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December 06, 2007
CFA'd Out
Which is just as well, because the exam was Sunday.
The exam pass score is a 70, which is tougher than it seems, especially when you realize that only 40% of the examinees pass the thing. For some reason, the CFA Institute hasn't deigned to sign a contract with a computer testing center. I was able to get my brokerage licenses more or less at will, since I could take them on the computer and have them scored immediately. The Level I, despite being multiple choice (or multiple cherce, if you're from Brooklyn), uses those little pencil-bubble sheets that tolerate neither stray marks nor incomplete fills. The Level II is essay question, and to keep the monks in shape for that, they have them grade the Level I by hand and I should know in about 5 weeks whether or not I passed. So the monks can have time off for Lent, and also watch the World Series, they give the Level I twice a year, then pick the best, most reliable monks, and have them grade the Level II and the Level III in June only.
Now I know that I either passed or failed on my own merits. No pulling a Baltimore Ravens and blaming the refs if I failed. But there are a couple of points to make. First, about the econ section. The MBA program I attended neither required nor taught econ. And the econ study book (provided by the CFA Institute itself) was noticeably lacking in sample questions on the subject. This is a real problem, since a great deal of words in economics jargon mean more or less the exact opposite of their common, everyday dictionary definitions.
Now the CFA does provide sample exams. At $50 a pop. Naturally, I bought all five, so I could trade 'em with my CFA pals. They're on line, they grade them right there for you (apparently the monks are too busy at Matins), and tell you what sections you need work on. But then, they disable the browser's Print and Select-All functions, even though they only let you take each exam once. For $50, you would think they'd understand that you want to take them home, so you can take them again and again. Of course, you can still do a View-Source and paste them into a text file, then edit them to allow printing, and print them from the browser.
Not that anyone would actually do that. Oh no. Of course not. Cough.
The sample exams are actually helpful. They advertise them as having real questions from past exams, and then it turns out that they have real questions from the exam you're about to take, too. There's no question that going back over the tests a few times drilled into my head the right answers for somewhere between 10 and 20 questions.
In any case, the worst thing you can do is to go back and start figuring out the answers to the questions you remember. That way lies madness. So here I sit, checking out job listings with more attentiveness, hoping that I'll be signing up for the Level II in June, rather than the Level I again.
October 19, 2007
Business and Baseball
So Manny Ramirez doesn't think it's the end of the world if the Bosox don't win the pennant this year. As usual, Manny's a little, what, isolated? out-of-step? oblivious? to the desires of the Red Sox nation. So yesterday, Mike Greenberg explained that fans want their players to care as much as they do, especially if they're making more in a year than most will make in a lifetime. And Mike Golic explained that it just doesn't work that way, that it's a job, and that getting paid more doesn't make you care more. We've heard it all before.
Then Greenberg said something like the following, and I'm paraphrasing:
Fans forget that for people inside sports, it really is all about the money. Sports is the only industry where what the customers want has nothing to do with what the owners want. Owners and players want to make money, while the fans want to win. Take our company, Disney. Do moviegoers care if they make a movie that wins the Oscar? No, not really.
Greenberg makes a mistake than many sports commentators make, when commenting about sports-as-business, and in doing so he lands himself completely on the wrong side of the discussion.
Let's point out first that successful teams make more money. With the exception of the Los Angeles Clippers, few teams can lose and continue to make money year after year. Getting taxpayers to build you a new stadium is a one-time boost, but eventually people get tired of watching a lousy product, and there are plenty of free places to see the mountains from. There's a reason the Braves left for Milwaukee, and the Expos are now the Nationals, replacing two previous DC baseball teams.
One reason the Yankees, Red Sox, Redskins, and Celtics are worth what they're worth is decades worth of building fan loyalty through winning. Championships. (Don't quibble with me about the Red Sox. They went to the World Series at least once a decade since the Babe was a bat-boy.) The A's obviously have better attendance and make more money since figuring out how to manage a budget and value-invest in players.
Bill James points out in his brilliant 1988 essay, "Revolution," that the competing business entities here aren't really teams, they're leagues. Except for a narrow swatch of Connecticut, the Yankees and Red Sox don't really compete for fans the way they do for wins. But MLB competes with the NFL for attention (also known as brosdcast revenue), and the Rockies compete with the Avs and Broncos and Nuggets for local attention. The reason the NHL #6 and sinking fast is that its games are on something called the "Vs." network, not because they Avs win or don't win.
While the Yankees may hate the Red Sox and the Cowboys may hate the Redskins, from a business perspective they need each other, like the black-white/white-black guys on that Star Trek episode. Because otherwise it's just the Black Sox throwing around a ball on a cornfield in Iowa.
James makes the insight that Greeny misses entirely: I buy a can of tomato soup because I want tomato soup. Just because Campbell's sees it as a business doesn't mean I have to. They may have better soup, or more flavors, or they may have better packaging, or more convenient sizes, or placement deals with Safeway. For them, that's business. Me, I just want a can of soup.
Baseball is selling competition. The minor leagues withered away into mid-inning diversions because of TV, yes, but also because their competition isn't real. The players care about stats because they want to get to the next level. Just like the managers. For them, success isn't winning an International League championship, it's getting called up to the majors and watching their old mates win that title.
When major league players don't care, or are perceived as not caring, it damages the honesty of the competition every bit as much as Giambi on the Juice. If enough players don't care, then the fans won't, either. They'll look for a league or a sport where players do care. And those players and owners will make the money.
