Financial Sarcasm Roundup for 02/02/16

There are always voters in an election year who think a politician can make the stock market go up. There's always a politician ready to pander to those voters. They are all stupid.

Bond yields are tanking in Japan. The two-year yield dropping to -0.11, even less than the BOJ's -0.10 rate for excess reserves, is totally crazy. How can they be profitable on any product with a duration of less than two years? This totally scrambles overnight lending to businesses. I want every hedge fund manager who jumped on the Japan bandwagon to be blown out of the water. Forcing the dumbest fund managers out of business will be a shock to the really dumb investors who trusted in non-existent genius.

Now the Federal Reserve is thinking about negative rates. The rest of the world sometimes laughs at America for the dumb things we often do here. Now we have the chance to be as dumb as the rest of the world in monetary policy. The shock of initiating NIRP may lift the US stock market as investors leave cash and enter riskier equities. The rush should last for about six months, the typical duration of monetary policy's lagged effects. After that, the deflationary death spiral across multiple asset classes will be impossible to prevent. Lethargic Americans will wonder what happened.

Leading financiers want better public company shareholder relations. Anything with Warren Buffett's approval will probably work. JP Morgan's involvement indicates confidence that its balance sheet will survive long-term turmoil. Better corporate governance is an imaginary prophylactic against corporate raiders. Private equity firms will target well-run firms anyway if they're undervalued. The best corporate governance policy would be an electric shock device attached to a board member's chair, activated if they fall asleep during a quarterly meeting.

Vote for panderers and they will do absolutely nothing for you. I promise. You can't vote for me because I work for myself.

Buffett Vs. Trump On Women

Warren Buffett and Donald Trump are both undeniably rich. That is where they part company. Their temperaments are very much opposites. Buffett is reclusive and unassuming where Trump is vain and bombastic. Consider how their opinions of women in the workplace reflect their public personalities.

Mr. Buffett endorsed female empowerment in his legendary 2013 Fortune essay. Maximizing prosperity means getting the most from all of your people. Mr. Buffett sees vast potential in one half of the population that history has mostly ignored. Mr. Trump's remarks about women during this election season confine them to second-class status. His ridicule of journalist Megyn Kelly for capably performing her job tells women that their potential won't matter if they irritate powerful men with the truth. One business leader broadcasts an encouraging message while the other enjoys smacking competent people down. Feel free to decide which one you would prefer as your boss.

Consider how the two men treat women in their personal lives. Warren Buffett remained married to one woman for half a century, and even though they were separated for some time she approved of his longtime companion. The trio were comfortable with an enduring, lifelong partnership that most Americans would find unconventional. Donald Trump has been married three times, each time to a younger woman, yet some "conservatives" still think he's a role model. Uncle Warren's women are his partners and confidants. The Donald's women are his trophies and possessions. Feel free to decide which one would be a more reliable husband.

Hollywood icons offer useful ways to think of America's favorite business leaders. The Art of Manliness describes Jimmy Stewart as dignified, dutiful, and humble. Warren Buffet's folksiness recalls Mr. Stewart's graces. American author William Manchester wrote in 1987 about how real combat veterans of World War II humiliated John Wayne for his phony bravado. Brash, bold images that don't square with reality are an apt description of Donald Trump's reality TV franchise.

Business titans know a lot about success. They don't know everything, and some deserve more attention when their inner qualities are on display. Donald Trump's net worth is somewhere between $4B (according to Forbes) and $9B (according to his own big mouth). Warren Buffet's net worth was over $64B in 2014, according to SEC-compliant financial statements that everyone can read. The billionaire who sees enormous value in women is worth several times more than the one who sees them as mere playthings. Results matter in business. The more capable of these two investors knows the value of human life. Feel free to decide which one you would rather be. I'd work for Warren Buffett any day if it meant I could think like him.

Financial Sarcasm Roundup for 05/04/15

In some parallel universe, sarcasm does not exist.  I would hate to live there.  My universe's sarcasm calibration makes life way more interesting.

