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The Stingy News Weekly (07/25/2010)


"The fact that people will be full of greed, fear or folly is predictable. The sequence is not predicatable."
- Warren Buffett


Stingy Links

Credit score is the tyrant
"A FICO score, he patiently explained, is merely a tool that lenders use to help manage their risk; criticizing it is akin to criticizing 'a saw because the construction job turned out badly.' With big banks making thousands of credit decisions every day, they couldn't possible do it without some standardized benchmark; a credit score provided that benchmark. Over the years, he added, the algorithm had gotten very good at predicting the odds of a borrower defaulting. In fact, FICO scores are not the best predictor. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender. And yet, he said, 'The credit score has become the line in the sand for the banks.'"


Mr. Market refuses
"I like sitting on Uncle Warren's knee while he talks about the time he swapped a bag of cocoa beans for a controlling interest in Berkshire Hathaway: 'For several weeks I busily bought shares, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts. The profits were good and my only expense was subway tokens.' Great story, Uncle Warren. I'm right now trying to buy Pfizer with a paper clip and some pocket lint"


The technocracy boom
"When historians look back on the period between 2001 and 2011, they will be amazed that a nation that professed to hate bureaucracy produced so much of it."


Small reactors?
"A growing body of plant designers, utility companies, government agencies and financial players are recognizing that smaller plants can take advantage of greater opportunities to apply lessons learned, take advantage of the engineering and tooling savings possible with higher numbers of units and better meet customer needs in terms of capacity additions and financing. The resulting systems are a welcome addition to the nuclear power plant menu, which has previously been limited to one size - extra large. Developing a broader range of system choices using nuclear fission energy could have a measurable impact on segments of the energy market that have been most often served by burning distillate fuel or natural gas. Small modular reactors offer a reason to be optimistic that human society will have access to all of the energy that it needs for increased prosperity for larger portion of the population."


It's Greek to me
Markets are safer when fear balances greed, and when worry about losing money balances worry about missing opportunity. We don't like it when fear rears its head and stocks drop, but certainly that creates a healthier environment in which to be a holder, and one which should offer better buying opportunities."


Turning Japanese
"I have maintained throughout this blog that I thought that zero interest rates in America would have a different outcome to zero interest rates in Japan because Japanese banks are predominantly deposit franchises and zero interest rates are very bad for them - but that American banks - especially larger American banks - are fundamentally lending franchises and zero interest rates would not impair their ability to make a spread on the loan book."


Krugman versus Ferguson
"Not since Ken Rogoff's famous attack on Joe Stiglitz has the dismal science of economics provoked such pompous, self-important, personalised squabbling. Professors Paul Krugman and Niall Ferguson, of course, have form; they've been at it on and off for nearly a year now over the efficacy of deficit spending in fighting the downturn, and today they return to the fray. The occassion was another piece that Ferguson, an eminent economic historian, has penned for the Financial Times on the dangers of attempting to spend your way to economic recovery. Foolishly - or perhaps deliberately, for it is sometimes possible to imagine that the two have secretly agreed to slag each other off for the publicity - he mentions Krugman by name. 'Those economists, like New York Times columnist Paul Krugman', he writes, 'who liken confidence to an imaginary 'fairy' have failed to learn from decades of economic research on expectations. They also seem not to have noticed that the big academic winners of this crisis have been the proponents of behavioural finance, in which the ups and downs of human psychology are the key.'"


Bond default
"When Arkansas defaulted on its bonds in 1933, the politicians and investors talked about the same things we would talk about today. The state blamed underwriters for allowing it to sell too many bonds. Investors compared the willingness to repay debt with the ability to pay, and weighed the advantages of bonds backed by a pledge of taxing powers to those secured by specific revenue. Unlike today, nobody thought the federal government should come to the rescue."


Don't take the bait
"More sober and historically reliable measures of market valuation create a much more challenging picture. Apart from our own measures, which indicate continued overvaluation, there are several good indicators of market valuation that are not overly sensitive to year-to-year fluctuations in profit margins. One is based on the 10-year average of actual net (not operating) earnings, which is advocated by economist Robert Shiller, and another is Tobin's "q" ratio which is based on comparing market value to replacement cost, and is advocated by Andrew Smithers. Both of these measures largely agree with our own measures, both presently and on a historical basis. Based on last week's valuations, both suggest that the S&P 500 is substantially overvalued."


