Can Turtles Fly?

If you only look at the mainstream, easily accessible, investment vehicles out there, closed-end funds tend to be one of the most mispriced assets out there. This means two things. If you are a skilled investor, it is an area where there may be great opportunity to earn high returns. Conversely, if you are a newbie, it's probably one area where you can get burned badly. For those not familiar, a closed-end fund (CEF) is a fund that has a fixed numbers of shares; whereas an open-end fund (such as a mutual fund or an ETF) creates and destroys (redeems) shares over time. CEFs are generally listed on an exchange and traded daily whereas mutual fund shares are not listed on any exchange (but ETF shares are listed.) Shares of open-end funds tend to track the underlying assets closely but CEF shares may not. There is no natural way to arbitrage price discrepancies in CEF shares (other than through influence of fund managers.)

(Image source unknown) The solution to the Greek fiscal problems are obvious to me. However, execution is very difficult. As far as I'm concerned, the problem is that Greek citizens don't pay their taxes. Stories of surgeons making 700k Euros per year and paying almost nothing sort of hints at the reality ( here is a Time story that touches on the issue.) Countries with similar tax collection problems early in the decade, like most ex-Soviet republics, as well as Russia, overcame the problem by implementing a flat tax. However, a flat tax is a regressive system and will cause a greater discrepancy in wealth between the have and the have-nots (this is a mounting problem in Russia right now and the consequences will likely be felt in a few decades when the poor demographic trend comes into play.) A flat tax will also probably cause tax revenue to decline in Greece (in Russia and others tax revenue went up because almost no one was paying taxes after the collaspe of USSR ...

I commute to work by car now, with 45 min to 1 hour trips each way, so I was thinking of listening to investment/business news/etc audio broadcasts during the drive. I used to commute by public transportation before and I used to spend my time reading, which was very invaluable to me (a lot of the blog entries and my investment ideas are due to that time.) But, now that I have to drive a car, I want to utilize the time so I have a question for all of you that commute (note that the following applies even if you commute by public transportation while listening to audio): Do any of you listen to any worthwhile investment (or business) audio broadcasts on your ride to work or school? I'm thinking of regular podcasts, audiobooks, and things like that. Anyone have any suggestions? Even if it costs some money, I don't mind paying for a regular broadcast subscription of some sort. The obvious answer is a radio station of some sort but (i) I haven't found any that are good, an...

You may recall Jim Chanos, a short-selling specialist, making the news a few weeks ago when he was quoted in a New York Times article laying out the bear case for China. What's interesting about the China bear vs bull fight is how many of the tradtional bears and contrarians are actually bullish on China. Strategists such as Marc Faber and Jim Rogers, not to mention the countless perma-bears who seem bearish on everything, are actually bullish on China (usually through heavily leveraged bets on China-sensitive commodities.) So, even though the China bear case is quite signficant (we aren't talking about some minor asset class or security from the middle of nowhere), there are very few bears. Jim Chanos, as well as Hugh Hendry, appear to be the only prominent ones that are on the bear side. Jim Chanos gave a great presentation a few weeks ago, outlining his China bear thesis. Some of you may have already seen it but I just got around to watching it fully (it's almost an h...

World's Exports - 1999 to 2009 Charts like these can be grossly misleading if the start and end points are not representative of a typical year. Given how many countries saw major declines in 2009, I'm not sure how representative the 2009 rankings are. Some of these countries may be ranked low simply due to a temporary drop in 2009. In any case, what is likely to be an accurate representation is the compound growth rate from 1999 to 2009 (bottom-right chart.) The most notable thing, which shouldn't be surprising to anyone, is the spectacular export growth in China. It's amazing to think that China posted 20% per year growth in exports in the past decade. I'm not too knowledgeable about distant history but it is possible that no (sizeable) country has ever done that in the last 500 years. Some countries like USA in the late 1800's and Japan in 1970's had high export growth but I doubt it was 20% per annum. I haven't looked up the exact numbers but C...