Warren Buffett cautions against a minimum wage increase.  Every once in a while he spouts some common sense like the small business owner he used to be.  The guy may not be going soft after all in his old age.  He's a step ahead of the federal policymakers who don't read their own CBO and CRS reports showing clear relationships between a higher minimum wage and lower job growth.

Greek bond trading volume just went down a big hole.  No one in their right mind wants to buy Greek bonds while the Tsipras government must go hat in hand to Brussels.  Hedge funds still buying this junk are insane.  The dumbest private investors hope debt relief will hit the troika's Greek bond holdings first.  Good luck with that plan, idiots.  The troika has every right to throw private investors under the bus when the time comes.

The SEC is dragging its heels in paying whistleblower rewards.  That figures.  The SEC couldn't catch Bernie Madoff and other fraudsters, so they spite the ones who do catch them by showing passive-aggressive behavior with payouts.  I can think of a couple of local phonies I'd like to nail if it would get me some of that payout money.  Waiting years for a claim would cramp my style.  That's what they mean by "close enough for government work" when the check clears three years late.

Another bunch of smarty-pants studies show how men and women approach investing differently.  It looks like women have a leg up by choosing target date funds and making fewer changes to their assets over time.  I always like it when women get a leg up, especially when that leg is over my shoulder.  Have confidence in yourselves, ladies, and you'll get rich faster than men.  I look forward to seeing more rich babes in San Francisco who will buy me dinner.

Sarcasm is a freebie, just like romantic dinners from those rich babes.  The Alfidi Capital philosophy incorporates as much free stuff as possible.

The Haiku of Finance for 05/01/15

Berkshire profit up
Buffett must be happy now
Insurance did well

The Haiku of Finance for 10/22/14

Big Blue wipes out gain
Wide moat was not wide enough
Fat pitch just hit foul

Evaluating The "Warren Buffett Indicator"

There's a lot of nonsense flying around the Interwebs about the so-called "Warren Buffett Indicator."  This metric is derived from a comment Warren Buffett made years ago to the media.  He stated that the ratio of the total market capitalization of equities in the US divided by the US's annual GDP indicated whether the stock market was attractively valued.  A high ratio is supposed to mean overvaluation, and a low ratio means undervaluation.  I'm trying to decipher the Oracle's logic behind this belief.  This calls for some hard-core Alfidi Capital analysis.

The total market cap figure for the US at any given time is available in two places.  The first is the Federal Reserve's "B.102 Balance Sheet of Nonfinancial Corporate Business" from the Z.1 release, specifically line 36 for "Nonfinancial corporate business; corporate equities; liability."  The second is the St. Louis Fed's FRED data set "Nonfinancial Corporate Business; Corporate Equities; Liability, Level (MVEONWMVBSNNCB)," also from the Z.1 release.  They both reveal the same number for market cap in 2013 Q4:  US$21.36T.  The GDP is found in the BEA's news releases.  That figure for 2013 Q4 is US$17.08T.  Divide market cap by GDP and the ratio is 125.1% for the final quarter of 2013.

Knowing the construction of this ratio is not as useful as knowing whether it indicates a true valuation.  A Google search of this metric reveals that most of the financial press is guessing where the upper and lower bounds of this ratio belong.  Does 125% mean overvaluation?  Does 50% mean undervaluation?  There's little time series data showing where this ratio stood in comparison to its long-term average because Wall Street is too lazy to find it.  I can't find a reputable source that even calculated the ratio's long-term average.  Keep reading if you want to see my awesome solution.

