Thursday, January 31, 2013


The story of the week that seems to be getting LESS discussion than I would have expected is the fact last quarter our economy (GNP) fell 0.1% (official figures, released yesterday I believe), a very small amount but a decline nonetheless.  This has lowered the 2012 growth figure to some 2.2% for the year.

I am no expert in economic data, but if the above two numbers are even CLOSE to being true, then 2012 had a decline in REAL (adjusted for inflation) decline...  In fact, this whole recovery since early 2009 has been among the weakest recoveries EVER in modern history.  Further, the general trend among economic recoveries after recessions is that the recovery tends to be stronger if the recession preceding it was bad.  This recovery is clearly an exception.

(I leave aside the issue as to whether or not the official figures are wrong, or manipulated numbers.)


In fact, this decline of 0.1% may herald more bad news to come soon.  This January, paychecks now have shrunk some $700 (per year, on average) because the full Social Security tax is being levied, after a two year tax break.  Obamacare taxes have just come into effect as well.  And, of course, the extra taxes levied upon the rich.

The main point I make here is that there is a high risk that the current quarter (January - March 2013) may show a drop in GNP as well.  If that does happen, by definition we are back into recession.

The "Green Shoots" we heard so much about may now wither again.  Whether they were real or not.


I see "Stagnation" elsewhere, not only in the economy and financial markets but in many other places and in my own life.  Following up on economic and financial matters I note:

-- Treasury bond interest rates (long-term) are at some 2.0% now (higher)
-- The price of gold has been locked into a trading range ($1600 - $1680)
-- Europe and China show stagnant economies (at best, probably in recession)
-- Peru has stepped in to weaken it currency (joining the rest of the world)
-- The Arab world is convulsing, the "Arab Spring" is not as rosy as we thought
-- Almost everyone I know is cutting spending and becoming more cautious

About the ONLY thing that IS rocking-and-rolling seems to be the stock market, stocks have been on a tear lately, due to QE...?  The chart of the S&P 500 (see last my last post) is at a triple-top...

We are becoming more cautious, it looks like we will NOT go to Italy this year (which we enjoy so much).  Why?  The euro is now almost $1.37, it has become hard to justify spending that much money...

I note that at financial forums I visit (especially Zero Hedge, but others too) that many people are becoming disillusioned with their personal economic circumstances.  ZH just had an article about union members learning that their taxes have gone up (and so learning that the Obama Tax Hikes) are not just affecting "the rich" (fuzzily defined as those making some $250,000 / year or more).

Ameru there in Peru is selling fairly well, but is stagnant vs. 2012 (admittedly 2012 was an excellent year).

I have heard some "buzz" that TPTB (The Powers That Be) are using wedge issues now (gun control, gay marriage, "global warming", class envy) to hide the current poor performance in the economy...  If this is true, then "Shame On Them" for not doing the right thing, by not telling the truth and by not working to get America back on track...


I wondered earlier today:

"Is stagnation contagious?"

If so, perhaps contagious stagnation might help explain why I have been slow to make progress lately in OTHER issues...  Yet, I am happy to report that I have had a mental "boot in the ass" to again get productive.  Maybe if stagnation is contagious, well then perhaps increased individual productivity may be as well.  Might each of us be able to help lift our whole country out of its rut?

So, I am back to work again, hoping to leave my own personal slow period behind (at least for now).  There is a lot to do, a lot to think about, a lot to write about.  I have another idea or two I wish to explore re Taleb's new book Antifragile.  With luck, soon I will have a contest here that will be fun and very unusual.  And in my own life, Step Four and Step Five beckon...


2013 promises to be an interesting year.  My hunch is that the relative lack of news and movement is nearing an end, and that things are about to get very interesting again, the calm before the storm.  In the words of the still unidentified "FOA":

"We will watch together, yes?"

Friday, January 25, 2013

Stocks Have Been Performing Well Lately

This article today is meant to look at fairly long-term price movements.  In the past YEAR, stocks (using the S&P 500) have way outperformed gold (the S&P 500 was up about 14% in 2012 (and some more in January 2013) vs. gold was about break-even for 2012).

Picking a time-frame matters when comparing investment returns!  Today, I just wish to show that stocks LATELY (since January 2012) have been performing better than gold.


I have focused my blog very much over the years on gold and alternative investments, but it is important to note that stocks (both the S&P 500 and Dow Jones Industrial indices) have both reached five-years highs.  Both of these indices have approximately doubled since the stock market lows of March 2009 (the lows during the market panic of 2008 - 2009).

The S&P 500 is an index made by Standard & Poors, it is composed of 500 "large companies".  More information on the S&P Index can be found here:

Here is a chart from Google Finance / Yahoo Finance / MSN Money of the S&P 500 over the past five years (the large numbers at the top of the chart show the S&P 500's gain today as of 3:21 PM):

S&P 500
S&P Indices: .INX - Jan 25 3:21pm ET
1501.25+6.43‎ (0.43%‎)

Avg Vol
Mkt Cap
Now note that even with the gains since 2009 that the S&P 500 has performed POORLY since 2000 (note that the S&P moved up a little more by 3:29 PM today):

S&P 500
S&P Indices: .INX - Jan 25 3:29pm ET
1502.06+7.24‎ (0.48%‎)

Avg Vol
Mkt Cap

Roughly speaking, the S&P 500 has gone nowhere since the year 2000.  This performance does NOT include inflation (of course), so anyone who held a substantial amount of money in the S&P 500 has done very poorly for 12 years!


