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Donkey Kong

Donkey Kong
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  • John Hussman: Run, Don't Walk [View article]
    My 8% nominal excluded dividends and the historical EPS growth rate number would already capture any buybacks and thus is already factored into returns.

    I think your 2% real number is probably a good forecast of future real returns which is where people need to focus, but 99.9% of investors ignore. Almost everyone (including the MSM) focuses on nominal price levels and returns, but you can't consume nominal returns. Getting to an 8% nominal return will likely be the result of a much higher rate of inflation (I think your 2% level is way to optimistic unless you don't consume any food, energy or education).
    Apr 24, 2012. 12:28 PM | 1 Like Like |Link to Comment
  • John Hussman: Run, Don't Walk [View article]
    Making 10-year forecasts (or anything beyond a couple of months) is usually a fools errand. However, I think the real point behind Hussman's commentary is that future return expectations for stocks are way too high. Since the end of WWII, nominal GDP has grown at an annual rate of approximately 6.6%. Interestingly, nominal EPS has grown at 6.7% while the S&P index has returned 6.6% (excluding dividends).

    Given the current economic headwinds and the limitations of exponential growth, it would seem highly unlikely that future nominal GDP growth rates will return to the historical levels of 6.6%. Given this assumption, and the close correlation between GDP growth, profit growth and stock returns, returns for the S&P 500 will likely be below average going forward. I think the risk of record corporate profit margins mean reverting are negative for future stock returns, but the message I took away from Hussman is more about unrealistic investor expectations (8% nominal ex dividends).
    Apr 24, 2012. 11:49 AM | 2 Likes Like |Link to Comment
  • Silver's Rise Will Shock Market Participants This Year [View article]
    Gold is about maintaining real purchasing power and it does not appreciate or depreciate - it is fiat currencies that appreciate / depreciate vs. gold. Since 2000, fiat currencies have been depreciating vs. gold given the steadily declining fundamentals in the global economy. I hold 20% of my wealth in physical gold in order to maintain my real purchasing power (i.e. NOT vastly understated CPI data). It has nothing to do with optimism or fear. It's a rational decision based on realism and is simply insurance against the many poor decisions made by policy makers (deficit spending, ZIRP, Fed money printing, etc.).

    The author of a book titled: "Debunking the Hyperinflation of Peter Schiff and the Gold Bugs: A Guide for Investors" is hardly what I would call an "impartial observer". I didn't detect many favorable reviews of your treatise on Amazon and the price of $8.50 makes me think it doesn't offer much value. I now understand that you are simply part of the stocks for the long haul crowd along with Uncle Warren, CNBC, Jeremy Siegel and everybody else in the stock selling business. I've read that story many times before and rejected it in the past as well.

    Au revoir
    Mar 7, 2012. 11:06 PM | 1 Like Like |Link to Comment
  • Silver's Rise Will Shock Market Participants This Year [View article]
    I'm sure you rejected the rebuttal before you even finished the first sentence. It's too bad your takeaway was "lot's of nice sounding language". Also, your medium of exchange critique is the epitome of semantics. You can't pay for groceries in the U.S. with Euros, but you can certainly exchange Euros for U.S. Dollars in order to buy those groceries. The same applies for Gold and other precious metals which can be exchanged for fiat currency. Gold has been money and accepted as money for 6,000 years.

    Gold is not an asset, but both a currency as well as an insurance policy against fiat currency abuse. One ounce of gold is worth one ounce of gold. Gold is not "appreciating"; fiat currencies are depreciating relative to gold. This makes perfect sense based on simple supply & demand (the supply of fiat currencies is growing much faster than the supply of hard currency, i.e. gold).

    Your conclusions regarding the performance of gold post 1980 and Volcker is also flawed. The price of gold (and the value of most real assets - oil, agricultural commodities, etc.) got crushed because of a huge increase in REAL interest rates. Current real interest rates are negative and this will not change for the foreseeable future given U.S. sovereign debt of $16 trillion and huge budget deficits as far as the eye can see. I don't see a change in the fundamentals for gold until real interest rates once again become positive which is not in Bernanke's DNA.

    "It's difficult to get a man to understand something when his job depends on not understanding it."

    Upton Sinclair
    Mar 7, 2012. 09:47 AM | Likes Like |Link to Comment
  • Silver's Rise Will Shock Market Participants This Year [View article]
    Sounds like you and Warren are in the same camp when it comes to discrediting ownership of physical gold and silver. The rebuttal can be find here:
    Mar 5, 2012. 04:31 PM | Likes Like |Link to Comment
  • Forecast Fatigue: What's The Value Of Annual Market Projections? [View article]
    What's the value of annual market projections? ZERO!

    "There are two kinds of forecasters: those who don't know and those whot don't know they don't know."

    John Kenneth Galbraith
    Jan 26, 2012. 12:28 PM | Likes Like |Link to Comment
  • 7 Stocks That Will Outperform In 2012 [View article]
    "Why do you say the world economy has never been in so much trouble? China, the 2nd largest economy, is booming."

    Ray Dalio and Jim Chanos would vehemently disagree with your statement and that the problems in "certain European countries" are contained, but what do they know.
    Jan 16, 2012. 10:47 AM | Likes Like |Link to Comment
  • Paul Frank Positions For 2012: Sticking With U.S. Equities For Now [View article]
    Paul: I had a question regarding calculation of the Sharpe Ratio for ETFOX. Your website shows a Sharpe Ratio of 3.53 based on a 60-month (5-year) rolling period ending 9/30/11. Yahoo Finance shows a Sharpe Ratio of 0.21 for the 5-year period ended 11/30/11. I wouldn't think that a two month difference in the time periods would change the results that dramatically.