The metric may be more useful as a comparison across geography rather than time.  The World Bank helpfully publishes the market cap to GDP ratio for many countries as series CM.MKT.LCAP.GD.ZS from its Financial Sector featured indicators.  The data for multiple countries leads me to some intriguing observations.  I looked at my preferred currency hedge countries:  Australia, Canada, and Switzerland.  Canada's ratio is pretty close to the US ratio as of 2012, the latest year for which data is displayed.  Switzerland's ratio is much higher, and Australia's is somewhat lower.  I am tempted to conclude that Australia's equity market was undervalued recently but that makes little sense as its currency was very strong in 2012.  Perhaps this ratio is just one of many metrics for international investors to display in a dashboard as they consider geographic diversification.

I downloaded the World Bank's entire multi-year, multi-country data set in MS Excel format.  This enabled me to calculate the long-term average ratio for the US, from 1988-2012, as 105.9%.  There are other group categories in the data set that allow for comparisons.  I selected the line for all "OECD members" and found the 1988-2012 average is 81.3%.  It is intriguing to see that the US's market cap trades at a premium to the OECD aggregate over the long term.  I wonder if the US's economic freedom and political stability confer structural advantages that entice investors to bid up its total market cap.  It's hard to draw such a broad conclusion from only one metric.  Other analysts are free to make their own country comparisons to the various regional aggregates.

Warren Buffett makes investments in companies that trade at a discount to their intrinsic value.  He dropped an offhand comment about how a country's market cap compares to its GDP and the financial press jumps on it as some kind of concurrent indicator.  I must be more circumspect in my own judgment of this valuation indicator.  Consider that this ratio absolutely cratered in 2008 for the US, dropping to 79.7% by the World Bank's data.  It stood at 104.5% in 2009 even though the US economy was still feeling the effects of the global financial crisis.  This metric is most useful in a time series that compares the US to its competitors and to global aggregates.  It is not some "fire and forget" trigger for action by itself.  

The Haiku of Finance for 03/01/14

Buffett wants to deal
Acquisition must make sense
Seek sizable buy

USAA And GEICO Compete For Monkey Business

I shopped around a couple of automobile insurance quotes before I renewed my policy.  It came down to a choice between my current insurer USAA and the possibility of switching to GEICO.  They both have ultra-cheap business models because they don't maintain a horde of field offices with sales reps running up marketing expenses and administrative overhead.

I fiddled with the coverage criteria and discovered that I could dramatically reduce my premiums by adjusting my coverage for bodily injury and property damage to cover only the nationally-adjusted average costs per driver in an auto accident.  Check out the RMIIA's data on the cost of car crashes.  The National Safety Council also has estimates of the costs of motor vehicle injuries.  This is why I'm ten steps ahead of the average American consumer.  I use open-source Big Data products as the basis for my analysis, and I keep my decisions as rational as humanly possible.  This data is now easy to find, so I no longer have any excuse for overpaying for coverage out of ignorance of the likeliest costs.  

It came down to a pretty close decision, and I ended up staying with USAA.  They carried over a discount from my last term that made the final cost worthwhile.  I don't know if that discount will still apply when I renew my policy, and if it doesn't then GEICO's military discount may be the tie-breaker next time.  Another feather in USAA's cap is the ability of its banking and brokerage services to shave a few bucks off routine transaction costs.  I don't need that right now but it may come in handy if I have to move my savings and checking accounts from TBTF banks.  

This cost comparison exercise drove home a really cool lesson.  The difference in product cost between the two companies for the same policy terms was microscopic.  USAA is a private club run by retired military officers who've never met a bottom line in their entire lives.  GEICO is a Berkshire Hathaway company and Warren Buffett handpicks their executives.  The difference in product characteristics and cost is virtually nonexistent because insurance company metrics are determined by actuaries, the original Big Data professionals who are so rational they may as well be inhuman.  The performance of an insurance company has nothing to do with its executives' professional competence and everything to do with the structure of data profiles and risk pools.  This is something the architects of the Affordable Care Act are going to learn the hard way as plan providers drop out of the exchanges.  

One quote I've often seen attributed to Warren Buffett is that it pays to invest in businesses so simple a fool could run them, because someday one will.  I take that a step further by looking for businesses a monkey could run, because a monkey's mentality would be a step up from the stupidity of MBA preppies.  Insurance is one of those businesses as long as government mandates don't monkey with the results.  

