Clippings 2012

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ghariton
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Re: Clippings 2012

Post by ghariton » 30 Jul 2012 11:16

NormR wrote: Have you spotted a similar study with more diversity by country?
Twenty-six countries?

Here is the abstract (I don't have access to the paper itself).
This paper investigates the relation between common stock returns and inflation in twenty-six countries for the postwar period. Our results do not support the Fisher Hypothesis, which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one-to-one correspondence with expected inflation. There is a consistent lack of positive relation between stock returns and inflation in most of the countries.
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Re: Clippings 2012

Post by Peculiar_Investor » 02 Aug 2012 09:14

I guess it being the summer doldrums and all, so this didn't attraction as much attention as the May 6, 2010 "flash crash". Knight Explores Options on $440 Million Trade-Error Los - Bloomberg
The New York Stock Exchange reviewed trading in 140 stocks from Molycorp Inc. to AT&T Inc. yesterday as the market’s open was disrupted. Trades that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes.
Could it have an impact at the retail investor level? Jason Zweig ponders that thought, The Intelligent Investor: When Will Retail Investors Call It Quits? - WSJ.com
If small investors needed any more reason to be disgusted with the stock market, they got it Wednesday.

At 9:30 a.m., the broad market averages like the Dow Jones Industrial Average were placid as investors held their breath waiting for the afternoon announcement on interest-rate policy from the Federal Reserve. But beneath the macro-calm was micro-turmoil, as nearly 150 stocks traded on up to 20 times their normal volume—and many fell 10% or more in price in a matter of seconds after the market opened for trading, before quickly stabilizing.

So much for the reassurances from regulators and stock-exchange officials that a repeat of the "flash crash" is impossible. Wednesday's tumble wasn't quite as scary as the nearly $1 trillion drop of May 6, 2010, but it conveyed the same sense of markets spinning out of control and trading machinery going mad.
It does seem that a malfunctioning market participant (or their computers and algorithms) needs to be another risk to considered, which probably is having an impact on the general investing public and their confidence in the markets.
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Re: Clippings 2012

Post by ghariton » 07 Aug 2012 20:53

AIG on the point of repaying all its bailout funds:
AIG's nationalization was widely condemned as an egregious case of the "too big to fail" syndrome. It was also widely expected to be a disaster, in the sense that the company could never be restructured without huge taxpayer losses.

Well, don't look now, but the AIG bailout is working. On Friday, the Treasury announced that it was selling $5 billion worth of AIG stock, its fourth such sale, bringing its stake in the company down to 55 percent. Treasury made $300 million on the transaction, consistent with the fact that markets value the stock above the government's $28.72 break-even share price. Contrast bailed-out GM, where Treasury will cash out at a loss in almost any realistic stock-price scenario.

Treasury's remaining $25 billion equity stake in AIG represents only 14 percent of the original federal commitment (of which AIG used about $140 billion). All the rest has been paid back, including AIG's debt to the Federal Reserve, which made $13 billion on the deal.
By and large, most of the bailouts of financial institutions has been paid back. The automobile industry, on the other hand...

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Re: Clippings 2012

Post by Brix » 07 Aug 2012 21:36

ghariton wrote:By and large, most of the bailouts of financial institutions has been paid back. The automobile industry, on the other hand...
Have you an explanation to offer, a judgment to pass? Something to do with labour unions, maybe?

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Re: Clippings 2012

Post by ghariton » 07 Aug 2012 23:08

Brix wrote:
ghariton wrote:By and large, most of the bailouts of financial institutions has been paid back. The automobile industry, on the other hand...
Have you an explanation to offer, a judgment to pass? Something to do with labour unions, maybe?
Stereotyping again, are we?

There are many interesting aspects to the comparison. But what struck me was that, as I posted here back in 2008, old-line manufacturing, such as automobile assembly lines, are in decline. It is a pity that governments chose to spend a lot of money trying to save these jobs instead of helping workers and workers-to-be to train for sectors with a better future. And yes, that includes financial services IMHO.

And no, this has absolutely nothing to do with unions. It has everything to do with politicians' short-sightedness.

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Re: Clippings 2012

Post by twa2w » 08 Aug 2012 00:21

The government gets its money back in other ways when it bails out industries like the auto industry. If the company goes under, obviously many people would be out of work. They pay no taxes and would require unemployment benefits of some type

By keeping the worker employed, the government keeps collecting income tax on both the workers and future profits of the company - as well as taxes on related industries/workers. It also keeps even more jobs from moving off shore. It also keeps crime down which normally increases in areas with long term economic dislocation

etc etc

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Re: Clippings 2012

Post by ghariton » 08 Aug 2012 01:14

By that reasoning, governments should never let any companies go bankrupt. We would still have a thriving buggy-whip industry.