Taking a longer view of gold, here is a chart of the price of gold over the last 10 years, compare THIS chart with the movement of the S&P 500 from 2000 - 2013 in the chart just above:


And compare this chart of gold over the past five years (note that since the stock market low in March 2009 that the S&P 500 and gold have both approximately doubled, compare the below chart with the first chart of this article):


So, looking at different periods matters!  Lately stocks have been on a tear vs. gold!  Let's summarize, all numbers approximate:

S&P 500
1 Year Change
5 Year Change
10 Year Change

Wednesday, January 23, 2013

Antifragile: Company Examples

I will soon finish N. N. Taleb's book Antifragile.  I cannot recommend this book highly enough.  One topic he explores, though not at length, is the fragility of companies, large vs. small, diversified vs. concentrated.

Taleb writes that large companies are often more fragile.  Since they are more complex and also because few of their employees have "skin in the game" (that is, they are not heavily exposed to their companies' fortunes other than, say, some stock options), the managers of large companies are more likely to damage the companies under their supposed care.

Two large companies come to mind, both of which have run into trouble recently.  Caterpillar, the world leader in manufacturing earth-moving equipment, just wrote off $550 million because of a fraudulent acquisition in China.  WTF?!  How could a company LOSE $550 million without doing "due diligence" on such a large acquisition in corruption-prone China?  Did not Cat's managers ever hear that China is FULL OF CORRUPTION?  Not all the facts have not come out yet, so we will have to wait and see who and what the full story will be.

Caterpillar has a solid reputation as a solid company.  There may be some manipulation at higher levels of the company to take an earnings hit now to help hide the (maybe) fact that worldwide sales of construction equipment are slowing.

Yet, Caterpillar's stock has not suffered in recent days...


The other great example of a fragile large company is TODAY'S exposure of the derivatives losses at Banca Monte Dei Paschi (of Siena, Italy).  BMPS is the world's oldest continuously operating bank, having been an operating bank since 1472.  Here's a link that shows what we know as of today:

BMPS is at least a fairly large bank, they have branches all over in north-central Italy.  The Zero Hedge link above notes that Giuseppe Mussari, who headed up BMPS during the financial crisis has RESIGNED from his new job: supervising Italian banks!

It appears that BMPS engaged in derivatives trading with German and Japanese banks.  They booked any gains and hid the losses...


Taleb notes that BANKS are particularly fragile, that almost all of them "blow-up" (destroy themselves in time).  Why?  Because they engage in fragile business: lend long / borrow short (putting their liquidity and short-term capital at risk) as well as making relatively little money (by loaning it out) while exposing themselves to higher risks than expected...

BMPS's stock was down some 15% vs. two days ago.

The cherry on top?  ECB Chairman Mario Draghi was supposed to have kept an eye on Italian banks in his job at that time...


Smaller companies (or even very small) are in many cases stronger (at least ones that have survived the critical first five years).  They do not have bureaucracies.  They are closer to their customers and to direct communication with them.

In the cases where smaller companies are not in debt, they can be very durable.  Think artisans (cabinet makers, specialty wine & cheese makers, restaurants...  Many of these businesses succeed (when they do) by word-of-mouth...  Or they fill a small niche and are hard to dislodge.

I will leave aside the example of Ameru down there in Peru for now, although we are trying to become stronger (low debt, niche products, and close relationships with our suppliers and key customers).  Later I may take a "Taleb-ian" view of Ameru.

Instead I will discuss here two very small businesses, both have TWO employees, the CEO and an assistant (the latter not just a secretary, but someone who can hold down the fort while the principal is out). m The first guy I know was (and still his) a mortgage broker, but has branched out into an interesting lending niche.  He gets 10% on money he loans out with near-perfect security!  I will not reveal anymore about his business model, but he is the only I know doing this...

The other guy I know (who is still doing his main real-estate management business) has found another sideline as well: he occasionally goes and buys a condo, and rents it out.  What is so special about that?  He knows how to buy at low prices, he is picky about his tenants, he is able to command high rents, and he knows (well) a good general contractor who will make repairs (etc.) for cheap (the man I know uses him exclusively and so gets his work done right and at lower cost).

What do these two guys share in common (other than being in the real estate sector)?  They both have found nice niches by being agile and flexible!  Agility and flexibility, the ability to aggressively move into a profitable niche that they can quickly understand, is a secret of their success.

Agility and flexibility are two key ideas of having "options", options to make serious money by placing oneself in the path of being able to make big money and keeping exposure to losses at a minimum:  that is antifragile!

Monday, January 21, 2013

Review of Barron's -- Dated 21 January 2013

The Martin Luther King, Jr. Holiday gave me an opportunity to review the weekend's Barron's more or less on time (as the bond and stock markets are not open today here in the USA)...  When I last looked, the precious metals markets were almost frozen, and there is no news out there (oh, except for an Inauguration).