October 11, 2007
Leading With Your Chin
So I'm sitting here, listening to KNUS, when on comes an ad for CITGO gasoline.
"We bring you a steady stream of Venezuelan oil..."
It's not often you hear an advertiser openly and honestly give you the best reason for avoiding their product like the plague, hoping they'll shrivel and die.
And on KNUS, Salem Radio, which isn't exactly a target market filled with warm fuzzies for Herr Hugp.
August 27, 2007
Receivables Securitization
Over at the Three-Letter Monte, the CFA Blog, I have a posting discussing securitization of accounts receivables, and its location within the Statement of Cash Flows. I'm not sure this is a particularly widespread problem, but it may well be a more serious one for certain companies.
Here's the issue. Some companies have gotten into the habit of packaging their receivables and selling them off at some discount to a buyer. You know those ads where Orson Bean asks you why you should have to wait for a settlement or a lottery annuity? Well these companies apparently feel the same way. So they collect the money now from a third party, buy their hambuger, and then pay the third party back next Tuesday when their customers pay them.
Typically, companies will publish a schedule of their receivables, if not how long they're outstanding, then how long they expect them to be. This gives the purchaser some idea of the historical collections record, how long they can expect to take to collect what's outstanding, and how much they might expect to have to write off.
The buyer could take an annuity, some percentage of the receivables over time, or some percentage at the beginning. Any of these arrangements can be considered borrowing at some interest rate. As a result, they should be listed on the statement of cash flows under financing cash flows. But because the revenue is secured by receivables, which are part of operating cash flows, many companies categorize them there.
Now, the notional interest rates some of these companies pay will rise, if they can find buyers at all. Their operating cash flows will shrink, and valuations based on those cash flows will fall substantially. In fact, there's reason to suspect that those companies that place this financing under operations are the ones that are most likely to need the cash.
Next step: find a list of such companies.
August 24, 2007
The Modern Lyceum Movement
The Wall Street Journal carries a fawning review of one of my favorite companies, The Teaching Company, the modern incarnation of the Lyceum Movement. The length of the lectures and the level of engagement required is pitch-perfect. I've had particular luck with the music courses and the history courses, but the only reason the literature courses haven't worked as well is that I rarely have had time to read the books.
The bus ride has been devoted to CFA studying, in fact it has become a primary reason for taking the bus when I can. Although come to think of it, that course on Byzantium is probably the ideal accompaniment to floor tiling.
August 20, 2007
The Weekend
Sunday was Chore Day. All day. For the first time since the sod went it, I cut it. Naturally, it was so high that the lawnmower kept cutting out. So I'd cut a few inches, back up, cut a few more inches, back up, etc. It was like cutting grass with a battering ram. Sometimes, I would restart the mower, and it would cut off just as I set it down. After 90 minutes out there in the sun, I can't begin to describe what a patience-building exercise that was. As for the grass, it's in good shape, but I can see where I'll want to fertilize as soon as I can.
After that, it was Back To The Tile. I've laid all the center tile, the tile I don't have to cut. Now, it was time to cut the edge tile. Break out the wet saw! Woohoo!
It was more tedious than hard. Since I was off just slightly from square to the walls, and since the walls themselves are off slightly from square, I had to measure each tile to cut separately. Down to measure, grab a tile, set the saw, and push it through. I will say that I've gotten pretty good at guiding a tile through by hand, without the guide, cutting along the pencil line. You have no idea how useful that is when you need to shave the tile down by 1/16", or just the width of the blade. And so, after four hours of turning all that tile back into clay (think ceramic dust + water), the edge tile is done, except for the pantry area. Not laid down permanenetly, but placed to measure. Pictures to follow soon.
Sunday evening was wall-to-wall wall-themed bumper music, in honor of our imported disingenuous lefty blogger, as opposed to the homegrown kind. My personal favorite was "Cry Me a River" by singer Kathy Wall, but there's plenty to choose from.
So what about Friday afternoon?
Well.
What happens when you naively believe that Sprint will simply do what they say, and exchange the phone at a store? Exactly what I should have expected from a company who only promised to exchange the phone in the first place to make up for lousy customer service. What should have been a 20 minute exercise turned into an hour ordeal.
I walked into the store, waited a few minutes for my turn, and then explained to the salesman that customer service had promised to exchange my phone. No dice, I was told. I needed to go to one of their newly consolidated Customer Service stores for that. And here's a handy map to help you find them!
I extended the salesman the courtesy of arguing with him briefly, then put the map back on the pile with all those other maps, and asked for his manager.
< Rod Serling Voice >Mr. Cole, sales manager of Store #506 at Cherry Creek North. Mr. Cole is a quiet, unassuming young man, just starting to make his way in the world. He earns a large portion of his compensation by making sure that no exchanges take place in his store. Little does he suspect that he is about to place a call to...the Twilight Zone.< /Rod Serling Voice >
In short order, I am told by Mr. Cole that, 1) he can't exchange the phone because he's not a service center, 2) he can't call customer service because 3) he won't have access to my account records, 4) there will be a $55 service charge at the service center for exchanging the phone, and that customer service won't be able to waive the charge.
That's four whoppers in only a few minutes. I informed Mr. Cole that I had no intention of arguing with him longer than it would take for me to drive to the Park Meadows service center, and that I had no intention of driving to the Park Meadows service center. No luck. As I was ready to walk out of the store, I went back, got his card, and called customer service from my phone.
