Showing posts from October, 2010

Sunday Spectacle XCIV

(source: Ed Stein, Rocky Mountain News, 2007. Downloaded from )

Sunday Spectacle XCIII

Mortgage Payment to Rent Ratios for USA and Canada (source: " Buy/rent ratio suggests vulnerability ," The Globe & Mail. Published Monday, Oct. 18, 2010 12:15PM) In reality, it is hard to tell if it's better to rent or buy a home in Canada even though the mortgage payment to rent ratio is 1.85. Unless the mortgage payment shown has been adjusted in some manner, we need to keep in mind that a mortgagee will end up owning the house after a few decades whereas a renter won't own anything. So it's not a simple 1-to-1 comparison. In any case, the chart appears to show that it is better to buy, than rent, homes in USA.

Sculley on Steve Jobs

Steve Jobs and John Sculley during the good times (Photo by Diana Walker for Countour/Getty Images) I ran across a very good interview in Bloomberg Businessweek (brought to my attention by Yahoo! Finance) with John Sculley, discussing Steve Jobs of Apple. John Sculley was the CEO of Apple in the 80's/early-90's and given how he worked closely with Jobs for many years, this is good reading if you are into business, technology, or corporate strategy. Steve Jobs is a very tough guy to work for—I would hate working for him. But he is brilliant and extremely talented. Sometimes you have bosses who are ruthless but don't know what they are doing; but at other times you have bosses who are knowledgeable—and right! Steve Jobs is the latter. This is a fascinating interview and I'm going to throw in my opinions below, but if you don't want my views, read the original interview. (source: " Being Steve Jobs' Boss ," Leander Kahney for Bloomberg Businessweek

British government significantly cuts spending

From an Associated Press story via The Globe & Mail : Fighting record debt, the British government on Wednesday outlined the largest cuts to public spending since World War II — slashing benefits and thousands of public sector jobs with an austerity plan aimed at restoring the nation's finances. After the country spent billions bailing out indebted banks, and suffered a squeeze on tax revenue and an increase in welfare bills, Treasury chief George Osborne staked the coalition government's future on tough economic remedies. Mr. Osborne confirmed there would be 81 billion pounds ($128 billion) in spending cuts through 2015, which he claims are necessary along with some tax increases to wipe out a spending deficit of 109 billion pounds ($172 billion). As many as 500,000 public sector jobs will be lost, about 18 billion pounds ($28.5 billion) axed from welfare payments and the pension age raised to 66 by 2020, earlier than previously planned. I'm against the "a

Articles to peruse - October 17th of 2010

Some articles I checked out over the last few weeks, that you may find worth reading... (Recommended) Strong bounce from the lost decade for stocks? (New York Times): One of the arguments made by long-term bulls is that the stock market will post strong returns over the next decade because the last decade was extremely poor. That mean reversion has actually been true throughout history. However, what is ignored by bulls is the fact that valuations now are still high and way above what prior averages. This is an excellent article that touches on why we may not see strong returns over the next decade. I concur with some of the analyst comments in the article and think that US stocks will probably post around 7% per year (nominal) going forward. This, as anyone who has studied compounding would know, is a massive difference from 10% per year that stocks haver returned over the last 80 or 90 years. (Recommended if macro-oriented) Timber investment primer (Advisor Perspectives): In t

Sunday Spectacle XCII

Google is backing a wind transmission project off the eastern coast of USA and here is a look at how the energy generation potential changes with the depth of the water: (source: " U.S. offshore wind resources " by John Sopinski for The Globe and Mail. Published Tuesday, Oct. 12, 2010 6:35PM EDT)

The tough life of solar companies in the developed world

From The New York Times : A few years ago, Silicon Valley start-ups like Solyndra, Nanosolar and MiaSolĂ© dreamed of transforming the economics of solar power by reinventing the technology used to make solar panels and deeply cutting the cost of production. Founded by veterans of the Valley’s chip and hard-drive industries, these companies attracted billions of dollars in venture capital investment on the hope that their advanced “thin film” technology would make them the Intels and Apples of the global solar industry. But as the companies finally begin mass production — Solyndra just flipped the switch on a $733 million factory here last month — they are finding that the economics of the industry have already been transformed, by the Chinese. Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated.

Very high correlation between gold and US Treasuries

I am a total newbie and only been investing for a few years but I noticed something I have never seen before: there is extremely high correlation between gold and bonds (US Treasuries). I haven't looked at distant history to see how common this is, but it certainly has been rare in the last few years. What is most strange about this correlation is that both signal different inflationary outcomes. Long-term bonds will not rise if inflation is thought to be a threat. Conversely, many investors buy gold to hedge against inflation (yes, there are some who buy gold for deflation/wars/disease outbreaks/etc but they are in the minority). Precisely when a lot of brainpower, not to mention ink and bytes, have been spent on the debate over inflation vs deflation, I find it interesting that the market is bidding up both, long-term US government bonds, as well as gold. Here is a quick look at the relationship between gold, bonds, and stocks. I'm using S&P 500 as a proxy for stock

Business Insider interviews Jim Grant

I ran across a very good, 30-minute, interview with Jim Grant, conducted by Henry Blodget of Business Insider. The video mostly covers Jim Grant's personal history but it does touch on some interesting topics. One of the interesting views echoed by Jim Grant—I'm sure many classic value investors will completely disagree—is the notion that Graham & Dodd investing (what I call classic value investing) does not work under all environments. I am not a value investor and don't follow everything that is said but I haven't heard anyone prominent say that before. I have always heard Graham & Dodd proponents say that it always works (albeit it may be difficult if everything is overvalued). Grant, apparently after suffering terribly in Japan throughout the 2000's, says that Graham & Dodd doesn't work in Japan. His view is that the corporate culture and the governance is so different—"Japanese do not have a market in corporate control"—that buying