The Cover Story this weekend is their semi-annual Roundtable, where Barron's invites the usual gang of Investment Professionals to opine on prospects for the economy and to offer up their ideas as to which investments ought to do well in the next year.

Barron's is kind enough to remind us of their picks from last year and to tabulate the percentage change in the value of each of their recommendations.  Here is my rough and ready calculation as to their picks from last year (S&P 500 was up about 14% last year):

Scott Black
+  6%
Abby Joseph Cohen
Marc Faber
Mario Gabelli
Bill Gross
+  4%
Fred Hickey
-   9%
Brian Rogers
Oscar Schafer
Meryl Witmer
Felix Zulauf
+  8%

Average performance of the investment pros: +12.1% (less than the S&P...).  Keep in mind that it is my rough and ready method of calculating that yields the above, Barron's (or your's) own calculations may show somewhat different results...

Marc Faber, alas, did not attend this year's Roundtable.

Author (and Moderator?) Lauren R. Rublin notes that she can best summarize the pros into two categories re the upcoming months.  Rublin (emphasis mine):

"Best we can summarize it, they fell into two distinct camps-those who foresee and improving economy, quiescent inflation, rising corporate earnings, and decent gains for stocks, and those who expect interest-rate-suppressing policies of the Federal Reserve and 37 similar institutions to end in recession, depression, and "national confrontation", otherwise known as war.  The only question pertaining to the more dismal forecast is, as Fred Hickey put it, "when this thing is going to blow."  And that, we're somewhat relieved to report, might not happen for a number of years."

Some of the pros are very bullish.

Many of them believe that the oil shale fracking boom will lead to many good things for the USA (more jobs, lower energy costs).

Specific recommendations?  Since this is just Part One (of Three), only two pros had their picks published:

Felix Zulauf's Picks

-- US dollar vs. Japanese Yen
-- USD/JPY Call Option Strike 95 Exp. 12/31/2014
-- WisdomTree Japan hedged Equity Fund (ticker DXJ, see note below)
-- iShares MSCI Brazil Index Fund (EWZ)
-- iShares FTSE China 25 Index Fund (FXI)
-- iShares Emerg Mkts Index Fund (EEM)
-- Gold

DXJ is, in essence, buying Japanese stocks with the Yen "hedged out", that is, just the performance of their stocks and no exposure to Yen movement.  Translation: should be good for Japanese exporters, at least short-term.

Mario Gabelli's Picks

Hillshire Brands (HSH)
Post Holdings (POST)
Viacom (VIA)
Xylem (XYL)
Graco (GGG)
Patterson Cos. (PDCO)
Weathorford Int'e (WFT)
National Fuel Has (NFG)
Boulder Brands (BDBD)
Fisher Communications (FSCI)


Randall W. Forsyth writes up Abelson's usual piece this weekend.  He notes that the world's central banks have learned about how to juice things from various sports celebrities (Lance Armstrong, Barry Bonds and Roger Clemens), but in this case juice economies by printing money...  It turns out that the USA has had some export success by weakening our dollar..., now the Japanese want to join that game.  The USA has been at this since at least 2010, when Brazil first complained.  But, if Japan prints (much anyway), they may invite retaliation from Europe, the euro is at a high $1.33 or so...


Jacqueline Doherty ("Streetwise") asks if we have started a new bull market.  She writes that transports are up 7.3% so far in January and that tech stocks (except Apple (AAPL)) are up higher than the market as a whole.  She also notes that some analysts are attracted to Apple too...


In "Review & Preview" William Waitzman writes a short piece on big banks paying fines to our government when they have been involved in bank crime.  Since 2008, the total has been about $40 billion in fines, sounds like a lot, but really is not considering all that has happened since then...

"He Said":

"I respect their decision."

Jamie Dimon, CEO of JP Morgan, after the Board cut his pay due to the trading losses

Lawrence C. Strauss also wrote a short piece, this time on "Captchas", those hard to read items that some websites make you enter into a box before allowing you access, the purpose of Captchas is to keep out "bots" and similar.  Well, there is a new effort to capture customer preference info via a Captcha...


Andrew Bary writes an article showing that Barron's stock picks and pans (from articles).  He claims that their picks rose some 9% vs a market rise of 5.3% (unexplained).  Uhh, OK, but I would have liked to see the methodology...


Jonathan Buck writes up the upcoming (now perhaps?) World Economic Forum meeting in Davos, where every year Big Wigs get together to opine and network with each other.

Apparently there is nothing urgent on their minds this year, worries yes, crises no.

Does this mean I can go home now?


Andrew Bary writes an article on how Michael Dell is trying to get Dell (DELL) for cheap...  TOO cheap it looks like.


Jack Hough changed his "MO" this weekend, and just wrote about three companies all in the ROBOT space.  It has been a long time since I last looked at robot companies, so I found his article interesting.  He mentions two from Japan (Fanuc: 6954.Japan and Yaskawa: 6506.Japan), but he LIKES ABB (ABB) and KUKA (KU2.Germany).  KUKA is number one in Europe and ABB is number two.  ABB also is onvolved in other businesses (power equipment).