Long story short - he called customer service himself (2), brought up my records on his computer (3), exchanged the phone (1), and had them reverse the service charge on my account (4). Short on time, I refrained from asking Mr. Cole what he had accomplished by stonewalling, since he did everything, anyway.
This is clearly the result of some insane incentive system that Sprint has set up. I'm sure I've mentioned this before, but Omni magazine had a story about 25 years ago, maybe a little longer, about a game where government bureaucrats compete to see who can most frustrate and enrage the citizenry foolish enough to show up at their offices. Sprint must offer very large prizes to the winners.
August 13, 2007
Customer Service
The weather's still muggy, but now the monsoons are a little less reliable. So now, it's the triple threat: heat and humidity, and you still have to run the sprinklers.
Apparently, the Sprint-Nextel merger isn't going so well. I went to the Sprint website to pay the bill, and found that while Sprint may have known who I was, Sprint-Nextel had apparently come down with corporate Alzheimer's and I had to re-register. All of which went fine. Except they have you enter your password, and your Social Security Numberin the clear. Apparently, it hasn't occurred to the people who run the company that someone might try to use their wireless internet card to pay their bill, you know, in a public place.
Then, the dreaded, "Double Secret Probation Security Question." You get to choose your question, so I picked, "First Elementary School." Answer: Mosby Woods. Evidently, whatever software, and I use that term advisedly, they're using to run this website, thinks that a space is a special character, which rules out something like half the schools in the country. "Street where you grew up" isn't much better, but since the name of that street was "Northwood-that's-one-word-northwood," I took it.
You get a confirmation text message, enter the secret code telling you to drink Ovaltine, and you're resgisered! Here's the text of the message I got:
Subject: --- Put the subject of the mail here ---
---Put the body here and put a 'VqBvGKmk' where the validation code goes----
How these people survived Y2K without routing all of our calls through Russia is a deep, deep mystery.
So, I decided to call customer service, figuring that of all companies whose bills I could pay by phone, the phone company would be one. Guess again.
Remember that sketch where Mike Nichols tries to get a phone number from Elaine May? This was about the same. *4, Account Information, wanted a PIN, and cut me off when I couldn't remember it. *2, Customer Service did the same, but referred me to *3, Bill Pay.
Which also required the PIN Which Cannot Be Named. And this time, finally, I got to talk to a real person. Who asked for the phone number. And my name.
And the PIN.
It took rounds with two other customer service people before I found someone who could override the damn computer and take the payment for my bill. Yes, remember? They were sufficiently determined not to take my money that they turned what should have been a five minute job into a half-hour adventure.
People, if anyone reading this is in charge of customer service, don't do this.
July 30, 2007
CFA Blog
I mean it this time. After a couple of fits and starts, I'm going to take the Level I exam in December, and I'm going to be blogging about the studying.
A few starter posts to get things going...
April 28, 2007
Fooled by Randomness
I've recognized myself in Nassim Taleb's superb Fooled by Randomness. Taleb has disdain for reporters, whose job it is to fit facts, post-hoc, into a coherent story. And he's right.
I cover a company called Brush Engineered Materials, BW. Take a look at that chart, especially the last day.
Several weeks ago, I had gotten a call from a reporter at the Cleveland Plain Dealer who was working on a story about the company. Thursday was the Company's earnings call, and while they met their own guidance, many analysts (although not I) had expected them to beat them. The stock dropped 10 points. The story was scheduled to run Friday, and I got a post-close from the reporter, his editor explaining that they couldn't run something about the company and ignore a 17% drop in the price.
I said,
"Investors just got a little over-enthusiastic," said Joshua Sharf, a stock analyst with Wm. Smith & Co. in Denver. Thursday's stock close "is where Brush was a couple of weeks ago, probably about where it should be. People are disappointed," he joked, "that earnings didn't exceed their expectations."
In retrospect, this is exactly the kind of post-hoc explanation that does nobody any good. In the morning meetings, I never speculate on where a stock's going thast day, week, or month. I have a price target. If I like the stock, I like the stock. If I don't, I don't. But I - along with Taleb - have exacty no idea where the market or an individual stock is going that day, and it's silly to try to explain it after the fact.
In the future, when asked by a reporter why a stock is dropping, I'll probably say something like, "Who the hell knows? More sellers than buyers, I guess."
April 27, 2007
I, Voice Mail
I have just finished arguing with a voice mail system.
I was calling UPS. I have two books on order, scheduled to arrive at the office today. But the last scan is from last night, and it's the check-in scan to the warehouse in Commerce City. So I wanted to call, to see if it were on the truck, and if it weren't to do as I had done before and drop by the warehouse and pick the thing up for myself.
Ha.
First, the voicemail asks me what it can do for me. (Heh.) It lists 4 items, beginning with "Track a Package."
Me: Customer Service
It (Slightly peeved at having been interrupted, and been asked for an item not on the menu): That's ok, and I can connect you with a customer service agent, but first, select one of the four options, "Track a..."
Me: Track a package
It (Breathing a slight sigh of relief): Please say your tracking number
Me (Breathing a slight sigh of annoyance): 1Z 189 093 04 505 38 HS
It: (Tells me what I already see on the web tracking screen)
It: Now, what else can I do for you? Track a package, ...
Me: Customer Service
It (Clearly annoyed at being asked to interrupt someone's coffee break): I can connect you with a customer service agent, but that is the most recent information available on your package. Would you still like me to connect you with a cusomer service agent? If so, say, "yes."
