10 Wednesday AM Reads

Our free range, hand selected, micro-brewed morning train reads:

• Byron Wien:  The Power of Lower Oil Prices (Blackstone)
• A Revelation For Small-Cap Investing Strategies (Capital Spectatorbut see Most of the time stock markets do nothing. (Crossing Wall St)
• Activist investors were a lot more active in 2014 (Fortune)
• Roach: Why central bankers around the world have lost control (Marketwatchsee also German 10-year yield dips below Japan’s (FT)
• Asset Managers Break Promises on Responsible Investment (Chief Investment Officer)

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  1. VennData commented on Feb 4

    Joe Kernan: Well, Jack what do you think? Do you think the Euro will exist in ten years?

    Jack Welch Well I’m no expert, but if I had to bet, I’d say no.

    Are you wondering why CNBC’s ratings are so poor they dropped Neilsen? Watching Joe Kernan lick the ass of some dated corporate climber like Jack Welch or Ken Langone who’s doing what? Who’s not an expert. Who just sit around thw cracker barrel telling you not to buy stocks because… Obama!

    Joe Kernan said the US is really turned on a dimes last week. WRONG.

    Ken Langone said companies weren’t moving product out the door last year at Christmas WRONG

    Jack Welch told us “The Chicago Guys” were cooking the employment books before President Obama’s re-election. WRONG

    Why would anyone want to listen to this? What value is this? It’s negative value! Oh, I see. Invest the OPPOSITE of what ever Joe Kernan says. My apologies.

  2. VennData commented on Feb 4

    New York City is home to more than 7,000 homes worth more than $5 million – WSJ

    “…​The study indicates that a pied-à-terre tax would generate less money than what advocates for the measure have suggested, the newspaper reported…”​


    It’s much lower than analyst estimates! See! ​SEE?! The tax is below what we say the liberals want ​SEE!? See how envy doesn’t work!!!

    • VennData commented on Feb 4

      Wait, Saying anytime anyone wants to raise taxes on the right is always envy is NOT Paul Ryan’s biggest lie?


      “..What can be proven beyond a doubt is that, even if underlying economic trends have increased inequality, Obama’s economic policies have reduced it sharply. The stimulus included tax cuts for low-wage workers, and the Affordable Care Act was financed in part by higher taxes on the rich. Back when conservatives were lambasting Obama for stealing hard-earned money from the rich and handing it out to the unworthy poor, rather than pretending to worry about inequality, they were happy to make this perfectly clear…”

  3. rd commented on Feb 4

    Interesting piece about small caps and small cap value. Over the past 30 years, the one type of active fund that I have gone into willingly has been funds with a small to mid-cap value focus, either domestic or global. They have generally given me very good total returns and are excellent on a risk-adjusted basis. They rarely knock the lights out in a good year but they also rarely tank. The biggest issue with those funds is that they tend to gather assets as they get successful (e.g. Mutual Shares) and morph into a large-value fund with decent returns but not as good as in their smaller years and with more potential for dropping a lot with the market. It also seems to be a sector of the mutual fund market where asset managers can actually train their protégés for the future so that they are either team-managed or can have a couple of manager transitions without a serious break in performance, unlike the growth sector (e.g. Magellan).

    Re: yield curve – I have wondered for a while if our most likely scenario for a flat or negative yield curve would be a mild Fed funds bump (0.25%-0.5%) and a Europe/Japan style plunge in long bond rates. I think the world-wide performance of developed market long bond rates, including the US, over the past 6 months increases the likelihood of that occurring.

    • VennData commented on Feb 4

      Check out VBR Small Cap Value index. Just never look at what’s in there. It’s like a sausage factory.


      Yield’s dropped. They should be picking up a bunch of energy names.

  4. Concerned Neighbour commented on Feb 4

    Re: Roach’s piece, I would heartily agree with his closing warning that, “central banks seem steeped in denial of the risks they face”. QE has certainly been hugely effective in arguably its main goal of propping up asset prices for the insolvent banks, but now we have a situation where prices are once again significantly out of whack with underlying fundamentals. For example, European stocks have risen over 50% in two years despite earnings falling during that time.

