Central Perk

luni, 6 iunie 2011

Seth's Blog : The taskmaster premium

The taskmaster premium

How much are you paying for the privilege of having someone else tell you what to do?

Example: if you go to your gym and work out for an hour, the cost of that session is zero.

Hire a personal trainer to follow you around and give you instructions and that's $70.

If you take a job as a freelancer writer doing short service pieces on assignment to a local paper, you might earn $3 an hour. Which is about 97% less than you'd earn if, like some writers, you dream up amazing pieces, write them on spec and turn them into blogs, books or films. This writer doesn't wait to get hired. He hires himself.

If you do publicity for an agency, working hard and precisely following the VP's and the client's instructions, you might earn $25 an hour. On the other hand, when you do your own PR, when you build a sensation and turn it into a following, you might earn many times that. (And enjoy it more).

Work for a coal mine and make minimum wage. Discover a coal mine and never need to work again.

We happily give up our freedom and our income in exchange for having someone else take responsibility for telling us what to do next.

How much are you giving up?

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duminică, 5 iunie 2011

Mish's Global Economic Trend Analysis

Could you endure 15 seconds of waterboarding even if you knew it was a setup and could cancel it at will?

Posted: 05 Jun 2011 10:22 PM PDT

Unfortunately the video is not embeddable, but please consider this short link on waterboarding where Playboy.com journalist Mike Guy underwent waterboarding by a trained member of the U.S. military in the site's new Lab Rat feature.

Personally I believe that it torture. So does Senator John McCain.

Regardless of whether you think it is torture, the fact is, waterboarding is counterproductive.

For more details, please consider the following articles

Torture Never Works; Ron Paul on Torture and Secret Prisons; "Torture is What the Nazis Did"

McCain on Torture and Waterboarding; Ron Paul on Bin Laden and Torture: Bin Laden Is Dead – Let's Come Home!

My position is simple: "Thinking that torture is wrong is not a liberal or conservative value - it is simply a value."

Waterboarding is torture.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Guru Focus Interview with a Value Investor; Dissimilar Starting Points, Many Similar Conclusions

Posted: 05 Jun 2011 11:46 AM PDT

Inquiring minds are reading a Guru Focus Interview with Investor Arnold Van Den Berg, a value investor.

Guru Focus: You seem to believe that there will be high inflation risk in the coming years. What is the best strategy in this inflationary environment?

Van Den Berg: It is important to define what we mean by inflation. Inflation rates in the low single digits (1% to 3.5%) generally meet the definition of low and stable inflation. Inflation rates greater than 4% or lower than 0% have a high risk of destabilizing the economy. The primary risk of inflation stems from the potential for monetary policy errors. Monetary policy makers do well when the underlying environment is relatively stable. But when conditions change suddenly, there is a possibility for error. Thus, monetary policy errors can be either deflationary or inflationary. The risk is especially high in unstable monetary environments, like we are experiencing today.

Both inflation and deflation compress valuations. In the 1970s, stocks sank to single digit P/E ratios. We all know what happened to markets in the early 1930s. Generally, economic instability is bad for valuations.

We believe that we could go through a period of above-average inflation (on the order of 5%), but nothing like we saw in the 1970s. This period will be very poor for stocks. Since it is difficult to predict the timing of such episodes, we adjust for inflation (and deflation as well) by adjusting our valuations for lower price multiples. When we find bargains, we will buy them; when we cannot find bargains, we will hold cash. We expect that conditions in the economy and in the market will run counter to our investment philosophy for short periods of time, but we know that over the long run value investing outperforms.

Guru Focus: There was a piece in OID approximately eight years ago where you discussed the post-bubble periods. It was transformative for me but I wonder where you think we are at present. It seems the risks are greater than ever as our government tries to solve an over-consumption problem by issuing massive amounts of debt.

Van Den Berg: A major characteristic of bear markets is that things that would normally cause the market to explode — like low interest rates — have either minimal or temporary effects. In bear markets, earnings could continue to grow, but multiples become compressed. This causes stock valuations to trade up one to two years, but then revert back to low levels and start the cycle over. Over the duration of the bear market, the prices of stocks may not significantly appreciate. Stocks that may look cheap on a multiple basis may often get even cheaper. This is exactly what we have been seeing since 2000.

At the end of the bear market, multiples have compressed to very low levels. This sets the stage for the next bull market.

