Joel Greenblatt quote (valuation)

“…generally, if you have done good valuation work, 98 percent of the time, two or three years is enough time for the market to agree with you. That is a very powerful concept. It gives you patience. Of course, if you do poor valuation work, you can get into trouble. But if you stick to things you understand well, do good valuation work, give yourself a wide margin of safety, and have confidence in your work, eventually, you will end up doing quite well.” –Joel Greenblatt (as quoted in the book Hedge Fund Market Wizards)

Steve Keen Presentation on Canada's Debt Bubble

Keen’s description:

“Below is the talk I gave to the Canadian Centre for Policy Alternatives on the Debt Bubble and its implications for Canada. I cover my Minskian analysis of the Depression in general, and conclude with data on the Canadian economy. The mortgage acceleration data in particular implies that the Canadian house price bubble–which is not as big as those in Australia, the USA or the UK–is close to being over.”

Link

GR-NEAM Reflections: 07/01/2012 - Long Journey, Map Provided

Debt reduction in advanced economies will persist for years, but is underway in a number of cases. The latest data on the U.S. household sector confirms our long standing assessment that growth is essential to reducing debt loads relative to incomes. Most of the delevering of the U.S. household sector is occurring through growth of the denominator in the debt to GDP ratio, with the numerator--actual debt reduction--playing a minor role.

Paulson Forgoes Prognostication As Greatest Trade Sequel Flops

John Paulson, founder of Paulson & Co., one of the world’s largest hedge funds, has close-cut black hair, dark eyes and a soft voice. There’s a fuss when he arrives, befitting a man who made one of the biggest fortunes in Wall Street history, as his general counsel and PR consultant jostle for seats next to him.

Paulson’s decision to buy credit-default insurance against billions of dollars of subprime mortgages before the market collapsed in 2007 earned him almost $4 billion personally and transformed him from an obscure money manager into a financial legend, Bloomberg Businessweek reports in its July 2 issue. Then came the kind of disastrous run that can unmake a career. In 2011 he lost billions.

Steve Keen on the Keiser Report

Keen comes in around the 13 minute mark.


Link

Marc Andreessen on Charlie Rose

Link to: Marc Andreessen on Charlie Rose

A Con Man Who Lives Between Truth and Fiction - By Andrew Ross Sorkin

Found via Santangel’s Review.

“I’m a proven liar. Don’t believe anything I say.”

That was what Samuel Israel III told me last week. He is the hedge fund manager convicted of running a $450 million Ponzi scheme who faked his own suicide in the summer of 2008 to avoid his prison sentence before turning himself in after a worldwide manhunt.

He was sitting across from me in the visiting center of the Butner prison complex, about 45 minutes north of Raleigh in eastern North Carolina. (Bernard L. Madoff is in the same complex.)

Mr. Israel, 52, who is serving a 22-year sentence, was wearing a tan prison uniform with his hair grown out, a mass of silver and brown curls sprouting from the sides of his bald head. (“I’m never going to cut it until I get out,” he exclaimed.)

I was there to talk to him because his story is a cautionary tale of the highly sophisticated, often endemic, fraud that still lurks on Wall Street. People I spoke with who dealt with him are still mystified about the breach of trust and how no one had a clue about his deception until it was too late.

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Related book: Octopus: Sam Israel, the Secret Market, and Wall Street’s Wildest Con

Manual of Ideas Interview Excerpts with Brian Bares and Pat Dorsey

Link


Link

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Related books:

The Small-Cap Advantage

The Little Book That Builds Wealth

Harvard Paper - Oil: The Next Revolution

Found via Canadian Value Investing.

Oil - The Next Revolution

Are Individual Investors Fleeing Stocks? Nope – By Jason Zweig

A new report from Vanguard Group casts some doubt on the meme that retail investors have been fleeing stocks like rats from a sinking ship.

The report, “How America Saves,” is the latest installment in Vanguard’s annual survey of the more than 3 million Americans who participate in retirement plans administered by the giant fund company.

To be sure, this year’s study (encompassing data from 2011) shows that the proportion of assets in retirement plans invested in stocks fell three percentage points from last year and is down eight points from its peak in 2007. But that still leaves 65% in stocks – versus 17% in cash and 10% each in bonds and balanced funds.

While the financial commentariat would have you believe that retail investors have been yanking their last farthings out of the stock market, the folks in Vanguard’s huge sample of retirement savers still have two-thirds of their money riding on stocks.

The story gets more interesting when you look beyond people’s balances to see what they are doing with the contributions from their current paychecks. Fully 71% of that money is going into stocks, reports Vanguard – up one percentage point from 2010 and three points higher than in 2009.

If this is “the death of equities,” the funeral seems extraordinarily well-attended.

Japan’s Economy in 2012: Multiple Challenges - By Vaclav Smil

“Adding insult to injury” sounds like a lawyerly phrase compared to its painfully evocative Japanese equivalent 泣面に蜂 nakitsura ni hachi -- literally “a bee to a crying face”. But even that stinging proverb fails to convey what Japan has been through during the recent past. In March 2011 its economy, slowly recovering from the worst global post-World War II downturn, was hit by a powerful earthquake followed by a massive tsunami. That twin disaster disrupted many supply chains of Japan’s important manufacturing sector and caused a catastrophic failure of the Fukushima nuclear power plant; the ensuing fears led to the eventual shut-down of all of the country’s nuclear generating stations, limited electricity supply, increased imports of fossil energies and the first annual foreign trade deficit in a generation.

