Friday, November 30, 2012

The Guardian Decides to Advertise (and brag a little)

Still crazy after all these years (1821).
From the Guardian:

Cannes Lions Awards, June 2012
The Guardian's Three Little Pigs TV campaign was among the material honoured at this year's Cannes Lions awards, which took place last week during 17 - 23 June. The campaign, by Bartle Bogle Hegarty London, won a gold lion in the Film category, one gold and five silver lions in the Film Craft category and a silver in the Titanium and Integrated category. Andrea Stillacci, one of the judges of the Film section, praised the campaign calling it very "today."...

...The Guardian was also rewarded in the Outdoor Lions category, scooping seven silver lions for Bartle Bogle Hegarty's campaigns 'egg', 'pyramid', 'gold coin', 'pill', 'record', 'orange' and 'pie chart.'...MORE

HT chain: Freakonomics>Poynter>AdWeek

Bitcoin News: "Dollar-Less Iranians Discover Virtual Currency"

From Bloomberg:
Under sanctions imposed by the U.S. and its allies, dollars are hard to come by in Iran. The rial fell from 20,160 against the greenback on the street market in August to 36,500 rials to the dollar in October. It’s settled, for now, around 27,000. The central bank’s fixed official rate is 12,260. Yet there’s one currency in Iran that has kept its value and can be used to purchase goods from abroad: bitcoins, the online-only currency.

Created in 2009 by a mysterious programmer named Satoshi Nakamoto, bitcoins behave a lot like any currency. Their value is determined by demand, and they can be used to buy stuff.

Bitcoin transactions are encrypted and handled by a decentralized global network of tens of thousands of personal computers. Merchants around the world accept the currency, from a bakery in San Francisco to a dentist in Finland.

Individuals who own bitcoins and wish to exchange them for physical currencies like euros or dollars can use exchange sites such as, a Finland-based site founded by Jeremias Kangas. “I believe that bitcoin is, or will be in the future, a very effective tool for individuals who want to avoid sanctions, currency restrictions, and high inflation in countries such as Iran,” Kangas wrote in an e-mail....MORE

What's Mooving: Dairy Comes Public, Pops 22%

So much for high-tech.
But it's not just any dairy either. It's Fonterra, the largest dairy in the country-with-the-lowest-rate of lactose intolerance in all of Polynesia, Australasia, Asia whatever you call that half of the world.
One troubling note: The stock is reported by otherwise trustworty sources to have been up 21.1%, 22%, 24.5% and 25%. We'll go with the low end.
From International Financing Review:

Fonterra completes unusual milk float
Fonterra, a New Zealand dairy farmers’ co-operative, has completed a NZ$525m (US$432m) IPO, the largest in Australasia this year, using a non-voting structure that is unique in the region – if not the world.
The unusual structure suited Fonterra’s desire to remain a co-operative under the ownership of its members, while creating a permanent capital base and allowing shareholders to trade the shares among themselves – a scheme called Trading Among Farmers.

The company, the world’s largest dairy processor and exporter, collects and sells milk from farmers who are also its shareholders. Since farmers can sell the shares back to the company for cash when they leave the dairy business, the company’s capital base has fluctuated.

The Fonterra Shareholders’ Fund raised NZ$525m after a NZ$25m increase in the deal on strong demand. The fund will enable domestic investment firm Craigs Investment Partners to make a market in farmers’ Fonterra shares. Buying shares in the fund gives investors exposure to dividends and capital gains from Fonterra shares, but no voting rights.

“We knew there were some structural challenges, buying units that don’t carry a vote, but the only people who were concerned were at the margins,” said a banker at one of the bookrunners.

No comps
There were no obvious comparable stocks. Fonterra is a vertically integrated dairy producer and processor, combining elements of Nestle and Ireland’s Glanbia. There is no known listed security with the same structure....MORE
The Lactose Intolerance rate for New Zealand is  6%, approaching the incidence in Denmark or Sweden and compares with 90% rates in some Asian countries.

The offering valued Fonterra at NZ10 Billion ($8.2 bil).

As for the headline, Deal Journal Australia went with "Fonterra Units Moo-ve Sharply Higher on Debut" so I don't feel so bad.

"Original Batmobile for sale for the first time"

From The History Blog(!):
The first and some would say greatest of all Batmobiles, the one that started it all, is going on sale for the first time at the Barrett-Jackson auction in Scottsdale, Arizona, on January 19th, 2013. This is the iconic Batmobile made by legendary car customizer George Barris for the 1966 Batman television series starring Adam West in the title role. It still has all the Batgadgets even the most covetous and demanding of comic nerds could wish for and a pre-Bat history that the most covetous and demanding of car nerds could only dream of.

It started its life in 1955, a one-off Lincoln Futura concept car. Designed by Ford’s lead stylist Bill Schmidt who was inspired by manta rays and a mako sharks he had seen while scuba diving, the Futura’s body was built entirely at the Ghia Body Works in Turin, Italy, in 1954 and affixed to an experimental Lincoln Mark II chassis made three years before the first Mark IIs were sold. The car was 19 feet long, seven feet wide, and just 4.4 feet high with a double, clear-plastic bubble top, huge outward-angled tailfins on the back and front sides, a wide oval grill to give it that shark-mouth aggressive look and all kinds of newfangled technology like push-button transmission, warning lights and speedometer (among other indicators) housed in the steering wheel, and a circular rear antenna that also served as a microphone to pick up and amplify traffic or horn sounds from any car behind them to the driver and passenger inside the bubble canopy....MORE

European stocks closed generally mournful and reflective

Paris          -0.33%
London      -0.06%
Frankfurt +0.06%

The headline was inspired by a bit of genius at FT Alphaville on Monday:
Five seven five / Is unsustainable, so / Haircut to seven
One of the following is an autumnal haiku composed on Twitter by Herman van Rompuy, President of the European Council. But which is it?