Crouching Credit Threats, Hidden Tax Havens

I still remember the awesome movie Crouching Tiger, Hidden Dragon that took America by storm at the tail end of the dot-com era.  Americans were fascinated to see acrobatic Chinese martial arts and swordplay.  Well, there's none of that on display at my blog but I think it's a cute segue from this article's title into a couple of news items I noticed today about financial corruption.  I'm all about cheap thrills.

The first item up is a legal statement from the chairman of Standard and Poor's parent company alleging that a previous US Treasury Secretary threatened his firm for lowering its rating of the US's sovereign credit.  There was a lot of speculation in the blogosphere about hidden machinations around the US government's relationship with its credit agencies.  I blogged my own analysis of this subject last year, and this latest revelation from McGraw-Hill Financial puts another piece of confirming evidence into place.  Moody's escaped suffering while S&P got hammered.  Warren Buffet's Berkshire Hathaway owns Moody's and he is a major bundler of campaign contributions.  It all makes sense and I have every right to be cynical.

The second item is the continuing capital flight from China's ruling elite.  China's military and political leaders continue to move their families' wealth into offshore accounts.  Western financial institutions have played key roles in setting up the trusts and other legal mechanisms enabling this capital flight.  This isn't just about avoiding taxes in their home country.  The remaining China bull shills like Jim Rogers need to read this news and take a hard look at their own bets on China's future.  I have every right to question Western investors who tout China's prospects while China's own leaders move their wealth out of the country.

These two news items aren't directly related, but they do indicate the lengths to which financial and political elites will go to maintain untenable fictions.  The US sovereign credit rating should be an honest barometer of fiscal sanity.  China's elites should not fear transparency for their financial interests if they are truly optimistic about investing in their own country.  These are ideal conditions that unfortunately do not hold in the real world.  That's just too bad.  

The Haiku of Finance for 05/15/13

Berkshire construction
Build out LNG structure
Bet on more output

Financial Sarcasm Roundup for 05/06/13

There is a cure for nonsense in the business world.  My sarcasm makes everything better.  Central bankers need to hire me so I can liven up their currency-destroying meetings.

The EU's economics honcho is jawboning the French to get back on the austerity wagon.  Didn't he get the memo?  Austerity is so passe this season, what with the Reinhart-Rogoff thesis discredited after a couple of Excel errors.  This season's fashion trend is all about renewed profligacy.  Eurotrash are determined to paint the town some new shade of pastel before the euro is dissolved.

Warren Buffett assures us that all will be well after he steps down from running Berkshire Hathaway.  Making his son the chairman is a good way to ensure the culture he created continues for a few decades.  His rules for success are pretty simple:  stay with what you understand, figure out if something has a durable advantage, buy at a discount to its intrinsic value.  His managers seem to get this but most of Wall Street doesn't.  That's why Wall Street doesn't deliver value like Berkshire.

Bond investors must be seriously stupid if they think the Fed can unwind its bond purchases without hurting their investments.  That would require an even bigger fool than the Fed to buy all those junk securitizations, and I don't see any UFOs full of alien investors landing in Washington with cash in hand.  The simple math that expanded supply (once bonds are dumped on the market) leading to reduced prices if demand stays constant is the kind of thinking that many bond investors just can't handle.  Bond portfolio managers can't handle it either but they'd rather not spook their clients and lose their careers.

The headline screams "US unemployment rate down" but nobody reads the fine print.  The fastest growing job sectors are low-paying hospitality and retail.  People are working fewer hours and their take-home pay is shrinking.  We're becoming the "dollar nation" I alluded to in one of my recent posts.  Dude, where's my recovery?

Last week I got the chance to impress some people with my genius and wit at a San Francisco social event.  I shocked them with my recollections of Notre Dame alumni as snobs who refused to give me career advice.  I will continue to spread the word about the worthlessness of a Notre Dame diploma.  I'd be happy to discuss my views on NPR's Marketplace.

