TradeFxForLive: Maret 2011

Kamis, 31 Maret 2011

Japanese Intervention was Not Sterilized - What Does that Mean?

The Bank of Japan said explicitly last night that their intervention will NOT be sterilized. This is VERY good because it gives their intervention efforts a greater chance of succeeding.
Intervention by central banks is one of the most important short-term and long-term fundamental drivers in the currency market. For short-term traders, intervention [...]

Source: http://www.kathylien.com/site/japanese-yen/japanese-intervention-was-not-sterilized-what-does-that-mean

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Stabilising nuclear plant to take years

Yukio Edano, Japan?s chief cabinet secretary, hoped within weeks to be able to stem the leakage of radiation and prevent the situation at the plant worsening

Source: http://www.ft.com/cms/s/0/38129dea-5bc2-11e0-b8e7-00144feab49a.html?ftcamp=rss

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Life Planning Exercise: Creating My Perfect Day

I am currently reading The Art of Non-Conformity by Chris Guillebeau (review coming shortly). In one of the early chapters, he talks about an exercise where you write out how your perfect, idealized day would go in great detail, hour-by-hour. I’ve read about this method other places, but never actually write it down. As I [...]

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Ex-Buffett lieutenant Sokol defends himself

David Sokol, once regarded as the heir apparent to Warren Buffett, denied allegations of wrongdoing Thursday, a day after the announcement of his resignation as chairman of several Berkshire Hathaway subsidiaries.

Source: http://rss.cnn.com/~r/rss/money_latest/~3/_PlfX23PiLA/index.htm

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College and Salary: "With Whom" You Study Matters as Much as "What" You Study

The topic of how attending a "good college" relates to getting a "good job" came up in a recent conversation I was having with my high school-aged son, whom I am encouraging to give serious consideration to both what he enjoys doing and what type of lifestyle he wants to have after he graduates from college.

Using the popular U.S. News & World Report ranking of universities and salary data from Payscale.com, we can take a look at the correlation between university attended and resulting mid-career median salary. The table below shows the top 30 U.S. universities and the mid-career median salary of their graduates.

As might be expected, Ivy League schools (Harvard, Princeton, Yale, University of Pennsylvania, Columbia, Dartmouth, Cornell and Brown) figure prominently on the list, along with the well-known science and engineering schools (Caltech, MIT) and the so-called non-Ivy Ivies (Stanford, University of Chicago, Duke, etc.).

The relationship between university attended and salary can be seen in the graph below.

The regression line is:

Mid-Career Median Salary = $121,400 - $900 x (Ranking of University Attended),

giving a decrement of about $9,000 in annual salary for each 10 spots in university ranking. For example, a graduate of a university with a ranking of about 5 might expect to have a mid-career salary of about $9,000 more per year than a graduate of a university with a ranking of about 15. The numbers actually show more scatter and skew than is captured by the linear regression, as evident in the following examples of ranking-university-salary:

4. Caltech, $115,000
5. MIT, $126,000
6. Stanford, $124,000

14. Johns Hopkins, $94,900
15. Cornell, $106,000
16. Brown, $107,000

24. UCLA, $97,000
25. University of Virginia, $97,200
26. USC, $103,000.

The general trend of higher ranking (smaller number) correlated to higher salary (correlation of .63) is clear. While there are, of course, many individual exceptions to the rule, one of the tell-tale indicators for predicting lifetime earnings and net worth is the college one attends.

As I tell my son, the college one attends (i.e., with whom one studies) is just as important as what one studies in college. Choice of a college typically has a lifelong impact on one's social circle, which in turn often influences whom one does business with throughout one's career.

Source: http://lloydsinvestment.blogspot.com/2009/08/college-and-salary-with-whom-you-study.html

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MicroPlace Microlending: Free $20 to Invest

As you may know, I support microlending to poor entrepreneurs in developing countries through Kiva and Microplace. I have a little under four thousand dollars spread across both sites, and intend to continuously reinvest my principal and any earned interest to create a “foundation” where my money keep being lent out over and over. Kiva [...]

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Whiners

Lately I've encounterd a much greater than usual number of whiners. So many people I know and many I don't have lost their jobs. Some of the luckier whiners still have their jobs, but they're whining about pay cuts and longer hours. The luckiest whiners I know still have a job but whine about not getting a raise or a bonus.

Times are tough, but really, what's the point of whining about it? Wouldn't it be better to put that energy into looking for a job instead? Or how about using it to learn a new skill to sell on the open market?

Having an income, any income at all, that you yourself earned brings pride and a sense of accomplishment. All the whining in the world can't replace that.