The night has fallen
The bare branches can be seen
Even more lonely

A season of mists
And of mellow fruitfulness
But not you; you’re Greek

Wet leaves, brown, rotting
Keep bloody slipping on them
Look, Spain metaphor

I've made the attempt to nail the format twice on this blog, here's one of 'em:
"Currency devaluation reflects silently on still and glassy water."
Auspicious update, below.

Traditional Japanese view of the cherry blossoms (sakura) with reflecting water and a shrine (the Jefferson Memorial) in Washington, D.C..

Invest in Kirin
Mindfulness overrated
Sensei insensate 
Not even close.

Forget the BRICs: The New Breakout Nations

From Foreign Policy:

Forget the BRICs. Meet seven unheralded countries to watch. 
The excitement that drove the discovery of "emerging markets" in the 1980s and the easy money that turbocharged growth during the booming 2000s are over. The most hyped countries -- Brazil, Russia, India, and China -- are all slowing sharply, taking the average growth rate in the developing world back to the old normal of about 5 percent. Today's global economy is all about moderate, uneven growth, with stars emerging in previously underappreciated nations. Forget about the BRICs -- these seven countries are the real breakout nations to watch:

1. Philippines: This country's huge wealth in natural resources is still largely untapped, and its long stagnant per capita income is still less than $3,000 -- but that means it has lots of room to grow. Since his election in 2010, President Benigno "Noynoy" Aquino has worked to finally deliver his political dynasty's promise to restore the luster of the Philippines of half a century ago, when it was billed as the next East Asian tiger. Aquino has overseen economic reforms that have made government spending more transparent and pushed for more tax revenue. And thanks to success in the outsourcing industry, the Philippine economy has watched incomes grow and new wealth spread.

2. Turkey: The next two members of the club of trillion-dollar economies will be large Muslim democracies -- Indonesia and Turkey. Turkish Prime Minister Recep Tayyip Erdogan has brought to his country both economic orthodoxy, taming the hyperinflation that raged when he took office in 2003, and normalcy, opening up opportunities for pious Muslims who had been shut out of plum jobs by the previous secular regimes. This was tantamount to welcoming the majority into the commercial mainstream, and Turkey has prospered ever since, riding the success of its surging auto exports and the boom in the financial services sector.

3. Indonesia: Most economies that have thrived mainly by exporting raw materials -- think Brazil and Russia -- have slowed sharply amid the global financial downturn. Indonesia, however, is a commodity-fired economy that has achieved balance: between its export market and its healthy consumer economy, between the national capital and increasingly vibrant provincial generators of growth, and in the form of a leader, Susilo Bambang Yudhoyono, who understands the basics of economic reform. That makes the country the model example of those Southeast Asian tigers that were defanged in the 1997 financial crisis but are roaring once again today....MORE

July 2010 
Beyond BRICS: the CIVETS
January 2011
The New BRICS on the Block: Which Emerging Markets Are Up and Coming?
May 2011 
Beyond BRICS: "A CIVETS index: herding cats?"

Should the Top Marginal Tax Rate Be 73%?

From Tax Analysts via the AEI:
When they won the 2011 Nobel Prize in economics for their research on the causes and effects of government policy on the macroeconomy, Thomas Sargent and Christopher Sims were given a unique opportunity to connect their academic work to actual government action. They had spent their professional lives studying macroeconomic policy, and here we were in the middle of a macroeconomic crisis with the entire policymaking world anxious to hear what they had to say. How do tax cuts affect GDP? How should the government respond to sluggish growth and a terrible labor market? Might we experience serious inflation? Is fiscal stimulus effective? Everyone was listening — now was Sargent and Sims’s chance to let the world know their policy prescriptions.

The first questions the press asked the new laureates went right to the heart of the matter: Had
the U.S. government responded appropriately to the Great Recession and what should it do to create jobs and support the economy? Sims’s answer was fascinating:
I think part of the point of this prize in the area that we work in is that answers to questions like that require careful thinking, a lot of data analysis, and that the answers are not likely to be simple. So that asking Tom [Sargent] and me for answers off the top of our heads to these questions — you shouldn’t expect much from us. My own view is that what we ought to do is the kind of thing that Chairman Ben Bernanke has urged the U.S. government to do: make good long-run plans for resolving our budget difficulties without imposing severe fiscal stringency in the short-run and that accommodative monetary policy is a good idea. But these are not very original ideas. I think eighty percent of the economics profession would agree with this. The problem is to figure out how in the real world to get these things done.1 His answer echoed his response in another interview, quoted in The New York Times: ‘‘‘The methods that I’ve used and that Tom [Sargent] has developed are central for finding our way out of this mess,’ [Sims] said. But asked for specific policy conclusions of his research, he responded, ‘If I had a simple answer, I would have been spreading it around the world.’
Those answers are a model of how academic economists should behave when facing questions about specific policy. It is extremely difficult to take the results in an academic journal article and apply them to real-world policy questions because the method used in much of economics research is to start with assumptions and to derive conclusions...

...4. Determining the optimal rate. Diamond and Saez use those two effects to find the socially optimal top marginal income tax rate. In their model, raising taxes on the rich makes them worse off. And if the behavioral effect outweighs the mechanical effect — if raising taxes results in less tax revenue — then middle- and low-income individuals also are worse off because the tax increase results in less money (consumption) being redistributed to them. However, provided that the mechanical effect offsets the behavioral effect, raising taxes on those with high incomes makes the non-rich better off. In that case, how should we weigh the gain to the non-rich against the losses to the rich?

Recall that the goal is to set the top rate so that society as a whole is as well-off as possible. How do Diamond and Saez determine what is socially optimal, given that some individuals are worse off and others are better off?