The Limerick of Finance for 05/05/13

Warren Buffett expects a "big shot"
Once the Fed starts selling what it's got
Without QE things fall
Ultimate margin call
Stock and bond prices will drop a lot

The Limerick of Finance for 03/03/13

Berkshire said it did disappoint
Returns were a bit out of joint
Metrics are the same
Lots of cash hunting "game"
Acquisitions the firm did anoint

Continuing Lawsuits Against Credit Ratings Agencies

Lawsuits are no fun when you're a target.  Ask the credit ratings agencies like S&P; the federal government is suing them for damages from ratings on subprime mortgage investments.  Reading past the article's discussion of conflicts of interest and the housing debacle is a necessary task in seeing through a smokescreen.  

The government has little interest in recovering real damages.  It has a very strong interest in pressuring rating agencies not to downgrade their ratings of Treasuries.  Lawmakers have decided to ignore the legal debt ceiling, tempting rating agencies to downgrade Uncle Sam's credit.  Moody's hinted that a ratings downgrade was an option after the fiscal cliff standoff but so far has not followed through with action.  I believe it will continue to hold its current rating and "negative outlook" admonishment to avoid being sued by the government.  Moody's has little to fear as long as Berkshire Hathaway is a major shareholder and Warren Buffett remains a top political campaign bundler.

BTW, Europe goes through similar motions about stopping conflicts of interest at credit ratings agencies.  Nothing real will change as long as rating agencies know they must support strong ratings for weak sovereign debt, otherwise legal action would indeed be serious.  

The Haiku of Finance for 01/11/13

Secret Fed credit
Trillions to prop up bad banks
Buffett bets on it

Old Bailout Lies Will Be New Again In 2013

Everything old is new again.  You've probably heard me say that before but it never gets old when I'm the one saying it.  The Taibblog nails the evidence behind the secret multitrillion-dollar Fed lending that saved the largest banks in 2008.  Know that the largest recipients never disclosed the sums they borrowed.  Know that the same bailout recipients also participate as the primary Treasury dealers.  Know that those dealers earn riskless profits from the spread between their zero-cost borrowing and positive yields on Treasuries they hold.  Know that the TBTF SIFIs have not changed their behavior at all.

We can expect the next phase of the unresolved crisis to come unannounced.  The watchdogs are asleep and the crony capitalists have distracted us with self-serving platitudes.  No less a personage than Warren Buffett assures us that his favorite banks will not get the country in trouble.  He is too clever by half.  He secured his banks with bundled campaign contributions to last year's successful Presidential contender.  He will be rewarded with bailouts for his banks if they get into trouble, so he is disingenuously correct by saying the banks won't be getting the country into trouble.  The country got itself into trouble by handing control of the government to Wall Street.  There's no going back now.

Berkshire Hathaway Goes Nuts For Oriental Trading

Berkshire Hathaway (BRK-A) normally acquires financially healthy companies that possess a durable economic advantage.  The company has thrown that approach completely out the window by agreeing to acquire Oriental Trading Co. for half a billion bucks.  This transaction does not resonate at all with Berkshire's business model.

Oriental Trading emerged from Chapter 11 bankruptcy only last year.  Warren Buffett's famous aversion to money-losing enterprises should have kept him from even considering this company.  Oriental's business model is low-cost, commodified, and easily duplicated by any number of competitors.  There's no economic moat anywhere in sight.  A company that offers guaranteed lowest prices on 40,000 products had better have the kind of stranglehold on its suppliers that Wal-Mart uses to keep that kind of promise.

KKR no doubt relishes losing its original bid for Oriental and watching the Carlyle Group eat a big loss.  I wonder why Berkshire is handing KKR such a great payoff for taking a catalog retailer through Chapter 11.  Retail will be the first sector destroyed when the next leg of the prolonged U.S. downturn materializes.  Oriental Trading has to compete with every odd-lot trinket seller on eBay.  Berkshire is straying from the business model that has made it one of the best holding companies in American history.