But even without these setbacks the country’s record during the past two decades would stand in sharp contrast to its 35 year-long rise from post-WW II destruction (pre-war GDP was equalled only in 1954) to the world’s second largest economy whose accomplishments by the 1980s were widely seen as a foundation for further advances toward possible global leadership in the 21st century. Japan’s economic face has not been smiling for more than two decades, since the early months of 1990 when the bursting of the real estate bubble and the falling stock market exposed the fragility of those seemingly solid pre-1990 achievements and ushered in decades of stagnation and uncertainty.

Warren Buffett to Fired CEO: Boat Party Didn't Sink You

Thanks to Will for passing this along. [Update: The letter is posted HERE.]

Warren Buffett says he didn't fire Benjamin Moore's CEO because he spent company money on a yacht party in Bermuda for top executives at the Berkshire Hathaway subsidiary.

Dow Jones reports that in a June 21 letter he sent to Denis Abrams, Buffett wrote:

"The recent story coupling a top management convocation on a boat with the decision to make a management change at Benjamin Moore is completely false."

In fact, Buffett told the fired CEO that he would have had "no objection at all" to the party if he'd been asked beforehand and "there was no reason" to let him know about the event in advance.

Instead, Buffett writes, the decision was "based on a differing view about distribution channels and brand strategy... It was a decision of key importance and therefore one I needed to make."

Bill Gross – July 2012 Investment Outlook: What’s In A Name?

Not only banks and insurance companies but sovereign nations as well cannot all be counted on to guarantee a return of principal, let alone a return on investment.

An authentic debt crisis – which the world is now experiencing – can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away.

There are very few clean dirty shirts in this world. Timing in investment markets is critical and at the moment the U.S. is considered to be the cleanest.

Warren Buffett & Jon Bon Jovi: A Ukulele Duet For Charity

Found via the Corner of Berkshire & Fairfax.


Link

JPMorgan Trading Loss May Reach $9 Billion

Losses on JPMorgan Chase’s bungled trade could total as much as $9 billion, far exceeding earlier public estimates, according to people who have been briefed on the situation.

When Jamie Dimon, the bank’s chief executive, announced in May that the bank had lost $2 billion in a bet on credit derivatives, he estimated that losses could double within the next few quarters. But the red ink has been mounting in recent weeks, as the bank has been unwinding its positions, according to interviews with current and former traders and executives at the bank who asked not to be named because of investigations into the bank.

Jim Chanos and Kynikos: idea generation starts with partners, not analysts

From the book The Alpha Masters:

“Chanos thinks pattern recognition is important and something that simply takes experience, which is one reason why he tasks the firm’s partners with originating the ideas. The partners have extensive experience in seeing patterns in odd-looking financial or press statements, for example. Through their mosaic of experience and wisdom, they are in the strongest position to decide what strategies to explore and not get distracted by the markets’ daily vagaries. Once a partner identifies an idea to pursue, the analysts process the idea, compiling the research to validate or disprove the thesis.”

Competing With Amazon on Amazon

Thousands of small merchants depend on Amazon.com Inc. to reach customers who otherwise wouldn't know they exist. A few of them complain, though, that Amazon sometimes eats their lunch.

According to some small retailers, the Seattle-based giant appears to be increasingly using its Marketplace—where third-party retailers sell their wares on the Amazon.com site—as a vast laboratory to spot new products to sell, test sales of potential new goods, and exert more control over pricing.

Stockton, CA files for bankruptcy

In opting to become the nation's largest city to seek federal bankruptcy protection, this river port of 290,000 took a rare financial step of last resort after struggling with the economic downturn, soaring pension costs and contractual obligations.

Thirteen cities, counties and other government entities filed for bankruptcy protection last year — the highest annual level in nearly two decades. Stockton was the seventh U.S. municipality to file this year and the first California city since Vallejo, which sought protection in 2008, according to James Spiotto, a Chicago bankruptcy attorney who tracks municipal bankruptcies.

"Filing bankruptcy is time-consuming, expensive and complicated," said Spiotto, noting that Vallejo spent millions of dollars alone on attorneys and other bankruptcy professionals. "And you never get the results you desire."

That's why experts are divided on whether other financially struggling cities, towns and other government entities will follow Stockton to bankruptcy court. Spiotto said it will be hard and expensive for Stockton to obtain financing.

Others say bankruptcy comes with non-monetary costs, too.

Jim Chanos’ VALUEx Vail Presentation on Value Traps

Found via ValueWalk.