Diamond and Saez argue that because of diminishing marginal utility, the decrease in utility experienced by the rich under the new tax regime will be much less than the increase in utility experienced by the non-rich when the government redistributes the new tax revenue to them. In fact, Diamond and Saez argue that the loss to the rich is so small relative to the gain to the non-rich that we might as well assume it is zero.
Because the social loss from taking money from the rich is assumed to be zero and the social gain from giving money to the non-rich is greater than zero, society’s goal is clear: The government should take as much money as possible from the rich and redistribute it to the non-rich. In other words, the government should raise taxes on the rich until the behavioral effect just barely offsets the mechanical effect—that is, until the government maximizes the revenue collected from the rich....MUCH MORE (11page PDF)
HT: TaxProfBlog

Raymond James' Jeff Saut Thinks There's a 20-25% Chance We've Entered A Secular Bull Market

No, no, no, no, no. Absolutely not.
But his thinking is always interesting.
From Raymond James' Investment Strategy:

“I‘ll Be Back” 
November 19, 2012
Just like the line from the movie The Terminator, “I’ll be back,” I am back from a two-week jaunt to Europe. During that sojourn I saw more than 100 portfolio managers (PMs) in seven countries, spoke at a few conferences, spoke to a number of the print media, and co-hosted two TV shows. As always, traveling internationally provides interesting insights often not available in “the states,” which was especially true this trip since I was traveling during our presidential election. Most of the accounts I spoke to were pretty bearish, except for one particularly clever organization in Edinburgh that completely sold out of European stocks three years ago and over-weighted American equities. Obviously, they are outperforming their benchmark. At one of my meetings I asked one PM, who has been bearish for all of the 15 years I have known him, “How do you invest in stocks when you have been this bearish?!” His response was, “We don’t invest in stocks that we think are going to go up, we invest in stocks we think will not go down as much as the overall stock market if it declines.” “Wow,” I gasped, “That’s certainly not the way my father taught me to invest.”

So the mood in Europe was universally bearish, yet my message was fairly constructive on U.S. equities. In fact, I shared with various PMs that the only time I have come to Europe when everyone was universally bullish was in 4Q99 when I was talking about the Dow Theory “sell signal” of 9/23/99 and suggesting that the D-J Industrial Average (INDU/12588.31) was going to go into a wide-swinging trading range affair like it has always done after every secular bull market in history.

At the time I likened it to the wide-swinging environment that follow the secular post WWII “bull run” that ended in 1965 with a Dow Theory “sell signal.” The subsequent sideways market lasted for almost 18 years with the Industrials range-bound between roughly 1000 and 600. Importantly, the nominal price low during that timeframe occurred on December 6, 1974 at 577.60 on the Dow.

However, the valuation low, the cheapest the Industrials would get on a P/E, book value, price to sales, etc. basis didn’t happen until August of 1982. So fast forward to today; in my opinion there is a 20-25% possibility that we are in a new secular bull market and NOBODY believes it! That “call” rests on the premise that the nominal price low was made on March 6, 2009 when the S&P 500 (SPX/1359.88) printed at the “mark of the devil” level of 666. Subsequently, I think the “valuation low” was made on October 4, 2011 where the SPX was trading below 10x its forward earnings estimate, with an earnings yield of over 10%, rendering an equity risk premium above 8% for a valuation low not seen in decades....MORE

Guy Gottfried of Rational Investors Group is Probably the Best Stock Picker in the Value Space

Guy Gottfried is a former analyst at Bruce Berkowitz's Fairholme Funds.
From Benzinga:
From August 12, 2011 to November 19, 2012, The Brick (OTC: BRK [FREE Stock Trend Analysis]) -- one of the largest furniture and appliance retailers in Canada -- rose more than 140 percent. The company is now being acquired by Leon's (OTC: LNF) for approximately $700 million.
On October 17, 2011, Rational Investment Group founder and manager Guy Gottfried recommended The Brick while speaking at the Seventh Annual Value Investing Congress. He provided a detailed presentation outlining the various reasons why investors should buy into The Brick, starting with its potential for "substantial FCF growth in near/medium term." Gottfried referred to it as a "high-quality business" with a "strong balance sheet." He said the firm has "excellent capital allocation" and is ran by an "intelligent management" team.
"It is a high-quality and extremely well-run business that trades at an undeservedly cheap price," Gottfried wrote on "The Brick traded for $9-plus per share as recently as 2008 but was undercapitalized entering the financial crisis due to years of excessive dividends by prior management. It nearly went bankrupt before being recapitalized in mid-2009 in a transaction led by Fairfax Financial. It then recruited turnaround specialist Bill Gregson as CEO, and under his leadership has staged a dramatic recovery in its operations and financial condition."

Read more:
From August 12, 2011 to November 19, 2012, The Brick  -- one of the largest furniture and appliance retailers in Canada -- rose more than 140 percent. The company is now being acquired by Leon's $700 million.

On October 17, 2011, Rational Investment Group founder and manager Guy Gottfried recommended The Brick while speaking at the Seventh Annual Value Investing Congress. He provided a detailed presentation outlining the various reasons why investors should buy into The Brick, starting with its potential for "substantial FCF growth in near/medium term." Gottfried referred to it as a "high-quality business" with a "strong balance sheet." He said the firm has "excellent capital allocation" and is ran by an "intelligent management" team.

