Facts and Figures
- According to the February Case-Shiller data*, real home prices are back to their late-1990s levels. All of the price gains of the 2000s have been erased by subsequent price declines and inflation.
- The U.S. had one million more households in March 2012 than it did a year earlier, a rate of growth not seen since 2006. The U.S. home ownership rate fell to 65.4% in March, the same level as in March 1997 (it peaked at 69.2% in 2004). Meanwhile, rental properties had a vacancy rate of 8.8%, the lowest in a decade. The homeowner vacancy rate (i.e., non-rental homes that are empty) fell to 2.2% from 2.6% — that’s still well above historical averages but the lowest since 2006. (Source: Census Bureau)
- A 100-sqft. garage in a great location in Knightsbridge, London just went on the market for £525,000. The country’s average home price is £160,000, down 0.6% in the past year. (Source, which I hope is accurate…)
* Case-Shiller tracks national home price data and adjusts for inflation by taking CPI less “Shelter” costs. The “National” index is back to 4Q98 levels and the “Composite 20” index is back to January 2000 levels. On a price-to-rent basis, the National index is back to October 1998 levels and the Composite 20 index is back to February 2000 levels
David Einhorn Buys Three New Stocks: These Are The Names And Theses (Q3 Letter)
David Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More
- “101 Spectacular Nonfiction Stories” — I haven’t read the vast majority of these, but it looks like there is a lot of good reading on this list. The “Science & Nature” and “Business & Economics” sections look especially good.
- “Beware of [Benjamin] Franklin’s Gambit in making decisions” — John Kay on “the process of making or finding a reason for what one already has a mind to do.”
- “Derivatives Lobby Has U.S. Regulators on the Run” — Roger Lowenstein’s great overview of the mess that is derivatives regulations.
- “Finding the Culprits of the Crisis” — a look at the problem from another, far more aggressive angle by derivatives expert Janet Tavakoli. I appreciate the lack of equivocation and I do agree that crimes were committed and the absence of indictments and convictions is stunning. (Note that she later corrected the comment about AIG’s counterparty — it was Calyon, not Credit Suisse.)
- “The Challenges in Hedging Tail Risk” — some timely and useful thoughts on portfolio hedging, particularly regarding puts. “As we continue to experience bouts of volatility in the market, investors will keep searching (unsuccessfully) for the “silver bullet” for hedging tail risk in the financial markets. But when volatility is high, like it was last year, and options become expensive, investors need to pay attention to the costs of protection they are buying. Otherwise, they risk paying too much.”
- “Sears — Where America Shopped” — this is a good history of Sears from the local (Chicago) Crain’s. The coverage of Lampert is thin and not unique, and the purchase price of his holdings is dead wrong (ignores all the buybacks*), but otherwise it’s pretty interesting.
- “The Population Boon” — an optimistic look at human productivity and prosperity. “What has Malthus been wrong so far?”
- “To Win Big, It Helps to Be a Little Nuts” — a brief but good profile of Fastenal, the market’s best-performing stock since of the past 25 years. The underlying lessons are worthwhile if you can get past all the management platitudes.
- “Value Investing: Investing for Grown Ups?“ — I actually took a “class” taught by Prof. Damodoran (he was a hired gun for Wall Street analyst classes’ valuation training back in the day), and I was never sure what to make of him. CAPM academic? Practitioner and closeted value investor? I’ve since read his blog and a bunch of papers, and I’m still not sure. This paper doesn’t help my confusion. It reads more like an earnest college student’s senior honor thesis: parts of it are benignly naive, parts of it are factually incorrect or misinformed, and parts are somewhat interesting.
- “The Costco Craze: Inside the Warehouse Giant” — an interesting article and TV feature from CNBC (no, those concepts aren’t always mutually exclusive, but it’s close).
- “Haste Makes Waste: How Investors are Led Astray by Their Irrational Biases” — some tidbits about behavioral economics and investing, as well as commentary from Prof. Andrew Lo of MIT who was recently quoted as saying, “Buy and hold investing is dead.” As usual, some good ideas in here along with some that fall short.
- “Big Maconomics” — an interesting article about McDonald’s and the long-running Economist “Big Mac Index” to measure foreign currency purchasing power against the USD. Also a link to an academic paper about McDonald’s and “how poor nations get rich.” (I haven’t read the paper yet.)
* ESL bought its initial stake at ~$16/share, but by buying back a ton of shares at much higher prices in subsequent years, took its ownership stake from <40% to >60% and raised its average cost to about $60/share.
- James Grant’s Speech to the New York Federal Reserve — for anyone who doesn’t subscribe to Grant’s Interest Rate Observer or hasn’t read Mr. Market Miscalculates, among others, this speech from April 28, 2012 will give you a good idea of his expertise in the history of monetary policy, criticism of the Fed, and preference for a return to the gold standard. I saw him in person at a conference in Chicago recently, and his comments were very similar and he pilloried Bernanke then too, so he’s nothing if not consistent. And at the least, this has some good book recommendations and a lot of great history. (Source and editor of transcript: csinvesting)
- “The True Lessons of the Recession: The West Can’t Borrow and Spend Its Way to Recovery” — an interesting essay in Foreign Affairs by Prof. Rajan of Fault Lines fame. The prescriptions and analysis are anti-Keynesian, but the economic history is mostly neutral and as well written as anything I can remember reading, so even the Krugman fans out there have something to learn here.
- “Keynes the Stock Market Investor” — following up on the Keynes articles I sent recently, this is a great paper about Keynes and his investment history. My quibbles aside (this is still an academic paper), the investment analysis and focus on Keynes’s experience with the King’s College endowment have apparently not been analyzed elsewhere despite the enormously interesting and important implications.
- “Revitalizing America” — some interesting (and interestingly similar) commentary from Presidents Bill Clinton and George W. Bush at a recent event.
- “China’s Achilles [sic] Heel“ [*] — a stark reminder about the powerful demographic forces China faces, beginning next year when its workforce is likely to begin shrinking.
- “China’s Biggest Banks are Squeezed for Capital” [*] — a good look at the circular logic of Chinese banks’ capital structures and the value destruction inherent in them. The scary part is that this barely touches on the massive misallocation of capital and credit risks…
- “Three Reasons Japan’s Economic Pain is Getting Worse” [**]– Jared Diamond (renowned author of Collapse and Guns, Germs, and Steel, both of which are highly recommended) with a very interesting column on Japan. “Since Japan’s economic problems result from its social problems, their solution will require changes in Japanese attitudes toward women’s roles, immigration and sustainable resource use. Can Japan undertake the painful reappraisals this will require?”
- “If the Auditors Sign Off, Does That Make It Okay?” — a fascinating article by the professor cited in the article I sent around last December about Enron’s 10th “anniversary.” Andy Fastow, Enron’s CFO, just got out of prison, and spoke in this professor’s class. “Why did he commit fraud? Why did a bright, aspiring, stereotypical MBA cross the line and misrepresent the true financial picture of Enron? According to Fastow, greed, insecurity, ego, and corporate culture all played a part. But the key was his proclivity to rationalize his actions through a narrow application of ‘the rules.’ Fastow’s message…has two key points. First, the rules provide managers with discretion to be misleading. Second, individuals are responsible for their actions and should not justify wrongful actions simply because attorneys, accountants, or corporate boards provide approval.” (Note: I think the third-to-last paragraph has some very stretched comparisons, although I agree with the underlying point.)