    The longer they keep this life support going, the bigger these asset price bubbles will get, meaning it will grow progressively harder to remove it without causing a crash in asset prices once market forces are once again allowed. It’s why I strongly doubt the Fed won’t raise rates this year, or for the foreseeable future for that matter.

    • VennData commented on Feb 4

      “…prices are once again significantly out of whack with underlying fundamentals…”

      Maybe they were out of whack then?

      Anyone who “knows” prices are too high should short the shit of the asset and publish your results here in the friendly forum.

      Otherwise you are making predictions like an astrologer.

    • Concerned Neighbour commented on Feb 4

      You obviously don’t understand my point. Since central banks have put an ever-escalating floor under asset prices irrespective of fundamentals, you’d be an idiot to short.

    • SumDumGuy commented on Feb 4

      “For example, European stocks have risen over 50% in two years despite earnings falling during that time.”

      Could you qualify what you’re measuring, please? For example, both VGK and VEURX are only up less than 10% since Feb 2013.

    • Concerned Neighbour commented on Feb 4

      Look at a 2-year chart of just about any major European index. The DAX, for example:


      As for your examples, I’m not familiar with them but if they’re like many foreign ETFs they perform currency hedging, which would explain the difference in this case.

    • SumDumGuy commented on Feb 4

      Aha! Ok, thank you!

  5. Singmaster commented on Feb 4

    Re: Small Caps
    Since its inception, FNDA Schwab’s Arnott Fundamental Small Cap fund with a relatively high expense ratio appears to be worth the extra cost compared to other similar ETFs for the same time period.
    FNDA: 22.08%
    VBR: 20.14%
    SCHA: 18.85%
    IJR: 18.76%
    SLY: 13.74%

  6. RW commented on Feb 4

    Greek Default Options

    No, not default as in default on debt—default as in “what Greece can do if there is no agreement with the EC/ECB/IMF”. This is a game theory term. In bargaining theory, everything depends on the cost to parties of not agreeing: the weaker your default option, the worse your expected bargaining outcome.

    … in this respect, Greece is not helpless. By far, the preferred option is an agreement that invokes ECB backstopping, but what if there is no agreement? What’s the default option?

  7. Jojo commented on Feb 4

    U.S. Companies Grow Older and Hire Less
    by Allison Schrager
    January 29, 2015

    Why has the labor market been so slow to recover? The answer may lie in the relatively low levels of churn in the workforce. One of the historic strengths of the U.S. economy has been the ease with which American workers move into and out of jobs. This fluidity, as economists call it, can lead to higher wages: People often get higher pay when they switch jobs, while the risk of losing quality workers to a rival can entice employers to pay more. Yet, post-recession, this “lose a job, get another” pattern seems to be taking much longer to work its magic.

    Steven Davis, an economist at the University of Chicago Booth School of Business, has been tracking job churn for more than 20 years. He calculates fluidity by adding up the number of new hires, layoffs, and people who voluntarily quit their jobs before comparing that number with the total workforce. By this measure, job fluidity has fallen more than 25 percent since 2000. Most of the decline happened as a result of the recession: He calculates that fluidity dropped 18 percent from 2007 to 2010.



  8. Jojo commented on Feb 4

    Our Changing Economy
    Feb 3, 2015
    Unemployment Has Changed. Unemployment Benefits Haven’t.
    By Ben Casselman

    When Michelle Wilson lost her job at a Baltimore logistics company in July, unemployment benefits provided her with a vital lifeline. At $430 a week, the payments didn’t come close to replacing her $47,000 annual salary. But they did allow her to pay rent and utilities and make her monthly car payments while she looked for another job.

    Last week, however, Wilson’s lifeline disappeared. Six months after she lost her job, her benefits ran out. Now she’s dodging bill collectors’ phone calls and trying to figure out how to hold on to the car that she needs to get to job interviews. Despite all the signs of an improving economy — more hiring, more job postings, a falling unemployment rate — Wilson, 48, said she’s seen few signs that her own prospects are getting better.

    “You go online, you see all these jobs that are posted, but then when you apply for them, you never hear anything back,” said Wilson, who has a bachelor’s degree. “You have people who are executives, people who were professionals losing their jobs. … These people are not lazy. They just can’t find the work.”