98208144 VALUExVail 2012 James Chanos

Joel Greenblatt quote (thinking about the market)

“I think the difference between those who succeed and those that fail is how they think about the market. Everyone is bombarded every day with price movements, explanations for those price movements, macro events, and lots of other information. You need a methodology to cut through all that information and see things as they are.” –Joel Greenblatt (as quoted in the book Hedge Fund Market Wizards)

The False Allure of Group Selection - By Steven Pinker

I am often asked whether I agree with the new group selectionists, and the questioners are always surprised when I say I do not. After all, group selection sounds like a reasonable extension of evolutionary theory and a plausible explanation of the social nature of humans. Also, the group selectionists tend to declare victory, and write as if their theory has already superseded a narrow, reductionist dogma that selection acts only at the level of genes. In this essay, I'll explain why I think that this reasonableness is an illusion. The more carefully you think about group selection, the less sense it makes, and the more poorly it fits the facts of human psychology and history.

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Art De Vany also thought it was a great article, and gave a few thoughts and passages on it in a public post on his site:

Unconditional self-sacrifice for a group does not exist, nor could it have evolved. Yet, self-sacrifice and appeals to altruism or fairness are the primary themes of our present political debate. Group selection cannot explain fairness as a basis for human society and self-sacrifice.

Consider Pinker's discussion of individual sacrifice. It is manipulation of one member of the group by others. And it relies on a false or manipulated conception of a group of "us" versus "those".

"What about the ultimate in individual sacrifice, suicide attacks? Military history would have unfolded very differently if this was a readily available tactic, and studies of contemporary suicide terrorists have shown that special circumstances have to be engineered to entice men into it. Scott Atran, Larry Sugiyama, Valerie Hudson, Jessica Stern, and Bradley Thayer have documented that suicide terrorists are generally recruited from the ranks of men with poor reproductive prospects, and they are attracted and egged on by some combination of peer pressure, kinship illusions, material and reputational incentives to blood relatives, and indoctrination into the theory of eternal rewards in an afterlife (the proverbial seventy-two virgins).[19] These manipulations are necessary to overcome a strong inclination not to commit suicide for the benefit of the group."

Then, to conclude, consider Pinker's discussion of how powerful individuals use compensation, coercion and indoctrination in group-against-group competition, which perfectly describes the present political strategy of incentivizing and manipulating groups used by our politicians.

"The historical importance of compensation, coercion, and indoctrination in group-against-group competition should not come as a surprise, because the very idea that group combat selects for individual altruism deserves a closer look. Wilson's dictum that groups of altruistic individuals beat groups of selfish individuals is true only if one classifies slaves, serfs, conscripts, and mercenaries as "altruistic." It's more accurate to say that groups of individuals that are organized beat groups of selfish individuals. And effective organization for group conflict is more likely to consist of more powerful individuals incentivizing and manipulating the rest of their groups than of spontaneous individual self-sacrifice."

Sir Mervyn King issues gloomy financial forecast

Bank of England Governor Sir Mervyn King has said he is "pessimistic" over the chances for a eurozone recovery and warned Britain is still not halfway through the financial crisis.

In a gloomy Treasury Select Committee hearing, Sir Mervyn braced Britons for at least another five years of pain as he saw no sign yet of an end to the global financial woes.

The Bank chief told MPs he was "struck" by the speed at which the economic outlook was deteriorating as the eurozone crisis deepened, with conditions now worsening in previously booming areas such as Asia and other emerging markets.

He said he was "pessimistic and particularly concerned" as the problems in Europe continue without any decisive action.

Sir Mervyn added nobody expected the financial crisis that began in 2007 to have lasted so long, but said: "I don't think we're halfway through it".

He added: "My estimates of how long it will take to recover is expanding all the time."

Jeremy Grantham: US Stocks are Expensive and Bonds are Disgusting

Jeremy Grantham, who has consistently identified overpricing in the US equity markets – he flagged both the Dot Com bubble and the irrational pricing that preceded the financial crisis, for instance – said last week that US stocks are “a little expensive” and bonds are “disgusting.”  But his sternest warning to investors concerned the longer-term threat posed by global resource constraints.

Abnormally high corporate profits are the primary reason for Grantham’s contention that stocks are overvalued.  Reversion to the mean is the core expectation that undergirds his firm’s investment philosophy, and when profit margins revert to their historical averages, he argued, investors will suffer weak returns.

Grantham is the co-founder and chief investment strategist of Grantham Mayo van Otterloo (GMO), the Boston-based asset manager.   His was one of the keynote presentations at last week’s Morningstar Investment Conference, held in Chicago.

Not-So-Crazy in Tehran – By Nicholas Kristof

I highly recommend the video that accompanies this article.

Link to: Not-So-Crazy in Tehran

Nigel Farage on King World News

Link to: Nigel Farage on King World News

Joel Greenblatt quote (6% minimum return)

“I always assume that my minimum bogie is at least a 6 percent return, even if interest rates are near zero, as they are now. Moreover, I have to beat 6 percent by a measurable amount because the assumption is that the 6 percent is risk-free. So I wouldn’t take 8 percent, unless I have high confidence that it will grow over time. I need a “margin of safety,” as Graham would say. I compare normalized earnings to the risk-free rate or 6 percent, whichever is higher.” –Joel Greenblatt (as quoted in the book Hedge Fund Market Wizards)

Bank for International Settlements' 82nd Annual Report: 1 April 2011– 31 March 2012

Some light reading…

Link to: 82nd Annual Report: 1 April 2011– 31 March 2012

Reith Lecture: 'We’re mortgaging the future of the younger generation' – By Niall Ferguson

Critics of Western democracy are right to discern that something is amiss with our political institutions. The most obvious symptom of the malaise is the huge debts we have managed to accumulate in recent decades, which (unlike in the past) cannot largely be blamed on wars.

