Tag Archives: finance

Warren Buffett: Women are Key To America’s Future Prosperity

2 May

Warren Buffett joined Twitter today. To coincide with that move, he also penned a piece in CNN/Fortune, in which he explains how women are key to America’s prosperity:

Start with the fact that our country’s progress since 1776 has been mind-blowing, like nothing the world has ever seen. Our secret sauce has been a political and economic system that unleashes human potential to an extraordinary degree. As a result Americans today enjoy an abundance of goods and services that no one could have dreamed of just a few centuries ago.

But that’s not the half of it — or, rather, it’s just about the half of it. America has forged this success while utilizing, in large part, only half of the country’s talent. For most of our history, women — whatever their abilities — have been relegated to the sidelines. Only in recent years have we begun to correct that problem.

Despite the inspiring “all men are created equal” assertion in the Declaration of Independence, male supremacy quickly became enshrined in the Constitution. In Article II, dealing with the presidency, the 39 delegates who signed the document — all men, naturally — repeatedly used male pronouns. In poker, they call that a “tell.”

Finally, 133 years later, in 1920, the U.S. softened its discrimination against women via the 19th Amendment, which gave them the right to vote. But that law scarcely budged attitudes and behaviors. In its wake, 33 men rose to the Supreme Court before Sandra Day O’Connor made the grade — 61 years after the amendment was ratified. For those of you who like numbers, the odds against that procession of males occurring by chance are more than 8 billion to one.

I couldn’t agree more. Go Warren go!

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A Fortune for No One

28 Apr

The New York Times profiles the story of Roman Blum, a Holocaust survivor who died last year but left no will. He had a fortune of more than $40 million, the largest unclaimed estate in the history of New York state:

Much about Mr. Blum’s life was shrouded in mystery: He always claimed he was from Warsaw, although many who knew him said he actually came from Chelm, in southeast Poland. Several people close to Mr. Blum said that before World War II, in Poland, he had a wife and child who perished in the Holocaust, though Mr. Blum seems never to have talked of them, and the International Tracing Service in Bad Arolsen, Germany, has no record of them in its database. Even his birth date is in question. Records here give it as Sept. 16, 1914; identity cards from a German displaced persons camp have it as Sept. 15.

But perhaps the greatest mystery surrounding Mr. Blum is why a successful developer, who built hundreds of houses around Staten Island and left behind an estate valued at almost $40 million, would die without a will.

Read the rest.

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Who Are the Bitcoin Millionaires?

11 Apr

Business Week profiles three people who are paper millionaires for having invested in Bitcoin:

Owners store their Bitcoins in electronic wallets, which are identified by a long string of letters and numbers. The wallet 1933phfhK3ZgFQNLGSDXvqCn32k2buXY8a, for example, currently owns 111,111 Bitcoins, which amounts to more than $15 million sitting on someone’s hard drive. Whose hard drive is a mystery: While anyone can view the wallets, the owners’ identities are not public. As of April 2, there were about 250 wallets with more than $1 million worth of Bitcoins. The number of Bitcoin millionaires, though, is uncertain—people can have more than one wallet.

Charlie Shrem, 23, discovered Bitcoins on a website in early 2011, when he was a senior at Brooklyn College. Shrem didn’t mine coins himself but bought them on Tradehill. His first purchase was 500 coins at about $3 or $4 each; he bought thousands more when the price hit $20. When he was still in college, Shrem started BitInstant, a company that allows its customers to purchase the digital currency from more than 700,000 stores, including Wal-Mart Stores and Duane Reade. Shrem wears a ring engraved with a code that gives him access to the electronic wallet on his computer. Friends tease him that a thief could cut off his finger to get the ring. “They started calling me four-finger Charlie,” he says.

My take: if they’re still invested in BitCoin, they might lose it all come next month. They better cash out quick. Oh wait, they can’t at the moment…

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The Great Norwegian Diaper Arbitrage

4 Feb

Matthew O’Brien reports on an interesting scheme going on in Europe: people from certain European countries are driving to Norway and emptying store shelves of diapers. Why? Because they can resell these diapers in their home countries for double the price.