Hough also suggests that Rockwell Automation (ROK).  ROK does not make robots, but they are big in factory automation and can take, say, a Fanuc robot and integrate it into a factory line.

Robot use is expected to grow at 11% per year, well above industrial production.  This might be an industry worth watching...


Tiernan Ray writes that AT&T (T) and Verizon (VZ) both continue to have good prospects.  Both are selling more smartphones and laying in the groundwork for LTE (long-term evolution, the weird word for faster wireless technology coming fairly soon).  T and VZ are well ahead of other cellphone companies.

Ray also writes about Intel (INTC) and how they have not been doing well in the new iWorld.  INTC is now making a bet (part of the amazing $13 billion that Intel is investing this year) that "branch predicting" will be the new big thing in chips.  Well, they hope so, but so far Wall STreet ain't buyin' it...


Editor Thomas Donlan writes again of our fiscal irresponsibility...  He believes that (once again) some kind of a deal will be worked out re the Debt Ceiling, but illustrates a couple of possible outcomes if it is not (cutting non-interest and non-Treasury principal payments would NOT be cut), this would require a cut of 40% (average) in everything else or even using scrip (as California did to some extent in 2009).  Neither of which of course will happen.  Nor will they back our money with gold, no way.


In the Market Week section, Vito J. Racanelli notes that stocks hit a Five-Year high.  Racanelli then goes on to produce a chart (and comments of course) on how mega-cap stocks seem to lose their mojo once they reach about 5% of the S&P Market Cap (like MSFT, XOM and GE all did).

Assif Shameen ("Asian Trader") writes that India's technology outsourcing companies (Infosys and Tata Consulting, among others) are doing well, India has been winning market share from Hewlett-Packard (HP) for example).

Ben Levisohn ("Emerging Markets") writes a column on Venezuela debt being volatile...  Really?  Erm, anyone would have to be braver than I am to buy Venezuelan paper...

Digby Larner fills in this week writing "European Trader".  UPS gave up on its effort to buy TNT of The Netherlands.  He quotes various European observers as saying that TNT (which dropped 41% right after UPS withdrew their bid -- European antitrust worries) may be a good stock.

Michael Aneiro ("Current Yield") writes that investors STILL think that because bond rates are so low that a great migration out of bonds and into stocks is is just around the corner...  They were saying that a year or two as well...  Aneiro goes on to write that a US debt downgrade may not hurt our bonds much.  Downgrades rarely DO seem to hurt, there was very little reaction when S&P stripped the USA of its AAA rating.

Alexandra Wexler ("Commodities Corner") writes that even though orange juice is down some 21%, well the price could move right back up if disease called "citrus greening" keeps getting worse in Florida (which provides the bulk of America's orange juice).  It's always something...

Nothing dramatic in insider sales nor anything of real interest in the Classifieds.

Once again I toss the "Total" Fed number up for examination, especially if/when it passes the $3 trillion mark (which they managed to avoid doing last year).  They are buy $10 billion away now, and it went up $24 billion last week.  I am sure that will be all over this one...

The Mighty Peruvian Sol was once again not so mighty this week, declining a very small amount .  Maybe the reports of their central bank intervening to keep it from rising even more are correct and that their CB efforts are working.

Wednesday, January 16, 2013

Antifragile: Taleb's "Barbell" Investment Idea

Continuing my little series exposing some of Nassim Nicholas Taleb's ideas in his new book Antifragile, I would now invite examination of his interesting idea of a "barbell" investment strategy.

Briefly, his idea is two put your assets (investment assets I presume, he does not spell it out) into two general categories.  One is, say, 90% of your investments into very safe (short-term Treasuries for example), that would be one side of the barbell, the other 10% of your investments into VERY SPECULATIVE stuff, the more volatile the better.

He does NOT believe in investing "in the middle" (like stocks for example, commercial real estate or bonds), as there are hidden risks in many investments.

His barbell strategy also fits his general theme of putting oneself into a position to benefit from upside volatility (where rare random events are in your favor).

Here is a barbell that I will use to illustrate -- I never got any praise for artistic skills...:

Let us imagine that the left side of the barbell would be the safe (90%) side.  In his book he says ideally this would be cash that would just beat inflation, but that is hard to find now, a safe investment that throws off an income of, say, 5% (perhaps a median estimate of inflation now).  Perhaps we could expand the allowed "safe" investments on the left to include gold...

So, we could take care of the "safe" investments by stipulating that the "left side" would be 50% in short-term Treasuries and 50% in gold (or 45% for each of the two of your total investments).

And the "right side"?  The more risky and volatile the better!  Here are some candidates:

--  FAS and FAZ (the "3 x" ETFs on the banks, also the other "3 x" ETFs)
--  Options, especially CHEAP ones... (His career has involved a lot of study on options)
--  Derivatives of all sorts, especially leveraged!


Taleb's idea here is to limit the absolute maximum loss to 10% of the portfolio while allowing for BIG INCREASES when the risky stuff occasionally pays off.  And typically, it will, if you have the patience (and capital) to wait it out...