    Stories like Wilson’s used to be rare, especially outside of recessions, but not anymore. Nearly 3 million Americans have been out of work for more than six months, the traditional definition of long-term unemployment. That’s down from a peak of 6.8 million in 2010, but as a share of total joblessness, long-term unemployment remains higher today than at the peak of any previous recession. Moreover, the problem appears to be at least partially structural: The amount of time the typical person remains out of work has been trending upward for decades.


  9. VennData commented on Feb 4

    Reward the party that kept the Internet free!

  10. VennData commented on Feb 4

    Hey big cable conglomerates, your net neutrality lobbyists lost. That was a waste if money. Quit.

    Time to side with what’s right, board members, fire the stooges that blew the net neutrality deal. They were wrong, evil, do what’s right. Fire the bad guys.

    Open up municipal Wi-Fi! One man, one vote!

    • rd commented on Feb 4

      They can do something like push eligibility to 30 years and give double to quadruple credit for time spent in combat zones. There is a huge difference between a mechanic working at Andrews Air Force base and a grunt on the ground in Fallujah.

    • willid3 commented on Feb 5

      what are the odds of them doing that? its been a consistent history in the US. we tend to only support them when they are in battle, but after that, not so much.

  11. rd commented on Feb 4

    Another retirement crisis article using completely unrealistic savings solutions for the vast majority of Americans. These articles do not address the fundamental problems facing retirement planning of: poverty levels; declining household income; and lack of employer support for retirement.http://www.marketwatch.com/story/how-to-save-1-million-in-your-401k-2015-02-04?link=MW_popular

    1. Poverty
    Oddly enough, the percentage of people with no retirement savings in their 60s is about the same percentage of unretired people below the poverty line. Retired Americans have a lower poverty rate than unretired Americans. We should not be surprised that people living below the poverty line don’t have retirement savings. http://www.census.gov/hhes/www/poverty/data/incpovhlth/2013/highlights.html

    2. Declining household income
    Median household income has been declining for a long time now. The examples given in the article of people cramming to save $48k per year clearly do not belong the ot the median household as it would not be possible fro them to save that much after paying FICA taxes even if they didn’t eat or live anywhere. http://www.census.gov/hhes/www/income/data/historical/index.html

    3. Lack of employer support
    Many employers don’t even pay FICA taxes, as they hire “”independent contractors” never mind have pensions, 401k or similar retirement savings vehicles. Only 42% of private sector workers have employee-sponsored retirement plan coverage. This also means they get no employer matches. They are totally on their own.

    The retirement “crisis” is largely a function of low and declining income and savings options during their working career. An economic system with level or rising median household income and some decent employer plans would probably show a significant improvement within a decade. A retirement system with Social Security and reasonable savings plans that result in something close to $1 million in savings for most workers would be able to replace more than 100% of the median household income, well above the poverty line. A person in the top 20% of income who can’t replace 80% of their income is not a “crisis” in my definition, as they will probably still live better than half the people in the country.

  12. rd commented on Feb 4

    Execution vs statistics

    The goal line slant pass that became an interception at the end of the Super Bowl wasn’t a bad play call (not the best, but not bad) but it was poorly executed by the Seahawks and very well executed by Malcolm Butler of the Patriots.


    Here is another example of a statistically ok play call that will almost always result in execution (not bad execution, just actual execution)

  13. VennData commented on Feb 4

    Russia’s New Brain Drain

    A growing number of Russia’s best and brightest seem eager to leave their homeland. The reason: Putin

    “…​Vitaly Milonov, a pro-Putin lawmaker who wrote Russia’s controversial “gay propaganda” law, seems to agree. “Russia won’t lose anything if the entire so-called creative class leaves,” he says. “What’s the creative class anyway? For me, a woman who gets up at 5 a.m. to milk a cow is creative because she produces something. Not some guy with a stupid haircut who sits in a cafe all day long writing in his blog…”


    Vitaly seems like a cool guy.

  14. intlacct commented on Feb 5

    re: artificial outrage: I can’t defend Republican idiocy. OTOH, if you believe that a non-assimilating group with a high birth rate that believes some crazy stuff and is willing to resort to violence to enforce apostasy and non-existent blasphemy laws is not cause for concern then I will respectfully submit that you have not watched or lived in the Netherlands, France or the Middle east for the last decade or two. Right now, the USA has time. Tick tick tick.

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