"It is a high-quality and extremely well-run business that trades at an undeservedly cheap price," Gottfried wrote on Value Investing. Letter.
 "The Brick traded for $9-plus per share as recently as 2008 but was undercapitalized entering the financial crisis due to years of excessive dividends by prior management. It nearly went bankrupt before being recapitalized in mid-2009 in a transaction led by Fairfax Financial. It then recruited turnaround specialist Bill Gregson as CEO, and under his leadership has staged a dramatic recovery in its operations and financial condition."...MORE
Insider Monkey Has a link to the 2011 presentation.
Here are some of the names associated with Gottfried this year:

Hardwoods Distribution: A Nice Fixer-Upper

Here's his presentation from the 8th Annual Value Investing Congress, October 1, 2012:

Underfollowed and Undervalued:More Small Cap Bargains
Guy Gottfried, Rational Investment Group 

And from Market Folly August 23, 2012:
Guy Gottfried's Presentation on Holloway Lodging & Trans World Entertainment: Value Investing Congress

Read more:
From August 12, 2011 to November 19, 2012, The Brick (OTC: BRK [FREE Stock Trend Analysis]) -- one of the largest furniture and appliance retailers in Canada -- rose more than 140 percent. The company is now being acquired by Leon's (OTC: LNF) for approximately $700 million.
On October 17, 2011, Rational Investment Group founder and manager Guy Gottfried recommended The Brick while speaking at the Seventh Annual Value Investing Congress. He provided a detailed presentation outlining the various reasons why investors should buy into The Brick, starting with its potential for "substantial FCF growth in near/medium term." Gottfried referred to it as a "high-quality business" with a "strong balance sheet." He said the firm has "excellent capital allocation" and is ran by an "intelligent management" team.
"It is a high-quality and extremely well-run business that trades at an undeservedly cheap price," Gottfried wrote on "The Brick traded for $9-plus per share as recently as 2008 but was undercapitalized entering the financial crisis due to years of excessive dividends by prior management. It nearly went bankrupt before being recapitalized in mid-2009 in a transaction led by Fairfax Financial. It then recruited turnaround specialist Bill Gregson as CEO, and under his leadership has staged a dramatic recovery in its operations and financial condition."

Read more:

U.S. Drought Worsens, Lindsay Corporation Stands to Benefit (LNN, VMI)

Lindsay is the largest manufacturer of irrigation systems in the country. I've often wondered why Berkshire Hathaway hasn't bought them. It could be a negative tell that Mr. B hasn't made a run at LNN, just as he went for Burlington Northern rather than take the two mile drive from Kiewit Plaza to Union Pacific headquarters,
more below.

First up, the U.S. Drought Monitor map (this is the first Nebraska connection):

Current U.S. Drought Monitor

The data cutoff for Drought Monitor maps is Tuesday at 7 a.m. Eastern Standard Time. The maps, which are based on analysis of the data, are released each Thursday at 8:30 a.m. Eastern Time.

NOTE: To view regional drought conditions, click on map below. State maps can be accessed from regional maps.
US Drought Monitor, November 27, 2012
The U.S. Drought Monitor is produced in partnership between the National Drought Mitigation Center at the University of Nebraska-Lincoln, the United States Department of Agriculture, and the National Oceanic and Atmospheric Administration.
From Farmland Forecast:
This picture shows the amount of acres harvested in 2007 that were irrigated for corn in the U.S. Each blue dot represents 2,000 acres of irrigated farmland. On average, about 15% of farmland in the U.S. is irrigated each year. Nebraska leads all states with irrigated acres at roughly 8.6 million acres in 2007....

There's your second Nebraska connection.

 From Lindsay Corporation:
 OMAHA, Neb.--(BUSINESS WIRE)-- Lindsay Corporation (NYS: LNN) , a leading provider of irrigation systems and infrastructure products, today announced it plans to release financial results for its fiscal 2013 first quarter ended November 30, 2012, before the market opens on Tuesday, January 8, 2013....
Yup, Nebraska again.

From Forbes, the only mention of the company by a generalist business publication, and this goes back to 2009:
Going in Circles Is Not All Bad
In a recession people cut back on sports cars and jewelry, but they don't stop eating. That fact should protect some of the sales of companies that supply equipment to farmers, like Lindsay Corp. (LNN, 28). The Omaha firm sells irrigation systems everywhere from Australia and China to Africa and Brazil. Its Zimmatic center pivot system works just about anywhere, including on steep grades. Last year Lindsay's sales of $475 million were up 69% from 2007 and net earnings of $39 million were up 152%. The recent falloff in commodity prices has dampened sales forecasts, and Lindsay's stock is down 74% in the past 52 weeks. Scott Weber, comanager of the Natixis Vaughan Nelson Small Cap Value Fund, says the shares are a buy....
Here's the five year chart:
Chart forLindsay Corporation (LNN)

Splits: May 16, 1990 [3:2], Sep 17, 1991 [3:2], Feb 23, 1996 [3:2], Mar 11, 1997 [3:2], Jun 16, 1998 [3:2]

While the stock cleared the Spring 2011 highs earlier this month it is still considerably below the  2008 highs.

Lindsay's largest competitor is Valmont Industries of, you probably guessed it, Omaha Nebraska.
Valmont common has outperformed YTD while LNN has the lead over the last six months. Both have crushed the S&P 500.

It may be instructive to take a look at the experience the Buffett Limited Partnerships had with Dempster Mill Manufacuring of, wait for it, Beatrice Nebraska. 
(short version, Buffett takes a control position, boots old management, triples money) 

Back to Lindsay, in 2002 some guy named Howard Graham Buffett filled in as Chairman for a year. 

Finally, the old man seems to take an interest in all things Nebraska:


If I figure it out I'll tell you.

In the meantime we have a few dozen posts on LNN, here are a couple from the halcyon year of 2008:

Update: Lindsay Corporation (LNN)

Sometimes girls just wanna have fun and stocks just wanna go up.
Since our (admittedly late) post on Wednesday "In Other News, the Market Declined Today (LNN)":

Lindsay Corporation closed up $3.06 on 150% of average daily volume.
No news.

the stock closed at $102.15 Wednesday, $ 106.67 yesterday and it's looking like $ 108.50 at 15 minutes to the close.
No news.

Lindsay Sell-Off Hits Valmont Unusually Hard (LNN, VMI)

After we said "The stock is down $33.91 (27.25%) at $90.52 pre-market. This is one hell of an opportunity...", 

LNN clawed its way back to $116. The quick money has been made on Mr. Market's manic depression but this is a class-act company (even though they did guide "in line" and then come in seven cents short). It's at $108 now.

