The Stingy News Weekly (03/28/2010)
Chou's 2009 letter
"we believe that investment and non-investment grade corporate bonds are now fully priced. It is similar with equities. Most stocks are now close to being fairly priced and it is harder to find bargains. Although we won't likely see the lows that we saw in February/March of 2009, the risks of investing in equities are greater now."
Hyperbolic Geometry defeats Nazi Spoons
"Worm hunters, Nazi spoons and homicidal robots were crushed in one of Britain.s quirkiest literary contests, as a book that uses crochet to introduce non-Euclidean geometry won the annual Diagram Prize for Oddest Book Title."
Optimal withdrawal rates
"Our main practical conclusion is that counseling retirees to set initial spending at constant 4% of their nest egg is consistent with lifecycle theory only under a limited set of mortality-risk aversion and time preference parameters. We show exactly how the optimal behavior in the face of personal longevity risk is a plan that adjusts consumption downward in proportion to survival probabilities - adjusted for pension income and risk aversion - as opposed to blindly withdrawing the same inflation-adjusted income for life."
Reflection on a crisis
"Daniel Kahnemann and Nassim Taleb discuss biases, the illusion of patterns as well as the perception of risk and denial."
The Canadian banking fallacy
"Advocates for a Canadian-type banking system argue this success is the outcome of industry structure and strong regulation. The CEOs of Canada's five banks work literally within a few hundred meters of each other in downtown Toronto. This makes it easy to monitor banks. They also have smart-sounding requirements imposed by the government: if you take out a loan over 80% of a home's value, then you must take out mortgage insurance. The banks were required to keep at least 7% tier one capital, and they had a leverage restriction so that total assets relative to equity (and capital) was limited. But is it really true that such constraints necessarily make banks safer, even in Canada?"
Sir John's prophetic memo
"Obsolescence is likely to have a devastating effect in a wide variety of human activities, especially in those where advancement is hindered by labor unions or other bureaucracies or by government regulations. Increasing freedom of competition is likely to cause most established institutions to disappear with the next fifty years, especially in nations where there are limits on free competition. Accelerating competition is likely to cause profit margins to continue to decrease and even become negative in various industries."
Gary Gorton vs. Michael Lewis
"The basic idea is that the repo market had developed as an independent source of funds, and when some AAA rated mortgaged backed securities started to fall in price, this tainted all AAA securities, especially asset backed paper. AAA securities have a 0.01% default rate, so from a bayesian perspective, when you see a default here the probability is not that one was very unfortunate, but rather, the rating was wrong. Perhaps all ratings are wrong?!. Everyone was scrambling to understand these securities work to assess how much they are worth, and found them insanely complicated, so people naturally assumed the root cause could be anything related to 'debt', derivatives, rated securities, was complicated, etc. Everything was painted by the same brush, as when one bad cow tainted with e. coli causes a wholesale destruction of all beef products sold in the US, because one can't be sure. A run on the repo market was a classic bank run, causing the banking system to be insolvent, and lending to sharply contract."
Obama pays more than Buffett
"Berkshire Hathaway's 1.4 percent notes due February 2012 yielded 0.89 percent on March 18, 3.5 basis points, or 0.035 percentage point, less than Treasuries, composite prices compiled by Bloomberg show. The Omaha, Nebraska-based company, which is rated Aa2 by Moody's and AA+ by S&P, has about $157 billion of cash and equivalents and about $52 billion of debt. P&G, the world's largest consumer-products maker, saw the yield on its 1.375 percent notes due August 2012 fall to 1.12 percent on March 18, 6 basis points below government debt. The Cincinnati-based company, rated Aa3 by Moody's and AA- by S&P, makes everything from Tide detergent to Swiffer dusters."
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