Category Archives: General

Why is mainstream press financial writing so bad?

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First, let me start with a source of pretty decent writing: itulip.com. I think their site is intentionally a mess graphically because Eric Janszen (EJ) doesn’t need to market, doesn’t “need” the money, has other income sources, intentionally wants to look anti-media, and greatly prefers to produce research rather than format it.

Still I think he could be a little less thrifty and pay up for a web-admin.

EJ’s latest article is entitled: The Big Bet revisited and is divided into two parts: Part I: Turkeys grounded and Part II: Mining memes for money. Part II requires a subscription which I recommend if you have some spare bucks to allocate to provocative newsletters.

The article is about how debates are reframed to benefit some controlling group (the group who pushes for the reframing of the debate) and how sometimes (maybe many times or always) there are unintended consequences of reframing and opportunities to profit knowing that this game of reframing is going on. EJ calls this “Meme Management”.

Janszen is rather direct (refreshingly so actually) and claims that he derives investment themes and subsequently profits knowing that “Meme Management” happens. His article is structured as an interview, and in it he states:

CI: You shorted the meme management?
EJ: Sort of. It’s more complicated than that, of course. But in effect, yes. I bet that the program to force a deficit cut deal using the debt ceiling as a political forcing function would succeed, but that the consequences would be the opposite of the meme-jacking originators’ intention. That will not always be the case. Sometimes we will trade with it and at other times against it.

CI: How does it work?
EJ: I’m not sure it will work in the short-term. Several past experiments have been successful, but not two are alike. There are no guarantees.

CI: What’s your methodology?
EJ: It’s not appropriate for me to explain how meme analysis investing works, how the machinery of meme management operates, how it can be deconstructed, and how it can be used to inform trades. That’s our secret sauce, plus it’s a highly complicated analytical process that is not at all easy to explain anyway. I will say that it grew out of my research phase of my book on the US media, “The Kazoo and the Bullhorn: The American System of Propaganda.”

CI: You are working on that book?
EJ: Not at the moment. I figure I could make a few hundred grand on a book or millions on the insight into meme analysis. Not so touch a choice.

The logic is interesting, and I believe that this goes on and that Janszen is successful at times. But regardless of wether or not the reader agrees that this takes place or with Janszen’s premise that this has occurred with the most recent financial crisis, at least one could argue that this MIGHT happen in general and therefore that reframing may or may not be taking place should in itself be newsworthy and a subject to be fleshed out in the public forum.

But this never happens. There is never a self reflection of the media that it may be hijacked or reframed or “Meme Managed” for someone’s or some group’s interest.

So why is mainstream press’s financial writing and analysis so bad?

The second part of EJ’s comment gives a clue:

CI: You are working on that book?
EJ: Not at the moment. I figure I could make a few hundred grand on a book or millions on the insight into meme analysis. Not so touch a choice.

Apparently report and raising issues in public forums doesn’t pay and never will.

On one level there is a cynical and depressing message in that. On another level, though, accepting that it does happen, and guarding against it happening to oneself allows one to identify the situation and at least protect capital and in other instances to make better investments.

The Lesson: On a larger scale, because media and other information sources are not all encompassing (covering every angle and bringing to light every fact), this contributes to market inefficiency (I am not an efficient markets believer) and is one reason why investment opportunities exist. Said another way, not all information can become widely distributed or emerges in a timely manner. One reason for this is that incentives are strongly in place for those with “the knowledge” to profit from it rather than to distribute it. It’s not nearly as profitable to distribute knowledge – in the form of blogs, books, newspapers, or otherwise – as it is to simply act on it.

EJ: Not at the moment. I figure I could make a few hundred grand on a book or millions on the insight into meme analysis. Not so touch a choice. [emphasis mine]

To the extent this remains in place (and I believe it always will), those who devote efforts to developing “knowledge” of markets and understanding interests of parties involved can have an edge to uninformed investors. And to the extent that there are 401k’s, retail mutual funds, and index funds, and other pure intermediary sources that don’t have 100% alignment of interest with the underlying investor, there will always be uninformed traders.