Me: Yes.
It: If so, say, "please."
No, I made that last part up, but you see where this sort of thing could lead you. I remember a science fiction story in Omni many years ago, about a game played by bureaucracies. The purpose of the game was to get the public very, very upset. Points were awarded on the basis of how ticked off individuals got, and how out of control they behaved. The real purpose of the game was to discourage public interaction by discouraging the public from showing up at all. I believe the beta version of the game is being tested now at various DMVs around the country.
Conference Call Etiquette
Earnings conference calls usually go on too long as it is.
Here's a suggestion.
When a conference call caller - like, say, an analyst - begins his call with, "Well guys, I really don't know what to say," the call moderator should disconnect him and tell him to get back in the queue when he figures it out.
March 26, 2007
Dallas
Another month, another business trip, this time to Dallas.
Now I know what you're thinking, and I was surprised, too, but it actually looks like a pretty decent place, at least the bits I've seen so far.
They've got me in the Marriott Fairfield on what might be considered the wrong side of the highway, but it's actually close to one of those mixed-use, industrial-artsy areas where you can get tile and countertops for the new kitchen, and then walk a block and get the art to hang in the new living room. The walk down Dragon street took me by both places, including the now-defunct "House of Kirk." How odd. "House of Picard" I could understand, but "House of Kirk?"
Another closed-on-Sunday art gallery is called, "Art of India, Inc.," which sounds more like a print shop for Peanuts originals. (There was one strip where Schroder tells Lucy that here eyes look like little round dots of India ink.)
Since my objective was the kosher Indian restaurant, I decided to walk the three miles to the train station. "Why?" you might ask? Tradition! Actually, I like these walks. I get to see something of the city, In this case, I also got to walk through the Historic West End, sort of like LoDo, and also the location of Dealy Plaza. And by the Dallas World Aquarium. Because when you think, "Dallas," you think, "fish!"
Then there's the light rail. Almost every city has "invested" in one of these white elephants. Although as a visitor, it's more comfortable to ride than a bus, very few visitors are going to have the same local travel profile that I will: stay downtown for meetings, ride out to the 'burbs for dinner. And while the downtown seems to have some retained some of its local character, once out of the city, the thing runs along the interstate, which looks like any other Interstate, only moreso, as Rick would say.
Although there are always the distractions onboard the train, like the electronic advertising sign for Dallas County Community College: "Love is a canvas pattern furnished by nature and embroidered by imagination." Their motto should be, "DCCC: Sucking the Manhood Out Of Texas One Associate's Degree At A Time."
I suppose it's better than the woman sitting in front of me, who was at least 45, and reading the train behavior admonitions aloud in both English and Spanish, in a voice that indicates that she moonlights on the bingo circuit. I demurred from complimenting her on her command of phonetic alphabets.
Walking from the train station to the restaurant - about 3 miles, I'd guess - I was stopped by a woman in a car who asked if I needed a ride someplace. She said this in a voice that suggested I should check the back seat for chain saws. I need the exercise, in any event.
The restaurant itself is quite good, full of Indians in fact, which is the surest test of any ethnic food joint. I ended up ordering the Thali, which I gather is Hindi for "Poo Poo Platter." Ah ha! There were plenty of leftovers, none of which would have made it past security at DFW, especially since this state of the art airport the size of Manhattan doesn't have any services ground-side. I ended up eating lunch sitting at baggage claim area B29.
DFW was full of soldiers, looking decidedly un-victim-like, except for their having to submit to the same bizarre security requirements as the rest of us. Barring a coordinated effort by an entire military unit to turn Turk, requiring soldiers, in the presence of dozens of other soldiers, to take boots off, borders on the insane. I am beyond confident that if any one soldier were to decide to try something, the several platoons around me could spontaneously organize well enough to deal with him faster than anything TSA could muster.
DFW, as one of the two main airports that soldiers move through to and from Iraq (the other is Atlanta), has a program where civic groups can show up at the airport to welcome troops home. Now Ken "Colorado Surrender Caucus" Gordon claims he "supports the troops," whatever that means. It occurs to me the nobody's ever asked him whether he's given to Soldier's Angels, the USO, or any of the couple of dozen programs that spring up from time to time to get care packages to the troops or their families.
Going through security at Denver, the gal (ethnomusicologists take note) behind me in line asked if I remembered when air travel was fun. I honestly replied, "No." It's been that long.
March 06, 2007
Economics By Doctors
Last week, the local propagator of economic illiteracy, the Denver Post, ran an op-ed by a professor over at the University of Colorado Health Sciences center, who specializes in bioethics and the humanitites. It included the usual bromides about obscene profit margins and too much marketing vs. too little R&D. It concluded with a call for the citizenry to demand more R&D spending by drug companies. Or presumably, we'll be taking away those profits to make sure there's no more R&D. (Ironically, a week earlier I had had this debate with a friend of mine who's a doctor there, so maybe it's something in the water. Or a virus.)
In the meantime, Russ Roberts has an extensive podcast with Mr. Law-and-Economics himself, RIchard Epstein, an actual economist, of the Hoover Institution and the University of Chicago. Epstein makes the following points.
- That studies show that drug companies keep somewhere between 15% and 25% of the economic profit from their discoveries. Which means that you and I get to keep about 80% of the benefit from someone else's work.