Note that I do not yet practice what he preaches (I wonder how much so he does?).  It is an interesting idea, with much to be said for it, but I am not prepared to make that jump.


I mentioned gold as a "safe side" investment.  Taleb mentions gold in his book, so far two or three times.  He kind of hints at it as something safe, but never comes straight out with it.  Gold is not even in the Index...  But, gold has a long (5000 year) record of being a store of value, so I think gold merits its place as one half of the "safe (left) side" of the barbell.  Now we have (click on the image for a better view):

I am very much a fan of diversification!  Even if I drift towards his investment idea (very possible), I will likely keep some stocks as well as our company in Peru (even though those ARE "in the middle").  Taleb does not discuss "geographical ("political") risk" for example.  Diversification (he is rather strict in what really IS diversification, as so many investments are actually highly correlated) and redundancy do fit into Taleb's great ideas of "antifragility".


I plan on further explorations into his ideas.  These will perhaps include our own company there in Peru (how fragile or not it is), gold, "small is better", iatrogenics, and others.

I cannot recommend his book high enough.

Tuesday, January 15, 2013

Big News & Little News

In less than 24 hours I see a lot has happened.

One item of little news is that platinum (at least as of writing this post today) has caught up with gold and just passed it, albeit by a tiny amount.  Historically platinum has been higher than gold although the ratio (or premiums/discounts) have varied widely.  I have seen a couple of reports that say that platinum's price is up (rather sharply over the past week or two) vs. gold because the automotive industry is recovering nicely (including in China) and that production problems continue in South Africa.

Prices of gold, silver and platinum can always be found at the top of my blog (when wroking right anyway).


The Big News, of course, is the report that Germany's Bundesbank (their central bank) wants most of their gold back that is held outside of Germany.

Germany is (by official figures) the world's second largest governmental holder of gold, a bit over 3000 tonnes (metric tons).  (There ARE persistent reports that China, now officially reporting just over 1000 tonnes may have much more -- maybe 4000 tonnes -- but no one really knows)  Most of Germany's gold is held outside of Germany itself, a large percentage at the Federal Reserve Bank of New York (which holds some 7000 tonnes of mostly "other people's" (non-USA) gold).  Smaller amounts of Germany's gold is held at the central banks of England and France as well.

The reports ( is following this closely) seem to indicate that Germany may take its holdings down to ZERO in France and take a lot from the FRBNY.  One report (comment section) at Zero Hedge is that the Germans may hold a press conference on this matter tomorrow.

If it is true that Germany will take its gold back, this may be the biggest financial story of the year.  

In the 1960s, France took its gold back from the FRBNY, and there are reports that it was difficult to come up with the gold and that there were worries about that act causing damage to the financial system (which, looking back on it, appear not to have happened, damage that is).  A year or so, Hugo Chavez (Jefe of Venezuela, now in a coma in Cuba and perhaps near death) took his country's 400 or so tonnes back home.

And now Germany.  Just three months ago, a spokesperson at their central bank said they had no worries about the security of their gold being held outside of Germany.  Has something changed?


Little news, really an anecdote about our economy.  For years now there has been debate about whether or not we really are growing our way out of the hole we fell into during the Great Recession.  Many of us have had our doubts, but almost all of the official figures and MSM reports are that we ARE advancing, and I have heard some reports (anecdotal again) from small businesspeople (local and out of state) that things are getting better, very slowly, but better.

WELL, maybe.  But, today I took my wife and her parents to a nearby attraction while I went to find a bookstore and quiet place to write an article...  Since Border's (the bookstore chain) went under a couple or so years ago, my only convenient alternative has been Barnes & Noble.  So, in this part of our city, I dropped them off and went to the B & N I normally have gone to before.  No!  They are gone at that location (and the property is vacant).  B & N has been shutting down bookstores even since Border's went down.

So, no bookstore, no calm coffee shop to write this article.  So I came to the nearby mall to eat lunch and write this piece.  And what did I just see?  J C Penney (where I had bought lots of casual clothing, I liked buying clothes there) looked terrible!  Signs all over saying "Clearance 30% - 60% Off".  And the selection of merchandise available is less than before...

So, what to make of this anecdotal evidence?  Well, I do not see much that brings me cheer re our local economy, although housing prices are up a bit, sales are up a bit and unemployment is down a bit.  So the FIGURES are better, but what I SEE, well not so much.

Retail may be a lagging indicator, and my anecdotal evidence is just that (and so not worth much).


Be watching tomorrow if the Bundesbank holds that news conference about bringing their gold home...

Sunday, January 13, 2013

Review of Barron's -- Dated 14 January 2013

But, before I review this weekend's edition, I will make a mention of last weekend's, which I was unable to do because I did not have time.  Actually, it is too bad that I did not, as the Cover Story last weekend was about INCOME, a topic that I have wanted to study some more.