"The Secret to Iranian Drone Technology? Just Add Photoshop"

From Atlantic Wire:
Earlier this month, Iran's news agency provided visual evidence that its government had figured out to make a fancy new drone that could take off and land vertically. What they didn't tell us is that they used Photoshop to make it stop taking off from the roof of Japan's Chiba University, which built the aircraft and never had anything to do with Iran's alleged version of it.

All the credit of this photoshop spot goes to one Gary Mortimer, a blogging pilot who photo-sleuthed the Iranian drone, the KOKER 1, when it was unveiled on November 7. Here's actual visual evidence of the two images — the Iranian image is on the left, the Chiba University 2008 image is on the right — with the same building and everything... except for those windmill things:

"Perhaps the Iranians have purchased one of these platforms to experiment, or maybe somebody has been handy with Photoshop I will let the reader decide," writes Mortimer. This isn't the first time Iran has been caught manipulating reality: Just last month their state news agency was caught passing off a scene from the disaster-thriller The Day After Tomorrow as a real scene of Hurricane Sandy's aftermath, and in 2008 the Iranian government released some doctored photos of a successful rocket launchAccording to the Mehr news agency, the drone — whatever it does, or whether it even looks like the thing above — is scheduled to be unveiled for real in the coming weeks when, presumably, Iran upgrades to CS6....MORE

"Iranian State TV Uses Still From ‘Day After Tomorrow’ In Story About Sandy"

Oil: Iran has Photoshop, not afraid to use it
I swiped that headline from the Waco Tribune. The Guardian asks "Has Iran joined the axis of Photoshop?" As the New York Times put it:
...In a sentiment no doubt echoed by news organizations everywhere, an MSNBC editor acknowledged that the four-missile picture was initially welcomed with open arms. “As the media editor working the home page yesterday, I was frustrated with the quality of a fuzzy video image we published of the Iranian missile launch,” said Rich Shulman, the network’s associate multimedia editor. “So I was thrilled when the top image crossed the news wires.”...

"Goldman’s top 10 themes for 2013"

From eFinancial News:
Goldman Sachs has taken out its crystal ball to make its economic forecasts for next year, ranging from the recovery of the US housing market to stagnant growth in the European Union. Financial News takes a look at the macro themes Goldman’s analysts think will dominate markets in 2013.

1.Global growth: A ‘hump’ to get over, then a clear road ahead 

The analysts predict weak growth in early 2013 but, if that period is successfully navigated, we could see a sustained recovery once the world economy gets over the risks to growth in the first part of the year from fiscal restraint. Goldman predicts global growth for 2013 of 3.3%, broadly in line with 2012. US gross domestic product growth is seen stuttering at around 2%, there will be a near-recession in the euro area and Chinese growth is seen falling below the average of the last five to 10 years. 

But the analysts say that below the surface, there are significant differences from 2012. “Further healing in the US housing and labour markets; a progressive relaxation of the global energy supply constraint; and ‘room to grow’ particularly in the developed world,” they said. If the 'hump' can be navigated, Goldman envisages a "sustained sequential recovery in growth, which builds into 2014 and beyond."
2. Housing stabilisation and private-sector healing in the US

The US housing sector has picked up this year and is set to continue – the analysts predicted that we will see a 20% growth in housing starts and a 2-3% growth in home prices in 2013. They said: “[We will see] further modest US home price gains and continued increase in housing activity.”
3. Stable China growth, but not like the old days

The pace of Chinese growth will stabilise at a touch above 8%, the analysts predicted. Their risk analysis of China suggested that key assets, such as Chinese equities, had reflected large downgrades to China’s growth view. They said: “While there has been a meaningful rebound in the market’s pricing of China risk in the last three months, there may still be scope for stability alone to provide relief.”...MORE

"High-Frequency Trading and High Returns"

From The Baseline Scenario:
This guest post is contributed by Ricardo Fernholz, a professor of economics at Claremont McKenna College. Some of his other work was profiled on this blog here

The rise of high-frequency trading (HFT) in the U.S. and around the world has been rapid and well-documented in the media. According to a report by the Bank of England, by 2010 HFT accounted for 70% of all trading volume in US equities and 30-40% of all trading volume in European equities. This rapid rise in volume has been accompanied by extraordinary performance among some prominent hedge funds that use these trading techniques. A 2010 report from Barron’s, for example, estimates that Renaissance Technology’s Medallion hedge fund – a quantitative HFT fund – achieved a 62.8% annual compound return in the three years prior to the report.

Despite the growing presence of HFT, little is known about how such trading strategies work and why some appear to consistently achieve high returns. The purpose of this post is to shed some light on these questions and discuss some of the possible implications of the rapid spread of HFT. Although much attention has been given to the potentially destabilizing effects of HFT, the focus here instead is on the basic theory behind such strategies and their implications for the efficiency of markets. How are some HFT funds such as Medallion apparently able to consistently achieve high returns? It is natural to suspect that such excellent performance is perhaps an anomaly or simply the result of taking significant risks that are somehow hidden or obscured. Indeed, this is surely the case sometimes. However, it turns out that there are good reasons to believe that many HFT strategies are in fact able to consistently earn these high returns without being exposed to major risks.