Source: http://www.myinvestmentblog.com/whiners

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Potential Buffett Successor David Sokol Resigns From Berkshire Hathaway

Berkshire Hathaway executive David Sokol, who served as chairman of MidAmerican Holding Company and Johns Manville as well as Chairman and CEO of NetJets, resigned from the company in a letter to Warren Buffett Monday.

Source: http://blogs.forbes.com/steveschaefer/?p=2679

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Daily Forex Analysis ? March 23, 2011

EURUSD Analysis. Being contained by 1.4281 (Nov 4, 2010 high) resistance, EURUSD pulled back from 1.4248, suggesting that a cycle top is being formed on 4-hour chart. Range trading between 1.4100 and 1.4248 is expected in a couple of days. However, the fall from 1.4248 is treated as consolidation of uptrend from 1.3752, another rise [...]

Source: http://blog.forexcycle.com/6098/daily-forex-analysis-march-23-2011/

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Reaching the ?I Can Do This? Moment

Like millions of other people out there, I decided to start trying to lose weight and get in better shape on January 1st. I cut out virutally all meat and was eating tons of fresh vegetables and whole grains. I went to the gym, ran outside, or played sports with friends nearly every day. I [...]

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Hedging Is Simple, But Market Timing Is Not

What follows is some perspective on the buzz we're hearing about portfolio and fund manager performance in this horrendously painful bear-market year, which most investors would love to forget about--if only they could.

While Miller Missteps (Again) . . .

Recall that around this time in 2005, Bill Miller was being hailed as the most successful fund manager of all time, with his Legg Mason Value Trust Fund outperforming the S&P 500 for a record-breaking 15th straight year. Then, in 2006, Value Trust underperformed for the first time since 1990, returning just 6% versus the S&P 500's double-digit 16%. Last year, in 2007, Miller again underperformed, this time -7% (i.e., a loss) for Value Trust versus a 5% gain for the S&P 500. In 2008, as of last Friday, Nov. 14, Value Trust is down a whopping 50%, versus a 40% decline for the S&P 500, making it quite likely that Miller will underperform once again--for the third straight year.

In his third-quarter commentary published last week (Nov. 12), Miller discusses flaws in the government's delayed ("too late") response to the financial crisis, while also admitting,

"I have made enough mistakes in this market of my own, chief among them was recognizing how disastrous [government] policies being followed were, yet not taking maximum defensive measures [italics mine], believing that the policies would be reversed or at least followed by sensible ones before things got completely out of control."

Miller is alluding here to his failure to implement an appropriate hedging strategy to protect his fund against the precipitous collapse of the market during the past couple of months. With 20/20 hindsight, of course, it is easy to say that he (or anyone long the market) should have either sold their equity holdings, shorted S&P 500 futures, or bought puts to protect the downside.

. . . Hussman Hedges

While most equity fund managers, like Miller, are suffering complete and unforgiving drubbings this year, one fund manager is making news due to his notable outperformance in this year's most disastrous market in decades. John Hussman's Strategic Growth Fund (HSGFX) is running only slightly negative year-to-date through Oct. 31, which sure beats the 40% or larger decline most fund managers are experiencing. Of course, Hussman's stand-alone performance begs the question, what's his secret formula?

Though academic credentials do not necessarily or even typically help one become a better investor, perhaps at least it is no detriment to his performance that Hussman holds a Stanford economics Ph.D. and is a former finance professor at the University of Michigan. His investment strategy, as described on his website and in his fund's prospectus, seems to be a rational approach firmly grounded in interpreting historical data, utilizing "observable evidence" (sounds scientific . . .) in an attempt to distinguish between favorable and unfavorable "market climates" (weather forecasting analogy?), taking into account both "market action" (an allusion to physics or sports?) and valuation (yeah, he has a value-investing approach, similar in some respects to Buffett and Grantham).

To date, Hussman's differentiator has been his hedging. What really distinguishes his investment style from that other fund managers is his ongoing implementation of partial or full hedging of his underlying long-equity portfolio, even though he could potentially become fully invested or even leverage up beyond full exposure if market conditions ever call for it:

"In conditions which the investment manager identifies as involving high risk and low expected return, the Fund's portfolio will be hedged by using stock index futures, options on stock indices or options on individual securities. . . . The Fund will typically be fully invested or leveraged when the investment manager identifies conditions in which stocks have historically been rewarding investments."

In Hussman's framework, although market action remains unfavorable, the market's recent decline has shifted valuation from unfavorable to more favorable, leading him to begin transitioning his portfolio from being fully hedged (underlying stock positions essentially 100% protected by put-call combinations as of a few months ago) to taking on moderate market exposure (now 70% to 80% protected). Currently, Hussman views any near-term market declines as opportunities to strip away a few more layers of protection and increase market exposure, since stocks have become "both undervalued and oversold."