When it came to the financial crisis, one of the most shocking things for me was when industrial giant, GE, ran into liquidity problems. It is not wholly surprising that companies like Lehman Brothers, Bear Stearns, Citigroup, Fannie Mae, and others, faced serious problems given their business involved mortgages. But I was truly surprised when it looked like GE, which I had perceived as very strong (I think it was even rated AAA—but don't remember), looked like it was toast. GE's profitability had been strong for the last 20 or 25 years (with some moderately-sized issues along the way) and it is one of the few firms that consistently matched market expectations. I didn't know a huge chunk of its profits in the last decade was from their financial operations but even then, most of its assets were pretty solid. When the commercial paper market locked up, only then did I learn that GE relied heavily on short-term debt. In any case, my impression was that GE's problems ...

The only investment opportunity I have been researching lately is Mega Brands (TSX: MB). I'm still not clear on the merits of the company but am paying close attention to it. I never heard of Chapter 15 bankruptcy but apparently Mega Brands is placing some of its units into chapter 15. The Globe and Mail reports the following : Toymaker Mega Brands Inc. and nine affiliate units have filed for Chapter 15 proceedings in a Delaware court. The filing is a precautionary measure taken by non-U.S. companies that want to pre-empt creditors from filing lawsuits or tying up U.S. assets. The move is part of the financially troubled Montreal-based company's recapitalization plan aimed at slashing almost $300-million of debt. Also part of the previously announced restructuring is a plan to raise about $100-million through an equity issue and $121-million in a private placement. ... Mega Brands said in a press release Friday that – so far – holders representing 72 per cent of the...

Most of you probably saw this already but I think it may be important. As recently as three years ago, very few would have thought it was possible, but the core CPI in America actually declined in January. Like most events in the last couple of years, this was an unusual occurrence with it having occurred before in 1982—more than 25 years ago. Marketwatch provides some details : With shelter costs dropping sharply, U.S. core consumer prices fell a seasonally adjusted 0.1% in January, the first measurable decline since 1982, the Labor Department estimated Friday. Core prices, which exclude food and energy costs, are considered a good indicator of underlying inflationary pressures. In January, prices fell for hotel rooms, home ownership costs, new cars, airfares and clothing. Overall, the consumer price index rose a seasonally adjusted 0.2% in January for the fifth straight month, the Bureau of Labor Statistics said. Higher energy and medical costs more than offset the largest de...

The amount in question is still small but I'm not sure if this is change of strategy or a short-term blip: Foreign demand for U.S. government bonds and Treasury bills tumbled by the largest amount on record in December, according to monthly data from the U.S. Treasury Department. And China led the way, cutting its holdings by $34.2-billion (U.S.) and relinquishing its title as the world's largest holder of U.S. government debt to Japan. In recent months, top Chinese officials have expressed growing unease about the ability of the United States to finance its swelling debt, without triggering a major devaluation of the dollar. China has now cut its holdings of Treasuries by $45-billion over the past five months, or “a long enough period to hint strongly at a trend,” Alan Ruskin, chief international strategist at RBS Securities Inc., said in a research note. ... And while China was pulling out of U.S. Treasuries, many other Asian countries were adding to their holdings...

Finally catching up on investment articles and here is a long list of items you may not have run across.

(Graphic by The Economist, " Putting in money ," February 12, 2010.)

A couple of days ago, Phil, a reader of this blog, left a comment challenging my view that a "central bank has far less control of the economy" than many assume. I want to present a view that is completely radical that it may alter your thinking. This blog might be the worst investment blog known to man ;) but hopefully I make you think (but do note that I can be wrong.) I didn't come up with the idea I'm about to present (I'm just repeating others' views) but it completely changed my thinking a few years ago. In fact, it altered my view so much that, these days, I don't believe a central bank can "save" an economy no more than it can "boost" the economy (in the long run.) None of this is to say the central bank is useless—indeed, it plays a very powerful role, as many Keynesians would suggest, when it acts as a lender of last resort (usually during wars or economic calamities)—but the vast majority of the time a central bank really do...