Andrew Bary wrote the article, and pointed to the below asset classes that throw a (relatively) good yield:

-- Preferred shares (yields up to over 6% in apparently strong companies)
-- Junk bonds (yields as high as you want to go, uh, no thanks)
-- Convertible bonds (elsewhere I read that these may be good speculations/investments)
-- REITs (lower yields than I would have expected, only some 3.52% and lower)
-- Municipal bonds (yields keep going down, and RISKY IMO)
-- High-Dividend stocks (many over 3%, 3% is HIGH???)
-- Utilities (many over 4%)
-- MLPs (like the Alerian energy MLP (ticker: AMLP), some yielding over 6%)

My general view?  There are still no easy, low-risk ways to get any income that matches our inflation (call it 6% to be nice...).  Most of the above investments have been written about before many times, in Barron's and elsewhere.  Convertible bonds may be a niche worth taking a look at, though.  But, convertibles are beyond my paygrade...

Once again, I will try to revisit INCOME again soon.


In this weekend's Barron's, the Cover Story is about how some mutual fund managers have outperformed by "digging deep" and by "taking intelligent risks".  The Cover Story really, just leads you to the Quarterly Review of mutual funds...

I have been reading N. N. Taleb's new book Antifragile lately, and have become re-acquainted with his view that many of these managers are just lucky (the ones who performed well last year).

It is my opinion that most mutual funds will at best match the S&P 500 (or similar benchmark, depending on what the fund is investing in).  Very few beat the averages over time.  Do you want to buy stocks?  Then either pick 'em yourself or just go with a mutual fund that tracks the S&P (or a sector) or ETFs that do the same.

If there were ANY mutual fund managers out there who way overperformed it would be by luck (except perhaps a few exceptional cases).


Alan Abelson this week kicks off his column by noting that Maurice Greenberg (ex-honcho of AIG) is displaying "chutzpah", whose definition Abelson kindly shares with us (a Yiddish word for "brazen impudence or gall").  It seems that Greenberg feels that he and AIG shareholders got a BAD DEAL when they were bailed out...  Even AIG itself has not joined with Greenberg on this.  Neil Barofsky (a former inspector general in the financial industry writes Abelson) thinks this lawsuit is "a giant middle finger" pointed at us taxpayers.  Yes.  So, Hank Greenberg: STFU!

Abelson then goes on to write about how "fracking" and other technologies have helped raise domestic oil output from 5.0 million bbl / day to about 7.3 million now, and some 7.9 million expected next year.  This is a real benefit to the USA.  Unmentioned is the kicker of more natural gas.  This not getting as much attention as it should be he writes, and I agree.  (By the way, those faucets in Pennsylvania that "light up" were doing that 100 years ago, whoops...)

Abelson then writes two short sets of remarks about bullish sentiment (bullish sentiment over 51%, Investors Intelligence number), which often leads to declines, and discusses an analyst who sees GOLD going to $2400 by the end of 2013 because of all the Fed asset buying (QE, money-printing, whatever you want to call it/them)...


Kopin Tan ("Streetwise") writes a somewhat bullish column noting that stocks have done well lately (well, yes) and that may continue.

Unless interest rates go up, then maybe not.


Mr. Tan also writes up a "Follow-Up" on two stocks reviewed by Barron's earlier, tech powerhouses Apple (AAPL) and Google (GOOG).  He notes that AAPL is relatively unchanged (net) since the November 19, 2012 article) while Samsung is up some 17%.  He likes BOTH.


In "Review & Preview" William Waitzman writes a short piece on how small entrepreneurs may be put at a disadvantage vs. the Big Guys (like Google) based on a recent settlement Google had the the FTC re loosening patent protections.  Patent protection is a complicated subject, but the worry is that big companies could sue small entrepreneurs who have "similar" (my word) technology to a giant like Google just because they can.  [Ed. Note: N. N. Taleb says that what is keeping the USA ahead of the pack is that we have a risk-taking culture that encourages new technologies to emerge, this development may help put that at risk]

"He Said:"

"Economic activity should gradually recover...The risks surrounding the outlook for for the euro area remain on the downside."

Mario Draghi, ECB President


Christopher C. Williams writes up a bullish piece on Ensco (ESV), the world's second largest offshore driller.  OK, I could buy into that, as offshore oil production (at least long term) is likelt to be a larger part of the world's energy picture in the coming years.  Also, ESV has a younger fleet of rigs than big rival Transocean (RIG).


Jack Hough writes a piece about (wait for it...) four companies in the movie theater sector.  He is bullish on all four.

Hollywood is making more bets on safe movies (comic book characters, sequels and prequels, etc.) so that may make 2013 sales pretty good, which of course helps the cinemas.


Andrew Bary this week interviews Charles Lieberman. the founder of Advisors Capital Management.  In brief, Lieberman looks for a high yield (keep reading...) as well as growth prospects (and at the risk tolerance of each investor).  They manage money in separate accounts for each (so not a mutual fund), portfolio customization minimum investment would be $250,000.

Lieberman likes some energy MLPs, espcially Breitburn Energy (BBEP, who?) sporting a  NICE yield of some 9.6%, which he thinks is likely to be stable (as BBEP is hedged) and Energy Transfer Partners (ETP, 7.9% yield).

Lieberman picks stocks from the same general universe as Bary's article of last week (about income, right at the beginning of my review).  But, Lieberman's income picks average maybe 7%!