Invest accordingly and try not to lose money.

Abraço,

Arthur O’Keefe, São Paulo Value

What is Sao Paulo?

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A noisy grey city….

This is a view from my apartment looking at the University of Sao Paulo in the direction northwest. The buildings are in an area called Jagare across the river Pinheiros.

Sao Paulo is the city of apartment buildings. They are everywhere.

Here’s another view of the university this time looking west.

Arthur

 

Return to blogging and renewed focus

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Have been in Brazil a little over two years now. The time is flying by even if the country only is marginally improving (though the growth path is clear).

With two years of on the ground experience am a little older and wiser ;)

My business here has gradually focused to Latin American (LATAM) credit, so that is was I am most likely to write about going forward in this blog.

Have watched a number of blogs (actually I read a substantial number through RSS feeds) and my general thoughts are that to be relevant on a small budget, a blog should be focused. That means that its audience will likely be small, but that is the tradeoff to get read and to be rewarding to the author as well.

To try to appeal to a large audience is tiring, expensive, and uninspiring. The writing will have to be bland, and its impact short lived. Specific punchy articles are more likely to get picked up in search and quoted by someone.

In general I think the trend with instant publishing through Scribd and blogs will be short current articles that will displace much of traditional print media. Books will be focused more on history and fiction. Any reference book is already out of date the minute it is published. Plus the amount of things that one can do with a book is so limited. Hyper-linking and multimedia are one. Also hyperlinking refers outward, books are difficult to refer/cite (how many people read footnotes).

So back to business – mine is focused on Latam Credit, mostly in USD actually (for a number of reasons that may come out in future posts), and my blog will most likely evolve to be an english language blog by some fund manager based in Sao Paulo Brazil who discusses the credit markets generally with a relative value framework that will pull in discussions of currencies, rates, and equities.

It will be one of the first english language LATAM focused blogs in Brazil (where we speak Portuguese), so it will likely attract some following.

Will it be The Big Picture? No. Will it help you make money? Probably. Will it appeal to someone? Definitely.

Abraço,

Arthur O’Keefe, São Paulo Value

p.s. I just moved my hosting to HostGator from FutureQuest, and it’s great. For more advanced features, HostGator is really incredible. Gary North deserves the credit as he writes about them every once in a while. He’s approaching 70 if not already past, and I figure he’s very sensitive about saving time….

Many changes

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Have spent the last few months working on my business as well as refining my investment analysis.

Recently have opened a hostgator account and will now transition this blog there and restart it.

More to follow in the coming weeks.

Art

 

How do you invest in this environment? Invest in doing something real.

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Quick tactical note of how I see things panning out in the US.

Having been an options trader and having invested for a while, I have a healthy appreciation and fear of the path of an investment’s returns. AIPC which was a great investment for me by any measure promptly lost half its value before eventually assuming a path that would result in it’s being purchased for over 6 times my first buy print on the stock. Great return, tricky path. At one point the “investment” showed a -50% return. Sticking with it yielded an awesome IRR.

Which brings me to the first half subject of this note…. Do we invest thinking that this is a deflationary envrionement (forget equities and stick to fixed income) or an inflationary environment (the opposite)? Indeed, I find valid arguments from both the deflationists and the inflationists and believe both are right. How is this possible? I suspect that we will have relatively bad deflation in the US before the currency finally weakens and then leads to inflation.

Why won’t we have inflation in the short term? The quick answer is that it would solve too many problems and make life too easy. Following the principal of maximum pain, then this scenario is unlikely. What problems would inflation solve? While I am worried about the budget deficit of the US, I think there are bigger problems in the short term with the various public pensions and entitlements – social security, medicare, state and local workers – as well as a debt overhang from the housing bubble with its associated overhang on banks balance sheets. In short everyone would benefit in a situation where pensions, benefits, and debt obligations are held constant in nominal terms while we experienced a large dose of inflation. The debt load would be alleviated, and everything would strengthen.