How much longer will we be in this bear market? Bear markets typically last about sixteen years, so I would say that we have about five more years to go. This coincides with our earlier comments on how long we think it will take for the real estate, unemployment, and fiscal problems to be reconciled. The way to invest in this kind of environment is to stay focused on the valuations of individual companies. You can still make money in this environment by buying stocks when they are cheap and selling when they are near fair value (remember that multiples are compressing, so stocks won't go as high as one would expect in a normal environment). When bargains can't be found, hold cash.

The Guru Focus interview is well worth a read in entirety.

Are Stocks Cheap?

Stocks look cheap now but they aren't because of three factors.

PE Compression
Earnings are mean-reverting
Record government stimulus globally

Van Den Berg discussed point number one in detail.

I covered points one and two in Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think.

For a follow-up on those points, please see Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?

Earnings High From Record Global Stimulus

Point number three should be obvious, but obviously it's not given pervasive bullish sentiment nearly everywhere, including smack in the middle of article with bearish sounding titles. For example, please consider a few excerpts from Dow Has Its Longest Weekly Slump Since 2004

Michael Shaoul, whose Marketfield Fund Ltd. beat 81 percent of competitors last year, said that while the payrolls report was disappointing, it may also be a signal the slowdown in the economic data is near its peak. He noted that weaker nonfarm payrolls reports in February and July 2004 failed to derail the last bull market, which peaked in October 2007.
The biggest decline in the S&P 500 since August is creating a buying opportunity for investors, according to Blackstone Group LP's Byron Wien. The price-to-earnings ratio for the S&P 500 has fallen close to its lowest level in 2011, according to Bloomberg data. The index currently trades at 14.8 times earnings, near this year's low of 14.7 when it fell in March after Japan's earthquake.
"The economy is not as bad as it looks right now. Corporate profits will be good, very good. People are asking me, 'Do you still think the market can get to 1,500 by the end of the year?' I do."

In contrast, I think it is crystal clear much of the recovery is a mirage based on unsustainable government stimulus, that stimulus is fading, there is little chance right now for more stimulus, and that corporate profits have peaked this cycle in conjunction with a slowing global economy.

I discussed the slowing global economy in a video: Mish on Yahoo Finance Daily Ticker on Slowing Global Economy; U.S. Manufacturing ISM Plunge; Order Backlog and New Orders Barely Above Contraction

High Inflation Coming?

Van Den Berg clearly has a different definition of inflation and deflation than I do. I prefer to view inflation and deflation in terms of money supply and credit. He looks at prices. He is calling for "high inflation" but high means 5%.

Can we see a 5% CPI with falling demand for credit? Sure, why not? And if it plays out that way, there will be no hiding places at all. Treasuries and stocks both would be hammered. It is one of the reasons I do not like treasuries now.

It is also a good reason why corporate bond rates at 2.33% for 10 years constitute a bubble. , Bear in mind that a renewed credit crunch might send treasury yields lower but it will not be good for corporate bonds, especially junk bonds.

Dissimilar Starting Points, Many Similar Conclusions

Van Den Berg does not like gold. I do. I gave my reasons in a Yahoo Finance video last week. Please see Why I Continue to Like Gold for a discussion. There are other differences as well.

However, we have both arrived at the similar conclusions regarding equity valuations in general even though we have very different starting points about what inflation is.

Conclusions

The bear market is not over
Valuations are not cheap
When there is little value, then there is nothing wrong with cash

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Seth's Blog : Subscribing (and a color bonus)

Subscribing (and a color bonus)

There are a bunch of ways you can automatically get this blog daily, mostly for free.

RSS is simple and easy. It instantly delivers the blog to your RSS reader.

Email is direct and excepting sometime issues with bouncing and filters, a long-time favorite. To sign up, you can use the little box to the left, just under my head... Of course, your info is never rented or sold.

Twitter makes it easy, just follow @thisissethsblog

You can also get this blog on your Kindle for a buck or so.

Bonus: When designing something new, consider getting free color inspiration from Colourlovers.

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Seth's Blog : Irrational vs. unreasonable

Irrational vs. unreasonable

Customers and team members make irrational requests all the time.

That doesn't make them unreasonable. If satisfying their request moves things forward, it's not always worth the effort to teach someone a lesson. Sometimes, it's more effective to just embrace their irrationality.

Being right doesn't always have to be the goal.

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sâmbătă, 4 iunie 2011

Mish's Global Economic Trend Analysis

Bill Gross says QE3 Unlikely Even as Job Growth Slows; Gross Still Shuns Treasuries, Likes Dividend Yielding Equities

Posted: 04 Jun 2011 10:10 PM PDT

Bill Gross says QE3 Unlikely Even as Job Growth Slows

Pacific Investment Management Co.'s Bill Gross, manager of the world's biggest bond fund, said the Federal Reserve is unlikely to do a third round of quantitative easing even with the economy adding fewer jobs than forecast.