According to the International Monetary Fund, the gross government debt of Greece this year will reach 153 per cent of GDP. For Italy the figure is 123, for Ireland 113, for Portugal 112 and for the United States 107.

Britain’s debt is approaching 88 per cent. Japan – a special case as the first non-Western country to adopt Western institutions – is the world leader, with a mountain of government debt approaching 236 per cent of GDP, more than triple what it was 20 years ago.

Often these debts get discussed as if they themselves were the problem, and the result is a rather sterile argument between proponents of “austerity” and “stimulus”. I want to suggest that they are a consequence of a more profound malaise.

Simoleon Sense Episode 5: A Conversation with Global Value Investor Jeffrey Towson

Link to: A Conversation with Global Value Investor Jeffrey Towson

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Miguel Barbosa Interviews Jeffrey Towson

John Mauldin: Daddy's Home

I have often said that when someone is appointed to be a member of the Federal Reserve, they are taken into a back room and given a complete DNA change. They simply are not like you and me once they step out of that room, with the exception of Fisher and Lacker and a few colleagues who seem to be able to resist the infection. This week we will look at the recent action of the Fed and use that as a springboard to think about how effective Fed policy can be in an age of deleveraging. And if there is time, we simply must look at Europe. I started this letter in Texas and will finish it this morning in Spain.

Hussman Weekly Market Comment: Enter, the Blindside Recession

In recent months, our measures of leading economic pressures have indicated the likelihood of an oncoming U.S. recession. Our view is based on the analysis of leading/coincident/lagging indicators (see Leading Indicators and the Risk of a Blindside Recession) as well as more statistical signal processing methods that extract "unobserved components" from noisy data (see the note on extracting economic signals in Do I Feel Lucky?). As Lakshman Achuthan at the ECRI has noted on the basis of different but related evidence, the verdict has been in for a while. The interim has been little more than waiting for the coincident data to catch up to the leading evidence that is already in place.

This wait is by no means over. As Achuthan has observed, economic data such as GDP and employment data are heavily revised over time. Very often, the first real-time negative GDP print occurs about two quarters after the recession actually begins. It is only later that the data are revised to show an earlier downturn. For that reason, it's important to pay attention to the joint action of numerous economic data points, rather than selecting any specific indicator as an "acid test." The joint evidence suggests that the U.S. economy has entered a recession that will later be marked as having started here and now.

Bloomberg Interview with George Soros (video)

June 25 (Bloomberg) -- Billionaire investor George Soros speaks about Europe's sovereign-debt crisis. Soros called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting this week to produce drastic measures could spell the demise of the currency. He spoke yesterday with Bloomberg Television's Francine Lacqua in London.

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Related article: How to shift Germany out of ‘can’t do’ mode

Dr. Michael J. Burry at UCLA Economics Commencement 2012

Found via csinvesting.


Link

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UPDATE: Michael Burry released a transcript of the speech HERE.

Joel Greenblatt quote

“Value investing doesn’t always work. The market doesn’t always agree with you. Over time, value is roughly the way the market prices stocks, but over the short term, which sometimes can be as long as two or three years, there are periods when it doesn’t work. And that is a very good thing. The fact that our value approach doesn’t work over periods of time is precisely the reason why it continues to work over the long term.” –Joel Greenblatt (as quoted in the book Hedge Fund Market Wizards)

60 Minutes: Hank Crumpton: Life as a spy

Link

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Related link: Hank Crumpton on Charlie Rose (June 11, 2012)

Related book: The Art of Intelligence: Lessons from a Life in the CIA's Clandestine Service

Authors@ Jonah Lehrer on The Science of Creativity

Found via Farnam Street.


Link

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Related book: Imagine: How Creativity Works

Matthew McLennan on CNBC

Link

Nassim Taleb’s May 30th Interview

Found via @farnamstreet.

Link to: Nassim Taleb’s May 30^th Interview

Risk Takers: Meredith Whitney (Bloomberg TV)

June 21 (Bloomberg) -- An in-depth profile of one of Wall Street's most controversial and respected financial analysts.

Chanticleer Holdings, Inc.

As some readers have noticed, Chanticleer Holdings (my employer) had an S-1 outstanding to raise capital to pursue some of the things we have on the table. Some have also noticed the connection between this and our response to an interview question we gave last year to the publication The Manual of Ideas, which is pasted below:

MOI: As a publicly traded company, Chanticleer Holdings is on the radar screen of many value investors. However, the company’s small size makes it difficult to get involved in a meaningful way. Have you considered raising additional equity within Holdings, or are you focused primarily on expanding the assets managed by your Advisors subsidiary?

Chanticleer: We think about this quite a bit and have raised a little additional equity along the way. We can’t get into too many details being that we are public, but we’d be willing to raise more equity if we can find the right things to put that equity into. In 2008 we actually had an opportunity to acquire two Hooters franchisees that was disrupted by the financial crisis. We are always looking and, as one might imagine, some new opportunities have come up with the name recognition that came with having our name attached to the Hooters of America deal. But as for specifics, we can’t really go into much more.