Because Hussman varies the amount of his protection (or exposure) to market moves in accordance with market conditions, he is, in my opinion, attempting at least partially to "time" the market, even though he insists that he is not pursuing "market timing" in the usual sense of the term. In his own words from a recent weekly commentary:

"The Strategic Growth Fund is not a 'market timing' fund. Nor is it a 'bear' fund or a 'market neutral' fund. Strategic Growth is a risk-managed growth fund that is intended to accept exposure to U.S. stocks over the full market cycle, but with smaller periodic losses than a passive buy-and-hold approach. We gradually scale our investment exposure in proportion to the average return/risk profile that stocks have provided under similar conditions (primarily defined by valuation and market action). We make no attempt to track short-term market fluctuations. We leave 'buy signals' and attempts to forecast short-term market direction to other investors, preferring to align our investment positions with the prevailing evidence about the Market Climate."

Hedging Versus Market Timing

To understand the impact of hedging on Hussman's longer-term performance, we can look at his fund's returns, which he conveniently discloses both before and after hedging.

Since its inception in 2000, Hussman's Strategic Growth Fund has carved out a winning track record, as evidenced by the stellar performance chart displayed prominently on Hussman's website. For the eight-year period, while the S&P 500 has lost 1.04% annually, Hussman's unhedged portfolio has gained 6.37% annually, and his Strategic Growth Fund has returned 10.76% annually. These results indicate that Hussman's stock-picking ability (or is it luck?--more on this topic below) has boosted his annual return to some 741 b.p. above the S&P 500, while his hedging has apparently added another 439 b.p. to his annual performance. This is a very solid track record over the past eight years, particularly in light of the two bear markets fund managers have had to endure, both in 2000-2002 and beginning from the last quarter of 2007.

Before jumping to conclusions about Hussman's apparent analytical genius or market clairvoyance in largely avoiding both bear markets, let's take a closer look at the data--his data--posted here on his website for the casual (or better, not so casual) perusal by anyone interested. Taking the 33 quarters of data from the third quarter of 2000 through the third quarter of 2008, we can make a scatter plot of his unhedged and realized fund performance versus the S&P 500, as shown in the chart below.

If Hussman's realized fund performance points (in pink) on the chart seem to sketch out a typical, albeit somewhat noisy, hockey-stick-shaped option payoff diagram, this graphical result should come as no surprise, since, after all, the basic purpose of Hussman's hedging is to protect his portfolio against market declines, while allowing participation in market upside potential.

Let's take our analysis of Hussman's performance a step further. In the chart above, observe that the pink points sit above the blue points on the left half, while the reverse is true--pink below blue--on the right half. To understand this behavior, we need to distinguish between hedging and market timing:

Hedging: The underlying unhedged position is Hussman's long-equity exposure to his chosen portfolio of stocks. If he were always (i.e., without attempting to time the market) simply to buy put options with at-the-money or slightly out-of-the-money strikes to protect his portfolio against market downside, the puts would show a profit when the market declines but would expire worthless when the market rises. The result would be an insurance-like payoff pattern from the hedge--protection against loss in a declining market, but with a cost relative to the unhedged position particularly evident when the market rises.
Market Timing: On the other hand, if Hussman were attempting to time the market and successful in doing so, presumably by selectively hedging to protect against downside under risky market conditions but operating without a hedge when prevailing conditions are less risky, the data ought to show not only realized fund performance above the unhedged case (pink above blue in the chart) when the market declines, but also at least an occasional occurrence of this type of outperformance of his fund over the unhedged case when the market rises.

By inspection of the data, we can see that for the 14 quarters when the S&P 500 fell about 2% or more, Hussman's realized fund performance always exceeded the S&P 500, indicating that, to date, he has always succeeded in avoiding any sizable market loss. However, there is also a flipside to this flawless track record in falling markets, namely, in the 13 quarters when the S&P 500 rose about 2% or more, Hussman has never outperformed the market. In fact, the negative correlation between the S&P 500 and Hussmans's hedge (being just the difference between his realized fund return and his unhedged return) is a strikingly large -0.96.

What this all indicates is that Hussman's performance is basically consistent with that of someone who makes a practice of always hedging with put options, regardless of market conditions. By and large, it is not what we should expect to see from a portfolio manager implementing a market timing strategy, even though Hussman does at least occasionally remove some portion of his hedge to reduce cost when he believes that risk is low and the chance of a market rise is high.