Central bankers are likely to "extend the extended period" language for longer in their policy statements, Gross said in a radio interview on "Bloomberg Surveillance" with Tom Keene. The less-than-projected pace of jobs growth in May that the Labor Department reported today shows that "there is a persistency here. It's back to our old new normal," he said.

"We don't see a QE3. There has been too much discussion and dissent within the Fed to permit that type of program," Gross said in the interview from Pimco's headquarters in Newport Beach, California. Given the current pace of growth and inflation "they will speak to a fed funds rate that persists for an extended period of time, which in effect caps interest rates in the process."

Investors could seek higher real returns than those now offered from government debt through investing in shares of "conservative" companies such as Procter & Gamble Co. (PG), Merck & Co. or those of utilities, according to Gross.

"The Treasury market up to seven or eight years is negative in terms of real interest rates, and that's not a positive for savers," Gross said. "But if they took that money and invested it in a conservative stock, such as a Proctor or a Merck or a utility yielding 4 percent; then that's 3.5 to 4 percent real yield in comparison to those negative real yields in the Treasury side. So you have to take a little bit of a chance in order to avoid getting your pocket picked here."

Video

I concur with Gross about the likelihood of QE3 in the near-term horizon and suggested the same thing in a recent interview on Market Ticker with Aaron Task. The key to that sentence is the phrase "near-term".

Right now, the Fed does not want more froth in junk bonds, nor does it want higher commodity prices or $150 crude, especially since QE2 was a miserable failure in producing jobs or reviving housing.

However, should the economy enter a sustained downturn, and if commodity prices plunge (giving the Fed some breathing room), it's a given the Fed will try something. Whatever the Fed tries will likely be good for gold.

Please see Why I Continue to Like Gold for a video discussion.

The problem with Gross's dividend stock play is that it is likely all stocks get hit in another sustained downturn. A 4% yield may be nice, but not if it comes at the expense of a 25% haircut in equity prices.

With valuations stretched everywhere one looks, there is a lot to be said for waiting on the sidelines for better opportunities.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Deputies and Movers Show Up at Bank of America to Seize Bank Property Including Computers for Homeowner Wrongly Foreclosed On; The Way Forward

Posted: 04 Jun 2011 11:02 AM PDT

In Florida, a couple that paid cash for their home, and never had a mortgage was foreclosed on by Bank of America. It took 18 months to straighten out and Bank of America agreed to pay the legal expenses of the homeowners.

When the bank did not pay the couple, they foreclosed on Bank of America. A Judge authorized a deputy to seize desks, copiers, and computers that could be sold to pay the expenses.

Please consider Tables Turn: Deputies and movers show up at bank to seize property for homeowner

The foreclosure nightmare started when Warren and Maureen Nyerges paid cash for a home owned by Bank of American in the Golden Gate Estates. They never had a mortgage whatsoever. But, the bank fouled it up and wound up issuing a foreclosure through their attorney.

The couple took their case to court and after a year and a half nightmare the foreclosure was dropped. A Collier County judge said Bank of America has to pay the couple's $2,534 legal fees for the error. After more than five months the bank still hadn't paid up. So, the homeowners' attorney did just what the bank would do to get their money, legally seize their assets.

"I instructed the deputy to go in and take desks, computers, copiers, filing cabinets, including cash in the drawers," Attorney Todd Allen told WINK News.

Outside the Bank of America on Davis Boulevard, several deputies stood by with movers ready to start hauling out the bank's office supplies and furniture.

Inside, the homeowners' attorney was locked out of the bank manager's office by deputies while the bank manger tried to figure out what to do.

After about an hour the bank finally cut a check to satisfy the debt, and no furniture was taken. A representative for Bank of America issued a statement saying they are sorry for the delay in issuing funds. They claim the original request went to an outside attorney who is no longer in business.

Sensational cases like this make all the headlines, but are statistically meaningless, with a bordering on zero percentage.

That said, I side with the couple. Indeed I think suing for expenses only is a travesty of justice. Something like $100,000 would be more appropriate.

It is preposterous that it would take 18 months to determine there was never a mortgage. Unfortunately, that is how fooked the system is. Alternatively, that is how fooked Bank of America is. Most likely, it's both.

That said, two wrongs do not make a right. Letting people live in houses for years without payment is simply wrong. Either MERS is valid or not. Adding to the confusion, differing courts in differing states have ruled differing ways.