There are lots of ways supermarkets can get customers in the door, and away from the competition. But in parts of Norway, cut-rate diapers have become the preferred lure. It’s set off something of a price war, which would be great news for Norwegian parents if they could actually find diapers in stock. They can’t. As Reuters reports, prices are so enticingly low that foreigners, mostly Poles and Lithuanians, have started trekking to Norway for the sole purpose of buying up every last diaper they can find. 
Here’s how the arbitrage math adds up. The ferry costs approximately $275 round trip, and gas is about $8 a gallon in Sweden, which, if we assume our car gets around 30 miles per gallon, gives us $435 in expenses. Throw in food, lodging, and other miscellaneous costs, and the total should come in around $600 or so. Remember, diapers costs more than twice as much in Lithuania as they do in Norway, so we only need to buy that much to break even. In other words, if we buy just $600 worth, which we can resell in Lithuania for double, we can cover our basic costs — and we can make enough profit to make the whole trip worth our while if we buy another couple hundred dollars worth. Of course, $1,000 worth isn’t very much when it comes to diaper arbitrage; Norwegian customs officials have seen people pack their cars with as much as $9,000 worth — good for more than $8,000 of profit. Not too shabby.
I don’t see how these prices can remain at such low levels in Norway for the foreseeable future…
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Duke Students on a Portfolio That Pays

2 Feb

Over the past year, I’ve been reading up on all kinds of investments and trying to determine where I can find some yield. So I enjoyed this New York Times story on Duke students who’ve come up with a “portfolio that pays.” The winning portfolio:

They were bullish on United States stocks, especially those of large companies, based on their predictions of a continuing recovery in housing, rising consumer confidence, strong retail sales and the continuing impact of the Fed’s quantitative easing program. They were also optimistic that Congress would avoid the so-called fiscal cliff and other threatened political calamities. But they were pessimistic about Europe and emerging markets, given the euro zone crisis and what they saw as slowing growth in countries like China and Brazil.

The team’s contest entry called for allocating 43 percent to United States stocks — 30.3 percent to a Russell 2000 index fund and 12.7 percent to a Russell 2000 fund that invests in midsize companies. They made no allocation to international stocks. Like more traditional models, they maintained a large allocation to fixed income, but weighted it heavily toward Treasury inflation-protected securities, or TIPS, whose yields rise with inflation. They allocated 32.1 percent to TIPS and 24.9 percent to an aggregate bond fund.

The result was a 9.7 percent projected annual return, with less volatility than the model funds they examined.

Personally, I think it’s a mistake they’re neglecting the international sector (especially emerging markets). I am also not as bullish on TIPS as these students. I do like the allocation to a more diversified Russell 2000 index than the broader S&P 500 index. Anyway, food for thought.

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Amazon as a Charitable Organization

31 Jan

Following the dismal 4th quarter earnings announcements by Amazon, detailed below, Amazon’s share price shot up by more than 10%.

  • Q4 revenue of $21.27 billion missed expectations of $22.23 billion
  • Q1 EPS of $0.21 missed expectations of $0.27;
  • The firm guided top-line lower, seeing Q1 sales of $15-$16 billion, below the estimate of $16.5 billion
  • The firm guided operating income much lower, seeing Q1 op income of ($285)-$65 Million on expectations of $261.4 MM
  • The firm said the its physical books sales had the lowest growth in 17 years
  • Total employees grew by 7,000 in the quarter and 32,200 Y/Y to a record 88,400
  • Worldwide net sales Y/Y growth was the slowest in years at 23%, down from 30% in Q3 and 34% a year ago
  • And, last and certainly least, LTM Net Income is now officially negative, or ($49) meaning as of this moment the firm with the idiotically high PE has an even more idiotic N/M PE.

The question is why? Matthew Yglesias has a great thought: Amazon is a charitable organization. To wit:

The company’s shares are down a bit today, but the company’s stock is taking a much less catastrophic plunge in already-meager profits than Apple, whose stock plunged simply because its Q4 profits increased at an unexpectedly slow rate. That’s because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon.

It’s a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.

Sometimes (often) the markets are a fool’s game.

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Risk Management at JPMorgan: Relying on Excel Spreadsheets

17 Jan

I spent some time this morning reading the recently published “JPMorgan Chase & Co. Management Task Force Regarding 2012 CIO Losses,” a 129-page report on how and why the Chief Investment Office (CIO) lost more than $6 billion for the company in 2012. The media has been quick to point the finger at Bruno Iksil, the so-called “London Whale” responsible for executing the trades. As Felix Salmon notes, the executive summary on the first 17 pages of the report is well-written and provides the context behind this trading disaster for JPMorgan.

I went through the other portions of the document and wanted to highlight that the Risk Management, particularly in the CIO, wasn’t up to snuff. First, this was a huge red flag:

The Firm’s Chief Investment Officer did not receive (or ask for) regular reports on the positions in the Synthetic Credit Portfolio or on any other portfolio under her management, andinstead focused on VaR, Stress VaR, and mark-to-market losses. As a result, she does not appear to have had any direct visibility into the trading activity, and thus did not understand in real time
what the traders were doing or how the portfolio was changing. And for his part, given the magnitude of the positions and risks in the Synthetic Credit Portfolio, CIO’s CFO should havetaken steps to ensure that CIO management had reports providing information sufficient to fully understand the trading activity, and that he understood the magnitude of the positions and what
was driving the performance (including profits and losses) of the Synthetic Credit Portfolio.