I’m pleased to announce that the raise has been completed. For those that have been following Chanticleer, the ticker symbol for the units is HOTRU. The units will eventually split and the stock and warrants will trade separately. The new ticker symbol for the stock by itself is HOTR. Mike Pruitt, Chanticleer’s CEO, will be ringing the closing bell at the Nasdaq on Tuesday of next week, along with a few special guests. A full press release announcing the offering is available HERE. The prospectus is available HERE.

Disclosure: This post is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chanticleer Investment Partners ("CIP") or any other entities related to or owned by Chanticleer Holdings, Inc.

Tom Russo Barron's Interview

Found via Canadian Value Investing.

When it comes to industries like tobacco, beer, and spirits, few investors are better versed than Thomas Russo.

A partner at Gardner Russo & Gardner in Lancaster, Pa., Russo manages $5 billion, including the $500 million Semper Vic partnership that has generated a compound annual return of 12.3% since 1992, versus 8.3% for the S&P 500 index.

Russo is a believer in companies like Nestlé, Brown-Forman, Heineken Holding, Philip Morris International, Richemont, and Unilever, many of which he has owned for more than two decades.

Also a longtime holder of Berkshire Hathaway, Russo shares Warren Buffett's fondness for companies with great brands and international opportunities that can generate steady growth over long periods. Russo runs a concentrated portfolio with low turnover, and passionately follows his investments. Want to know about the Chinese liquor market, or the sub-Saharan beer business? Russo is your man. Barron's recently asked him what global brands have cachet and staying power, and why he favors some European companies over their American counterparts.

Steven Romick on CNBC

Link

Howard Marks Memo: It’s All a Big Mistake

Mistakes are a frequent topic of discussion in our world.  It’s not unusual to see investors criticized for errors that resulted in poor performance.  But rarely do we hear about mistakes as an indispensible component of the investment process.  I’m writing now to point out that mistakes are all that superior investing is about.  In short, in order for one side of a transaction to turn out to be a major success, the other side has to have been a big mistake.

There’s an old saying in poker that there’s a “fish” (a sucker, or an unskilled player who’s likely to lose) in every game, and if you’ve played for an hour without having figured out who the fish is, then it’s you.  Likewise, in every investment transaction you’re part of, it’s likely that someone’s making a mistake.  The key to success is to not have it be you.

Usually a buyer buys an asset because he thinks it’s worth more than the price he’s paying.  But the seller sells the asset because he thinks the price he’s getting exceeds its value.  It’s pretty safe to say one of them has to be wrong.  Strictly speaking, that doesn’t have to be true, thanks to differences in things like tax status, timeframe and investors’ circumstances.  But in general, win/win transactions are much less common than win/lose transactions.  When the dust has settled after most trades, the buyer and seller are unlikely to be equally happy.

I consider it highly desirable to focus on the topic of investing mistakes.  First, it serves as a reminder that the potential for error is ever-present, and thus of the importance of mistake minimization as a key goal.  Second, if one side of every transaction is wrong, we have to ponder why we should think it’s not us.  Third, then, it causes us to consider how to minimize the probability of being the one making the mistake.

Joel Greenblatt quote

“The power of value investing flies in the face of anything taught in academics. Value is the way stocks are eventually priced. It requires the perspective of patience because the market will eventually gravitate toward value.” –Joel Greenblatt (as quoted in the book Hedge Fund Market Wizards)

Fracking: How It Works, Where It’s Done

Link to slideshow: Fracking: How It Works, Where It’s Done

Julian Robertson on Bloomberg (video)

June 20 (Bloomberg) -- Julian Robertson, founder of Tiger Management LLC, talks about investment strategy, the hedge-fund industry and the European debt crisis. Robertson speaks with Tom Keene, Scarlet Fu and Sara Eisen on Bloomberg Television's "Surveillance."

Interview with Howard Marks – by David Merkel

Found via ValueWalk.


Link

The Truth Wears Off – By Jonah Lehrer

This article was mentioned in the book The Creative Destruction of Medicine. The book also mentioned the article “Why Most Published Research Findings Are False”, which Peter Bevelin brought up in my 2009 interview with him.

Before the effectiveness of a drug can be confirmed, it must be tested and tested again. Different scientists in different labs need to repeat the protocols and publish their results. The test of replicability, as it’s known, is the foundation of modern research. Replicability is how the community enforces itself. It’s a safeguard for the creep of subjectivity. Most of the time, scientists know what results they want, and that can influence the results they get. The premise of replicability is that the scientific community can correct for these flaws.

But now all sorts of well-established, multiply confirmed findings have started to look increasingly uncertain. It’s as if our facts were losing their truth: claims that have been enshrined in textbooks are suddenly unprovable. This phenomenon doesn’t yet have an official name, but it’s occurring across a wide range of fields, from psychology to ecology. In the field of medicine, the phenomenon seems extremely widespread, affecting not only antipsychotics but also therapies ranging from cardiac stents to Vitamin E and antidepressants: Davis has a forthcoming analysis demonstrating that the efficacy of antidepressants has gone down as much as threefold in recent decades.