Ahh, I don't know...  So many people are looking for yield (which Lieberman acknowledges, he is look at LESS POPULAR investments in those sectors).  7% seems very high to me, and very risky.

Lieberman does point out that if rates go up (say the Fed funds rate to 4%, the 10-Year rate then would be some 5% - 6%), then many income investments would be hurt, Treasuries very badly.  So, many of his bond picks are shorter term corporate bonds.


Tiernan Ray ("Technology Week") writes of new TV technology coming down the pike.  One is the new (it will take some years for this to be rolled however) ultra-high-definition TVs, that are about "four times sharper" of current HD TVs.  This will take time as it will require a LOT of bandwidth infrastructure to be put down by the cable companies, etc.

Ray also writes about the continuing efforts to marry TVs and the Internet, this is going more slowly than Google and others had hoped.  Tiernan Ray puts this perfectly for me (me being a kind-of lo-tech guy):

"..., I thought, "This is very complicated," even for a tech reporter with years spent fiddling with gadgets."

Hey!  If this is complicated for HIM, then I am not interested.  We already have THREE controllers just to run our TV, Blu-Ray, etc...


Jim McTague ("D. C. Current") writes that Republicans would like nothing better than to strike at Obamacare in the upcoming Debt Ceiling talks.  But, crafty ol' Obama will not let that happen, even with flaws recognized even by Democrats.  Obama will wait until later to fix, maybe, any flaws in Obamacare.

McTague says the Republicans do not have a "strong hand to play" in their negotiations with Obama.  He may be right, he probably is.  The Republicans will make a deal to avoid "sequestration" (what would presumably happen with no Debt Ceiling Levitation).

A big question remains: Would Republicans go along with ANOTHER tax hike (which is what Obama and his Democrat buddies want)?


Dyan Machan writes this weekend's "CEO Spotlight", about Honeywell (HON) CEO David Cote.  NON is a a diversified manufacturer that was more heavily into Defense Department business than now.  Cote has pulled the company around since he took charge (2002), and the stock has more than doubled (both from 2002 as well as its 2009 lows).

Cote, a diehard Boston sports teams fan (hey, when I was a teenager I lived near there, so know they type) worked his way up through GE and TRW before landing as CEO at Honeywell.


Dimitra DeFotis ("Weekday Trader") writes a bullish piece on FMC Technology (FTI), a maker of undersea "Christmas Trees" the pipe & valve devices that control flow of oil and gas from offshore fields).  She does concede that there are competitors in this sector...

R. Mix General Comment:  I like can-do companies in sectors like offshore oil & gas, as these guys can do things that few others can.  They have a moat.  I am always interested in companies that have a moat...


Editor Thomas Donlan tackles two situations this weekend.  First AIG.  He (rightly) believes that AIG (and hangers-on) should just STFU (my acronym there, not his).  The "rescue" will probably lead into more BAD DEALS like this in the future when a TBTF is in trouble again...

Donlan takes more-or-less the opposite view (than William Waitzman's column mentioned above) re the Google - FTC settlement.  He thinks that Google harmed no CONSUMERS (maybe they harmed competitors because they WON, fair & square), and so should be left alone to pursue their business.  Google does not FORCE anyone to buy via their ads, to use Google as their search engine, etc.  Any consumer who is NOT happy with any of Google's products can look elsewhere easily for alternatives.


In the Market Section, Vito J. Racanelli starts off by noting that we are up some 3% in stocks so far in 2013 (after 14% or so last year), in fact the S&P 500 hitting a 5-Year high.

"Asian Trader" author Assif Shameen writes up Tahiland for us, their benchmark index was up (US$ terms) 42% last year.  He gets suggestions from three analysts that Thailand could have more gains, as they need to (and are) building out infrastructure as well as being next door to booming economies in Vietname, Laos, Cambodia and Burma (hey who knew?).

Ben Levisohn ("Emerging Markets") writes that emerging markets are vulnerable if our Fed raises rates (as low rates here have pushed investors to buy emerging market debt and stocks).  Hey, could be.  He thinks that Taiwan and South Korea would emerge OK though, as those countries also have solid companies as well as good domestic markets for their own goods).

Jonathan Buck ("European Trader") writes a bullish case for UK retailer Marks & Spencer (which has an American ADR: MAKSY).  Marks & Spencer has a lot of shares short and may come around vs. competitors like Next in the UK.

Michael Aneiro ("Current Yield") writes of the continuing bull market we have seen for years now in junk bonds.  Junk bonds yield an average of only some 6.1% and returned a total of 15.6% (beating the S&P 500) last year.  Aneiro:  "We're surely testing the limits of our understanding of the junk bond market."  Yes, I would agree.  No junk for me.  Aneiro notes the 10-Year bond yields about 1.87% now.

David Winning writes this edition's "Commodities Corner", and he looks at "Dr. Copper" (the term refers to copper being a single decent measure of how the world economy is doing).  Apparently there are now warehouses in China stuffed full of copper, so this could mean lower prices...

