- More than half of the companies in the S&P 500 have a higher yield than the 10-year U.S. Treasury. There are 271 stocks with a higher yield, 126 stocks with a lower yield, and 103 stocks not paying a dividend. (Note: data as of May 21 stock prices with the 10yr yielding about 1.74%; the number is undoubtedly higher with the 10-year at an all-time low of 1.558% on May 31). (Source, courtesy of Jason Zweig.)
- The number of public companies listed on a U.S. exchange peaked in 1997 above 7,800. About three years later the combined market cap of those companies peaked above 130% of GDP. In 2011, those levels fell below 5,000 and 110%, respectively. (Source: The Economist)
- The average home price in Canada in March was about $370,000, while in the U.S. it was about $203,000. [*] (Source: CREA and Case-Shiller)
- Of the 19,000 corporate bonds that traded at least once during 2011, only 375 (~2%) traded every day.
- Broker-dealer inventories of corporate bonds (i.e., bonds held on the balance sheet to facilitate market-making) fell by 50% in 2011 (Source: WSJ)
[*] Hint: the CAD is roughly at parity with the USD, and Canadian GDP and income per capita are slightly lower than those in the U.S, but Canadians are among the most leveraged consumers in the world with debt-to-disposable-income ratios above 150%. From 2002-2008, Canada’s consumer credit grew twice as fast as America’s; since then, America’s consumer credit has declined while Canada’s has continued climbing (at least until recently). Also, Demographia’s 8th Annual International Housing Affordability Survey is an interesting read.
- “The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Fund Managers” — I was initially a little skeptical based on the title, but then I remember that the last time I was turned off by a book title using the world “genius,” the book was so good it literally changed my career. This book similarly won me over. In a first for me I actually wrote a review of the book on Amazon, so I won’t repeat that. But suffice it to say that the book is highly recommended. A video interview with the author is here and excerpts are here.
- “How Will You Measure Your Life?” — Clayton Christensen is out with a new book that I recommend. If it sounds familiar, the book is based on an article of the same title that I think I sent around two years ago and still recommend. The author is a good writer and a deep, balanced thinker, and this is a worthwhile read. Previews here and here.
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
- “How Venture Capital is Broken” — A look at the returns from venture capital investments via theKaufman Institute (source paper here) and Cambridge Associates by Felix Salmon. “During the twelve-year period from 1997 to 2009, there have been only five vintage years in which median VC funds generated IRRs that returned investor capital… In eight of the past twelve vintage years, the typical VC fund generated a negative IRR, and for the other four years, barely eked out a positive return.” I guess it shouldn’t be a surprise that the very top VC funds do well and drive the reputation for the industry while the majority of funds are very poor performers, but I was still shocked at how bad those aggregate numbers are.
- “Hedge Funds and Chapter 11” — This paper from April’s Journal of Finance looks at almost every large Ch. 11 restructuring from 1996 to 2007, finding that over 90% of them had “observable involvement by hedge funds.” The authors show that when hedge funds hold leading creditor positions, companies under Ch. 11 protection tend to reorganize more and liquidate less while also replacing management more often; their conclusion is that hedge funds replace less rational sell/liquidate-at-any-cost creditors and thus improve overall net creditor recoveries. For any fellow distressed-debt nerds out there, this is a fascinating read. Summary here.
- “The Frequent Fliers Who Flew Too Much” — This is one of the more incredible things I’ve read in a while. I was vaguely familiar with the American Airlines’ “AAirpass,” which cost a small fortune but enabled essentially unlimited first class travel. What I didn’t realize was that American used to sell those policies for life (and suffice it to say that they were a tad underpriced).
- Daniel Kahneman at CFA Conference — these are notes from a recent talk (“Psychology for Behavioral Finance”) that Kahneman gave at a CFA conference. See here for the video. There is also video of a talk (“The Flaws of Finance”) that James Montier gave at the same event.
- “The Shipping News” — a multi-page graphical look at the global shipping industry.
- “The ‘Perfect Hedge’ Remains Elusive at JPMorgan” — a good and balanced look at the challenges inherent in hedging and bank “risk management” by Andrew Ross Sorkin.
- Eugene Fame — Is Warren Buffett Lucky or Skilled? — a very short video interview with the “father of modern finance,” Gene Fama. “[Warren Buffett] is a businessperson, he’s not an investor per se. He buys whole businesses. And I would imagine helps to run them. You don’t buy a whole business and then not say anything.” And later: “I don’t know if Warren Buffett is lucky or just skilled. But I’d like to do the test, and I can’t do the test just on him. I’d have to do the test on everybody to find out if he’s unusual or not.” No comment.
- “Markets: Out of Stock” — I find it shocking that Allianz SE (FRA:ALV) has 6% of its gigantic insurance portfolio in equities and 90% in bonds. Anyway, there are some amazing datapoints in this article and just be sure to take some of the commentary with a big grain of salt.
- “China’s Economic Crisis” — this is a very good op-ed by Fareed Zakaria in which he just repeats the arguments of a new book, “Breakout Nations,” by a Morgan Stanley fund manager. In any case, I believe this logic is sound — China will have more successes than failures and it will continue to grow, but if it goes from 10% to 5% a year, that is going to feel like a crash to all the countries and companies who’ve been feeding at the China trough in recent years. As of 2010 data, China was about 16% of global (PPP) GDP, but it consumed half of the world’s iron ore; more than 40% of the world’s coal, lead, zinc, and aluminum; and more than a third of its copper and nickel. That is going to be a painful adjustment on the producers’ side.
- “Banks’ Hyper-Hedging Adds to Risk of a Market Meltdown” — an op-ed by preeminent journalist Roger Lowenstein about the JPMorgan Chase & Co. (NYSE:JPM) debacle. There are a lot of good and nuanced arguments here and I won’t dive into them all, but I would add that if we just cleared and settled CDS on a proper exchange a lot of the counterparty and systemic risk issues would be largely mitigated. That said, I think the larger points in this article — hedging as a zero-sum game; hedging’s questionable usefulness; hedging as a driver of volatility; the pervasiveness in banking of the trader’s short-term mentality; the fallacy of hypertrading and the liquidity fetish; the ongoing problem of TBTF megabanks featuring private profits and socialized losses — are extremely important and overwhelmingly valid.