A perfect predator
"Flatt seems to go out of his way to paint Brookfield as boring. 'We own 129 office buildings. Some are a little taller, some are a bit shorter,' he says laconically. The strategy? 'We're in the business of buying assets of great quality at less than replacement cost.' The company's remarkably consistent objective over the years simply has been to earn a 12% to 15% compound annual return per share. 'We have no goal to be large or significant,' says Flatt. 'If [reaching our objective] meant we should shrink in size, we'd do that.' Even Brookfield's logo is understated, and its 2009 annual report looks like something thrown together at Kinko's. Move along, everyone, nothing to see here. The reality is that this slender 45-year-old executive runs a conglomerate that manages $108-billion worth of real estate, utilities and infrastructure across the planet."


The most underrated part of Warren
"What are the most underrated and overrated parts of Berkshire Hathaway CEO Warren Buffett's success?"



DOW 30 Value Screens

High Dividend Yield StocksP/EP/BP/SP/DYield
Verizon (VZ)14555
AT&T (T)44355
Pfizer (PFE)35255
EI DuPont (DD)32455
Merck (MRK)54155
Kraft (KFT)54444
Chevron (CVX)54544
Johnson & Johnson (JNJ)42244
Home Depot (HD)23544
Coca-Cola (KO)21144
Notes | More Info...


Value Ratio StocksP/EP/BP/SP/DVR
Merck (MRK)54151.75
AT&T (T)44351.93
Travelers (TRV)55432.65
Kraft (KFT)54442.65
Pfizer (PFE)35252.77
Chevron (CVX)54542.86
Johnson & Johnson (JNJ)42243.13
EI DuPont (DD)32453.40
Intel (INTC)43134.48
Exxon Mobil (XOM)33434.54
Notes | More Info...


Graham-Lite StocksP/EP/BP/DG$dG$(%)
Travelers (TRV)55389.4278.33
JP Morgan Chase (JPM)55156.2841.30
Merck (MRK)54543.8725.82
Kraft (KFT)54435.3419.31
Chevron (CVX)54483.8914.10
Pfizer (PFE)35516.2811.68
AT&T (T)44527.919.27
Notes | More Info...


Top US StocksYieldV.R.Graham
AT&T (T)YYY
Chevron (CVX)YYY
Kraft (KFT)YYY
Merck (MRK)YYY
Pfizer (PFE)YYY
EI DuPont (DD)YY
Johnson & Johnson (JNJ)YY
Travelers (TRV)YY
Coca-Cola (KO)Y
Exxon Mobil (XOM)Y
Home Depot (HD)Y
Intel (INTC)Y
JP Morgan Chase (JPM)Y
Verizon (VZ)Y
Notes...



S&P/TSX60 Value Screens

High Dividend Yield StocksP/EP/BP/SP/DYield
Transalta (TA)24455
BCE (BCE)34455
Sun Life (SLF)45555
CIBC (CM)52355
Telus (T)43455
Husky Energy (HSE)34455
Bank of Montreal (BMO)43355
TransCanada (TRP)24255
National Bank (NA)54355
Shaw Comm Cl.B (SJR.B)31255
Notes | More Info...


Value Ratio StocksP/EP/BP/SP/DVR
Manulife (MFC)55542.07
National Bank (NA)54352.23
CIBC (CM)52352.34
Sun Life (SLF)45552.51
BCE (BCE)34452.76
Telus (T)43453.10
Bank of Montreal (BMO)43353.17
Husky Energy (HSE)34453.47
Royal Bank (RY)42343.49
Bank of Nova Scotia (BNS)42343.56
Notes | More Info...


Graham-Lite StocksP/EP/BP/DG$dG$(%)
Manulife (MFC)55427.4582.00
Inmet Mining (IMN)55169.6344.01
Teck Cominco (TCK.B)55251.1838.33
Sun Life (SLF)45535.4930.67
National Bank (NA)54567.7218.63
Canadian Tire (CTC.A)45264.8613.76
Cameco (CCO)53228.5011.66
First Quantum Minerals (FM)53174.549.97
Encana (ECA)45335.088.87
Nexen (NXY)45122.484.18
Notes | More Info...


Top Canadian StocksYieldV.R.Graham
National Bank (NA)YYY
Sun Life (SLF)YYY
BCE (BCE)YY
Bank of Montreal (BMO)YY
CIBC (CM)YY
Husky Energy (HSE)YY
Manulife (MFC)YY
Telus (T)YY
Bank of Nova Scotia (BNS)Y
Cameco (CCO)Y
Canadian Tire (CTC.A)Y
Encana (ECA)Y
First Quantum Minerals (FM)Y
Inmet Mining (IMN)Y
Nexen (NXY)Y
Royal Bank (RY)Y
Shaw Comm Cl.B (SJR.B)Y
Teck Cominco (TCK.B)Y
TransCanada (TRP)Y
Transalta (TA)Y
Notes...



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