the_Bird

Growth vs. Value: Death of a Paradigm?

The whole "growth" versus "value" split strikes me as odd. First, as an investor you obviously want both growth AND value.

More fundamentally, these labels strike me as basically just being code for industry groups; you know that if you buy a "growth" fund, you'll own a lot of technology companies, and a "value" fund will have a lot more banks. If you define "value" based on a P/E or P/B ratio, does it have any real meaning if certain industry groups are ALWAYS represented in the value camp because of the sector's intrinsic characteristics? Not too many "growth" utility stocks.

Don't "growth" and "value" just become labels for certain industries?

What strikes me as inherently MORE interesting (although I have not been able to study this in great detail yet) would be to instead cleave the equity universe into "momentum" versus "contrarian" stocks; stocks that have over a given period of time performed strongly versus those that have done weakly.

Seems like there's a lot of evidence that in the short term, what's worked has tended to keep on working, but over the longer term a contrarian approach may be more profitable. I'd love to see someone really study the interaction between these dynamics.

There obviously would be a lot more turnover, so a momentum-index or contrarian-index fund might be less practical.

Weekly Unemployment Claims Continue to Be Encouraging

Unemployment benefits are generally available for six months, right? Not all that surprising (and certainly not encouraging) to see the drop almost exactly six months out from when the initial claims began to spike. I mean, it's not BAD news to see this number come down, and I'm moderately encouraged by the improvement in the initial-jobless numbers, but the improvement in the continuing claims number seems to be more a function of "benefits expired" than "work found."

Genworth Financial Enters Run Off Mode - Others to Follow?

Personally, I would at least explore whether I could get coverage elsewhere if I had any kind of insurance policy with GNW - but do NOT let any coverage lapse in the meantime! GNW's LTC business would likely be sold off in the event of the company's failure, although the number of companies with the financial strength to make an acquisitions is pretty limited.

Note too that the state guarantee funds do set limits on how much they will pay out for claims. It's also possible, I believe, that in the event of GNW's failure and a subsequent takeover of these policies by another insurance company, it's entirely possible that the regulators will allow a premium increase as an inducement for the purchase.

If you can - I'd think about moving, but obviously the dynamic changes if the policy has been in force for a while and/or you've had health conditions that make you less insurable. Don't see a downside to exploring a switch, though.

After AIG: Which Insurer Is Next in Line for a Federal Handout?

The question that's still out there is TARP. I know GNW and HIG have both applied, we were supposed to hear if they're getting $$ pretty soon. I wonder, though, if the Feds instead will instead hope that these guys can be pulled back from the brink via the Geithner plan; take the toxic assets off their books, rather than infuse more capital directly a la the first round of the bank bailouts.

When looking at the insurance companies, remember that the NAIC calculated capital/equity differently than the shareholders' equity figure that's governed by GAAP. My UNDERSTANDING (and correct me if I'm wrong) is that unrealized losses for most of the portfolio, under GAAP, flow through to the shareholder's equity calc via the comprehensive income line item (even with the impairment not being recognized as permanant). Under the NAIC methodology, it seems that losses on a lot of non-trading assets don't "count" towards the computation of capital.

It was either GNW or HIG that seemed to have a LARGE discrepancy between capital as calced by GAAP and capital as calced by the NAIC guidelines, so that they were claiming to still be "well capitalized" even though that was a complere crock if you looked at the GAAP numbers.

What to make of the sudden and drastic shrink in sovereign debt CDS spreads?

Why WOULD the U.S. ever default, since all of its obligations are priced in dollars? Just print more of 'em. Sure, you cause massive inflation and kill the dollar - but if you default, the dollar's worthless anyway.

What to make of the sudden and drastic shrink in sovereign debt CDS spreads?

The whole concept of buying default protection on U.S. debt.... I mean, if the U.S. defaults, what counterparty is going to be in a position to make good on those swaps?

Income Funds: The Audacity of Hope

Take a closer look at JGG's "yield," though; informtation from their website indicates that about half the income is a return of principal. Now, buying an asset at a 10% discount and getting it back at par value isn't a bad thing - but as long as they are paying out more income then they have for interest income, there WILL be NAV erosion.