- That the excessively long FDA approval time robs the compnies from many of the benefits of the patent system
- That taxing away the profits is only going to force the drug companies to focus on the higher-margin projects, which will then lead the same whiners to complain about the even more obscene profit margins
- That there will always be competition, since it's the molecule not the health benefit that gets patented; this means that your slightly different drug with a slightly different mechanism can compete even while the original is under patent protection
I'd add one other point. Mark Yarborough complains about the ratio of marketing budgets to R&D budgets. But this is always true. I just finished visiting a company, Brush Engineered Materials, which refuses to get pantents on much of its research out of the belief that they'd rather not have their competition reverse engineer their processes. Their competitive advantage and their real asset is their institutional know-how and craftsmanship in the art of making metal alloys. This is a company that knows it needs to be ahead of the curve, always developing new alloys and new uses for those alloys.
They spend less than 1% of gross revenues on R&D.
I never would have know about Epstein's book if not for a series of blog links.
Thus do institutional biases restrict the debate. At least on their pages.
March 01, 2007
Media Alert
Channel 4 caught me in DIA.
Good thing the flight had been delayed.
February 27, 2007
Cleveland
One of the companies I cover is Brush Engineered Materials, based in Cleveland. I inherited the coverage when another analyst left, so Company management invited me out here to meet them and get to know the Company's story first-hand.
Now, one of their plants is in Elmore, where they do a vapor deposition process. Wednesday's meetings are all Conversations With Management, but on Thursday, I get a chance to go see the operation in operation. As part of that, I have to wear a moon suit with a respirator. OSHA requires that a doctor approve this, so I don't turn blue and pass out in the middle of the tour. So what's the first question OSHA asks on its web questionnaire? "Can you read?" That's the question. Consider, for a moment, the implications of answering, "No."
Typically, the airport experience in Denver resembled army logistics: hurry up and wait. After the shuttle bus's tour of the parking lot, I made it to the automated United check-in with two, count them, two minutes to spare before I would have had to make some unpleasasnt choices about what luggage to leave behind.
So naturally, the flight took off an hour late. They announced that with a full flight, they really didn't want to take any chances with the lavatory, and some wit started whistling Humoresque.
In any case, the pilot landed us safely in Cleveland, guiding us in by the light of the river. Just kidding! Of course, the river was obscured by the smoke.
The cabbie was Eritrean, and seemed genuinely happy when I told him he could put his music back on. He had changed it to some muzak station so as not to offend, but it didn't sound like they were singing, "Jihad Jihad Jihad," so since it was his cab, it only seemed fair to let him listen to his music.
And now, here at the hotel, there is only one thing to do.
Go directly to bed.
February 20, 2007
*Sigh* Even AdWeek
Barbara Lippert at AdWeek had some harsh criticism of the pulled Volkswagen "Jumper" ad. The column included these two winners:
At least "Jumper" has things people can relate to. When the dude on the rooftop begins reciting his list of misery to the crowd below, it includes, "There's no affordable housing." I particularly liked his line, "You think I wanted global warming ... or reality TV?"
Go view the ad, and see what complaint she left out. Right. I'm sure the phrase, "high taxes" would have busted right through her column's word count.
Maybe it's the times. For whatever reason, VW is hardly alone in joking about suicide. Once "Jumper" hit the airwaves, it was the third spot in three weeks to go the self-offing route after the GM robot and a Washington Mutual spot featuring a bunch of non-WaMu bankers headed off a rooftop, just like in the Depression.
Is all this talk of suicide an unconscious metaphor for the state of the automotive industry? Or, given WaMu's inclusion, is it more of an unconscious representation of a sense of doom pervading the ad industry? Or, as The New York Times noted post-Super Bowl, could the violence of suicide be a metaphor for our unresolved war? At least we've got ourselves three fine options to consider. Meanwhile, let's get back to the VW debacle.
Ah, the Gratuitous War Reference appears even in industry trade magazines. Yes, maybe it is the Times, rather than the times. A quick Google search turned up two | ads and a reference to a third from over a year ago.
Maybe all the talk of suicide in print publications says something about that industry.
January 04, 2007
Back to Blogging
Happy New Year! I suppose I could catch up on all the missed holidays, but at some point, you just write off lost time and get back to the cycle.
Back from an extended blogging vacation, relaxed, refreshed, and having missed tremendous amounts of major news, such as Iran's adoption of the Nazi salute and the goose-step. It's not as though you actually run out of things to say, but it's easy to see why blogging and talk radio are such a natural fit. Both of them consume tremendous amounts of material, and you'd better not repeat yourself too often, else you may as well just post links back to prior posts.
One of the interrupting events of mid-December was a long, quick drive back east to Long Island - driving a 26-foot truck. Now I like driving, especially long distances. Here to NY - ok. From the house to Wal-Mart - not so much. But I basically had two days to get the truck to Long Island, so I-80 it was. I'll say this for the Interstates, they have speed, which is just as well, since the things are routed away from anything you might want to stop and see, anyway.
In this case, it was also a chance to kluge together some interesting technology. DC-AC converters have come down dramatically in price, and I traded in my Comcast cable modem for a Sprint wireless card (although I still have my old wifi card for when I'm in a town lacking a digital signal but possessed of a wifi-enhanced coffee shop). Iowa may have wifi-enabled all of their rest stops, but that was just a redundant system as far as I was concerned. (That may be a red flag for all those governments putting money into muni-wifi. Or it may be an excuse to turn it into another stagnant public utility.)