Taxes paid by workers who would otherwise be unemployed do partially offset government subsidies -- but only partially. And in many cases the subsidies per job are larger than the compensation paid to the worker. Further, this assumes that all the workers who are laid off stay unemployed. While this may be true for some older workers, those who can retrain should do so -- with government support.

But my objection is more fundamental. As long as governments keep obsolescent industries going, they slow down the necessary transition to a restructured economy. Young people entering the job market will go into sectors that have no future. Employees already in those sectors who could redeploy will have reduced incentives to do so. Investment in plant and equipment will continue, so as to take advantage of government subsidies, where from the point of view of society as a whole the investments should not take place. Other sectors of the economy will continue to gear up to feed the obsolescent sectors. The distortions ripple throughout thre whole economy if the subsidies are big enough.

This type of government subsidy is an obstacle to change which will have to come, sooner or later. It makes life easier for older workers (and retirees) at the expense of reducing opportunities for the young.

Keep this up and pretty soon you get Ontario.

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Re: Clippings 2012

Post by NormR » 08 Aug 2012 01:48

Ha, but George what of Keynesian stimulus to get us out of our little liquidity trap?

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Re: Clippings 2012

Post by Park » 08 Aug 2012 08:42

http://news.morningstar.com/articlenet/ ... ?id=563881

A nice article from Morningstar on the relationship between stages of the business cycle and asset class.

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Re: Clippings 2012

Post by ghariton » 08 Aug 2012 11:23

NormR wrote:Ha, but George what of Keynesian stimulus to get us out of our little liquidity trap?
A controversial doctrine. Anyway, if fiscal stimulus is needed, why not spend the money on helping transform the economy, rather than on freezing it in place?

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Re: Clippings 2012

Post by twa2w » 08 Aug 2012 12:50

And do you really think the automotive industry is a 'buggy whip' industry. :D

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Re: Clippings 2012

Post by NormR » 08 Aug 2012 13:04

ghariton wrote:
NormR wrote:Ha, but George what of Keynesian stimulus to get us out of our little liquidity trap?
A controversial doctrine. Anyway, if fiscal stimulus is needed, why not spend the money on helping transform the economy, rather than on freezing it in place?
Sorry for being a little flippant. I was actually trying to get a little dis-confirming evidence of Keynesian economics rather than defend the egregious auto bailout. (I've been told that I should take macro economics more seriously whereas I'm inclined to write it off as largely useless / story telling.)

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Re: Clippings 2012

Post by ghariton » 08 Aug 2012 18:19

twa2w wrote:And do you really think the automotive industry is a 'buggy whip' industry. :D
Buggy whips were a bad example. Better would have been the textile industry or shipbuilding. We still clothe ourselves and we still transport stuff by ship. But these two industries, which used to be quite important in Canada, have all but disappeared.

In the case of textiles, disappearance of the jobs was a very good thing. They had become monotonous, unhealthy (the thread had to be kept warm and moist) and very badly paid (the value added was very low).

Similarly for automobiles. We will still need personal transport, although given environmental concerns the transport unit of tomorrow may be very different from that of today. But their manufacture will increasingly be automated. Many components will be printed using 3D printers. The number of jobs will drop dramatically.

High-value design and engineering functions will likely stay in North America, at least in part. But low-value assembly, where not automated, will likely migrate to lower-wage (and lower-skill) regions. We should help people adjust to this transition, not try to stop it.

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Re: Clippings 2012

Post by ghariton » 08 Aug 2012 18:32

NormR wrote:Sorry for being a little flippant.
Not at all. I sometimes come across as quite pompous, and a little flippancy helps me come back to earth. :wink:
I was actually trying to get a little dis-confirming evidence of Keynesian economics rather than defend the egregious auto bailout.
There's a huge literature arguing about that. As far as I'm concerned, the most telling criticism of Keynesian economics is that it looks at the very short term, and ignores what happens after that. This may be a criticism of Keynes' disciples rather than of Keynes himself, but then he's the one who said: "In the long run we are all dead." Yes, yes, but what about five years from now?
I've been told that I should take macro economics more seriously whereas I'm inclined to write it off as largely useless / story telling.)
Would you agree, as a financial analyst, that you should understand the efficient markets hypothesis and CAPM before you can intelligently reject them? :wink:

As for macroeconomics, I'm a critic too. The main problem, as I see it, is that it's impossible to run controlled experiments (they sare possible in microeconomics), so macroeconomists have to make do with whatever data nature/humanity turns up. Unfortunately, it's rarely the data that one needs to test various models and theories. So some time in the 1980s many macroeconomists started using simulation models rather than models using real empirical data.

