Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the eight most fascinating ones I read this week.
1. Get back to work
Derek Thompson of The Atlantic shares an OECD chart showing federal paid holidays and vacations by country. "See us? We're the one at zero," Thompson writes:
2. On the rise ... sort of.
It's really starting to look like the housing market is turning a corner -- hence the surge in homebuilder stocks like KB Home (NYSE: KBH ) and MDC Holdings (NYSE: MDC ) this year. One way to see the rebound is a recent jump in housing starts. But the finance blog Calculated Risk puts this "rebound" in perspective:
3. Golden state, broke finances.
Kevin Williamson writes a great essay in National Review about the miserable shape of California's finances:
In 1999, at the peak of the dot-com stock market bubble, California reformulated its pensions and other public-employee-compensation practices, making them much, much more liberal than they had been ... on the theory that pension investments would keep offering double-digit returns more or less forever, which led elected officials to make big promises and set aside approximately zilch to make good on them. If borrowing money to acquire an asset based on the theory that the appreciation of that asset will more than offset the cost of financing the borrowing sounds to you like the woeful tale of a million subprime mortgages, then they really could have used you in the California legislature a decade or so ago, or at Fannie Mae. In bubble after bubble after bubble, the country keeps repeating the practice that everybody swore off after the great market crash of 1929 and the Great Depression: investing on margin. California took out something very much like an adjustable-rate mortgage, financing present political consumption by in effect borrowing against future returns on the assets in its pension system -- but the returns didn't materialize. CalPERS, the gigantic statewide pension system, was until a few weeks ago projecting 7.5 percent returns on its investments. Real returns: just over 1 percent.
4. Fat chances
Black Swan author Nassim Taleb writes, "Why It is No Longer a Good Idea to Be in The Investment Industry." This is a little dense, but well worth the read (link opens PDF):
The idea is well known (see Taleb 2001), that as a population of operators in a profession marked by a high degrees of randomness increases, the number of stellar results, and stellar for completely random reasons, gets larger. The "spurious tail" is therefore the number of persons who rise to the top for no reasons other than mere luck, with subsequent rationalizations, analyses, explanations, and attributions. The performance in the "spurious tail" is only a matter of number of participants, the base population of those who tried. Assuming a symmetric market, if one has for base population 1 million persons with zero skills and ability to predict starting Year 1, there should be 500K spurious winners Year 2, 250K Year 3, 125K Year 4, etc. One can easily see that the size of the winning population in, say, Year 10 depends on the size of the base population Year 1; doubling the initial population.
5. The business of college
Some of the strongest criticisms of for-profit educators like Apollo Group (Nasdaq: APOL ) center around the idea that colleges should focus all their efforts on providing a quality education, not expanding bottom lines. But now several traditional not-for-profit schools are taking a business-like approach by hiring chief marketing officers, writes the Wall Street Journal. A valid criticism ensues:
Some critics, such as technology entrepreneur Peter Thiel, are actively discouraging young adults from going to college at all. Mr. Thiel says colleges have drifted from their core mission of learning, and offer little accountability. For instance, if you buy a steak knife on TV and it doesn't work you get your money back, he says, noting that there is no similar guarantee for students who can't land a job after receiving their degree.
"If you need large marketing budgets, it suggests that something has gone wrong with the substance of the product... how many nonprofits spend this much on marketing?" Mr. Thiel asks.
6. Second, third, and 12th chances.
Jon Corzine is famous for a couple things on Wall Street: Engineering a trading debacle at Goldman Sachs (NYSE: GS ) in the 1990s, and being the former CEO of now-defunct MF Global after a massive trading blunder and alleged fraud against its customers. Now he's gunning to prove that on Wall Street, poor track records are not impediments to success. Writes the New York Times:
Mr. Corzine, in a bid to rebuild his image and engage his passion for trading, is weighing whether to start a hedge fund, according to people with knowledge of his plans. He is currently trading with his family's wealth.
1. You jumped in because the excitement for Facebook's IPO was just too much, you couldn't hold back.
2. The media just would not shut up about this company, since even before the IPO.
3. You listened to a sell-side analyst's buy recommendation and thought you were reading something useful.
Because quite frankly, other than one of those three reasons, there is absolutely nothing about this stock technically or fundamentally that ever would have "allowed" you to own it. That is, if you have any sort of process whatsoever.
8. Amazing in small packages
The Wall Street Journal writes about the staggering new technology of encoding information onto DNA: "In the latest effort to contend with exploding quantities of digital data, researchers encoded an entire book into the genetic molecules of DNA, the basic building block of life, and then accurately read back the text." Add that to the list of things you should feel great about in today's world.
Enjoy your weekend.