Articles for the third week of June of 2009

Some articles one may find interesting... as usual, not in any order...

  • Business of movies (The Globe & Mail): A note about the present state of movies...also has an interesting note about movieds financed about private equity and hedge funds (I wonder if they are actually making money.)
  • An opinion on why USA remains the leader (The Globe & Mail): Historian Freedman says, the reason USA hasn't faltered while many others have come down to "...two features which distinguish it from the dominant great powers of the past. American power is based on alliances rather than colonies. And it is associated with an ideology that is flexible, potentially universal and inherently subversive of alternative ideologies." The author, interpreting Freedman's views, says "Democracy itself is the first explanation for American flexibility. Capitalism is the second. Liberal democracies make for flexibility by allowing discontent to be expressed, channelled and absorbed. Capitalism makes for flexibility by demonstrating that it can survive recession and depression without long-term damage to a country's global position. Democracy and capitalism can bring down governments - but won't bring down the state. " I concur with this view and think it captures why democracies and capitalism can out-last other econopolitical systems.
  • How Chicago-based Aon became the sponsor of Manchester United (The Atlantic): The last sponsor was AIG so let's hope the same fate doesn't befall on reinsurer Aon.
  • (Recommended) Recap of Warren Buffett's past shareholder letters (Wide Moat Investing): Wide Moat Investing has been going through Buffett's shareholder letters, starting in 1977. It's a good read for those who haven't read the letters, which shamefully includes me :)
  • David Swensen's Yale investment techniques very different from suggestions in his book or public comments (Investing Insights at BusinessWeek): I'm not a passive investor so I don't follow Swensen but the referenced blog entry points out how the strategies used by at Yale are different from the simple methods he has suggested. The author is also skeptical that the suggested asset allocation can avoid big losses. I have a feeling that a lot of passive investors blindly assume that their strategies involve less risk than active investing, and that their returns are going to be quite good (I also have a similar feeling with dividend-oriented investors who tend to imply that their portfolios are safer.)
  • The inflation case (Fortune): I'm not in the inflation camp but it's always worth hearing why some think that high inflation will be inevitable.
  • The anti-inflation case (BusinessWeek): Why high inflation may not materialize. For what it's worth, I think we will only get high inflation if government purposely pursue it. A lot of people who keep referring to countries with high inflation generally ignore the fact that those governments purposely pursued such policies. To pick an extreme example, the hyperinflation in Zimbabwe in the last decade was done on purpose and anyone living in Zimbabwe would have known that this was an "official" policy. Coming to America or Canada, past actions do not lead me to believe that high inflation is likely or will be pursued by anyone. However, an exception needs to be made for war. Governments almost always recklessly print money during wars—makes sense since lives and their existence are under threat—and my opinion is that the high inflation in the 70's was mainly due to the Vietnam War. Inflation in the 70's wouldn't have been so bad if it weren't for the heavy military spending in the 60's to the mid-70's. Barring a major war—Iraqi war is not major even though Americans are spending a lot of money—inflation seems unlikely. The important point is not the amount being spent per se. Rather, it is why it is being done. With war, high govt spending will be inflationary but the same amount spent to couteract destruction of capital (say real estate) won't have the same effect. (IANAE and these are just newbie opinion.)
  • Distillates weak in the US (MarketWatch): Demand for diesel, which is an oil distillate, looks really weak in the US. Diesel prices have declined below gasoline prices and this is supposedly uncommon. Refiners, who have had a few terrible years, might be hit really hard again this year.
  • Another black eye for Russia (New York Times): This NYT story covers the judgement by a Russian court against a Norwegian company, ordering it to pay a massive fine (for lost potential profits), and then seizing its Russian investment when it refused. I don't know who is at fault here but the court seems quite shady. Russia is basically becoming uninvestable (not sure if that's a word :)). I have never invested in any Russian company but did take a cursory look at several companies in the past. It's getting to the point where I may have to completely cross off the country from my investment list.
  • The charade that is known as annual shareholder meetings (The Economist): The biggest long-term problem—one without any obvious solution—is the poor corporate governance structures. I have ranted in the past against the nature of board of directors and how corporations are run. The Economist questions why institutional investors don't challenge executives or even show up in person for annual meetings.
  • Allen Stanford charged with $7 billion ponzi scheme (The Globe & Mail): Brings to close the mystery over the story that emerged earlier this year. Interestingly, a former Antigua regulator is also charged. If it weren't for Madoff, this would probably be the biggest scam (in nominal terms) in decades.
  • Investment spending in China not as bad as it seems (The Economist): The Economist has a bullish article on China, suggesting that capital investments by the government may not be as bad as some fear. I'm still cautious about China's economy but if they are indeed directing their investments towards the rural west or towards railroads, rather than in steel, real estate, manufacturing, and so on, it is a very good thing. This is an unfolding situation and it's too complex to see what the ultimate impact of any of this will be.
  • (non-investing) Some downbeat tunes capturing the economy (Financial Post): Recessions always leave a lasting impact on culture. The linked article mentions a slight shift towards gloomy tunes from established musicians. It remains to be seen what happens to the younger crowd.
  • (non-investing) Recession filtering into pop culture (Financial Post): As a film fan, the most interesting one for me will be Money Never Sleeps, aka Wall Street 2, but it is slated for a 2010 release. The script was probably written before 2008 (not sure) but it'll still be interesting to see the direction Oliver Stone takes this.


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