To understand how this works, let’s consider the S&P 500 U.S. stock index. Suppose that we wish to invest some money in S&P 500 stocks for one year. Currently, Apple has a total market capitalization of roughly $500 billion, making it the largest stock in the S&P 500 and equal to approximately 4% of the total capitalization of the entire index. Suppose that we believe it is very unlikely or impossible that either Apple or any other corporation’s capitalization will be equal to more than 99% of the total S&P 500 capitalization for this entire year during which we plan to invest. As long as this turns out to be true, then it is actually pretty simple to construct a portfolio containing S&P 500 stocks that is guaranteed to outperform the S&P 500 index over the course of the year and that has a limited downside relative to this index. In essence, we can construct a portfolio that will never fall below the value of the S&P 500 index by more than, say, 5% and that is guaranteed to achieve a higher value than the S&P 500 index by the end of the year.[1]
This is not a trivial proposition. If we combine a long position in this outperforming portfolio together with a short position in the S&P 500 index, then we have a trading strategy that requires no initial investment, has a limited downside, and is guaranteed to produce positive wealth by the end of the year. According to standard financial theory, this should not be possible.[2] Furthermore, the assumptions that guarantee that our portfolio will outperform the S&P 500 index appear entirely reasonable...MUCH MORE 
HT chain: Economist's View>MarketBeat

Thursday, November 29, 2012

They're Young... They're in love... They eat Lard

As one of the few analyst blogs that covers* the grease/tallow/lard complex we attempt to stay au courant with the latest developments.

Sometimes though it is a good idea to pull back for a look at the longer view. Here's lard, ca 1950**:

Here's the Lard Marketing Board website.

*See for example the seminal "A Look at the Tallow/Grease/Lard Complex: Tallow--It's What's for Dinner".
Some Economists Are Worth More Than Their Rendered Fat Will Bring
 Most of them should trade pari passu with the grease/tallow/lard complex.
(Prof. Gintis excepted) 
August 2009 
John Maynard Keynes: Money Manager (Couldn't Trade Lard to Save His Life)
...In a 1983 paper "J.M. Keynes' Investment Performance: A Note" the authors are dubious of his performance, without casting the aspersion that I do in my comment. They on the other hand have a great tidbit:
...Investments in commodities were more substantial. The highest annual gain was for ₤17,000 from September 1936 to August 1937 and the highest annual loss, mainly in lard, for ₤12,600 in the following twelve months...
And many more. Keywords: Keynes or tallow or...

**This version is from a truly disturbing post at Imighthavestolethat:
Retro ads of highly dubious origins

Natural Gas Storage: Injection, Not Withdrawl, Futures Fade

The front futures are down 3.6% at $3.66.
From the EIA:

Released: November 29, 2012 at 10:30 a.m. (eastern time) for the Week Ending November 23, 2012.
Next Release: December 6, 2012 

Working Gas in Underground Storage, Lower 48
Region Stocks in billion cubic feet (Bcf) Historical Comparisons
11/23/12 11/16/12 Change Year Ago (11/23/11) 5-Year (2007-2011) Average
Stocks (Bcf) % Change Stocks (Bcf) % Change

Working gas in storage was 3,877 Bcf as of Friday, November 23, 2012, according to EIA estimates. This represents a net increase of 4 Bcf from the previous week. Stocks were 26 Bcf higher than last year at this time and 190 Bcf above the 5-year average of 3,687 Bcf. In the East Region, stocks were 5 Bcf above the 5-year average following net withdrawals of 12 Bcf. Stocks in the Producing Region were 135 Bcf above the 5-year average of 1,152 Bcf after a net injection of 12 Bcf. Stocks in the West Region were 50 Bcf above the 5-year average after a net addition of 4 Bcf. At 3,877 Bcf, total working gas is above the 5-year historical range....MORE

"Fattest Finger Ever Slams Stockholm Stock Exchange With $70 Trillion Buy Order"

Probably a Rule 611 trade-through to boot.
From ZeroHedge:
We have seen some supposed 'fat-finger' trades in the last few days but Stockholm's stock exchange was brought to its knees yesterday as a record-breaking order hit the book and halted trading for four hours. A 4.3 billion contract buy order in the OMX30 futures (the Swedish equivalent of the Dow futures) caused the fiasco. This is equivalent to a SEK460 trillion notional exposure - or 131 times the Swedish GDP (around USD70 trillion). As one trader of the exchange noted, via SvD Narangsliv, "This just shows that it can get really bananas with machines" referring to the growing element of automated securities trading on that exchange. What's Swedish for FUBAR?


Your Tax Dollars at Work: Charts in Congress

From Buzzfeed:
A new Tumblr from C-SPAN's Bill Gray collected some of the greatest hits from Capitol Hill. Your tax dollars at work:

Source: senatecharts

Source: senatecharts 
Source: senatecharts

Bank of America Stalls at Multi-month Resistance (BAC)

The stock is at $9.82, up 6 cents.
I was going to post this on Monday but the stock didn't seem to have any conviction buying. It did briefly trade above the resistance line on Tuesday with prints from $9.89 to $9.95 before closing down 2.3% at $9.66.
From Alpha Global Investors:

Bank of America Corp  (BAC) weekly chart ;
Red arrow = Perfect entry level, buy the break out only !
Who knows, maybe 5th time's the charm.

Can Exchange Rates Forecast Commodity Prices? (and vice versa)

If you prefer your vice, versa.

From Harvard:

               Yu-chin Chen                                       Kenneth Rogoff                                 Barbara Rossi
    (University of Washington)               (Harvard University)                       (Duke University)

June 29, 2008
We show that "commodity currency" exchange rates have remarkably robust power in predicting global commodity prices, both in-sample and out-of-sample, and against a variety of alternative benchmarks. This result is of particular interest to policymakers, given the lack of deep forward markets in many individual commodities, and broad aggregate commodity indices in particular. We also explore the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust. We offer a theoretical resolution, based on the fact that exchange rates are strongly forward looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances.

I was reminded of this snappy little 48 page PDF by something Izabella Kaminska wrote at Alphaville this morning:

The death of volatility?
Central bank puts have done a great job of removing tail risks.

Such is the conclusion of the team at Bank of America Merrill Lynch upon analysing the remarkable drop in trade conviction of late.