For many scientists, the effect is especially troubling because of what it exposes about the scientific process. If replication is what separates the rigor of science from the squishiness of pseudoscience, where do we put all these rigorously validated findings that can no longer be proved? Which results should we believe? Francis Bacon, the early-modern philosopher and pioneer of the scientific method, once declared that experiments were essential, because they allowed us to “put nature to the question.” But it appears that nature often gives us different answers.

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Related article: Lies, Damned Lies, and Medical Science

Jim Chanos quote

From the Graham and Doddsville Newsletter - Spring 2012, in response to a question about mistakes analysts make:

“One of the biggest things I see quite often is getting too close to management. We never meet with management. For all of the bad asymmetries of being on the short side, one of the good asymmetries is that we don’t rely on the company. We can get information from the company if we want to, as we can go through the sellside. Those that are long the stock and are close to the company almost never hear the negative side in any detail. The biggest mistake people make is to be co-opted by management. The CFO will always have an answer for you as to why a certain number that looks odd really is normal, and why some development that looks negative is actually positive.” –Jim Chanos

Hedge Fund Manager James Chanos on His Big Short Position in China

Excerpt from the book The Alpha Masters (the Ray Dalio chapter of that book is also available HERE).

"We certainly weren't the first on this idea," Chanos tells me at his offices in April of 2011 about the biggest short position of his life: The People's Republic of China. Chanos first spoke publicly about his grand stake in China over a year and a half ago on CNBC's Squawk Box in December 2009. "Right now, we're as bearish on China as we've ever been," he says. He followed that with a presentation at St. Hilda's College, Oxford in January 2010, "The China Syndrome: Warning signs ahead for the global economy."

David Weidner: So long, suckers — I’m leaving Wall Street

After covering the tobacco industry for three years in North Carolina, I moved to New York in 1997 to cover a really dirty business: Wall Street.

Fifteen years after I made that switch, I’m moving on again. More on that in a moment.

Wall Street, like just about everything else, including me, has changed a lot in that time. Also, it hasn’t changed a bit. What follows are 15 takeaways from my time living in New York and covering the financial industry and the markets.

Forget Edison: This is How History's Greatest Inventions Really Happened

Found via @farnamstreet.

The world's most famous inventors are household names. As we all know, Thomas Edison invented the light bulb, Alexander Graham Bell invented the phone, and Eli Whitney invented the cotton gin.

Except they didn't. The ideas didn't spring, Athena-like, fully formed from their brains. In fact, they didn't spring fully formed from anybody's brains. That is the myth of the lonely inventor and the eureka moment.

"Simultaneous invention and incremental improvement are the way innovation works, even for radical inventions," Mark A. Lemley writes in his fascinating paper The Myth of the Sole Inventor. Lemley's paper concentrates on the history and problems of patents. But he also chronicles the history of the 19th and 20th century's most famous inventors -- with an emphasis on how their inventions were really neither theirs, nor inventions. Here is a super-quick summary of his wonderful distillation of the last 200 years in collaborative innovation.

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Related article: “In the Air” – By Malcolm Gladwell

Business Insider: Mary Meeker's Latest Stunning Presentation About The State Of The Web

Thanks to Shai for passing this along.

No one in the entire world is as good at summarizing the state of the technology business through slideshow presentations as Kleiner Perkins partner Mary Meeker.

She's about to do it again at the All Things D conference.

We have the presentation.

Meredith Whitney on Bloomberg (video)

June 19 (Bloomberg) -- Meredith Whitney, founder and chief executive officer of Meredith Whitney Advisory Group, talks about the outlook for financials, the U.S. economy and JPMorgan Chase & Co.'s trading loss. Whitney speaks with Tom Keene, Ken Prewitt, Sara Eisen and Scarlet Fu on Bloomberg Television's "Surveillance."

Do not put your faith in the false deities of economists

Found via The Big Picture.

Economics is a faith-based pursuit forever in search of a new deity. Those who believe in a compassionate God struggle to explain how such a being can allow such terrible misery to be inflicted on life’s innocents. Belief in the canons of economics demands a comparable leap of imagination.

"Why Nations Fail: The Origins of Power, Prosperity and Poverty" -- Daron Acemoglu

Found via csinvesting.


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Book: Why Nations Fail: The Origins of Power, Prosperity, and Poverty

Small Banks Put Up 'For Sale' Sign

Thanks to Will for passing this along.

Edward McKeon, chief executive of Western Reserve Bank in Medina, Ohio, was so fed up with new regulations that he jumped at the chance to sell the two-branch lender when a local rival recently made a lucrative offer.

"When I hand them the keys and walk out, I'm going to be on the beach with a margarita," says Mr. McKeon, who this month announced the sale of Western Reserve to Westfield Bancorp., a unit of Ohio Farmers Insurance Co.

Mr. McKeon may have some company on the sand.

A growing number of tiny community banks are deciding it's time to put out the "for sale" sign. Like Mr. McKeon, many executives of these small lenders are frustrated by costly, new regulations. Other bankers are throwing in the towel because their companies have limited growth prospects in a period of weak loan demand, low interest rates and thinning profit margins.

