Archive for November, 2008

  • Ken French on Why Commodities are a Bad Investment Idea
    , November 18th, 2008 at 1:50 pm

  • Looking at Harvard’s Endowment
    , November 18th, 2008 at 1:39 pm

    Daniel Gross looks at the (mis)management of Harvard’s endowment portfolio. Or as he says, “looks like it was chosen by someone who watched a few episodes of CNBC’s Squawk Box and heard that the hot new investments were emerging markets, commodities, and private equity.”
    Gross writes:

    The biggest position disclosed—all amounts and dollar values are as of Sept. 30—was $463 million in the iShares MSCI Emerging Market fund. As the six-month chart shows, that fund’s off nearly 60 percent from this summer and down by about one-third from the end of September. Third-largest was a $233 million position in Weyerhauser, the wood-products giant that has fallen about 40 percent since the end of September. The top 10 included $232 million in the iShares MSCI Brazil Index Fund, off about 40 percent since the end of September; about $51 million in the iPATH MSCI India Index, off about one-third since the end of September; and $158 million in the iShares FTSE/Xinhua China Index, off about 30 percent since the end of September. For good measure, top 10 holdings also included index funds that were plays on South Africa’s commodity-based economy and on the perennially emerging market of Mexico. Would it surprise you to learn that both of those investments, after fairing poorly in the third quarter, have fallen further in the fourth quarter?

    I think Gross is being a bit unfair here. Harvard only has to disclose its position in publicly traded companies, and that’s “only” $2.9 billion, or less than 8% of its portfolio. For any long-term investor, which Harvard certainly is, you can safely reserve 8% of your portfolio for play money.

  • Obama to Detroit: Drop Dead
    , November 18th, 2008 at 1:32 pm

    Or at least, that’s what he should say. The UK Times sums it up well:
    Rescuing ailing industries represents a retreat to comforting orthodoxies by the Democrats. The new administration might note that the British Government has learnt from experience. Labour in the 1970s supported British car manufacturing, when British Leyland faced a liquidity crisis. The company was a constant drain on public resources. Only later did Labour grasp that investment in manufacturing is wasteful if there is no demand for the product. Gordon Brown has rightly urged Mr Obama not to introduce protectionist trade policies, which would merely compound the crisis. They are not the only example of economic interventionism that should be avoided scrupulously.

  • The Problem with Point Spreads
    , November 18th, 2008 at 1:21 pm

    I’ve written before that football point spreads aren’t too different from stock prices. The point spreads are merely set by the bookies so they can have even money on both sides of the bet. They’re not trying to predict the games. They’re trying to estimate how others will predict the game. That’s very close to how stock prices work.

    One of the problems in the betting market is that a team doesn’t care how much it wins by, as long as they win. Outside of pride, the teams are indifferent (we hope) to point spreads.

    Sunday’s game between the Steelers and Chargers was a big headache for folks in Las Vegas. On the surface, the Steelers won a tough game by the score of 11-10. By the way, that was the first game in NFL history to have that final score (one touchdown and extra point, one safety and four field goals).

    The Steelers were favored to win by four points. On the final play of the game, with the Steelers up 11-10, Troy Polamalu grabbed a loose ball and ran to the end zone to give the Steelers an apparent 17-10 lead—and covering the spread.

    The officials, however, overturned the touchdown saying the Chargers made an illegal forward pass. The Steelers, naturally, didn’t care since the game was over and they won. The league later admitted the mistake. There could have been as much as $10 million riding on that decision.

    Here’s the final play of the game:

  • The Real Price of Gas
    , November 18th, 2008 at 12:55 pm

    Over the summer, the price for a oil of oil peaked at $147.27 a barrel. I know we’re all supposed to be worry about this, but would you believe that oil just hit a 21-month low?

    Crude oil for December delivery fell $2.09, or 3.7 percent, to $54.95 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since Jan. 29, 2007. Prices have tumbled 63 percent since reaching a record $147.27 on July 11.
    Gasoline for December delivery tumbled 6.45 cents, or 5.2 percent, to $1.1746 a gallon in New York, the lowest settlement since the contract was introduced in October 2005.
    Pump prices have followed futures lower. Regular gasoline, averaged nationwide, declined 1.8 cents to $2.087 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. It’s the lowest retail price since March 2005. Gasoline pump prices have dropped 49 percent from the record $4.114 a gallon reached on July 17.