Insiders sold some large amounts of some stocks, including Marc Benioff (whom Jim Cramer publicly praised on CNBC recently) selling some $68 million in stock.  An insider at Oracle sold some $49 million, three insiders at Bed Bath and Beyond sold some $41 million and an insider at Marriot Vacations (VAC) sold some $38 million.  NOTE!  I believe the trend I have seen is increasing insider sales since I started tracking them (largest sales only), but I have not kept any kind of systematic records.

(I am keeping an eye on the Federal Reserve Data Bank's "Total" (which I used to do) because it is again approaching $3 trillion, just $34 billion form that landmark)

The Mighty Peruvian Sol has moved very little in the past couple of weeks, despite apparently active measures taken by Peru's central bank to restrain it rise vs. the dollar.  It has been range-bound (no changes of 1%) for the past three weeks.

Verdict: There are a lot of investment ideas explored this week, if you are interested, buy it!

Saturday, January 5, 2013

Antifragile: Exploring Some Of Taleb's Ideas

This article is the second part of a series in which I will explore some of what Nassim Nicholas Taleb writes about in his important new book Antifragile.

Again, these are interpretations are mine, I sometimes use his words, sometimes mine to explore a point.


One idea he explores is one that many of us have run into before, at least obliquely, namely that as any system (person, country, company) gets stronger, something within that system becomes weaker or dies.

There are two levels that Taleb looks at here.  Let me begin this by describing a source of his own ideas: mathematician Benoit Mandelbroit.  Mandelbrot found self-similarity in scale when looking at many complex systems, that is, seeing similar patterns at the micro and the macro.  Mandelbrot's most famous legacy is the Mandelbrot Set (a really nice article is here at wiki:  There are a LOT of videos at YouTube (here's one, I picked this one kind of arbitrarily, because it had over 1,000,000 views:

Taleb also reminds us of the "selfish gene" (this idea is explained at more length by biologists Richard Dawkins and Robert Trivers), namely that out genetic makeup does not even care whether we as individuals are comfortable, live good lives, etc.  The Selfish Gene only cares about its own reproduction, and that earlier versions (our parents and grandparents) do not even care about individual offspring in later generations...

In other words: "The System" does not care about you, it only cares about itself.  If you wind up strengthening The System, you will likely carry on.  If you weaken the system (or are weak), The System will weaken or destroy you to allow more robust entities to carry out its work...

There are some exceptions: grandmothers helping families preparing the very young to become useful later on.  You see!  Grannies are a Good Thing!


Taleb has an interesting take on mortality and immortality (Pages 67 and 68).Something (let's say a creature) that would be immortal would have to be robust enough to withstand all future random events.  RANDOMNESS is a separate topic that I may explore later, Taleb does so at great length in his earlier book Fooled by Randomness).  What he means is that NO ONE can predict what kinds of random acts will happen in the distant (or even less than distant) future.  An immortal man would have to be able to withstand the rigors of another big asteroid hitting the Earth and plunging it into cold and darkness for 100 years, or even to be able to withstand Al Gore's Global Warming...).

Taleb on evolution:

"In fact, the most interesting  aspect of evolution is that it only works because of its antifragility; it is in love with stressors, randomness, uncertainty, and disorder -- while individual organisms are relatively fragile, the gene pool takes advantage of shocks to enhance its fitness."

Or a gunshot wound.  Or being run over by a truck.  Immortality means living forever, which means that almost everything would likely happen.

Nature does not even TRY to make any being immortal.  Not even a species, nor even a family (in the Carl Linnaeus sense of the word -- a "family" is a group of fairly closely related species).  Nature provides the information necessary for living things to reproduce and adapt to changing conditions.  The trilobites and the dinosaurs dominated their environments, eons ago, yet exist no longer.


I wrote above that Taleb was inspired by Benoit Mandelbrot.  He then describes a mechanism that we see all the time.  Taleb:

"...  There is a similar hierarchy of things, and we just see the top layers form the outside.  The cell has a population of intercellular molecules; in turn the organism has a population of cells, and the species has a population of organisms.  A strengthening mechanism for the species comes at the expense of organisms; in turn the organism strengthens at the expense of some cells, all the way down and all the way up as well."

So, you see?  The System does NOT care about you!

And yet, we learn from errors...  IF they if they do not put our system at risk.  Here are two dramatic examples (paraphrased):

1)  Every plane crash (horrific, typically hundreds of lives) means that the erors that caused each of these are carefully studied.  That is why flying is relatively safe.  We have a LOT of plane flights every day.  Each one is relatively independent of the other.  What is learned from the rare crash strengthens that systems (flying in planes).

2)  Globalized economic systems tend to operate as one however.  A big mistake, in Japan say (a country that some observers are monitoring very carefully...), could bring our banks down...  We just don't know.


The restaurant BUSINESS is another example of scale and antifragility.  It is well known that starting a restaurant is a risky venture, there are so many clawing for the dollars of those who are hungry...  The restaurant BUSINESS is antifragile, because it is full of efficient restaurants themselves.  Any of you living in cities can see that easily enough, wherever there are one of your city's "playgrounds", there are plenty of restaurants, even if they change more often than you might like (and makes me wonder why there is no decent TexMex food in my own city).

The Restaurant System does NOT care about any single restaurant!


In the coming days, I will be exploring more of Taleb's ideas.  Please join me!