Throughout his life, Warren Buffett has tried to isolate Berkshire Hathaway's stock from the daily swings in the market place. Like an ideal marriage or job contract, he wanted his shareholders to have a long-term focus. Buffett is also one of the few individuals who would rather have smaller investors own his company than the large institutional funds. One of the main ways he has attempted to shield Berkshire Hathaway shares is to purposely avoid satifsying the requirements for entry into major indexes. In contrast, most executives and shareholders attempt to get their companies into major indexes. Entering an index provides greater visibility, improves prestige, and likely lowers the cost of capital. Berkshire Hathaway has been one of the largest publicly-listed companies in America for decades but never made it to the S&P 500. Well, all that came to an end after trading today. Berkshire Hathaway underwent a split, as part of its acquisition of Burlington Northern ...

An obscure story but I thought it may be monumental. Lennar, a prominent homebuilder in America, has cut a deal with the FDIC to buy back some distressed loans. MarketWatch reports : Lennar has positioned itself to benefit further from a real estate recovery through a distressed-land transaction with the FDIC to purchase a 40% stake in bank loans with a combined unpaid balance of about $3 billion. Late Wednesday, the Miami-based company said it closed transactions with the FDIC to buy two portfolios of loans for $243 million. Lennar subsidiary Rialto Capital Advisors will conduct the daily management and workout of the portfolios, the company said. This wouldn't be much of a story except for two things.

You may be familiar with the mounting sovereign debt problems emnating from Greece in the last few weeks. Major european governments, led by Germany, are trying to hatch up a deal to avoid either a sell-off of the Euro and/or the disintegration of the EU bloc. There are various conflicting goals and I'm not sure what sort of deal will be cut. For instance, France has, in the past, indicated that they would prefer a weak Euro (likely to protect their manufacturing, tourism, fashion, and similar industries) so a mini "run" on the Euro is probably not a bad thing in their eyes. In contrast, several others have said they don't like a weakening Euro. Regardless of national interests, I'm sure the EU members do not want its membership to disintegrate. The Euro, as a common currency, is probably facing its biggest threat since it was introduced. Bears like Jim Rogers have suggested in the past that the Euro will collapse and it can't be held together. It remains to...

Here are some articles you may find insightful... Japan = 1930's USA? (Greenbackd): This is a topic that has been beaten to death on this blog but the question still stands: are we looking at a once-in-100-years buying opportunity in Japan? At certain points over the last few years, as many as 50% of the listed companies have traded below book value, with quite a few below NCAV (most of them are microcaps and smallcaps though.) So is this a value investor's dream? Greenbackd references some work by Dylan Grice of Societe Generale tackling this issue. If you are interested in Japan, this post is worth checking out... As cheap as Japan seems, their companies are not shareholder-friendly. As Warren Buffett has said, Japanese companies weren't very good investments even when Japan Inc was taking over the world. They were market leaders, dominant, technologically advanced, with impressive financials, but they weren't very profitable for shareholders. The present is no dif...

Source: Yuriko Nakao for Reuters (via Yahoo! News )

Crazy week for me. I actually went down to a small town in Pennsylvania to buy a used car. Nothing fancy but I wanted a particular car with specific features and it looked like I could save a few thousand so I did it. The trip only took a few days but it felt like I had been gone for a month. I haven't gone on any vaction in several years so that's probably why. Anyway... Retail investors in America have been shifting their portfolio towards bonds over the last couple years and a Scotia Capital analyst comments that cash held by mutual funds is at multi-decade lows : ...Strategist Hugo Ste-Marie is out with a report Monday that shows what’s known as the liquid asset ratio at U.S. mutual funds - that’s cash holdings in plain English - is at the lowest level seen in decades. Mr. Ste-Marie said that data is “signalling that equity portfolio mangers no longer have cash to redeploy. If new inflows don’t kick in soon, the equity rally will sputter.” Scotia Capital also too...