Full disclosure:  No position in BRK-A, BRK-B, or Oriental Trading Co. at this time.  

Financial Sarcasm Roundup for 09/03/12

Another Monday brings more sarcasm.  Were you expecting more Money Show discussions?  Well, frankly so was I but that's taking longer then I planned.  Sarcasm always takes precedence anyway.

Germany says a new Continental banking nanny won't be on the job until next year, or whenever they get around to it.  Normally those Germans are sticklers for timeliness, so this should be a worrisome sign for any hedge fund managers who were dumb enough to buy European debt this year.

That new banking supervisor will have a full plate of stuff to do on day one.  The first task will be to explain Moody's continuing downgrade of the EU's credit outlook.  Even Germany can't escape the harsh eye of Moody's this time.  I like to think that Warren Buffett has admonished Moody's not to miss another brewing debt crisis like it did with the U.S. subprime mortgage debacle.  I'm probably wrong but it's a cute fantasy.

Spain's more intelligent investors aren't waiting for another Moody's downgrade.  They're pulling their savings out of Spanish banks and decamping for more stable climes and currencies.  It's too bad some Spanish folks chose England as their safe haven, because that's one of the countries that just saw Moody's cut its credit outlook.  The coming breakup of the eurozone will leave a lot of investors very sad for not moving out of a worthless currency while they had time.  Americans will have some time to enjoy the dollar's reserve status after the euro dies but this will not be a long-lived reprieve.  I have purchased some foreign currency ETFs and I will definitely open some kind of foreign bank account very soon to hold a stable currency.  The handwriting is on the wall in big bold letters.

I had some fun playing with The Economist's global debt clock.  It's kind of jarring to see both Australia and the U.S. colored red for high debt, as Australia's public debt burden isn't nearly as onerous as ours.  Calling Libya a low-debt country is hilarious.  I would not want to own Libyan currency as a hedge against the dollar, especially given the likelihood of a Muslim Brotherhood takeover there.

The Economist has some other fun signals to send us this week.  "Charlemagne" tells us not to expect any game-changing moves from the ECB as long as national governments (read:  Germany) can veto any pro-euro money printing.  The Economist's regular columnists are anonymous because they are insiders of the highest caliber, so these articles are really quasi-policy statements.  Reading between the lines is a test for those market analysts (like Yours Truly) who add value.  The ECB isn't the only central bank to watch here.  That's the real meaning of comments like "single-handedly" and the passing mention of the Fed's Jackson Hole conference in the second paragraph.  Just because the ECB can't save the euro doesn't mean the Fed won't step in and give it a try.

Here's one more tidbit from The Economist:  Spain is still in line for a bailout after Greece.  Even Captain Obvious can see that.  What we can't see takes some textual analysis.  Greece's tranche payments have been delayed until October, so the "troika" is unwilling to call Greece's bluff and refuse further loan modifications.  This "extend and pretend" playbook is now being handed to Spain so European leaders can pretend to bail out Spain and the Spanish can pretend to remain solvent.  Europeans have thus bought themselves a few more months of breathing room after some hurried shuttle diplomacy from Tim Geithner convinced them not to breakup the Eurozone before the U.S. elections in November.  I hope I haven't confused my dear readers too badly.  The "limited hangout" from The Economist tells me that the euro crash can't be put off much longer than two or three months, so it may even coincide with the U.S.'s fiscal cliff.  Prepare accordingly.

This article needs a rallying cry.  Sarcasm today!  Sarcasm tomorrow!  Sarcasm forever!  

The Haiku of Finance for 06/09/12

Costly Buffett lunch
There's a cheaper way to learn
Read his free letters

The Haiku of Finance for 05/05/12

Berkshire's annual
Buffett meets his worshippers
One will succeed him