One CEO's idea of the perfect 4 team members

(This post has nothing to do with investing) I don't know who Paul Maritz is or his track record. Apparently he is the CEO of software company VMware. But I do find his thoughts on management interesting. Some of you, perhaps including me, will fail as investors but we may succeed in our careers or as entrepreneurs. In a New York Times interview, Paul Maritz shares the following opinions (bolds by me): Paul Maritz: At the risk of oversimplifying, I think that in any great leadership team, you find at least four personalities, and you never find all four of those personalities in a single person. You need to have somebody who is a strategist or visionary , who sets the goals for where the organization needs to go. You need to have somebody who is the classic manager — somebody who takes care of the organization, in terms of making sure that everybody knows what they need to do and making sure that tasks are broken up into manageable actions and how they’re going to be

Sunday Spectacle XCI

Commodity Fund Flows - Physical Commodities vs Synthetic (source: " Sold on Pork Bellies (and Other Commodities) " by Tim Gray for The New York Times . Published: October 9, 2010) I find this chart really fascinating. Long-time readers may know that I'm bearish on commodities and I have always wondered if the commodity complex set a multi-decade peak in 2008. If so, I would expect flows into commodities to be weak. Yet, based on the charts above, it looks like way more money is flowing into physical commodities than ever. I also find it interesting that investors are putting more money into physical commodities than derivatives. Anyone that has tried investing in commodities knows that it is far easier to buy securities tied to some commodity index than one that owns the actual commodity itself. I wonder how much of the chart is influenced by gold. Gold has been on a major tear and I suspect a lot of the increase is due to hedge funds buying physical gold.

Articles to start off a rainy October

I was just looking at the list of top brands I posted on Sunday and I notice a lot of technology companies on that list. I wonder if technology companies were as prominent one or two decades ago, and whether the brands have staying power. Thirty or fourty years ago, I would imagine that these lists would have been mostly dominated by branded consumer goods companies. Will companies like Microsoft, Intel, Cisco, Google, Amazon, and so forth, stay near the top? It'll be an interesting situation to watch. Anyway, here are some articles I encountered in the last few months that you may find worth reading... Current state of Live Nation (Fortune): One of the companies on my watchlist is Live Nation (LYV), a ticketing and events promoter created out a merger with Ticketmaster. Fortune has a story updating the current scenario. Sal Khan's free online teaching modules (Fortune): Apparently a favourite of Bill Gates, Salman Khan's webiste, , offers free online

Changing economics of the book business

If anyone ever wonders why legacy businesses often have difficulties competing against new ones, the current changes in the book industry should prove helpful. Jeffrey Trachtenberg's article in The Wall Street Journal from a few months ago, " E-Books Rewrite Bookselling ," says this about the changing landscape: E-books have turned the economics of book retailing upside down. When it launched the iPad last month, Apple championed a new approach to e-book pricing. Earlier this year, most large publishers agreed to establish a so-called agency model, where the publisher receives 70% of the digital price while e-book sellers act as agents and receive 30%. While some best sellers remain at $9.99, many major authors are priced at $12.99 or $14.99. For many digital booksellers, the new model is good news: Instead of having to pay publishers half, or $12.50, for the e-book edition of a $25 hardcover book, and then sell that book at a loss—for, say $9.99—to match Amazon&#

Sunday Spectacle XC

2010 Best Global Brands by Interbrand source: Interbrand 2010 Most Valuable Global Brands by MillwardBrown Optimor source: MillwardBrown Optimor

Flash Crash report released

Perhaps the most important, yet seemingly innocuous, event of 2010 was the so-called "flash crash" that occurred on May 6th of 2010. The sudden crash and recovery in share prices, including in some of the biggest and most liquid names, raised serious concerns about the reliability of stock exchanges. I am still shocked that something like this can happen, especially when the culprit (see below) is apparently a $4.1 billion transaction. The final official report to the SEC and CFTC was released a few days ago. From a New York Times summary , In a long-awaited report on one of wildest days in Wall Street’s history, regulators said that the automated sale of a large block of futures by a mutual fund — not named in the report, but identified by officials as Waddell & Reed Financial, of Overland Park, Kan. — touched off a chain reaction of events on May 6. The Dow Jones industrial average plunged more than 600 points in a matter of minutes that day and then recovered in a b

Mobile phone industry unlikely to be a winner-takes-all market

Fortune's Apple 2.0 blog referenced a post from Tulip Farmer , a blogger at SeekingAlpha, suggesting that the mobile phone business is a winner-takes-all type of business. Tulip Farmer appears to suggest that the mobile phone business will follow the path of the computer industry, where one or two operating systems ended up dominating the market. The computer market  ended up with a few dominant OS because customers bought systems due to applications and those applications only existed on certain platforms. Tulip Farmer goes as far as to suggest that developers can only support one or two OS platforms: Where developers go, buyers follow. It no longer matters if RIM comes out with a better OS or a new device, because developers only have the bandwidth to support one or two platforms well, and they've already made the investment in iOS and Android. The only chance for survival Nokia and RIM probably have is to adopt Android or retreat into tiny niche markets. Even the king of