Photo Credit: Rural Warrior Photography || Ah, the decrepitude of rural life, where excess space is virtually free.I want to write a few brief notes on things I have seen recently. So here goes:1) Please don’t loosen bank liquidity standards. The repo markets will function fine with a larger Fed balance sheet supporting it. We don’t need to add to the risk of the next financial crisis by letting the banks run with too little liquidity to support the risks being taken, as was true back in 2008.This was one of the few good things to come out of Dodd-Frank. Crises are ten times worse when the banking system seizes up. Far better that banks have a lower return on equity, than … [Read More...]
Greenspan’s Pathology
Photo Credit: The Aspen Institute || His shadow still affects central banking today…At Aleph Blog, I will argue for things that are against my short term interests. After all, the higher stock and bond prices go, the higher my income goes in the short-run. In the long-run, that’s not sustainable.I am here this evening to criticize the philosophy of Alan Greenspan that had the FOMC doing the bidding of the stock, bond, and futures markets.Don’t disappoint the markets.Give the markets what they want, and everything will work out well.Flag the markets to tell what your intentions are.None of those are the province of the Fed. The Fed is supposed to care for:Low inflationLow labor unemploymentModerate long-… [Read More...]
The Sirens’ Call
Photo Credit: Miles Nicholls || Actually, the bells get rung at the top, and quite frequently for the duration of the process. People hear it and they decide not to listen. Too many false alarms.The stock market model is projecting a 3.06%/year return over the next ten years as of the close on 11/15/2019. That’s near where a 10-year mid-single-A rated bond would trade. That’s not offering a lot of compensation for putting your money at risk.I’m planning on reducing my total risk level by 15% or so, moving my equity allocation from around 70% to 55%. That will be the lowest it has been in two decades. I’m not running to do this. I am still working out … [Read More...]
Dissent on Triple-S Management II
Photo Credit: Morris Zawada || Looked at many dissent pictures, and they did not represent my views. A Pro-life march, in its principled and relatively quiet nature, with people who are mostly otherwise apolitical, fits.I’ll give the big news up front, then I will explain. I decided to put Triple-S Management in the “too hard” pile, to use a phrase of Buffett’s. I am flat the stock for my clients and me. I don’t short, but if the price drops severely if/when Propiedad (the P&C subsidiary) goes into insolvency, I will buy in again.Here’s my overall thesis: 1) I find it difficult to believe that Propiedad is solvent on a current basis. I do think there … [Read More...]
No es ESG
Picture Credit: David Merkel || E & S are hollow, G is solidThere are fads in investing. They eventually go away. Remember ARM funds? The Americus Trusts? (Neat idea, killed by a legal change). The nifty fifty? Hot industries that produce a lot of IPOs?I also think cryptocurrencies are a fad, and also factor and volatility investing, at least in terms of the ETFs that are offered to retail investors.And, I think ESG is a fad, at least in terms of the way it is being deployed today. My main point is that E (environmental) & S (social) are mostly subjective, and not related to investment returns or risk control. G (governance) is mostly objective and related to investment returns and risk control.Now some … [Read More...]
Neither a Borrower nor a Lender be
Photo Credit: Ben Schumin || Looks like a place where you may get a fast deal, but not the best deal.Remember 125% LTV loans on houses prior to the financial crisis? Well, auto loans now are their twin separated at birth. The Wall Street Journal wrote an article recently about those who lend more than 100% on automobiles.Now, in the old days, auto loans were short. They were shorter than five years, and never more than 80% of the value of the car. This meant that the balance of auto loan would always be less than the depreciated value of the car under ordinary circumstances.But as has been common in American history, we always test the limits in lending. Maturities have been lengthened and … [Read More...]
Industry Ranks November 2019
Photo Credit: Kailash Giri || I used to live near a crude oil refinery. Got soot on my car, but it provided a lot of jobs for people in the area.Data from Value Line, Calculations by meRemember when I used to do posts like these? The last full time was May 2014. I lost access to the data, and eventually I gave up.Recently, I got access to the data back, and I rebuilt the model. I’ll do a post like this every now and then.My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, “Where are trends under-discounted?” Price momentum … [Read More...]
We Eat Dollar Weighted Returns — III (Update)
Photo Credit: Sitoo || No, you can’t eat money. But without money farmers would have a hard time buying what they need to grow crops, and we would have a hard time bartering to buy the cropsData obtained from filings at SEC EDGARTonight I am going to talk about one of the most underrated concepts in finance — the difference between dollar-weighted and time-weighted returns, and why it matters.So far on this topic, I have done at least seven articles in this series, and you can find them here. The particular article that I am updating is number 3, which deals with the granddaddy of all ETFs, the SPDR S&P 500 ETF (SPY), which has been around now for almost 27 years. It is the … [Read More...]
Another Way to Deal with the Rare Problem of Closed-end Fund Premiums
Photo Credit: Matt M. || Some things are just too big for their own good.Three years ago, I wrote an unusual piece called “How do you Manage a Company when the Stock is Considerably Overvalued?” Part of it dealt with the simpler case of dealing with closed-end funds that trade at a consistent premium to NAV. Quoting that portion of the article:…what should a the managers/board of a closed end fund do if it persistently trades at a large premium to its net asset value [NAV]? I can think of three ideas:1) Conclude that the best course of action is to minimize the eventual price crash that will happen. Therefore issue stock as near the current price level as … [Read More...]
On Human Fertility, Part 6
Data Credit: all data in this picture and article came from the CIA factbook. (2018 data)I write about this once every two years or so. What got me to write this time is this article The Global Fertility Crash. The title is overly sensational, but the article is mostly anecdotal, as it interviews four relatively well-off women about their family sizes and the impact it has had on their lives. To me it wasn’t very informative, and seemed a little behind the curve.Yes, fertility is falling globally. My guess is that it is falling slower than I have stated in the past, but still falling. Using the CIA Factbook for data, the 2018 total fertility rate for the world is 2.397 births per woman that survives … [Read More...]