    I also noticed that Yahoo Finance shows Alpha for ETFOX of 3.63 over five years so maybe it's just a typographical error on your website (Sharpe Ratio is actually the calculation of Alpha).

    Any thoughts?
    Dec 26, 2011. 11:20 PM | 1 Like Like |Link to Comment
  • Investors Flee Berkowitz's Fairholme Fund; They Should Be Piling in [View article]
    Berkowitz and Fairholme have an outstanding long-term track record. A significant driver of that performance was due to significantly undeweighting financials during the 2006-2009 time frame, unlike many other traditional value investors. At the time, Berkowitz stated that he avoided the financials because the balance sheets were unintelligible. My question is why Berkowitz believes there is so much more transparency today when it comes to evaluating the balance sheets of financials? While disclosure has improved somewhat, the banks have just kicked the can down the road when it comes to addressing the pocks on their respective balance sheets and have simply benefited from suspension of mark-to-market, ZIRP and an effectively a put from the Ben Bernanke. If you believe that financials are "special" (like BB says they are) and significantly undervalued then you should allocate a significant amount of $$$$ to Fairholme. While I respect Berkowitz, my view and outlook for the banks is much more cautious.
    Jul 6, 2011. 11:27 AM | 3 Likes Like |Link to Comment
  • Paul Frank: Cautious on Emerging Markets, Bullish on Commodity Producers [View article]
    Paul: Thanks for your comments. Obviously, the fund's benchmark must remain consistent over time unless the investment mandate changes substantially. Managers like to use the S&P 500 since it is accepted by the general investing public as "the market". My point is simply that the S&P 500 Index while widely recognized is NOT the proper benchmark for evaluating performance and alpha generation of ETFOX given the composition of the portfolio. I only used the S&P 400 Mid-Cap as an example given your large allocation to mid-cap equities. Similar to my previous statement, the S&P 400 on a standalone basis would NOT be the proper index for evaluating ETFOX.

    Some type of "World Index" might be more helpful, but I still think a customize benchmark would be the most appropriate (I think this is true for 90%+ of managers if you really want to determine what level of alpha has been generated). I would argue that both Morningstar's and Lipper's designation of Large Growth and Multi-Cap Core, respectively, are misleading at best and essentially worthless. Unfortunately, these entities have a rigid system where everything must fit into a style box.

    At the end of the day, you have to use the benchmark that you and your advisers as well as the regulators deem appropriate. I have no opinion on the risk-adjusted, after-tax return stream of ETFOX. I simply prefer to take a more rigorous and analytic approach to evaluating investment performance.
    Dec 30, 2010. 04:16 PM | 1 Like Like |Link to Comment
  • Paul Frank: Cautious on Emerging Markets, Bullish on Commodity Producers [View article]
    It is my opinion that much of the fund's outperformance ("alpha") can be attributed to "benchmark arbitrage" (i.e. the S&P 500 is not the proper benchmark for evaluating performance of ETFOX). A customized benchmark of weighted indices across various asset classes and geographies would be much more appropriate. Examining performance in 2010 makes my point:

    ETFOX +18.8%
    S&P 500 +12.9% (large-cap benchmark)
    S&P 400 +25.6% (mid-cap benchmark)

    The fund has handily beaten the S&P 500 in 2010, but has significantly lagged the mid-cap benchmark. Regardless of the stated investment goals of the fund, I think it is inappropriate to use the S&P 500 (large-cap) as your benchmark if you are primarily investing in mid-cap and small-cap equities. I am not singling out this manager as this practice is rampant in the investment management industry.
    Dec 30, 2010. 11:09 AM | 2 Likes Like |Link to Comment
  • Municipal Bonds: Apocalypse Now or Buying Opportunity? [View article]
    Actually, the increase would be 66.7%. Currently, IL has a flat tax rate of 3.0% so a 2.0% increase would raise the rate to 5.0%.

    5.0% / 3.0% - 1 = 66.7%
    Dec 25, 2010. 08:25 AM | 1 Like Like |Link to Comment
  • WSJ Reports New Jersey Pension Deficit at $54 Billion - Actual Deficit $174 Billion; Illinois, California, New Jersey Among Worst States [View article]
    I was interested to analyze the MV of unfunded pension liabilities on a per capita basis. AK is the worst at $19,712 per capita while NE was the best at "only" $3,833 per capita. Used the state population totals from the recent 2010 census.
    Dec 24, 2010. 12:34 PM | 2 Likes Like |Link to Comment
  • The Correction Is Likely Over...It's Now Time to Chase Beta [View article]
    And if you are a hedge fund, convince your investors that the "beta" is really "alpha" so you continue to get paid 2 & 20.....
    Jul 26, 2010. 09:17 AM | Likes Like |Link to Comment
  • High Conviction: This Stock Pick Won Cara Goldenberg Dinner With Warren Buffett [View article]
    So the $4.00 EPS in 2014 that was quoted in the original article was incorrect? I assume this was a mistake made by the interviewer / editor and the article was not fact checked before it was posted. It appears that the article has been corrected / edited for this mistake. Are their any other factual errors in the original article?

    "Roll-up" strategies (serial acquirers) end badly on most occasions. As the company grows, management is forced to make ever larger acquisitions and at ever increasing multiples. This is why acquisitions usually destroy shareholder value.
    Mar 2, 2010. 07:02 PM | 2 Likes Like |Link to Comment