But the big question: why did it take so long for JP Morgan to discover that these trades were losing money for the company? Turns out, it had to do with rudimentary platforms in place to measure/track risk on a daily basis. Alas, they were relying on Microsoft Excel!

During the review process, additional operational issues became apparent. For example, the model operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another. In addition, many of the tranches were less liquid, and therefore, the same price was given for those tranches on multiple consecutive days, leading the model to convey a lack of volatility. While there was some effort to map less liquid instruments to more liquid ones (i.e., calculate price changes in the less liquid instruments derived from price changes in more liquid ones), this effort was not organized or consistent.

…

In addition to these risk-related controls, the Task Force has also concluded that the Firm and, in particular, the CIO Finance function, failed to ensure that the CIO VCG (Valuation Control Group) price-testing procedures – an important financial control – were operating effectively. As a result, in the first quarter of 2012, the CIO VCG price-testing procedures suffered from a number of operational deficiencies. For example, CIO VCG did not have documentation of price-testing thresholds. In addition, the price-testing process relied on the use of spreadsheets that were not vetted by CIO VCG (or Finance) management, and required time-consuming manual inputs to entries and formulas, which increased the potential for errors.

Yikes!

If you’re into risk management at all (like I am), the entire report is worth perusing.

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On Bargain Homes in Detroit

16 Jan

“You can’t go to California and get a pair of shoes for what you can get a house in Detroit.”

That’s a quote from this Bloomberg story on the distressed housing market in Detroit, and how some people are scooping up foreclosed homes by the dozens. According to the story, one man bought 290 Detroit properties for $189,600, which is less expensive than a single-family home in many U.S. Metropolitan areas.

A bit more from the story:

More than 6,500 Wayne County parcels were auctioned in 2011 and another 20,000 are expected for sale this year, said David Szymanski, the county’s chief deputy treasurer.

 

Roughly one-quarter of Detroit’s housing units are vacant, according to Detroit Future City, a 50-year blueprint for the city’s recovery. Mallach worked on the plan initiated by Mayor Dave Bing to redesign Detroit’s 139 square miles, larger than San Francisco, Boston and Manhattancombined for a shrinking population. It envisions such strategies as turning sparsely populated swaths into green space and farms.

 

About 150,000 of Detroit’s 385,390 lots are vacant or have unused buildings, Mallach said. About 66,000 parcels are publicly owned, and that number grows as unsold homes from tax auctions revert to the city or state.

 

Detroit Future City assumes the population will bottom out at about 615,000. It fell by 25 percent since 2000 to 713,000 in the 2010 U.S. Census.

More here.

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An FAQ: The Trillion Dollar Coin

9 Jan

A good FAQ explainer at The Atlantic on the trillion dollar coin idea that’s floating around Congress (and the blogosphere):

What’s this nonsense I’ve been hearing about a trillion-dollar coin? It’s got to be some kind of elaborate –
 
Stop. It’s no joke. At least no more than voluntarily defaulting on our obligations by refusing to lift the debt ceiling would be. It sounds like something out of the Simpsons, but thanks to a crazy technicality the Treasury really can create a trillion-dollar coin, which would let us keep paying our bills if the debt ceiling isn’t raised. It’s an absurd solution to an absurd problem, but a solution nonetheless. As they say, when in Washington….
 
No, I’m pretty sure this is from the Simpsons.
 
Almost. That was a $1 trillion bill, which Fidel Castro tricked out of Monty Burns, but this is real life, so it has to be a $1 trillion coin. A platinum coin, to be exact.
 
I’m almost afraid to ask, but why does it need to be a coin? And why platinum?
 
We don’t make the loopholes. We just find them. The Treasury can’t print money on its own, because the money supply is supposed to be the strict purview of the Federal Reserve … but that might not be quite so strict after all, thanks to a coin-sized exception. Congress passed a law in 1997, later amended in 2000, that gives the Secretary of the Treasury the authority to mint platinum coins, and only platinum coins, in whatever denomination and quantity he or she wants. That could be $100, or $1,000, or … $1 trillion.
 
Read on to find out: what happens if the coin is stolen?

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Warren Buffett on a Minimum Tax

27 Nov

Warren Buffett is in the news again, this time stirring up some controversy with his op-ed in The New York Times, where he argues the ultra-rich need to pay a minimum tax:

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

He cites some hard numbers:

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

For the rest of you: how to reduce your taxes in 2012.

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