So after having driven from Peru, IL to the exit for Wilkes-Barre/Scranton, I am reminded that half the so-called highways on Long Island don't take truck because they were built when the largest thing on the road was a drafthorse. I know Robert Moses tried his best, but there's not enough air in any tire to get a 12' truck under a 10' 6" clearance. This was at 1:00 in the morning, having driven 800 miles already, needing to have the truck at the door by 9:00 the next morning, and low on gas, and having drunk enough diet Coke that my back teeth were floating. Having crossed The Broncks, heading for the gloriously named Throgs Neck Bridge, no neighborhood was safe to empty and refuel in, and the refreshing early-morning traffic jam made changing lanes an adventure in itself.
Ah, the magic of technology. With only the guidance of a warning sign somewhere in one of the 45 highway-to-higway interchanges in the Bronx, saying, "Trucks - Expressways Yes! Parkways No! It's The Law!," I pulled up Mapquest on the laptop in the seat next to me, and had a full-screen GPS helping me find the Yellow Brick Expressway. This would have been completely impossible even three years ago.
Soon, it'll be an option.
December 01, 2006
Writing For Business
There's a reason Jim Cramer and Robert Krulwich are popular. Jim Cramer may be a maniac, a Wizard of Ahhs with nothing behind the curtain, but he's entertaining. Robert Krulwich was merely the Stan Freberg of business radio journalism. I remember him doing a bit on just-in-time manufacturing back in the early 80s which incorporated both the song and what NPR producers pride themselves on - "environmental sound" - into a brilliant 5-minute exposition. Any b-school prof I had would have killed for the kind of attention you paid to that piece. (The environmental sound was fake. At one point, an assembly-line worker interrupts the song to shout, "Hey, Frank! The radios are here!")
So why do we write coverage reports and updates as though the people reading them are robots? Are we afraid that they won't take us seriously otherwise? Ironic that the current euphemism for "explanation" is "color," and then we proceed to drain every last bit of it out of our writing.
My guess is that these guys read the bullet points, maybe skim through the numbers, and then go on to the next report that reads like shoe leather left over from last year's tourist season at Moab. Spice it up a little, get them to expect that they might get a smile out of it, and they're more likely to stick around long enough to appreciate your insights.
Naturally, you have to make it clear enough that the humor-impaired fellas don't miss the point you're trying to make. The second-to-last thing you want is someone scratching his head mumbling to himself, "no, I don't see why newspapers any anything like clay tablets..."
The last thing you want is a page 1 WSJ article about how your entire research staff needs to be packed off to Khe Sanh for sensitivity re-education. So avoid the racial, ethnic, sexist, political, and religious jokes, since pretty much everyone's a member of the investor class nowadays - that stuff isn't just in poor taste, it's bad for business.
Still, this leaves lots of room for personality, and lots of room to get your subscribers to grin rather than groan when they see your updates in their inboxes.
November 29, 2006
Wednesday Morning
Snow. Cold. When they gang up on you, the roads turn into skating rinks. For the first time, I had to use the 4WD just tooling around town. Of course, the Jeep is rear-wheel drive normally, not front-wheel as I'm used to, but even 4WD doesn't help your braking all that much. It just means that you slide straight. The snow's still coming down even now, but tomorrow's supposed to be sunny, so perhaps there will be photo-ops anew.
So having finished the NASD licensing steeplechase, and not yet having renewed the Quest for the CFA, I've got a little time on my hands in the evenings, and I've decided that at least one of the adult ed classes at the shul must be for me. Last night I tried out the beginning Talmud class - the nth beginning Talmud class I've tried - and it went pretty well.
Business-halachah-legal geekery follows immediately.
We're learning Tractate Makkot, and it deals in part with the penalties for perjury in civil cases. The basic rule is that if you lie under oath as a witness, and if that lie would have cost someone money, you owe that person damages equal to what you tried to cost them. So if you falsely claim that someone stole $1000, and that lie is uncovered and the claim denied, you owe the accused $1000, since that's what you tried to do him out of.
Apply this to a loan. You claim that Bob borrowed $1000 for 30 days and now needs to pay it back. Bob claims the loan was for 10 years. What would your lie have cost him? Not $1000, since everyone agrees that he needs to pay that back anyway.
In fact, you'd owe Bob what he would have been willing to pay to have the money for 10 years, minus what he'd be willing to pay to have it for 30 days. I'm not sure how they would have calculated this back in 200 CE, but nowadays, you'd just apply the short-term and long-term interest rates to determine the value of having the money on hand. (There are halachic issues with charging interest, but set those aside for the moment.) In short, the raabis understood, at least at some level, the notion of opportunity cost and the time value of money.
Pretty neat, huh?
Less neat is this week-old piece from the Denver Post about minority enrollment at CU. Since this is a report about a report (a Boorstinian pseudo-event of the first order), objections to the diagnosis and prescriptions are anticipated and dismissed:
The study accused flagship universities of blaming their low diversity on inadequate state funding and the K-12 system.
Instead, they should direct more financial aid to low-income students, recruit minority students more aggressively and focus on helping minority students succeed in college, the report said.
Unasked by the reporter or by the CU administration: of the Colorado high school graduates who qualify as "minorities" under their definition, how many can actually read at 12-grade levels, and why is it CU's job to remediate this problem?
November 28, 2006
LPR Cheat Sheet
Milton Friedman's Free To Choose is required reading for the LPR program. Now, IdeaChannel is streaming both the original 1980 version and the 1990 update for free.