Skill Versus Luck

The above classification of Hussman as a hedger and not a market timer is in agreement with the often-stated warning to investors and traders that market timing is difficult, if not impossible, and should be attempted only with extreme caution by anyone with risk aversion. In a Tech Ticker interview last week on the topic of skill versus luck in stock-picking and market timing, Professor Kenneth French (whose name figures prominently alongside Fama's in finance theory) states:

"There this a whole academic literature trying to figure out who won because of luck and who won because they truly had skill. We don't know how to do it. I mean there's a little bit of evidence that we can distinguish luck from skill, but, in essence, it's absolutely futile.

"So, when I have a mediocre M.B.A. student who spent the weekend studying Morningstar and is convinced he knows how to pick the winning fund, what I challenge him with is sort of, 'Geez, you know, it's good that you didn't even need to bother to get a Ph.D. and spend the last 30 years of your life solving this problem. You know, those of us who did that, we don't know how to do it. But, congratulations. That was a really productive weekend!'

". . . To basically try to distinguish skill from luck . . . [is] almost impossible. . . . What I'm saying is, I can't tell . . . one from the other. . . . If I can't tell good from bad, why play the game?"

Surely, coming from an accomplished expert in finance, this type of statement is enough to throw into question anyone's claim of having ability to pick stocks and time the market to achieve excess returns in a consistent fashion.

What this means is that we, the investing public, should not read too much into the performance of successful fund managers, however superb their performance may have been (in Miller's case) or appear to be (in Hussman's case). Both Hussman and Miller have certainly assembled relatively long track records as ostensibly excellent stock-pickers, but, as history has shown, anything is possible. If Miller's 15-year winning streak can suddenly undergo a complete metamorphosis into a 3-year (or longer?) losing streak, and if Hussman's track record is solid but exhibits inherent underperformance in rising markets as consistently as it displays outperformance in falling markets, we can only suspect that unquestionable evidence of skill, as opposed to luck, in investing has become that much harder to find.

Although anyone actively managing a stock portfolio may hate to admit it, Professor French is most likely right--unfortunately, in the world of investing, we will probably never really be able to tell if our own or anyone else's performance stems primarily from luck or, as many may want to believe, from having a discernible edge over other investors who are only almost-as-skilled as ourselves.

Source: http://lloydsinvestment.blogspot.com/2008/11/hedging-is-simple-but-market-timing-is.html

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Rabu, 30 Maret 2011

Free Star Alliance Silver Elite Status (Free Checked Bag on Continental/United and US Airways)

British Midland International, an airline based in the UK, is currently offering new members of their frequent flier club Diamond Club instant a free upgrade to Silver Elite status, good for 12 months. The important associated perk is that this gets you Silver status for Star Alliance, a global group of airlines including Continental, United, [...]

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Euro Buoyed by Rate Hike Expectations, Despite Unresolved Debt Issues

From trough to peak, the Euro has risen 9% over a period of only two months. You wouldn’t ordinarily expect to see this kind of appreciation from a G4 currency, especially not one whose member states are on the brink of insolvency and which itself faces threats to its very existence. In this case, the [...]

Source: http://www.forexblog.org/2011/03/euro-buoyed-by-rate-hike-expectations-but-debt-issues-remain-unsolved.html

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What the Latest CDS Spreads Show about EZ Concerns

The euro has weakened this morning on fresh concerns about Ireland and Portugal who is scheduled to have an austerity vote this week. The following table of 5 year CDS spreads show that spreads of Portugal and Ireland have widened materially, reflecting a greater risk of a bailout. Ireland’s CDS spread is nearly [...]

Source: http://www.kathylien.com/site/euro-sovereign-debt-crisis/what-the-laetst-cds-spreads-show-about-ez-concerns

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Google mimics Facebook with new +1 button

Facebook has the "Like" button. Now Google has the "+1" button.

Source: http://rss.cnn.com/~r/rss/money_latest/~3/NTdp-2CY7rI/index.htm

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JPMorgan's Dimon: No mortgage writedowns

The head of JPMorgan Chase said Wednesday that banks would not consider writing down mortgages for homeowners who can't make payments, an idea at the center of talks aimed at fixing the mortgage mess.

Source: http://rss.cnn.com/~r/rss/money_latest/~3/-kkPpM93ZtA/index.htm

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Huge Bull Market In Agriculture

Source: http://jimrogers-investments.blogspot.com/2011/03/huge-bull-market-in-agriculture.html

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Maine Legislation Sends Message To Young Professionals

Most young professionals in the country are quickly becoming aware of the political climate in Maine, thanks to recent features in both The Daily Show and The Colbert Report that aligns Maine Governor Paul LePage with Wisconsin Governor Scott Walker.

