawns or guffaws may be why, as the world struggles to figure out what went wrong in 2007 and 2008, not much international attention is being devoted to figuring out what went right in Canada. Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector. Two of the world.s 15 most highly valued financial institutions - a list dominated by China - are Canadian and a recent World Economic Forum report rated the Canadian banking system the world's soundest."

How America can rise again
"Are the fears of this moment our era's version of the 'missile gap'? Are they anything more than a combination of the two staple ingredients of doom-and-darkness statements through the whole course of our history? One of those ingredients is exaggerated complaint by whichever group is out of political power - those who thought America should be spelled with a 'k' under Nixon or Reagan, those who attend 'tea bag' rallies against the Obama administration now. The other is what historians call the bracing 'jeremiad' tradition of harsh warnings that reveal a faith that America can be better than it is. Football coaches roar and storm in their locker-room speeches at halftime to fire up the team, and American politicians, editorialists, and activists of various sorts have roared and stormed precisely because they have known this is the way the nation is roused to action."

An unconventional glut
"Now North America has an unforeseen surfeit of natural gas. The United States' purchases of LNG have dwindled. It has enough gas under its soil to inspire dreams of self-sufficiency. Other parts of the world may also be sitting on lots of gas. Those in the vanguard of this global gas revolution say it will transform the battle against carbon, threaten coal's domination of electricity generation and, by dramatically reducing the power of exporters of oil and conventional gas, turn the geopolitics of energy on its head."

Is China actually bankrupt?
"The nation has erected a complex system for magically making its debts disappear, but a look up China's sleeve shows that its IOUs may equal its GDP."

Our white collar nation
"Farm productivity has exploded, increasing 1.9% per year over the last half of the century. At that rate, every 100 years, the same inputs on a farm produce 6.5 times as much foodstuffs. The percentage of the population engaged in farming dropped from 40% to under 2%, and yet we became a great exporting power in agricultural products. Similarly, manufacturing productivity rose 1.3%, on average, over the course of the second half of the 20th century."

Canada's marvelous mortgage system
"There were some significant differences between Canada and the United States during the recent financial crisis. In general, Canada's banking system proved more prudent, more resilient, and much less prone to excesses. Taking a closer look at these differences might tell us how the United States got into the mess it is in, and illuminate some ideas for future reforms."

Note to Kevin O'Leary
"Mr. O'Leary likes to say that he wants to put his money in countries that have high GDP growth rates such as China and India, not developed markets in North America and Europe that have anemic growth. Mr. O'Leary should stop confusing economic growth with stock market returns and brush up on the vast quantities of academic research out there that shows that, if anything, the correlation between GDP growth and equity returns is negative"

Greek tax-dodgers
"The government is seeking to tap more revenue from a society in which 95 percent of taxpayers declare annual income of less than 30,000 euros. The Bank of Greece estimates a campaign against evasion and corruption could glean as much as 5 billion euros a year."

Fruitful decade for many in the world
"It may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe."

Europe risks another depression
"The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis."

Oil windfalls and living standards
"When a country or a community discovers oil, should they rejoice or mourn? Should citizens be thrilled or worried when their governments receive fiscal windfalls? It might seem that the answers to these questions are obvious. How could finding an abundance of natural resources or stumbling on greater resources for the government to spend in the community be anything other than wonderful news? Yet economists are increasingly sceptical and many of them openly entertain the seemingly paradoxical notion that resources and windfalls may actually be bad news. In fact, some go so far as to speak of the "curse of natural resources""

Greece's Goldman Sachs swaps
"EU regulators have blessed the use of derivatives contracts to let countries curb their deficits. In 2001, the Commission, the EU's regulatory arm, approved Italy's use of derivatives that helped to reduce its budget deficit in 1997. Italy swapped fixed payments on a three-year, yen-denominated bond in 1996, for a floating rate, allowing it to temporarily cut the amount of interest paid on the debt." [Yikes!]

A Greek bailout, and soon?
"In Brussels policy circles, the question asked about a bailout of Greece used to be: are European Union governments willing to do this? Now, I can report, the question among top EU officials has changed to: how do we do this?"

In China, fear of a real estate bubble
"With property prices soaring in key cities, many investors and bankers worry that China has the next great real estate bubble waiting to be popped."

The Greek debt bubble
"Seen in this comparative perspective, Greece is bankrupt today without a great deal more European assistance or without a much more drastic austerity program. Probably they need both."

Dubai 1,000 Times
"Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported."

Endless oil
"Even if the new technologies add just a few percentage points to the recovery rate, such gains add years to global supply and boost the industry's profits. So the technology of coaxing oil out of the ground is constantly improving."

Short Canada
"Although I have mentioned the enormous property bubble in Canada on numerous occasions, I have also stated a belief that Canada as a whole was better off than the US. Not so fast ..."

Greece: our debt, your problem
"So here's the deal: No matter what happens, the debt is now at a level where its growth has reached escape velocity. Even if Greece were to run zero deficit, ultimately we are heading to default. We can default now or we can default later."

Chavez devalues Bolivar 50%
"Chavez is trying to maintain spending for his 21st century socialist revolution as South America's largest oil exporter fails to emerge from its first recession in six years. The government is seeking to stem its falling popularity and the highest inflation rate among 78 economies tracked by Bloomberg ahead of parliamentary elections scheduled for September."

China's silicon ceiling
"Can China get rich without becoming free? History suggests it can't."

Japan fades into the future
"If Japan does not do it then aging and death is inevitable. The working population will be stuck looking after and funding the huge numbers of retired. Japan's industrial growth - now anemic - will collapse entirely with its population. The great Japanese industrialization experiment will walk slowly into the setting sun aided by a walking stick." [Warning: Some harsh language.]

The Iceland rebellion
"In many countries, taxpayers are rightly cranky over the idea that their governments are bailing out banks and others -- including their own regulators and central bankers -- who helped create the 2008 global financial meltdown. Iceland appears to be setting a new standard of taxpayer response that politicians everywhere might want to note."

Crash in China
"James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other high-flying companies whose stories were too good to be true. Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc."

Stingy Links: Zweig

Investors keep fooling themselves
"Historically, inflation has eaten away three percentage points of return a year. Investment expenses and taxes each have cut returns by roughly one to two percentage points a year. All told, those costs reduce annual returns by five to seven points. So, in order to earn 6% for clients after inflation, fees and taxes, these financial planners will somehow have to pick investments that generate 11% or 13% a year before costs. Where will they find such huge gains? Since 1926, according to Ibbotson Associates, U.S. stocks have earned an annual average of 9.8%. Their long-term, net-net-net return is under 4%. All other major assets earned even less. If, like most people, you mix in some bonds and cash, your net-net-net is likely to be more like 2%."

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