I'd also suggest the audible.com version of Atlas Shrugged, but I'm not sure that even long-haul truckers have that kind of commuting time.
UPDATE: Some people just can't leave well enough alone.
November 22, 2006
Series 87
Oy. Finally.
The Series 87 is the last of the NASD licensing exams required to be a research analyst. It deals with the regulator best practices for sell-side research analysts, including the Chinese Wall between investment banking and research (what do they call that in China?), vaarious personal and institutional disclosures of potential
conflicts of interest, restrictions on trading and publishing, and so forth.
For some reason, I could pass all the sample tests, knew the material cold, and that just didn't translate into answering the questions right. But now, with a passing score, I'll finally be able to publish research reports under my own name.
And to move on to the next challenge. I'm not quite ready to revive the CFA blog yet, but I am ready to start studying for it again.
November 13, 2006
What's Three Months Between Friends?
Just when you want to try to give business the benefit of the doubt, you run into earnings season. Two of the companies I cover had fine income statements, and less-than-stellar statements of cash flows for the quarter. But of course, their cash flows were fine for the first three quarters combined. So guess which time period they reported their cash flows on?
I know they'll say something about seasonality and how you can't judge a company by its quarter, but if you're bound by law to report quarterly cash flows, report quarterly cash flows. Do they really think they're fooling anyone by making them back out the cash flows for the quarter, rather than just giving them out?
It's probably the same reason that 95% of companies use the indirect method of cash flows, which nobody understands, rather than the direct method, which everyone understands.
October 30, 2006
Property Rights
The Taylor Ranch controversy is one of those nasty points of intersection between economics, politics, and the judiciary. In 2002, the Colorado Supreme Court ruled that a series of landowners who border the Taylor Ranch had the right to continue doing what they had been doing for about 150 years, namely, freeloading off the Taylor Ranch resources. We had the chance to interview Dick Johnston, author of The Taylor Ranch War, which follows the 40-year (!) series of lawsuits required to resolve this issue.
In essence, the court ruled that the communal rules of the original Mexican land grant from the 1830s and 1840s overrode the American notion of exclusive use.
It hadn't occurred to me before, but is it possible that communal property right could be an answer to the question, "Why is Mexico so poor?"
October 26, 2006
Cultural Reversal
So suppose that Chinese brokerages have the same conflict-of-interest rules that we do.
What do they call the separation between the research & investment banking departments?
Conference Train Scrip
We subscribe to a nifty little service called Street Events, which makes available earning releases, and almost instant transcripts of corporate earnings conference calls. I needed to go down to the Courthouse to file some paperwork, and knowing the line would be staffed by a single underpayed civil "servant," I took along a preliminary transcript of a call that I need to write up.
"Preliminary" is generous. The thing looks as though it was created either by someone barely conversant in the English language, or by Version 0.2 of dictation software, programmed by someone who was barely conversant in English. Either or both are completely possible, but it renders picking through the transcript an Adventure in Homophones. (Thurber had a similar problem at one point.) Consider the following:
I'm reinforce way made in the prees also those related to sale growth and the affect that copper and pressure metal have had on sale and I'll review our acquisitionings have had on the quarter and the accounting treatments affects the year over year comparisons. Then aisle review the outlook...
Or:
Good afternoon. The first Gordon before he took off he was pushing all the mu products which finally hit in 06 are there products you are stock marketed to accentuate 07 growth.
Of course that's the mole of the company.
I think the mole of the company was busy preparing this transcript.
I don't want to make too much of this. A better transcript will be available soon, and when it is, I'll let you know what the hell these people were saying to each other, because I certainly can't figure it out.
October 11, 2006
More Partisan Shopping
Upon further reflection and observation, there's something else extremely worrying about the whole notion of partisan shopping - the extension of ownership past, well, ownership.
When I buy a bottle of seltzer at Wal Mart, I give Wal Mart my money, and they give me their seltzer. I take the receipt, walk out the door, and while I might have the right to return the unopened seltzer, my ownership of that money is gone. It's now Wal Mart's money. The company is free to do whatever it wants with it. Likewise me and the selzter. I can drink it, use it to take out a stain, shake it up and leave it as a practical joke, or pour it on the ground in their parking lot, if I feel like it. My seltzer.
Their money. Just as Wal Mart doesn't have the right to follow me around and police my seltzer-usage, I don't have the right to tell Wal Mart what to do with its retained earnings. It can spend it to clean or open stores, pay employees, put it in the bank, or even buy its executives minor-league baseball teams for their own enjoyment. The shareholders may disapprove of the last, but I can't.
This may seem pretty simple, and it is. It's called, "ownership," and it's something that the most recent Nobel Prize winner in Economics built his life's work understanding.
And again, once we establish the principle, what's to keep a government from establishing a commission - purely advisory, no doubt, no doubt - to, ah, guide corporate political and social giving? Or to establish, you know, purely voluntary guidelines for companies wishing to establish branches within city limits? I mean, after all, it'd be much more efficient than actually having to declare and collect taxes...
Taxis
Daniel Pipes takes on a proposal to have Muslim cab drivers put a special light on their taxis, so that passengers carrying alcohol know to look elsewhere. Maybe the cabbies should look elsewhere for work. Taxis are a highly-regulated industry, artificially limited in supply in order to subsidize fares. As long as they're operating as a public utility, they need to operate by the same rules as everyone else.