Source: http://blogs.forbes.com/elisadoucette/?p=91

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Hey, Baseball Fans: Winning Takes Money

Investing and professional sports have a lot in common--competition, winners and losers, uncertain outcomes, lots of data, and a wide range of opinions among participants, spectators and analysts. During a conversation the other day with a friend, I casually mentioned what I thought to be an accepted truism in the sport--that, just as money is a vitally important determinant in the business world, Major League Baseball teams with higher payroll (hence, better players by presumption) ought to win more often than teams with lower payroll.

To my surprise, my friend, who is a baseball fanatic, retorted that money and winning are not as intimately linked as one might presume, and proceeded to recite from his encyclopedic memory a number of examples of World Series play over the past 10 years--the Arizona Diamondbacks over the New York Yankees in 2001, the Los Angeles Angels over the San Francisco Giants in 2002, and the Florida Marlins over the Yankees in 2003--all cases in which teams with significantly lower payroll took the championship from their more generously compensated opponents. All right, I had to admit, I take "strike one" against my follow-the-money presumption.

After getting off the phone, I did a quick web search to check further. The first study I came across stated that "results from the two years of data [2002 and 2003] indicate that there is no real correlation between a team's salary and its win percentage." In other words, higher salaries do not significantly boost win percentage. Hmm--strike two, I mused. . . .

Wanting to avoid striking out, I resolved to find the data and run numbers myself.

Team Payroll and Win Percentage Data

The USA Today Salaries Database gives MLB payroll figures for all 30 pro baseball teams in both the American and National leagues going back to 1988. The ESPN MLB standings database shows seasonal win percentages from 2002. Combining the data for the seven years from 2002 to 2008, we can generate the scatter plot shown below.

A least-squares analysis of team payroll versus win percentage gives the "best fit" regression line:

Win Percentage = 0.426 + (Team Payroll in $ Millions) x 0.00097,

indicating that approximately each one million dollars of team payroll adds about 1 point out of 1,000 (i.e., 0.001) to the win percentage. The t-statistic for the regression is 6.96, which means that we can state this relationship between payroll and win percentage with an extremely high degree of confidence (in fact, the likelihood of a false positive is less than one in ten billion!).

It is also instructive to look at the data on a team-by-team basis for the same seven-year period from 2002 to 2008. Notice how the New York Yankees and the Boston Red Sox have not only the first and second highest average team payrolls ($181 million and $122 million) but also the first and second highest average win percentages (0.600 and 0.580), respectively. At the other extreme, the three teams with the lowest average win percentages--Kansas City Royals at 0.410, Tampa Bay Rays at 0.423, and Pittsburgh Pirates at 0.431--are among the five Major League teams with the lowest average team payroll (each less than $50 million).

I also provide a table showing the payroll of baseball teams playing in the World Series over the past 20 years (actually from 1988 through 2008, with the exception of 1994 when, as baseball fans will recall, the Series was cancelled due to a player strike), assisted by data from Baseball Almanac. The results reveal that in 14 out of the 20 years, or 70% of the time, the team with the higher team payroll defeated the team with the lower payroll in the World Series. This result is consistent with the strong relationship between team payroll and win percentage shown in the graphs above.

What I conclude is that money does matter in professional baseball. Teams that have higher payroll generally do win more games, both during the regular season and during the World Series. Suffice it to say: the correlation between performance and pay is surely at least as high in baseball (and, in all likelihood, in other profesional sports as well) as it is in the business world. On a related though distinct topic, I would conjecture that, based on the relationship between payroll and win percentages, it is undoubtedly much easier to predict outcomes in Major League Baseball than in the stock market and other financial markets.

A Note on Statistical Analysis

In case anyone is wondering why my conclusion differs so radically from the study I mentioned as being my "strike two," I provide an explanation here. Warning: Only those interested in statistical analysis should continue reading, since the discussion becomes somewhat technical. However, I encourage anyone who at least occasionally spends time looking for patterns in data to read on, since an important lesson in applying the right tools to the job at hand will arise from the detail.

The author of the study I cited chose to analyze that data using a multiple regression, in an effort to determine how each of three variables--starting pitchers' salaries (P), fielders' salaries (F) and closing pitcher's salary (C)--affects a baseball team's win percentage. For example, for 2003, the study produced the following regression result,

Win Percentage = 0.406 + 0.0022 x P + 0.0015 x F + 0.0018 x C,

along with corresponding t-statistics of 1.72, 1.46 and 0.41 for the significance of the regression coefficients corresponding to independent variables P, F and C, respectively. With all t-statistics less than 2.00, the study was unable to discern at the standard minimum of 95% confidence any dependence of win percentage on the three payroll variables.