In FX, the move in volatility has been notable:

As the analysts note, four years since the 2008 financial crisis the monthly ranges in EURUSD are back to pre-crisis levels and are now close to the 2006 all-time lows. But don’t let those statistics fool you into thinking things are any more certain.

From the analysts:
It is perhaps somewhat counter-intuitive, as low volatility has traditionally been associated with low uncertainty, but we are still seeing high levels of uncertainty in FX. This is understandable given the large number of risks across multiple regions (for example, Eurozone financial crisis, weak US growth, US fiscal cliff and China slowdown). Further, these types of risks leave investors tracking policy makers and trading news headlines for policy trajectory information. This is resulting in sudden and rapid moves in FX followed by periods of range-trading.
Which, as far as we can tell, means that overall volatility is dropping but incidents of very short-term blow-outs is increasing, even as levels return to trend. Meanwhile, there is still uncertainty with regards to the direction of the longer-term trend.

It’s an interesting thesis and one that, in many ways, compliments the findings of Joseph W. Gruber and Robert J. Vigfusson in a recent, and fascinating, paper that looks at the influence of interest rates on volatility and correlation in commodity prices....MORE

The 2007 S&P as Analogue For the 2012 Nasdaq 100 (and Silver still looks shortable) SLV; QQQ

Silver is up 23 cents to $34.00, in pre-market trade the Cubes are up 1/2% with the index futures up 19.00 to 2679.50.
From Market Anthropology:
A Pattern Potpourri

If the futures maintain their bid this morning, it looks like the NDX has thrown caution to the wind and will make a stab at the 50% retracement level from the November 16th intraday low. 
Silver turned down sharply yesterday - although recovering spritely with the risk tide that came back into the markets. The following charts were updated from last weeks note (see Here) on silver.  
See also yesterday's "A Chance to Short Silver (SLV)"

BBC: "Risk of robot uprising wiping out human race to be studied"

Studies, where would we be without 'em?
From the Beeb:
The Terminator robot  
In The Terminator, the machines start to turn on the humans
Cambridge researchers are to assess whether technology could end up destroying human civilisation.
The Centre for the Study of Existential Risk (CSER) will study dangers posed by biotechnology, artificial life, nanotechnology and climate change.

The scientists said that to dismiss concerns of a potential robot uprising would be "dangerous".
Fears that machines may take over have been central to the plot of some of the most popular science fiction films.

Perhaps most famous is Skynet, a rogue computer system depicted in the Terminator films.
Skynet gained self-awareness and fought back after first being developed by the US military.
'Reasonable prediction' 
But despite being the subject of far-fetched fantasy, researchers said the concept of machines outsmarting us demanded mature attention.

"The seriousness of these risks is difficult to assess, but that in itself seems a cause for concern, given how much is at stake," the researchers wrote on a website set up for the centre....MORE
One of the co-founders of the project is Martin Rees who is a bit of a Gloomy Gus.
On the other hand he's also the Astronomer Royal and Master of Trinity College, Cambridge, President of the Royal Society between 2005 and 2010 and he accepted the £1m Templeton Prize which goes to people who make "exceptional contributions to affirming life's spiritual dimension".

The Apartment Inside Grand Central Terminal

From one of our favorite blogs, Daytonian in Manhattan, a post from a couple years ago:
The Long-Forgotten "Campbell Apartment" - Grand Central Terminal 
 John Williams Campbell was, as his wife once said, “a showman.”  He liked things big and splashy.  Like his office.

Born in Brooklyn, Campbell never attended college.  Instead, in 1898 at the age of 18, he entered his father’s firm, the Credit Clearing House.  Little by little he worked his way up until by the 1920s he was president of the company and was appointed to the board of the New York Central Railroad.

Through the railroad appointment, he rubbed elbows with William K. Vanderbilt II whose office was in Grand Central Terminal.  Most likely through this friendship Campbell first saw the vacant office space at the southwest corner of the terminal.

The immense office, then the largest ground floor space in the city, was 3500 square feet -- 60 feet long by 30 feet wide -- its walls rising 25 feet to the ceiling.  It was the sort of office that would impress.

Campbell signed the lease in 1923 and commissioned Augustus N. Allen to transform it.  When Allen was done, Campbell had a Florentine palazzo fit for a doge.  A mixture of complimentary styles – Romanesque, Renaissance and medieval – the space made the intended impact.
Anchoring one end was a huge stone baronial fireplace (which hid a steel safe).  Leaded glass windows admitted light and the wooden ceiling beams were hand painted in brilliant colors.  There was a mahogany musician’s gallery with carved quatrefoil designs, a pipe organ, a baby grand piano, 19th Century Italian furniture (pretending to be 13th Century), and Campbell’s overpowering desk.
More impressive than the $1 million art collection lining the walls was the custom woven Persian rug that covered the entire area.  The carpet cost Campbell $300,000 in 1924 – an amount that would translate to between $3 and $4 million today....MORE
Another big NYC office that may be of interest was Jay Gould's Erie Railroad office in the Grand Opera House:

Daytonian posted on this one as well:
From Silk Purse to Sow's Ear -- 23rd Street and 8th Avenue

Wednesday, November 28, 2012

"The Economics of Artisanal Chocolate" (Here at Zero-bound Chocolates, We Believe...)

From Felix Salmon at Reuters:
Who doesn’t like hanging out in a chocolate factory? My visit to Cacao Prieto, in Red Hook, was fascinating: what I wanted to do was understand the reason why artisanal chocolate (or artisanal coffee, or even artisanal mayonnaise, for that matter) seems to be such a fast-growing market these days.

Both Dan Preston, of Cacao Prieto, and Tim McCollum, of Madécasse, agreed that at the supply end of the chain, nothing much has changed. They’re using Victorian technology, largely (although Preston has built some clever new machines of his own), and relying much more on a simple back-to-basics approach than on anywhere that buzzwords like “scalable” might apply. That said, the marketing at least has got to be much easier these days; the Cacao Prieto website, in particular, is gorgeous, at a cost which would be a rounding error in the context of a big chocolate company’s ad budget.

