Articles for Week Ending December 3, 2016

Not in any order, here are some articles I ran across recently that you may find interesting... I often link to old articles so if there are stock suggestions or macro speculations, pay attention to the date (thesis may have changed by now).

• The Oscars of Paper Currency (James Tarmy for Bloomberg Businessweek, Dec 1, 2016): Didn't know some entity actually gave out award for best currency design. Kind of fun to see the artistic style of various currencies.
• Horizon Kinetics presentation on indexation and ETF problems (Steven Bregman, Horizon Kinetics, for Grant's Fall 2016 Conference - Oct 4 2016): Pretty good presentation on some issues with ETFs and indexation. If you invest in ETFs, check it out.
• Bear case presentation on Home Capital Group (Marc Cohodes for Grant's Fall 2016 Conference - Oct 4 2016): Bearish thesis on Canadian mortgage lender. If the Canadian housing market falls, HCG might be one of the first ones to get hit badly.
• Contender for the worst trade of all time? Snowball interest rates swaps (Matt Levine for Bloomberg, Mar 7, 2016): I have been working my way through Matt Levine's articles on Bloomberg. He is one of the top financial journalists that is freely accessible, with his background and focus being legal issues. All of his articles are excellent and often presents some contrarian views on various corporate activities. You probably won't improve your investing by reading him but if you are interested in knowing how Wall Street operates, they are great reading. I don't agree with everything he says but he makes me think... The linked article refers to a swap deal that Portuguese train companies entered into with Banco Santander, a mega-European bank. The companies have lost $1.43 billion and decided to take legal action to get out of the trade. It's a fascinating look at the notion of risk and how improbable events can materialize and end up threatening your existence (incompetence also played a role but let's leave that aside for now). On top of the idiotic cumulative spread feature (where spreads are added to prior quarter's), what seems to have killed the company is the fact that Euribor floating rate dropped below 2% after the financial crisis whereas the companies probably assumed it never would (it has never been below 2% in its history). If you are a macro-oriented investor, you should always think about what happens at the extremes that seem impossible.
• (Recommended) Underwriters and the IPO process (Matt Levine for Bloomberg, Nov 25, 2016): I didn't care so much for the article itself, but found this piece insightful in regards to the description of the whole IPO process. I certainly didn't know about the mechanics of 'stabilization' or how the underwriters are short the stock for a period of time. I would recommend reading the first 5 or 6 paragraphs to learn what happens in an IPO.
• (Highly Recommended) "Michael Dell Bought His Company Too Cheaply" (Matt Levine for Bloomberg, Jun 1, 2016): Unlike the prior two Levine articles, this one is relevant to small investors. This article deals with the lawsuit against Michael Dell for his management buy-out of Dell, a large computer company famous for pioneering mail-order build-to-order computer sales. Some argued it was a take-under. I liked the almost-philosophical question raised about the true price or value of a company. I liked how the article provided some insight into how parties with differing interests approach things.
• Subprime auto loan delinquencies rise (Rachel Beals for Marketwatch, Dec 3, 2016): Looks like subprime auto loans are starting to concern some. However, higher quality auto loans seem to be doing ok. Recent economic numbers indicate stronger employment and wages so it remains to be seen if this means anything.
• "The 2016 Daily Journal Meetings Notes: February 10, 2016" (The Charlieton): Can't remember if I linked to this already but anyway, it is Charlie Munger at his greatest.
• China's attempt at mass control via online tracking (Josh Chin and Gillian Wong for The Wall Street Journal, Nov 28, 2016): Although in the early stages and success uncertain, it's amazingly scary how close to Orwell's 1982 we are. China is attempting to build a social profile for each citizen (somewhat akin to a credit rating but for social activities) and to reward or penalize citizens based on their social profile. I wonder if, in a few decades, companies like Facebook and Google and their future counterparts, who have huge amounts of data on people, will succumb to their temptations and government strong-arming and enable such a thing to take place in the West--I really hope the people running these companies don't roll over every time the government tells them to. (article requires registration; can paste title in Google and click on link for free access)
• Trump picks Bill Walton (Max Abelson for Bloomberg, Nov 29, 2016): Cited this in a prior post but amazing how Trump administration is surrounding itself with some shady characters. In this case, Bill Walton was the CEO of Allied Capital, the company profiled by David Einhorn in his book.
• (Highly Recommended) "How Should We Read Investor Letters? Considering the correspondence between C.E.O.s and shareholders as a literary genre." (John Lanchester for The New Yorker, Sept 5, 2016; Book review of "Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism"): Essay that looks at shareholder activist letters as an art form. The book "Dear Chairman..." looks interesting and I'm going to put it on my list of books to buy at some point.
• "World Chess Has a Big Problem" (Carol Matlack for Bloomberg, Nov 28, 2016): Pretty good profile of the current state of the major chess federation, including some insight into the dark side it is entangled in.
• (Recommended) "The Amazon Tax" (Stratechery, Mar 15, 2016): Ben Thompson talks about the toll-road-like web services business that Amazon is developing.