The field is wide open for new thinking, IMHO. But first it's wise to learn some of the conventional wisdom, if only to avoid others' mistakes. Send me a mailing address by PM and I'll send you a book or two.

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Re: Clippings 2012

Post by Shakespeare » 08 Aug 2012 18:36

shipbuilding. We still clothe ourselves and we still transport stuff by ship. But these two industries, which used to be quite important in Canada, have all but disappeared.
Not exactly; naval and coast guard ships are still being built (or, at least, planned to be built here) - despite the fact that we could probably get them more cheaply from foreign suppliers (as long as DoD didn't insist on "Canadianizing" everything).

The Finns, for example, build good icebreakers.
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Re: Clippings 2012

Post by NormR » 09 Aug 2012 11:44

ghariton wrote: There's a huge literature arguing about that. As far as I'm concerned, the most telling criticism of Keynesian economics is that it looks at the very short term, and ignores what happens after that. This may be a criticism of Keynes' disciples rather than of Keynes himself, but then he's the one who said: "In the long run we are all dead." Yes, yes, but what about five years from now?
One might say that Greece happens 5 years from now. I'd have less a problem with stimulus attempts if the money was spent wisely. Instead it just seems to wind up lining the pockets of the politically connected. The common refrain seems to be that the poor little politicians didn't have enough time to spend it wisely. Grrr.
I've been told that I should take macro economics more seriously whereas I'm inclined to write it off as largely useless / story telling.)
Would you agree, as a financial analyst, that you should understand the efficient markets hypothesis and CAPM before you can intelligently reject them? :wink:
Well, I've yet to figure out how to make money on it. Let me know if you find a way that doesn't involved teaching economics (or something similar). ;)

No need to fill up the noodle with useless CRAP (like CAPM). ;)
As for macroeconomics, I'm a critic too. The main problem, as I see it, is that it's impossible to run controlled experiments (they sare possible in microeconomics), so macroeconomists have to make do with whatever data nature/humanity turns up. Unfortunately, it's rarely the data that one needs to test various models and theories. So some time in the 1980s many macroeconomists started using simulation models rather than models using real empirical data.
I too have high confidence in models that don't have to conform to reality. Computers games are fun to play! But pretending Sim City accurately reflects the real world seems dangerous. (What's worse, Sim City is probably a good deal more complicated than many economic models.)

Once again, I wonder if many schools of economics are falsifiable. If not, they're just fashion and prejudice gussied up by smart folk who can spin a good yarn or sling a big spreadsheet.

(Gee, I'm a little grumbly today. Time to get some tea.)

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Re: Clippings 2012

Post by Park » 12 Aug 2012 12:33

http://www.thereformedbroker.com/wp-con ... ns_GMO.pdf

A rebuttal from GMO regarding Bill Gross' death of equities comments. Worth reading.

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Re: Clippings 2012

Post by DanH » 25 Aug 2012 11:50

In response to the article highlighted in this recent Financial Porn post, Canadian Couch Potato quickly penned a rebuttal on his blog.

Another Weak Criticism of Indexing
The investment industry has never been kind to index investing, but the criticisms are getting weaker and more desperate.

An article in yesterday’s Globe and Mail gets off to a bad start by suggesting the recent growth in indexing is the result of a marketing campaign: “The financial firms want you to buy the index because they’ve figured out that they can make a good buck selling index-linked products—funds and especially ETFs.”

I suppose it’s true that investment firms like BlackRock and Vanguard want you to buy their products. But the growing popularity of index funds and ETFs has largely been the result of the appalling record of active management, and it has come despite the best efforts of the financial industry, not because of it.

No doubt a small number of firms are “making a good buck” from index funds, but ETF assets in Canada are still about $50 billion, compared with about $800 billion in mutual funds, the vast majority of which are actively managed. That’s about a 6% market share. To suggest the fund industry stands to profit from more passive investing is like arguing the fast food industry is organizing a conspiracy to promote salad.