But isn’t the US operating like Zimbabwe, you might ask? Isn’t hyperinfation just around the corner due to a currency collapse? In short no. Zimbabwe had a number of things against it. First is that the state actively destroyed production capacity by breaking up and redistributing productive farmland. Second is that it was a small component of the global export market so its sudden competitiveness due to a currency devaluation would not be noticed. Third is that there was little history of rule of law. Forth is that it has no military. Fifth is that it has a limited population base and what it does have is limited in terms of global competitiveness. There are more, but you get the idea. The US, with a currency collapse, would suddenly become a force to be reckoned with. It was once a manufacturing powerhouse, and that can indeed return with the right forces. Furthermore, all its debts are local currency denominated. Yes the US is extremely dependent on oil and would suffer greatly in the short term with a currency crash, but it’s also resilient and would eventually adapt and compete. So bottom line is that while that may eventually happen, it’s just too convenient to happen in the very short term.

So what is likely in the short term? Deflation. The exact opposite of all of the above. Possibly with global competitive currency debasement leading to very little relative devaluation perhaps. States and local municipalities finding ways to cut pensions or perhaps even worse raising taxes on others to continue paying pensions. Either way someone is going to lose purchasing power. Same deal with entitlement programs. It doesn’t look good.

This brings me to the second half of the subject. In an environment like this, where you expect things to continue to deteriorate, there are no great passive investment returns to be made. Shorting (an inherently levered strategy) will get you killed in the long term as the market experiences increased volatility and periodic rallies for whatever sane or insane reason. In the meantime the general trend will be down. To get a feel for what this looks like, look at the graph of SDS: UltraShort S&P500 ProShares (SDS) via wikiinvest:

You got the direction right but still lost money. So what’s the answer? It’s actually not so surprising or depressing. The best thing to invest in when faced with these issues is in whatever is real that you can do to keep employed, keep relavent, and keep producing something of value (which should be rewarded with money if the product is in demand).

With declining per-capita productivity (which is what you get with increasing unemployment), it’s not going to be easy. And I expect the returns for purely passive investments to decline – after all capacity utilization should decline in an environment like this, so what will “investing” pay? What investments are needed when there is steadily increasing capacity due to decline in demand? Bottom line is that it’s going to be tricky.

There’s always money to be made in dealing with short term capital crunches and by making markets where you are matching buyers and sellers, but it’s hard to make a living at that unless you are devoted to it full time. If that’s not your calling or edge, then find something that is your calling or edge that you can become an expert on and trade/get paid for other goods. Invest in yourself – your skills – and try to keep acquiring productive assets and growing your productive skill set.

This is the time for active investing – doing things like building businesses, streamlining production, and anticipating demand and meeting it.

Try not to lose money.

Arthur O’Keefe, São Paulo Value

Tony Robbins – An Important Note of Caution

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I know I have fallen off the planet for the last few months, but I have been very busy getting settled in São Paulo…. I remain super bullish long-term on Brazil and see enormous opportunities here. Some of those periodically consume a lot of my time.

In any case I continue to read and analyze what’s going on. Volume in the markets has been extremely light and conditions are pretty dangerous in my opinion. Very large moves on very small volume affect asset values of enormous scale. I call that a form a leverage in the system. In a way I think it would be better if the market just remained shut rather than have +/- 2+% days on less than 200mm shares changing hands on the SPY.

I advocate running very small direction either long or short (depends on what you own or are short I suppose) in this market and keeping gross leverage low as well (gross leverage is [ABS(longs) + ABS(shorts)]/[Net Equity] where ABS is absolute value).

If you’re dying to have a position, WMT is looking pretty cheap. HPQ is as well. But hedge out some of the Beta to the market in any positions (including these). Don’t stretch at all in this market and try to get some sort of seniority in the capital structure. I think the general direction continues down in the long term. Maybe some miracle happens and the market somehow rallies, but the risk is more weighted to the downside in my opinion.