In any case, if a Muslim cabbie has a problem with carrying my bottle of wine, that's his problem, and he should bear the burden of it. I don't expect my employer to have kosher food at functions, and I don't expect MLB to take Saturdays off so I can pursue my dream of being a big-league radio announcer. The fact that some of them are trying to leverage their 75% position as drivers into forcing Sharia on the rest of us should be highly worrying.
Now, maybe they shouldn't have to operate as a public utility. Then we could have as many cabs as the demand required, and if Metro Taxi decided to not carry alcohol, someone else who would, could be free to enter the market. Fares would fall, cabbies who were offended by carrying a bottle of scotch would have to lower their rates further, perhaps past the point where they could make money. I'm sure that some would cry, "Racism!" when Sharia Cabs tanked, but hey, the marketplace is pitiless.
Hat Tip: (Powerlilne).
September 27, 2006
Tradesports Arbitrage
Has Tradesports internally mispriced the chance of the Democrats retaking the Senate? That is, do the chances of the Dems winning the individual races they need "add up" to the same number as the chances of them winning back the chamber as a whole? Mind you, this is an entirely difference question from whether or not Tradesports has accurately priced the contracts. I'm only looking at whether or not Tradesports is internally consistent with itself.
(I'm not the first one to think about this. A Google search turned up this somewhat amateurish attempt, along with these more sophisticated ones.)
Tradesports is a futures market based on real-world events. If you buy a contract, you pay, say $0.56 for a contract stating that the Republicans will hold the House. If they do, the contract expires with a value of $1.00, and you make $0.19. If Speaker Bela Pelosi is sworn in on Jan. 1, then the contract, like promises to control spending and defend the country, expire worthless, and you lose your $0.81. Ideally, the sum of the prices on a given event should equal 1. And the prices of equivalent events should equal each other. If they don't then an arbitrage opportunity exists, which means free money, which means drinks for everyone.
For instance, if the contract giving control to the Republicans is selling for $0.49, and the contract giving control to the Democrats is selling for $0.49, then you only have to pay $0.98 to buy one of each, kind of like what business is doing.
As for the notion of equivalent events, here's a simple example made complex. Suppose I can bet on two flips of a coin. I can bet on each flip by itself, and I can bet on the end result of both flips. In the real world, there's a 50% chance of getting heads, a 50% chance of getting tails, and a 25% chance of getting tails both times. So the prices of the contracts for tails on the first flip = 0.50, tails on the second flip = 0.50, and tails both times, 0.25. Betting the two tails separately is the same event as betting the two tails together.
Now suppose the market thinks that tails is a 60% likelihood, or a 2-3 bet. The chance of two tails should be priced at $0.36. (0.6 x 0.6 = 0.36) If it's not, if it's still priced at $0.25, then there's an arbitrage opportunity based on the idea that the market will discover & correct this discrepancy. Either the 0.25 is right, and tails is overpriced, or the 0.6 is right, and the combination is under-priced, or they're both wrong. But the two numbers are inconsistent with each other.*
So. When I did the math earlier, the contract for the Senate remaining Republican was selling at $0.816. If you take all the possible Senate race outcomes, and multiply them together, and add up the probabilities of those combinations that give the Democrats the Senate, do you get $0.816? If not, there's an arbitrage opportunity, because the market's not pricing the equivalent events the same.
Excel's a wonderful thing.
There are 33 Senate races contested this year. Currently, the Dems hold 18 of the seats, the Republicans 15. To take the Senate, the Dems need to pick up 6 seats. That means after Nov. 7, they need to have 24 of these seats to the Republicans' 9. I found the contract prices for the Democrat and the Republican in each of these races (counting Lieberman as a Democrat). Now, with 33 races, there are 2^33, or 8,589,934,592 possible combinations. In order to simplify things, I took as given any races where one party or another was judged to have a 95% or greater. Of those races, 13 go to Dems (also giving them the Socialist Bernie Sanders), and 6 to Reps. This means that Dems need to win 11 of the remaining 14 races to get to 24.
The contested races (and the Democrat's contract prices) are: Arizona (.09), Maryland (.65), Michigan (.90), Minnesota (.90), Missouri (.48), Montana(.80), Nevada (.09), New Jersey (.43), Ohio (.76), Pennsylvania (.84), Rhode Island (.80), Tennessee (.35), Virginia (.40), and Washington (.88). With 14 races, the number of possible outcomes is only 2^14, or 16384, which Excel can handle. If you write down all the possible outcomes, calculate the probability of each - as determined by Tradesports traders - and add up the likelihoods of those outcomes where the Dems win 11 seats, you get... 7.27%
This means that collectively, Tradesports prices the chances of the Dems taking the Senate at 18.4%, but taken race-by-race, they only get a 7.27% chance. Now, it's clear that the individual elections are not independent events, even though Tradesports lets you bet on them that way. A single event of national significance could swing voters all over the country, affecting every race that's in play, and given the Dems' percentages in the races in play, it would take a bigger event to swing the electorate Republican than to tip, say, Tennessee and Virginia to the Democrats.
If I move the cutoff to 0.80 from 0.95, that tips Arizona & Nevada to the Republicans, and Michigan, Minnesota, Montana, Pennsylvania, Rhode Island, and Washington to the Dems. Even then, the percentage only moves to 10.88%.
But overall, Tradeports seems to be saying either that 1) it can't find the races to put the Dems over the top, or 2) some individual Republicans are getting a benefit of the doubt they don't deserve.
Sooner or later, the market's got to figure this out. Doesn't it? If it does, |