10% discount's par for the course in CEF-land; many of these "enhanced-income" CEF's were trading at 25%+ discounts for a while a few months back. Most bounced significantly in early January (who says the January effect is dead?)

Tying Interest Rates to CDS Is a Recipe for Main Street Disaster

Nailed it. People are finally starting to recognize how some of these frauds have been perputated. Put on some seemingly legitimate short positions in the regulated market, collude in the unregulated CDS market and cause a panic in the common shares (and bonds). Having the debt's interest rates linked to CDS rates makes this worse, but since so many investors today are looking at the CDS markets for clues about who is next to collapse, even companies without that direct exposure to the CDS market are at risk. A clearinghouse is absolutely needed.

My Reconsideration: Why Share Buybacks Are Pointless

Joe, that's the theory - but how does that play out IRL? Share buybacks aren't inherently bad, but they are too often used as a means to hide what management is really doing; granting themselves outsized, equity-heavy compensation packages. Do a big buyback ("Hey, it's great for the shareholders!") and gloss over the huge amounts granted to senior management ("It aligns our interests! It gives us incentive!").

I'm a fan of cleanliness. Give me cash in my pocket. Give senior execs a fair amount of compensation, but make that transparent. Don't use buybacks to cloud the effect of exactly how much is being spent.

So, yeah, neither good nor bad, inherently - but subject to abuse.

My Reconsideration: Why Share Buybacks Are Pointless

Buybacks are used far too often to mask the effect of making large, dillutive grants of stock and stock options. As a shareholder, I'd much rather have the cash in my pocket via a dividend, though; XOM as an example, *should* be yielding 4% - 5%, not 2%. Hell with the theoretically-higher EPS because you did a buyback; I'd rather just have the cash.

Spitzer: Self-Destruction

It's pure shadendfreude, compounded by the fact that Spitzer has probably made more enemies than anybody else in politics. Everyone that I talk to is pissed off about the hypocricy; if he weren't so in-your-face about his moral purity, he might have been able to survive this.

Some Muni Bonds Appear Screaming Buys Here

There's also a HUGE premium being paid for liquidity today. People want TREASURIES, nothing else will do. I sold an eighteen month Treasury note for a client today at a yield under 1.6%; there was no way we could walk away from the premium we were being paid on that bond. Retail client, I could sell the T at a 1.6% yield, buy an 18-month CD ~3.6%, and pick up 200bp for nothing more than giving up some liquidity (ended up doing some longer-term stuff in the muni market, but the point remains).

Unless the market thinks overnight rates are going to 50bp in the next year, T-rates as low as they are is purely a panic move. Everyone wants Treasuries, nothing else, because they are scared sh*tless of holding paper that they might have trouble getting a bid on in a few months. It's ALL about liquidity today.

Sears Holdings' True Value

As to the "Brand Value" aspect of the argument, anybody who's been in the market for lots of tools and lots of appliances for a new house knows that part of the Sears cost-cutting initiatives has resulted in a MASSIVE deterioration in the quality of the Kensmore and Craftsman brands. Craftsman tools, at least those targetted at the typical consumer (rather than the professional) are garbage. Kenmore appliances have also developed a reputation for being trash.

So, you've got a crappy retailer (if you've got a clean, well-stocked Sears store, I guess that makes one of us)... with a continued, long-term decline in same-store sales... in an environment that's likely going to see continued deterioration in overall retail sales... with another potential time bomb waiting of credit card receivables (my opinion, the "new subprime" for 2008)... with real estate holdings that are no longer appreciating in value... and deteriorating brand quality....

What's the bull case again?

Sears' Lampert: How Much Trouble Is “The Next Warren Buffett” In?

Well, that didn't tell me anything that wasn't already immediately obvious...

The Real Story on Countrywide: Fed Behind the Deal?

While not denying the possibilty/probabilty that information on the deal was leaked, it also didn't take a genius to realize that there was the potential for a HUGE short-squeeze on CFC. Even with all of the problems, the sector looked massively oversold, and anyone buying calls stood to make a fat, quick profit on exactly the kind of bounce that occured. Bear market rallies are the most ferocious, mostly because of the short-covering.