With more than 90 deals announced so far this year, 2012 is shaping up to be the biggest year—as measured by number of deals—for bank mergers since 2007, when there were 286 transactions.

Howard Marks on CNBC

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Welling on Wall St. Interview with Bob Rodriguez

Found via the Corner of Berkshire and Fairfax.

Link to: Interview with Bob Rodriguez

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Related previous posts:

John Mauldin's Outside the Box: Face The Music

John Mauldin's Outside the Box: Greatest Moral Hazard, Says Paul McCulley, Is Austerity Here And Now

welling@weeden Interview with Mark Lapolla

Old welling@weeden Interviews

Hussman Weekly Market Comment: A Brief Primer on the European Crisis

With regard to the problems in Europe, investors have taken a great deal of hope from the promise of coordinated central bank "liquidity" operations in the event of deterioration. The problem here, in my view, is that whatever amount of liquidity central banks create, it cannot address the structural problem, which is insolvency and the need to restructure debt of peripheral European governments and the European banking system. Even if liquidity operations help to stabilize the markets, we will quickly return to a pattern of recurring strains. Make no mistake, Europe is in a solvency crisis. Central bank liquidity, coordinated or not, will not solve this problem.

As I noted in March 2008, at a similar point in the crisis cycle: "Think of it this way. A liquidity crisis is when you write a check for more than the amount in your checking account. You suddenly realize that you need to sell a big securities position to cover it, but selling everything at once might only get you "fire sale" prices. In this case, you need a loan for a few weeks to give you time to work out of your securities position. Without that short-term "liquidity," the check might bounce even though you really do have the assets to pay it off. In contrast, a solvency crisis is when the only asset you have to cover that check is an IOU from your Uncle Ernie, who keeps promising "I'll pay you every dime as soon as I win it back on the ponies."

Government always faces a "fiscal constraint" in that spending can only be financed in one of three ways: tax revenue, bond issuance, or money printing. In the "money printing" option, the government first issues debt, but the central bank permanently buys that debt and permanently creates currency. So a permanent purchase of debt by the central bank is effectively a fiscal operation - a solvency operation. In contrast, a liquidity operation involves a temporary purchase of government debt by the central bank, which creates new currency and bank reserves. But to be a liquidity operation, that operation must also be subsequently reversed so the government debt doesn't permanently reside on the central bank's balance sheet, and so that the money supply isn't permanently elevated.

Understanding this, it becomes clear that even coordinated central bank liquidity operations are at best a short-term response to European crisis. Indeed, even money printing by the European Central Bank itself can only address Europe's solvency crisis if it buys peripheral European debt without ever being repaid, and permanently creates new euros to do it. Indeed, at prevailing debt/GDP ratios, it is unlikely that the ECB would ever be able to reverse massive purchases of peripheral European debt without provoking a fresh crisis. It follows that massive purchases of peripheral debt would amount to an implied fiscal transfer from other European countries, since normally, all European countries would share in the "seignorage" revenue from new money creation. Not to mention that EU treaties would have to be changed to allow the ECB to rescue individual countries.

So the idea of a quick fix through ECB printing is an illusion - that solution would still effectively represent a massive fiscal transfer from other European countries, because the creation of new euros would otherwise be able to fund new spending within the Euro zone. Massive, permanent money creation might "save the euro" in its present form, but would also wreck the euro in substance through inflation and depreciation. The political decision is whether the people of Germany and stronger European countries want the euro enough to make permanent fiscal transfers (or permanent currency creation that amounts to the same thing) to peripheral European countries. The real fate of the euro rests with that political decision, not with central banks, and the final decision on that matter will not come without extreme disruption in any event. Maintaining the Euro will require European governments to cede their fiscal sovereignty to a central authority, and that will not be easy unless major disruptions make that choice better than the alternatives. Departing from the Euro would best be done in sequence from stronger-to-weaker (which would free the remaining countries to agree on whatever depreciation and inflation rate they choose), rather than weaker countries first, but any breakup path would be disruptive as well. The realistic perspective here is to accept the likelihood of significant and continuing disruptions from Europe, and to accept various investment risks within that context.

Share Repurchase from All Angles: Assessing Buybacks, No Matter Where You Sit - By Michael Mauboussin

In his latest strategy piece, Share Repurchase from All Angles: Assessing Buybacks, No Matter Where You Sit, Michael Mauboussin discusses the sometimes misused and misunderstood importance of share buybacks to maximize long-term value for shareholders from four distinct points of view: companies, shareholders, prospective shareholders, and the media.

John Mauldin: The Bang! Moment is Here

We know that money is simply flying out of Greek banks. A number of them are clearly insolvent, yet they are meeting demands for withdrawals. Where is the cash coming from? The answer is in the form of yet another acronym from Europe, called the ELA. Is there a limit to this largesse? And politicians are becoming rather snarky (short-tempered, critical, testy, irritable, freaked-out – you fill in the word) with each other. This is what happens when crisis-weary politicians face yet another Greek tragedy, but this time perhaps it will hit even closer to home. Is there anyone left anywhere who has not grown tired of reading about Greece? I am tired of writing about them, yet if we are to understand the sturm und drang, the storm and stress, of Europe, we must begin there. Because, unlike Las Vegas, what happens in Greece most definitely does not stay in Greece.