Interestingly enough, when I perform the analysis using the same 2003 data, but formulating the problem as three separate one-variable single regressions (instead of one comprehensive three-variable multiple regression as employed in the study), I arrive at t-statistics of 2.93 for dependence of win percentage on starting pitchers' salaries, 2.77 for dependence on fielders' salaries, and 1.49 for dependence on closing pitcher's salary--all higher than the t-statistics for the multiple regression given above. Further, if I combine starting pitchers', fielders' and closing pitcher's salaries into a single variable (i.e., P+F+C) and again run a one-variable regression, I find an even higher t-statistic, namely, 3.49.

In other words, by "zooming out" and viewing the data using an effectively lower resolution microscope, we actually find a more robust statistical pattern--this is reminiscent of the proverbial necessity of stepping back from the individual trees in order to view the grander forest. But, you might be wondering, how can this be? How is it possible in a regression to see a pattern at a lower resolution that essentially disappears at a higher resolution?

To understand the mechanism behind this paradoxical statistical behavior, consider a very simple regression example. Suppose we are trying to understand the relationship between a dependent variable, z, and two independent variables, x and y, based on five data points:

Data point 1: x = 1, y = 1 and z = 1
Data point 2: x = 2, y = 2 and z = 2
Data point 3: x = 3, y = 3 and z = 3
Data point 4: x = 4, y = 5 and z = 4
Data point 5: x = 5, y = 4 and z = 4.

Graphically, three plots are relevant:

a) Multiple Regression: Three-dimensional plot of x and y versus z,
b) Single Regression: Two-dimensional plot of x versus z (same as y versus z), and
c) Single Regression: Two-dimensional plot of combined variable, x+y, versus z.

In the multiple regression, the t-statistics are 3.3 for each of x and y. Observe the "dispersion" of data points 4 and 5 in the three-dimensional plot, with each of these points offset in a different direction from the straight line that can be drawn through data points 1, 2 and 3. This dispersion adds extra error to the regression, creating a relatively poor regression fit to the data.

In the single regression of x versus z (or, symetrically, y versus z), four of the five data points are collinear, and only the fifth data point introduces error into the otherwise perfect linear fit. This tighter fit of the data to a straight line yields a t-statistic of 6.9, higher than in the multiple regression case.

Still better yet, if we regress on the combined variable, x+y, we end up with a t-statistic of 17.9, substantially higher than in either of the other cases. By combining x and y into a single variable, we eliminate the oppositely directed "dispersive meandering" of x and y. The combined variable allows the regression analysis to reveal a closer correspondence between the independent variable (x+y) and the dependent variable (z).

Back to Baseball . . . and a Lesson

In an analogous way, the baseball statistics study relying on multiple regression produces a poorer picture of the relationships between variables than does the single regression. Behind the scenes is probably a mechanism akin to the following: Owners and managers of a given baseball team work within budget constraints during any particular season, so that the total amount of money available to pay all players on the team may be viewed effectively as a fixed quantity for that year. If more money is spent paying starting pitchers, then less money is available to hire and pay fielders and closers. Similar to how in the simple example above, x is less than y at data point 4, but y is less than x at data point 5, a particular baseball team may decide to spend less of its budget on starting pitchers than fielders, while another team may decide to flip the allocation the other way around, with less of its budget going to fielders than starting pitchers.

When the salaries of the all pitchers and fielders are combined, a more meaningful variable results against which to regress the win percentages. For this reason, the single regression using the combined salaries produces a higher t-statistic and better fit to the linear regression model.

The basic lesson here is that, when analyzing problems, it helps always to look for simpler relationships, explanations and solutions first, before implementing more sophisticated analytical tools. In working with scientific, financial, economic, sports or any other type of data, we are often warned against fabricating false patterns (artifacts of the analysis) by overfitting data to a model. In a similar vein, our discussion shows how it is also sometimes possible to overlook robust patterns by forcing an overly complicated model onto an intrinsically simpler set of data.

Source: http://lloydsinvestment.blogspot.com/2009/03/hey-baseball-fans-winning-takes-money.html

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Grandparents + 529 College Savings Plans = Loophole?

There was a discussion on Bogleheads recently about giving money to grandparents so that could invest in a 529 college savings plan for their grandchildren. While it brought more light on what I think is a flawed financial aid system, it also presented a learning opportunity for me and any parent with college-bound kids. The [...]

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Tracking a Student Loan with GnuCash

I recently received an inquiry here from a reader interested in using GnuCash to track his student loan. Here is the text of that email:

Can you help with tracking student loans in GnuCash?

