John At The Center

Dividends on the other hand actually are good for investors despite the tax consequences. The investor that reinvests their dividends rather than accept a check does better over the long haul than investors that do with buybacks. Dividends also tangibly increase total return on a stock-buybacks don’t. Dividends are cheap for a company to administer, buybacks are not. Traditionally, distributed dividends point to the health of a company-buybacks don’t.

In my opinion, stock buybacks are generally bad for investors.

via Dividends Versus Share Buybacks « Points and Figures.

The stock answer to this quandary is that we must invent new industries and re-train workers in the skills required to drive them; but, frankly, that’s bullshit and I think we secretly all know it. The truth is, there is no good answer to this quandary.

One thing does seem clear, though. The US Chamber of Commerce, Business Roundtable and Republicans generally have the wrong answer. The reason businesses are not hiring is not that their taxes are too high or that they’re over-regulated or that their healthcare costs are too high or that they don’t have enough cash or that they can’t borrow. The reason is that there’s fewer and fewer people left to buy their stuff (except the Chinese, but that’s another story). It’s not even clear, really, that’s there’s anything government can do. But if we have to pick between the Republican solution and the Democrat one, well, the Democrats win by default.

via The Economy: Why It Sucks – The Awl.

The danger today, as opposed to prior deleveraging cycles, is that the deleveraging is being attempted into the headwinds of a structural demographic downwave as opposed to a decade of substantial population growth. Japan is the modern-day example of what deleveraging in the face of a slowing and now negatively growing population can do. Prior deleveraging periods such as what the U.S. and European economies experienced in the 1930s exhibited a similar demographic with the lowest levels of fertility in the 20th century and extremely low population growth.

via Bill Gross: Deleveraging Will Super-Painful Because We’re In Deep Demographic “Doo-Doo”.

I have long maintained that even within a structural bear market, there are huge returns to be made in equities from participating in short-lived cyclical rallies like the one we have just seen. The Nikkei regularly used to enjoy 40-50% rallies as policy stimulus drove pronounced cyclical upturns in both GDP and profits. You had to remember however that you were still in a structural bear market and you had to get out when the cycle began to top out. A downturn in the leading indicators proved to be a very useful sell signal for equity investors.

via If The US Is Japan, Then You Must Watch The Leading Indicators.

“This may be a way of keeping a high-margin capital- markets business in the fold, within the language of the law,” said David Hendler, a senior analyst at New York-based research firm CreditSights Inc. “They would be transforming it from an- interest-plus-capital-gain business into a fee business.”

Citigroup and Goldman Sachs Group Inc. are among U.S. firms grappling with provisions in the law signed last week requiring banks to stop using their own money to wager on securities and markets. The changes were advocated by former Federal Reserve Chairman Paul Volcker, who said banks supported by federal deposit insurance shouldn’t be allowed to speculate

via Citigroup May Move Prop Traders to Hedge Funds for Volcker Rule – BusinessWeek.

I learned long ago that while strategies have no costs, implementing them does. Because strategies have costs, we often see that they fail to deliver real world results that simulations suggest they might. Let’s take a look at the CANSLIM system.

via Don’t Confuse Strategy with Outcome – CBS MoneyWatch.com.

Jeffrey Gomberg, 32, worked for a trading firm that paid him a low-six-figure income after four years on the job. His trader colleagues, by contrast, made millions manipulating the algorithms he’d written.

Many programmers are immigrants or were hired out of college and make $80,000 to $150,000 a year.

Making “low 6 figures,” Gomberg felt used. So he and a fellow programmer quit and made a deal with HTG Capital Partners of Chicago. Now Gomberg keeps 40% to 80% of net profits and retains ownership of the code he writes.

“We designed this deal so we wouldn’t lose intellectual property,” he says. “If it doesn’t work out, we can go somewhere else and take all the software [that we developed]. That’s really the key.”

HTG Capital Partners’s owner, Christopher Hehmeyer, strikes an interesting deal with programmers.

If a programmer brings money with him, and puts up at least $250,000 to become an HTG partner, Hehmeyer hikes his percentage of the take.

As a result of the sweet deal, Hehmeyer is blowing up right now. He told Forbes he gets three to five inquiries a week from high-frequency programmers looking for better gigs.

via Programmers Revolt Against Traders Making Way More $$ Using Their Algos.

Theories of unemployed labor are a subset of theories of unemployed resources.

The U.S. housing vacancy rate–an unemployment rate for homes–is at its highest level since at least 1965 (see figure). Why? Is it sticky prices? Lack of aggregate demand? Structural?

via Marginal Revolution: Why are so many homes unemployed?.

Regulators are preparing rules that will require the majority of privately traded derivatives be cleared through central counterparties, which stand between trading partners and guarantee the trades.

Goldman’s clearing business will offer client clearing for interest rate, credit, foreign exchange, equity and commodity derivatives.

Derivatives are based on underlying securities such as stocks, bonds, foreign exchange or commodities or are used to bet or protect against changes in interest rates.

via Goldman Starts Derivatives Clearing Service – DealBook Blog – NYTimes.com.

Enter Peter Morris’s “Private Equity, Public Loss?”, a report written for the Center for the Study of Financial Innovation, which highlights the basic misapprehensions that Mr. Morris believes many hold of the industry.

In the report, Mr. Morris says many investors are mislead to believe “interests are aligned,” a belief belied by a reality that is more complex.

The report’s chief points are these:

* Realised returns are lower than advertised, even for top-quartile managers.

* The quality is also lower: excluding high debt levels and general stock market performance, managerial skill accounts for only a fraction of the total return.

* This calls into question fee structures, which may remove all the gains attributable to

skill.

* Conflicts of interest between investors and managers remain real and substantial.

* Investors’ apparent failure to question the level and make-up of returns, and fees, raises questions about their collective status as “sophisticated investors”.

* Perverse incentives in private equity may distort wider markets.

* At the very least, private equity firms’ results should be measured more rigorously

and made more transparent.

via New Report Asks: ‘Private Equity, Public Loss?’ – DealBook Blog – NYTimes.com.