And the demand end of the chain has changed a lot: as Dan says, there’s a whole new market now for what he calls “fine chocolate”, as opposed to “confections”. And truth be told, that split makes a hell of a lot more sense than, say, the creation of “super-premium vodka”, which is to all intents and purposes identical, in everything but price, to any other vodka. Chocolate, even more than coffee, has a depth and richness of flavor, when it’s carefully and lovingly made, which is easily worth six bucks. (Compare, for instance, the amount you’d pay for a very good coffee, or a very good glass of wine.) If you cultivate an audience of people who consider themselves connoisseurs, they will happily follow you to a world of unprecedented pricing.

On top of that, artisanal chocolatiers, much like Fair Trade coffee merchants, can tell a true story of how they’re doing a very good job of treating developing-world farmers with respect and high prices. That message resonates to differing degrees with different people, but at the margin it certainly helps.

Why are these kind of businesses cropping up now, in particular? I think there are a few reasons. Firstly, money has appeared to fund them for pretty much the first time. In a zero interest rate environment, risky businesses with little correlation to anything else look increasingly attractive...MORE
Is the Future of Food Artisanal?
Speak of the Artisinal Devil: "Hain Delivers Strong 4Q – Analyst Blog" (HAIN)
The Future Will be Artisanal Everything (HAIN; AHFP) 

Genghis Bonds: Mongolia Floats Paper Cheaper than Spain

Oh, East is East and West is West, and never the twain shall meet...

From MarketBeat:
Mongolia is the new Zambia.
Back in September, Zambia snagged the market’s attention when it managed to issue 10-year bonds at a price only slightly above Spain’s borrowing costs.

Wednesday, Mongolia is in the spotlight, as it sells dollar bonds, tentatively nicknamed Genghis Bonds, with borrowing costs that look set be cheaper than Spain’s. The central Asian state said it wants to sell its 10-year bond at a yield of up to 5.25%. For the five-year tranche, it is aiming at up to 4.25%.

For a comparison, outstanding 10-year bonds from Spain, the fourth-largest economy in the euro area, yield about 5.4%. The country paid a little more than that in a 10-year auction in October....MORE

Top Global Stocks of 2007
 How the heck did I miss Mongolia Energy Co. Ltd.?
(up 5911.17%)
"Mongolian city to be cooled by giant ice cube"
 Khan Resources jumps 20% despite Mongolian riots
"Mongolia: the world’s hottest stockmarket"
We've been on the Mongolia beat for a while now.*... 
"Mining hordes invade Mongolia, the 'Kuwait of Central Asia'" and "Hong Kong a good market for Mongolian IPOs"
YES!!! "Van Eck Plans Mongolia Equities ETF"

Buffett Redux: How Would the Oracle Do It If He Was Starting Over Today? (BRK)

Buffet's partnership days were more akin to hedge fund behavior than they were to deep value investing.
So, for that matter, were some of the Graham-Newman trades. See for example the cocoa bean/common stock arbitrage in "Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY)", it pretty much puts the lie to the Efficient Market Hypothesis.
From GuruFocus:
Warren Buffett now manages billions of dollars. He needs big ideas. Small ideas are no good to him. And he buys businesses for keeps. Would he do the same thing if he was starting over today? Or would he do the same things he did when he ran his partnership?

Someone who reads my articles sent me this email:

In the last Berkshire meeting somebody asked: “I am 26. If you were me and had the chance to start over, what areas would you like to get into and do you think that my generation has the same number of opportunities as yours?” Warren: “I think you have all types of opportunities. I would very much do what I did, start earlier, and do it a little better. I would try to develop an audited record of performance as early as I could. I would try to get something a lot more interesting, buying companies to keep. I establish relationships with people, I want to be for keeps. That’s been enormously satisfying, but it takes some capital to get into that business. I built it through managing money for myself and others. I would get past that as fast as I could then buy businesses, then spend the rest of my life doing it.”

When he said: “I would get past that as fast as I could then buy businesses” (seems like he doesn’t enjoy managing money that much), I understand it as I would buy net-nets until I got enough money to buy a business that would let me snowball. Is that what you think?

No. That’s not exactly what I think. Net-nets can snowball. You just have to keep flipping them. And not everything Buffett did in his partnership years was a net-net. He owned a lot of Disney (DIS). And he bet huge on American Express (AXP).

Warren Buffett was trained by Ben Graham. Ben Graham ran a fund called Graham-Newman. And Graham-Newman didn’t just do net-nets. In fact, if you look at the portfolio of Graham-Newman the top heaviness of the portfolio would surprise you. Graham-Newman bought everything it thought was a bargain. So it had an insane number of stocks.

The median position size was tiny. But there were often about five stocks or so at the top of the portfolio that were big. Never as big as what Buffett would later do. But they were big.

Some were special situations. But others were controlled companies. Graham-Newman did a little capital redeployment. Kind of what might be called activism today. And that had an influence on Buffett. Although I think he learned from others by watching them in his partnership years.

Buffett doesn’t mean net-nets don’t snowball. He really didn’t buy many companies at all until after the partnership years. So, we’re talking about 15 years of just investing in stocks – not buying whole companies.

That’s the part Buffett would shorten. You said it sounded like he didn’t like managing other people’s money. That’s true. He quit that. And you can tell in the last letters he wrote during the partnership that he loved owning businesses. He loved the idea of Berkshire Hathaway (BRK.A)(BRK.B). He loved businesses as enduring things rather than stocks you flipped.

But there’s a lot of money in flipping stocks. And he made a lot of money flipping stocks. Both Graham-Newman (where Buffett trained) and the Buffett partnership made money by getting in and out of some stocks in a couple years at big gains. That is a good way to make money....MORE