So I will leave with this video warning on the state of the market that I came across from Tony Robbins. I am trying to figure out who’s he referring to in his opening (if I do I will post an update), as he never reveals his source. I don’t think, based on the numbers that he mentioned, that his client is Paul Tudor Jones, but it sounds like someone of equal stature. What’s significant is that I have to take Tony’s claim that he is well connected at face value given what I know of him. So if he felt strongly enough to go on the record with a warning saying that his best clients are worried, especially given that Tony doesn’t need to say any of this to gain credibility, it’s worth listening to and considering. It at least adds to the body of data to be analyzed.

Take a look at this video:

Which Version of the iPad Should You Buy? My Perspective (Unrelated Post)

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I have been working with my iPad for a few weeks now and have a perspective on the following:

Should I buy an iPad? And should I buy an iPad *now*?

It’s pretty clear from using the iPad that the future is moving towards tablet computing based on cloud computing. The general concept is that the instruments of consumption of the internet and of data in general will slowly be separated from the instruments of production of applications and manipulation of the data. In less technical terms it means that you don’t need a super powerful computer that is capable of creating applications and building reports to be able to use the applications and read the reports (even if the reports are interactive) because much less computing power and a much less sophisticated array of input devices are required for consumption as opposed to production.

So there is no doubt in my mind, we are going to see a continued trend to iPad-like devices.

Personally I think given the availability of bluetooth keyboards, VNC, and RDC (two specifications for working remotely) the laptop is dead in the long run. What you will have is personal servers that can keep data and run more sophisticated processes that iPad devices can make use of through cloud computing for low level tasks (like email). Additionally these devices can access a secure/private/VPN link and display server applications remotely for more sensitive data and more computationally intensive applications.

So long story short – you can join the trend now or later, but likely you will get tired of always carrying a laptop when you realize that you only use 10% (at best) of the functionality and can thus shed some weight by carrying an iPad instead.

So then the question is when to buy….

To me there is not a super pressing need to get the iPad if you are content with your laptop given the still developing state of many applications and the price of the top level iPads. So it depends on whether or not you really want to cut carrying weight now. To me the iPad becomes much more compelling after release of iOS4 -the OS of the new iPhone which is currently not released for the iPad yet. I’ve heard that this will come in September. Also many of the applications for the iPad are still buggy and many more are missing as developers are still working out how to best use the iPad’s features.

Should I buy the 3G or WiFi version of the iPad?

To me there is no debate on this given the current state of internet networks in the US and the world. Buy the 3G version (which inclides WiFi) if you don’t already have an iPhone. At some point you’ll make use of the 3G internet, and in any case it allows for more accurate positioning via GPS, which will also increasingly become important. The cost of the internet on the iPad for 1 month is basically equivalent to 1 day’s cost of internet at a hotel. So if you travel for work or leisure it’s worth it just for that.

If you do have an iPhone, then maybe it’s more debatable. My sense is that 3G for the iPad in this case becomes more of a luxury and a bet that in the future you will want to carry around your iPad and make use of advance internet features (beyond just Google Maps or email which you can do on your iPhone). I am pretty sure this will be the case… but the apps just aren’t there yet. There are some clear cases, I suppose when regardless you should get the dual band iPad. If you work in the real estate industry and need to look at land plots on Google Earth, get the 3G version without doubt as the full screen of the iPad is far superior to the iPhone for looking at plots. If you make use of RDC and VNC and want access wherever, then get the 3G version of the iPad. Etc. With time this argument will apply to more and more people as the apps become available.

What size iPad do I need – 16, 32, or 64 GB? 16 GB vs 32 GB vs 64GB

There are two important considerations – the size of your existing music collection and the size of potential videos. If you are not into music and will not watch videos – then the 16 GB will do. If you are a modest music lover and will not watch many videos then the 32GB will do. I have over 32GB of music alone and so there was no option – 64GB – if I want to keep everything on the iPad. In all fairness, I think that with time syncing between the computer and the iPad will get easier (and wireless) negating the need to carry everything and so probably 32GB is the right number. But if you want the luxury and longevity until the hi resolution iPad with a larger screen comes out in a few years, then consider splurging on the 64GB version.

Hope this helps! Now, back to the regularly scheduled programming….

Try not to lose money.

Arthur O’Keefe, São Paulo Value