Fixing the Structural Problems

Sadly, I see little effort by anyone in proposing a solution to the mess. States Attorneys General want $17 billion in fines, but how do fines resolve the basic issues at hand? Are big fines justified? Why? How much?

I discussed some of the key issues in Foreclosure-Gate Screw Tightens: Banks Face $17 Billion in Suits Over Foreclosures; Common Sense Says $5 Billion is Very Generous

I failed to discuss one key issue: recording fees. Cities and counties may be entitled to back fees. I will leave that to the negotiators to decide.

To arrive at $17 billion, one would have to do something like charge a $5,000 to $10,000 fine for every missed recording fee. If that math is correct, I find that proposal preposterous. Note: I did not do the math, I read the number in a couple places.

I really do not care what the math is, I just want to see it.

Once again, I do not object to huge fines for complete blatant stupidity as depicted by Bank of America in the above article. If there are more cases than I think, so be it.

The Way Forward

First we need to start with a realistic assessment of errors and a breakdown of how serious those errors are. In the above instance, it is clear there was a severe error, and an errors that should have been rectified in 2 days, not 18 months. I do not object to punitive fines in such instances.

Second, we need to see a proposal as to what to do about MERS. Instead, I see cases like the above trumped up as if they are common, and I see people clamoring to give homes to people free and clear because of a messed up MERS and "show me the note" objections.

The current focus is not on justice, but rather maximum punishment.

Those who want the courts to conclude that MERS has clouded every title, better be careful of what they wish. Should that be the ultimate ruling, no one who owns a home that went through the MERS system will currently have a valid title.

Want to sell your home? Sorry you can't. Want to buy a home? Sorry, you better not because the title will be clouded. This is serious stuff. If the MERS opponents get their way, Housing in the US would literally shut down.

In their desire to punish banks and let people live in their houses for free, few have bothered to figure out the severe consequences on innocent parties who simply want to sell or buy a home.

Punishing the banks to the maximum extent possible to slay the evil MERS dragon, consequences be damned, should not be the focus. Instead, we need to determine actual damages before sensible fines can be levied. Meanwhile, and far more importantly, we need to determine what we need to do to fix this mess, determine how to fix or scrap MERS, and do everything we can to get the foreclosure backlog behind us.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Damn Cool Pics

Improv Everywhere – The Mute Button
50 Incredible Examples Of Urban Photography
The Largest Water Lily in the World
Graduation Day: China Style
If The World Were A Village Of 100 People

Improv Everywhere – The Mute Button

Posted: 03 Jun 2011 11:20 PM PDT

For latest mission of Improv Everywhere 23 actors and 2 dogs infiltrated a public space and went on "mute" at coordinated intervals. The mission took place near the northern entrance to Prospect Park in Park Slope, Brooklyn. The Mute Button was produced by Improv Everywhere as part of the Guggenheim Museum exhibition stillspotting nyc.

50 Incredible Examples Of Urban Photography

Posted: 03 Jun 2011 10:32 PM PDT

Cities can be a great source of inspiration. They're a melting pot of different cultures, religions, businesses… Some artists try to capture the city's spirit in photographs or graphic design. This often leads to amazing results.

In this post you'll find various photographs from urban environments. There's also a diversity in photography style between these photographers. Don't forget to post a comment if you've found another great photo.

The Largest Water Lily in the World

Posted: 03 Jun 2011 10:21 PM PDT

Victoria amazornica is the world's largest genus of water lilies. Its leaves reach up to 3m in diameter. It floats in the shallow waters of the Amazon River basin.
These water lilies support up to 70 pounds. This giant water lily was called Victoria regia after Queen Victoria of the UK when it was discovered by explorer Robert Schomburgk in 1836.

Graduation Day: China Style

Posted: 03 Jun 2011 10:04 PM PDT

Chinese students do their best to make their graduation day the most memorable one.

If The World Were A Village Of 100 People

Posted: 03 Jun 2011 09:24 PM PDT

Another great series of data graphics sets for watching by Toby Ng Design in a series entitled "If the world were a village of 100 people". "If the world were a village of 100 people, how would the composition be? This set of 20 posters is built on statistics about the spread of population around the world under various classifications. The numbers are turned into graphics to give another sense a touch – Look, this is the world we are living in. Designer Toby Ng graduated from Central St.Martins, London in 2008. Ng overwhelms people with his innovative designs that turn disorder into delight. His designs outstand the crowd with a genuine combination of creativity, experience and a sense of humour."