Nassim Taleb quote (forecast error example)

“While forecast errors have always been entertaining, commodity prices have been a great trap for suckers. Consider this 1970 forecast by U.S. officials (signed by the U.S. Secretaries of the Treasury, State, Interior, and Defense): “the standard price of foreign crude oil by 1980 may well decline and will in any event not experience a substantial increase.” Oil prices went up tenfold by 1980. I just wonder if current forecasters lack in intellectual curiosity or if they are intentionally ignoring forecast errors.” –Nassim Taleb, The Black Swan

Is China Becoming a Mafia State? - John Garnaut

Thanks to Mike for passing this along.


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Marketing to Today's Diner

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Oaktree says Europe will be a mess 'for a long time'

Howard Marks, chairman of alternative asset manager Oaktree Capital, is pessimistic about European economic prospects, but believes the turmoil could throw up some "very exciting" opportunities in real estate.

In a speech at Morgan Stanley Financials Conference in New York this morning, Marks said: “Europe will be big mess for a long time but there are three things I know – I don’t know what is going to happen, nobody else knows what is going to happen and all the experts are predicting different outcomes so 90% of them must be wrong, if not 100%. It is a folly to listen to anyone who say they know what is going to happen and make investments on that basis.”

Can We Reverse The Stanford Prison Experiment?

Thanks to Andrew for passing this along.

When I met for lunch with Dr. Phil Zimbardo, the former president of the American Psychological Association, I knew him primarily as the mastermind behind The Stanford Prison Experiment. In the summer of 1971, Zimbardo took healthy Stanford students, gave them roles as either guards or inmates, and placed them in a makeshift prison in the basement of Stanford University. In just days, the prisoners demonstrated symptoms of depression and extreme stress and the guards had become sadistic. The experiment was stopped early. The lesson? As W. Edwards Deming wrote: "A bad system will defeat a good person, every time." But is the opposite true? I asked Zimbardo, "Can you reverse the Stanford Prison Experiment?"

He answered with a thought experiment referencing the infamous Milgram experiment (where subjects showed such obedience to people in authority that they administered what they believed were fatal electric shocks to patients). Zimbardo, who by an almost unimaginable coincidence went to high school with Stanley Milgram, wondered whether we could conduct a Reverse Milgram Experiment. Could we, through a series of small wins, architect a "slow ascent into goodness, step by step"? And could such an experiment be run at a societal level?

We actually already know the answer:

Felix Zulauf's Market Prognosis - June 2012

Found via Zero Hedge.

There is too much debt in the industrialized world and the financial system is virtually bust.  Real disposable income is stagnating or declining.  Employment participation keeps heading south.  This produces a chain reaction:  Weaker consumer demand in the West weakens manufacturing in places like Asia, which weakens natural-resource producers such as Austrailia or Brazil.

As for the euro, it is a misconstruction. As I said in January, I expect the disintegration to begin in the second half of this year. That should lead the world into financial and economic chaos. My two major themes into 2013 are euro disintegration and China weakness, due to the bursting of a real-estate boom.

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The global economy is weakening cyclically on top of a highly fragile credit system. It is an explosive cocktail. The tower of debt is compounded by the gigantic over-the-counter derivatives market. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. The numbers are mind-boggling. If something goes wrong in the real economy, it could shake the whole credit system dramatically. It is a dangerous situation.

Martin Capital Management Launches First Fund

Elkhart, Indiana-based Martin Capital Management, LLC, has launched its maiden mutual fund, the Martin Focused Value Fund (MFVRX/MFVIX), which will bet undervalued shares of publicly traded U.S. companies.

The fund is managed by firm founder Frank K. Martin and has an expense ratio of 140 basis points. According to Martin, the fund is not compelled to be 100% invested and will even hold a large portion of its portfolio in cash “if we're not finding bargains - or if we feel that global economic threats pose a significant risk to investors' capital.”

“It's silly to invest just to be invested," he stated.

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Related previous posts:

I Cannot Leave the Truth Unknown - By Frank Martin 

Martin Capital Management - 2011 Annual Report

Satyajit Das: Why Germany can't bail out Europe

Germany is indirectly exposed through its support of various official institutions like the European Union (EU), the European Central Bank (ECB), the International Monetary Fund (IMF) and special bail-out funds. As of April 2012, the exposure of ECB alone to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion and rising rapidly, driven by capital flight out of these countries.

German guarantees supporting the European Financial Stability Fund (EFSF) are over euro 200 billion.

Germany’s largest single direct exposures is through the Bundesbank’s euro 644 billion exposure under the Trans-European Automated Real-time Gross Settlement Express Transfer System, or TARGET2, to other central banks in the euro zone. Designed as a payment system to settle cross-border funds flows, surplus countries, like Germany, have been forced to use TARGET2 to finance peripheral countries without access to money markets to fund trade deficits and the capital flight out of their countries. Germany is by far the largest creditor in TARGET2. The Netherlands, Finland and Luxembourg are the other creditors with all other euro-zone countries being net debtors within the system.