    Today’s PPI report showed the biggest plunge on record thanks to gas prices dropping by nearly 25%. If we adjust for inflation, gas prices are much lower than they’ve been for much of the last 90 years.

    Feeling nostalgic for the days of 17 cent gas in 1931, 20 cent gas during WWI, the gas below 30 cents during the first half of the 1950s, or the $1.40 gas of the early 1980s? If so, you’d be suffering from “money illusion,” the tendency to confuse nominal and real (inflation-adjusted) prices. Gas is cheaper today in real dollars than any of those past prices.

  • The Seasonality Timing System
    , November 18th, 2008 at 11:54 am

    Mark Hulbert writes:

    The Seasonality Timing System (STS), for those of you not familiar with it, traces to research conducted by Norman Fosback in the early 1970s. Fosback, who currently edits a newsletter called Fosback’s Fund Forecaster, found that the stock market has a bullish bias around the trading sessions immediately prior to each exchange holiday as well as those at the turns of each month. At all other times, his timing system calls for being out of stocks and safely invested in a money-market fund. It therefore incurs very little risk.
    Over the 25-plus years that the HFD has tracked the STS, a portfolio that used it to switch between the DJ Wilshire and T-bills produced an 11.7% annualized return, vs. 10.6% for buying and holding. That’s impressive enough, since very few market timing-strategies are able to even match the market’s return, much less beat it.
    But what makes the STS really shine is that its market-beating return was produced while being in the stock market for only about one third of the days it was open. On a risk-adjusted basis, the STS almost doubles the return of a buy-and-hold.

  • GE’s Confirms Dividend
    , November 18th, 2008 at 11:48 am

    I said before that it looks like GE will cut its dividend. What do I know? The company came out today and confirmed that it will pay its 31 cent dividend through 2009. That works out to a dividend yield of 7.7%. That’s more than twice the 10-year Treasury. GE currently has one of the largest dividend yields among major industrial companies.

  • Ron Paul at Today’s Hearing
    , November 18th, 2008 at 11:38 am


    I think Bernanke tends to treat Paul’s questions as if he were a first-year econ student, which is probably correct.
    Paul: But does the subject of a new (dollar) regime ever come up?
    Ben: No it doesn’t.
    Paul: And does the subject of gold ever come up in any of your conversations?
    Ben: Only in terms of the sales that the central banks are planning.
    Gavel: Bang, bang.

  • Yahoo Cuts off its Wang
    , November 18th, 2008 at 11:17 am

    sadhoo.jpg
    I’ve never understood the market’s love affair with Yahoo (YHOO). While the stock was around $30, I said that it should be half that much. At one point last week, the shares fell below $10—and that’s still too high. I’ll give them credit for making money, but they don’t make too much. Earnings-per-share will probably drop for the third straight year.
    After a little over a year running things, Jerry Yang is leaving the CEO slot. It’s about time. This guy really had no idea what he was doing. Not surprisingly, the stock is up strongly today. That’s got to be embarrassing.
    In February, Microsoft offered to buy Yahoo for $31 a share, which was a 62% premium over its price. In one the classic business blunders of all time, Yahoo said no, they wanted $37. Microsoft went up to $33. Again, Yahoo said no, they wanted $37. Then Microsoft said forget about it. Forget $33. Forget $31. Forget it all. Once Yahoo’s stock started plunge, Yang said, “hey, you can still buy us!”
    If you want to more why Yahoo is in such a bad place, you can Google the details.

  • First, the Good News
    , November 17th, 2008 at 10:07 pm

    The S&P 500 closed above its 5-1/2-year closing low from 21 days ago. The bad news is that in the last 21 days, it’s risen only 0.21%. Annualized, that works out to 3.8%.
    Since the Tuesday before last, the S&P 500 is down 15.4%. Now if I could only remember what happened on Tuesday, November 4.
    One last point: Adjusted for inflation, the Dow is up an annualized rate of 0.68% from its 1929 high.