Every month when I pay my student loan I credit my Bank Account for the payment amount $100 I then debit the Loan payment Expense account for the same $100. But how can I track and reflect how much of my Liability has been covered and how much Education Liability i still have to be paid?

Thank you so much once again for your great blog!

Well first off, thanks for the compliment on the blog. (You know I just couldn't cut that part off the end of his message.)

OK, let's illustrate what happens when you apply for and receive a student loan from your bank. Let's say you apply for and receive a $10,000 loan. The first thing you do when you receive the loan is deposit the money in your checking account. In GnuCash this is reflected in two places. The checking account sees a balance increase equal to the loan amount of $10,000. At the same time you need to create a liability account with an equal $10,000 balance. This represents the principal of the loan you must repay. Here's how this looks graphically:

OK, now that the money is in our checking account, it's time to pay for tuition. When you write a tuition check for $10,000 the transaction is recorded in GnuCash as a debit to your checking account, thus decreasing the value of an asset. The transaction is also recorded as a credit to an expense account I've called Tuition Expense. In GnuCash, the Student Loan has now been received and spent. Here's how that tuition check looks in GnuCash:

Now comes the tricky part. They did tell you life gets more complicated after you graduate, right?

Every time you make a payment on your student loan, part of that payment goes to the bank in the form of interest on the loan and part goes to repay the principal on the loan itelf. Recording a student loan payment in GnuCash looks like this:

The $100 loan repayment check you write and send to the bank is recorded in GnuCash as a debit on your checking account, which is a cash based asset. In GnuCash you must also record two offseting transactions representing the portion of the payment which goes toward principal and the portion that goes to interest. For example, your next $100 payment may look something like this in GnuCash:

$100 debit to Assets:Checking $10 credit to Liabilities:Student Loan $90 credit to Expenses:Interest

As always, credits and debits on any transaction must balance.

How do you get the $90 / $10 split? Those amounts are the loan ammortization amounts. You can find them on every bank statement the bank sends you.

Source: http://www.myinvestmentblog.com/tracking-student-loan-gnucash

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RadioShack to Sell iPad 2

RadioShack (RSH) announced on Tuesday that it will be selling Apple's (AAPL) iPad 2 at its retail [...]

Source: http://video.forbes.com/fvn/market-updates/radioshack-to-sell-ipad-2

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Earning More Money

Earning more is an important and simple idea that is ignored far to often. Simple, doesn’t mean, easy, just easy to understand. This is something people should definitely consider in their personal financial planning. There is a important caveat to remember, people earning a lot of money often have large financial problems and go bankrupt. [...]

Source: http://investing.curiouscatblog.net/2011/03/28/earning-more-money/

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Selasa, 29 Maret 2011

Should we sell the farm and pay the tax?

Reader's Question: Next year we will sell our family farm and expect to net in excess of $200,000. Our tax preparer says to pay the tax and invest the rest. Is this correct? If so, where should we invest? My husband and I are both in our 60s and would certainly like more income to help us enjoy this stage of our life.

Since you are selling real estate, you should first determine whether or not your farm qualifies as your principal residence; in accordance with IRS rules, if your farm property is your home, you and your husband might qualify for exclusion of up to $500,000 in profits from your capital gains tax calculation. Here's a Bankrate.com article covering this home-sale tax exemption.

If your farm is not your principal residence, then it will likely be treated as an investment property and you can qualify for a "like-kind" 1031 tax-deferred exchange if you meet the IRS requirements. Again, here's a Bankrate.com article for an overview. You might consider swapping your farm for any of a variety of common types of rental income property (e.g., apartments, small offices, self-storage facilities). Appropriately selected rental properties are capable of offering solid positive cash flow, which can provide the income stream you are seeking. With real estate markets weakening across the country, now seems to be a good time to start looking for properties being offered at attractive prices by motivated sellers.

As your tax preparer suggests, you can alternatively just pay any capital gains tax you might owe upon sale of your farm and roll the after-tax proceeds into other investments of your choice. If you choose to follow this option, I would suggest paying close attention to fees and expenses when reinvesting. Minimizing investment management fees will tend over time to give you higher returns. If you are comfortable choosing individual stocks (including ETFs and REITs, many of which pay substantial dividends) and bonds on your own, you'll save by avoiding having to pay fees to a fund manager. Opening an account at a reputable discount broker can also help reduce transaction costs. If you decide that mutual funds suit your investment style better than buying individual securities directly, I suggest seriously considering only funds with low fees and low portfolio turnover.

In case you have not yet seen it, you might also wish to peruse my earlier comments on wealth generation in a five-part series on long-term investing.

