Harlan Crow told Justice Thomas that he doesn’t want to be poor; expect Supreme Court to rule debt ceiling is unconstitutional.
We will be fine…
Harlan Crow told Justice Thomas that he doesn’t want to be poor; expect Supreme Court to rule debt ceiling is unconstitutional.
We will be fine…
“The structure is not genius; even for the exclusive hedge funds, genius turned out to have been a rising market.” – The Go-Go Years (pp. 348)
One of my goals with some additional time is to embark on “learning projects” across a few domains. Capital market history is one of those domains. That is where this book fits in. Expect more notes along similar lines.
Overall, I personally found the writing style of the author to be difficult to follow, in spite of my interest in the content. The story covers the period including the evolution of mutual funds and the stock exchanges, the rise in prominence of conglomerates, and the “Nifty Fifty” growth stocks.
It is possible that I am over-fitting, but history does seem to rhyme.
Three take-aways from the book:
“Indeed, by 1969 half of Wall Street’s salesmen and analysts would be persons who had come into the business since 1962, and consequently had never seen a bad market break.” (pp. 113)
This sounds familiar to a theme I hear today. Or maybe a theme I believe in today. Many investors today, if they came of age post-Great Financial Crisis (2007 – 2008) have known mostly good times with few meaningful setbacks. That has been a long period of time; close to 15 years, where any setbacks have quickly been reversed.
“At the start of December, Wall Street hung by its fingertips. Roughly one hundred Stock Exchange firms had vanished over the past two years through merger or liquidation. Forty thousand customer accounts were involved in the thirteen cases of liquidation, and most of them were still tied up, the customers unable to get their cash or securities.” (pp. 341)
“Legislation to create a federal Securities Investor Protection Corporation, on the model of the Federal Deposit Insurance Corporation to protect bank depositors, was before Congress; it had no chance of passage until the present mess in Wall Street was cleared up, and thus, while it might help in future crises, it was powerless against this one.” (pp. 341)
The details on the crisis within Wall Street itself was all new to me. See take-away #1. And, so were the origins of SIPC.
There were brokerage failures during the GFC. The causes of those were mostly characterized based on bad decisions and investments. Whereas, the brokerage failures during the period covered in the book appear to be based more on a bad business model that was not keeping up with the times.
Regardless, the thought of investors losing their securities or not having access to them for an extended period was a “new” risk to consider (https://www.investors.com/etfs-and-funds/sectors/stock-market-schwab-implodes-money-safe/).
“Where a series of corporate mergers is concerned, the current earnings per share of the surviving company lose much of the yardstick quality that the novice investor so trustingly assumes. The simple mathematical fact is that any time a company with a high earnings multiple buys one with a lower multiple, a kind of magic comes into play. Earnings per share of the new, merged company in the first year of its life come out higher than those of the acquiring company in the previous year, even those neither company does any more business than before. There is an apparent growth in earnings that is entirely an optical illusion.” (pp. 157)
“Moreover, under accounting procedures of the late nineteen sixties, a merger could generally be recorded in either of two ways – as a purchase of one company by another, or as a simple pooling of the combined resources. In many cases, the current earnings of the combined company came out quite differently under the two methods, and it was understandable that the company’s accountants were inclined to choose arbitrarily the method that gave the more cheerful result.” (pp. 157)
“The conglomerate game tended to become a form of pyramiding, comparable to the public-utility holding company game that flourished in 1928, crashed in 1929, and was belatedly outlawed in the dark hangover days of 1935. The accountant evaluating the results of a conglomerate merger would apply his creative resources by writing an earnings figure that looked good to investors, they, reacting to the artistry, would buy the company’s stock, thereby forcing its market price up to a high multiple again; the company would then make a new merger, write new higher earnings, and so on. The conglomerate need neither toil nor spin – only keep buying companies and writing up earnings. It was magic, until the pyramid became top-heavy and fell.” (pp. 158)
This is why my favorite financial statement is the Cash Flow Statement; a topic for another post. At least investors during the period were focused on earnings. That seems to be a novel idea for current investors.
And a bonus take-away:
“For example, those familiar old forces so long so helpful to business management in getting the most possible work out of low-level employees – company loyalty and personal competitiveness – scarcely seemed to operate on the new breed of back-office employees at all.” (pp. 196)
Apparently they had millennials back in the 1960s too.
A few other recent book notes:
I love this chart produced by Capital Spectator on a monthly basis:
Two things I find interesting:
Influential Reads – March 2023
“If you’re going to panic, panic first.” – Old adage
Well, March was exciting. Inflation and bank failures…a recipe for…the stock market to crush it?
In my first full month of semi (?) retirement, we had a bunch of house guests and made a short trek up to Ketchum, Idaho for some skiing at Sun Valley and skating at Galena Lodge .
Here are my most influential reads for the month – in no particular order:
Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.
