Munis in Mind (Part 3)

By | 2014-09-11T15:52:07+00:00 September 30th, 2010|Global Market Update|

What if munis are headed for a meltdown? One of the principal tenets of disciplined investing is, what if you’re wrong. It’s all well and good to have a view of the world that allows you to avoid panicking and stuffing your cash in a mattress—or in T-Bills—but what if your investment outlook is mistaken? With equities, we call it the margin of safety. How much is a business worth when broken up. If the economy tanks, what’s the minimum free cash-flow that the [...]

Munis in Mind (Part 2)

By | 2014-09-05T20:54:32+00:00 September 29th, 2010|Global Market Update|

Munis are not headed for a meltdown. There are many reasons to be concerned about the muni market. Fraudulent disclosure on the part of the issuers, fraudulent bid-rigging on the part of correspondent banks, fraudulent off-balance sheet transactions on the part of municipal employees—you get the picture. But the criminal actions of a few public officials do not taint the entire $2.3 trillion dollar market. Credit is a multifaceted thing. Rigorous analysis evaluates the borrower’s liquidity, solvency, efficiency, credibility, and growth. In plain language: [...]

Muddle in the Middle Kingdom

By | 2014-09-05T20:52:57+00:00 September 28th, 2010|Global Market Update|

Where is China going? The conventional wisdom seems to be, anywhere it wants. China is now the world’s second largest economy, and if it continues to grow 6% faster than the US, it will be bigger than the US economy in 15 years. But the past isn’t prologue. While many expect China to run everything, in China they’re running scared. They’ve had an investment led economy ever since Deng Xiaoping broke with Mao’s orthodoxy in 1978. Investment-led economies can and do grow at elevated [...]

Munis in Mind (Part 1)

By | 2014-09-11T15:52:39+00:00 September 28th, 2010|Global Market Update|

Are we headed for a municipal meltdown? That’s what Meredith Whitney thinks. The former Oppenheimer analyst who correctly predicted Citibank’s demise has released a 600-page report in which she claims that municipal finance is the next sub-prime bubble. In the report she evaluates the finances of the fifteen largest states—representing two-thirds of the US economy—and finds them wanting. She doesn’t expect the states to default, but she does think that they will reduce their transfer payments to cities and towns. Since those governments are [...]

Present at the Creation

By | 2014-09-05T20:52:14+00:00 September 27th, 2010|Global Market Update|

Welcome to the tablet wars. New products come and go. Some seem destined for the trash bin within hours. Remember “Tickle-Me Elmo?” But some are truly game-changers, and alter our lives in a fundamental way. Such has been the case with the tablet computer. While “Tablet” may be the category, the iPad is the product everybody knows. And when it comes to tablets, there’s the iPad and there’s everyone else. Yes, it’s grating to have to go through the iStore for every file you [...]

A Sad End

By | 2014-09-05T20:51:36+00:00 September 24th, 2010|Global Market Update|

A specialist is said to be someone who knows more and more about less and less until he knows everything about nothing. That’s the way it is with some Exchange Traded Funds. By constructing ever-more-specialized indices, these investment vehicles become so focused and targeted as to lose sight of the original premise of a mutual fund—diversification. The point of any fund is to pool your money with other investors so you can efficiently buy a group of stocks rather than just one or two. [...]

After Taxes

By | 2014-09-05T20:27:38+00:00 September 23rd, 2010|Global Market Update|

There’s one other factor in the mutual fund discussion: taxes. I’m not talking about the debate in Washington over top marginal tax rates. I’ll leave that to the politicians. What investors need to worry about is capital gains. Active mutual funds buy and sell shares as they manage their holdings. This activity generates gains and losses, and our tax code requires that any realized gains need to be taxed. In order to avoid paying the taxes themselves, the mutual fund companies pass through the [...]

Choices, Choices (Part 4)

By | 2014-09-05T20:27:14+00:00 September 22nd, 2010|Global Market Update|

So how do you find a winning fund? Active managers often underperform the market in the long run after fees. This happens for lots of reasons. Hot returns are self-defeating. Economic laws work against active management on many levels. But there are ways for average investors to use them to their advantage. For example, the law of risk and uncertainty—sometimes called the black swan effect—means that you don’t know what you don’t know. This doesn’t just mean bad news: there are “white swans” out [...]

Choices, Choices (Part 3)

By | 2017-07-17T12:35:18+00:00 September 21st, 2010|Global Market Update|

Picking a mutual fund is a loser’s game. I’m not saying that funds are for losers, or that only losers manage them. A loser’s game is a game that you win by not losing. Call it sports for the rest of us. Not many can drive 300 yards or serve at 130 miles per hour. We do well to keep the ball in play. It’s the same with investments. The way to win is not to lose. There are some obvious things to look [...]

Choices, Choices (Part 2)

By | 2014-09-05T20:25:32+00:00 September 20th, 2010|Global Market Update|

So how do you pick a mutual fund? The mutual fund industry has made a business out of selling this diversification and manager expertise. There are now almost 90 million investors in funds worth over $10 trillion in the market. What are some of the most common pitfalls of using mutual funds? We saw last week why picking a hot fund is self-defeating: hot funds attract hot money that overheats their sectors and leads to a boom/bust cycle. But investing in an un-hot sector [...]