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Re: Clippings 2012

Post by Bylo Selhi » 25 Aug 2012 12:10

DanH wrote:In response to the article highlighted in this recent Financial Porn post, Canadian Couch Potato quickly penned a rebuttal on his blog.
The linked article would probably flunk a first year journalism course. Isn't there any adult supervision (read: business editors) at national papers like the G&M? How did this sort of self-serving tripe manage to hit the presses? :shock:

(Incidentally, how did Fabrice manage to pass his CFA exams without a basic understanding of how indexing, despite the warts, still manages to generally outperform actively-manged funds?)
Sedulously eschew obfuscatory hyperverbosity and prolixity.

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Re: Clippings 2012

Post by DanH » 25 Aug 2012 12:21

Bylo Selhi wrote:(Incidentally, how did Fabrice manage to pass his CFA exams without a basic understanding of how indexing, despite the warts, still manages to generally outperform actively-manged funds?)
It's clear to me from Fabrice's other articles and from the few conversations I've had with him that he's very bright. And he's an excellent write (IMO). But I agree that this particular article was probably the worst thing he's written.

Then again, when you write a lot you're bound to post the odd stinker. I wrote weekly articles from the summer of 2000 through 2004, at which point my frequency fell. But I'm glad that my early articles were read by relatively fewer people since I had a few pieces that I'd like to sweep under the rug. :oops:

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Re: Clippings 2012

Post by Park » 26 Aug 2012 01:03

http://www.nytimes.com/interactive/2012 ... vered.html

Nice graph from the NYT showing recovery (or lack of) of national stock markets since the last bear market. Those markets which fell the most have tended to recover the least.

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Re: Clippings 2012

Post by newguy » 10 Sep 2012 20:00

ghariton wrote: But their manufacture will increasingly be automated. Many components will be printed using 3D printers. The number of jobs will drop dramatically.
If you're into that kind of thing the latest from UBS should be interesting. Here's a preview.
http://ftalphaville.ft.com/blog/2012/09 ... h-miracle/
But they may be the cutting edge of the coming global manufacturing revolution provided by additive manufacturing technology, or so-called 3D printing. This revolution is expected to tilt economic advantage back towards the US, and to other Western companies.
.....
the Taiwanese technology hardware company, Foxconn, which assembles for Apple, Sony and Nokia, for example, announced last year that it planned to introduce 1 million robots over the next 3 years.

As the company employs 1.2 million workers, we shall see how far this automation goes, but it certainly seems as though the programme will displace large if unspecified numbers of jobs.
As always, it's hard to imagine the future. One interesting thing I'd already heard about 3d printing
http://www.businessinsider.com/it-is-no ... fle-2012-8

newguy

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Re: Clippings 2012

Post by ghariton » 10 Sep 2012 23:25

Neat.

Kind of makes the long gun registry look silly (as if it needed anything more).

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Re: Clippings 2012

Post by Peculiar_Investor » 01 Oct 2012 22:02

A worthwhile read and reminder to keep things simple, from Christine Benz of Morningstar, The Error-Proof Portfolio: 5 Tips for Fighting the Financial Complexity Complex.

The 5 rules are:
Christine Benz wrote: Rule 1: Don't Buy New (or Evenly Gently Used) Stuff
Rule 2: Ask Lots of 'Dumb' Questions
Rule 3: Edit Ruthlessly
Rule 4: Ask Yourself "Am I as Good as a Target-Date Fund?"
Rule 5: If Someone Says They Have All the Answers, Run
Some very sound investing advice IMHO.
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Re: Clippings 2012

Post by Peculiar_Investor » 20 Oct 2012 10:48

A gentle reminder to all, ETFs were never supposed to be like this | ETFs | Investing | Financial Post
Peter Hodson wrote:Exchange-traded funds were supposed to help individual investors by reducing fees, simplifying investments and providing better returns. But the industry is now a confusing mix of thousands of funds, with a variety of fees, and dozens of specialty — but completely illiquid — products. Worse, the ETF industry in its development also decided investors needed to gamble and, if that wasn’t enough, it has introduced higher-fee “actively-managed” funds. Isn’t that just a mutual fund in ETF clothing?
This theme has often been repeated on FWF, but it is often worthwhile to remind oneself, and I think this article does a pretty good job. I completely agree with his conclusion
ETFs can be useful, in their basic, indexing, low-fee form. But stay away from the crazy stuff, and if you want an actively managed fund, keep in mind you are only letting the industry drift away from what it was supposed to do.
Wise advise IMHO.
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