Top clicks across the site last month:
Updated stats:
Read Articles | Books | |
January | 80 | 0 |
February | 62 | 2 |
March | 67 | 2 |
April | ||
May | ||
June | ||
July | ||
August | ||
September | ||
October | ||
November | ||
December | ||
Total | 209 | 4 |
Wild week. And it is not over.
Two things I am watching.
Source: Fred
Source: CEFConnect.com
Wow. Stunning collapse in short duration yields.
Source: Marketwatch.com
Over 100 bps on the two year.
And what is even more interesting to me is the gap between the current Fed Funds target rate and these rates:
Source: Bloomberg.com
Seems like that is going to need to resolve itself somehow, at some point.
Despite the Fed raising interest rates, credit conditions were actually relaxing on some levels in the back half of 2022.
“Financial conditions have loosened significantly in recent months and, by some measures, are around levels that prevailed last March when the Fed initiated this hiking cycle.” – Why the Federal Reserve Should Raise Rates by Half a Percent
Equities were rallying through this period, unsurprisingly. So, were digital bit apes and other assorted things.
However, there appears to be evidence that credit conditions are now heading the other way:
We have had a 15 year bull market with low interest rates and lots of liquidity. In other words, “Disneyland.”
My sense is most market participants are going to be slow to change how they learned to behave during the bull market cycle, until they are forced to do so.
Influential Reads – February 2023
“Standards apply not just to the quality of work you produce but the opportunities you work on. If you accept substandard work from yourself, you’ll only get average work from others. If you say yes to average projects, you’ll have no time for exceptional ones.” – Brain Food, Farnam Street
Big news in my world: I resigned my CFO role at a private equity backed software maker after selling the business to a new private equity group. I will be taking some time off to “to evaluate, to collect, to dream, to wonder and to wander.”
Reading and writing more is definitely a goal.
Here are my most influential reads for the month – in no particular order:
Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.
Top clicks across the site last month:
Updated stats:
Read Articles | Books | |
January | 80 | 0 |
February | 62 | 2 |
March | ||
April | ||
May | ||
June | ||
July | ||
August | ||
September | ||
October | ||
November | ||
December | ||
Total | 142 | 2 |
“If you stick to a path that is no longer worth pursuing, whether it’s a relationship that isn’t going well, or a stock that you’re invested in that’s losing money, or an employee that you’ve hired who isn’t performing, that is when you lose ground.” – Brain Food, Farnam Street
I have some thoughts here, but have not had the time to put them into writing. So I am not sure if they are good thoughts or not.
I continue to feel the risks here are massive and still mostly hidden, and there is a good chance of getting squished. Which I would prefer not to have happen. Squishing mechanisms include but are not limited to U.S. treasury market illiquidity, imbalances created by the currency market / massive USD strength, and real estate market trend changes.
Midterm elections will be interesting. But I cannot watch. There seems to be a faction of people that are “bat shit” crazy. And there is not a rational middle ground between “bat shit” crazy and not “bat shit crazy”. So, we should just stop trying. But tolerating “bat shit” crazy is not a good option.
And, I think you have witnessed peak Zuckerberg and Musk, but for slightly different reasons. Do you want to be bold and call peak Private Equity while we are at it?
Continuing to notch some “easy” reads:
And that got me to my objective:
Here are my most influential reads for the month – in no particular order:
Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.
Top clicks across the site last month:
Updated stats:
Read Articles | Books | |
January | 89 | 1 |
February | 110 | 0 |
March | 102 | 3 |
April | 103 | 2 |
May | 134 | 3 |
June | 74 | 0 |
July | 82 | 2 |
August | 112 | 7 |
September | 72 | 4 |
October | 61 | 4 |
November | ||
December | ||
Total | 939 | 26 |
“When you are a Bear of Very Little Brain, and you Think of Things, you find sometimes that a Thing which seemed very Thingish inside you is quite different when it gets out into the open and has other people looking at it.” ― The House at Pooh Corner by A.A Milne”
Writers that can consistently and frequently write new and interesting pieces always impress me. I am pretty thrilled if I have what I consider to be one new and unique thought a month. Then have the luck to capture that fleeting moment down in writing. And, that generally turns into the Winnie the Pooh moment described above.
That previous paragraph may be an awkward way of explaining why I have been fairly quiet these days, on top of just being busy at work.
For similar reasons, reading was a bit off this month – although I did notch some easy reads.
Correct, I am a touch out of order on the Travis Mcgee series, but that does not seem to matter too much.
Here are my most influential reads for the month – in no particular order:
Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.
Top clicks across the site last month:
Updated stats:
Read Articles | Books | |
January | 89 | 1 |
February | 110 | 0 |
March | 102 | 3 |
April | 103 | 2 |
May | 134 | 3 |
June | 74 | 0 |
July | 82 | 2 |
August | 112 | 7 |
September | 72 | 4 |
October | ||
November | ||
December | ||
Total | 878 | 22 |