Source: http://lloydsinvestment.blogspot.com/2008/04/should-we-sell-farm-and-pay-tax.html

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Oil Production by Country 1999-2009

The chart shows the oil production over the last decade by the top oil producing countries. Production totals include crude oil, shale oil, oil sands and NGLs (the liquid content of natural gas where this is recovered separately). Excludes liquid fuels from other sources such as biomass and coal derivatives. The chart shows the leading [...]

Source: http://investing.curiouscatblog.net/2011/03/08/oil-production-by-country-1999-2009/

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Big Bank Alternatives: Ally Interest Checking Account Review

With the megabanks like Bank of America and Chase gradually increasing requirements ratcheting up the fees, what is a good alternative checking account? I just closed down my Chase account of several years last month, but have kept my Bank of America for now. I usually tell people to go with a local credit union [...]

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Summit swings behind Libyan rebels

Indications by Washington that it could arm the rebels in the event that their confrontation with Col Gaddafi descends into a stalemate

Source: http://www.ft.com/cms/s/0/0d868318-5a2b-11e0-86d3-00144feab49a.html?ftcamp=rss

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Nowhere to go but up?

Are you scratching your head trying to figure out where this market is headed? Or maybe better put, why it's headed up now, when all indications are it should be bouncing along going nowhere or trending down?

Me too, but I have a theory for why it's headed the other way. I can't help but wonder if the fuel behind this rally is the lack of fuel for another crisis.

Can you think of any classes of investment that could be taken behind the woodshed? That's what happened in 1987, with stocks in general. It happened again in 2000 with internet stocks. This one was precipitated from real estate and debt speculation. What's left?

Could all this be happening simply because there are no other misbehaving investment classes? (At least none that we know of.) Maybe so. If true, then it's safe to say confidence in the system, in the economy in general, and the economy's ability to recover from a strong shock in particular is building.

But it won't build forever, not all by itself. The real question therefore becomes: Will these gains prove sustainable? Will the up trend last long enough for some glimmer of hope of recovery to materialize?

Source: http://www.myinvestmentblog.com/nowhere-go

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Natural Gas Stocks For A Changing Energy Landscape

While numerous questions remain about the fallout--both literal and figurative--of the nuclear reactor leaks in Japan, one thing seems certain: The tragic events are increasing anti-nuclear-power sentiment across the globe.

Source: http://blogs.forbes.com/investor/?p=10015

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Charles Schwab Buys OptionsXpress Brokerage

I got an e-mail this morning that my trading account with OptionsXpress is merging with Charles Schwab. Well, considering Schwab (SCHW) has a market cap over 20 times that of OptionsXpress (OXPS), it’s more like they bought OX for their options/futures trading platform and active-trader clients. The WSJ reports: OptionsXpress shareholders will get 1.02 shares [...]

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British Contraction Slightly Better ? Pound Unimpressed

The final release of British GDP was slightly better than the second one, but in line with the first – the economy squeezed by 0.5% in Q4 of 2010. GBP/USD doesn’t cheer up. The bad weather that the UK experienced towards the end of 2010 contributed to fall, but it’s apparent that the economy would

Source: http://feedproxy.google.com/~r/ForexCrunch/~3/vZjabClWFZw/

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Have An Investment Advisor? Make Them Sign This Fiduciary Pledge

The SEC has officially recommended that anyone that provides personalized investment advice to retail consumers should be subject to a fiduciary standard of conduct. Put simply, this means that anyone under the “financial adviser/money manager” umbrella has to be legally required to put your interests ahead of their own. Currently, many people providing advice are [...]

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AutoSlash.com: Car Rental Price Search Engine

It’s always fun to find out new tools to save you time and money. Started by some regulars on the Flyertalk travel forum, AutoSlash.com is a website specifically made for car rentals. Yes, all the big guys like Expedia and Hotwire do car rentals. However, this one is a bit different. First, you need to [...]

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Yen, Japanese Market And How To Play The Disaster

Source: http://jimrogers-investments.blogspot.com/2011/03/yen-japan-and-how-to-play-disaster.html

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100 Free Starwood Hotel Points For Earth Hour

Get 100 free Starpoints from the hotel reward program Starwood Preferred Guest for joining Earth Hour: Pledge to switch off your lights for one full hour on Saturday, March 26, 2011, from 8:30 to 9:30 p.m. local time, and receive 100 bonus Starpoints. Join the more than 500 Starwood hotels and resorts around the world [...]

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Senin, 28 Maret 2011

College and Salary: "With Whom" You Study Matters as Much as "What" You Study

Source: http://lloydsinvestment.blogspot.com/2009/08/college-and-salary-with-whom-you-study.html

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