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The 8 Most Fascinating Things I Read This Week

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.

7. Deal-makers
Blogger Josh Brown writes about the three reasons you've been a victim of Groupon's (Nasdaq: GRPN  ) plunge this year:

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.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Motley Fool newsletter services have recommended buying shares of Goldman Sachs Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (8) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 17, 2012, at 2:41 PM, kyleleeh wrote:

    I live in the Sacramento and know a lot of state workers who just flat out refuse to believe #3. I tell them they should have a plan B and save in a IRA and they look at me like "Why? I'm getting a paycheck the rest of my life".

  • Report this Comment On August 17, 2012, at 8:09 PM, rtichy wrote:

    Regarding #8, can anybody explain just what that means? Does it mean the book is "alive"?! Does the DNA that encodes the book (how does it represent the letters?) still represent the DNA of a known organism? Does it just mean somebody built a helical shaped molecule according to a pattern they used as a template or end goal and then checked their success by "reading" it back afterward?

    I don't get this blurb of news because it doesn't tell enough for the average person to know what it represents as a scientific achievement. And it was the same when I hear a similar segment on the radio, so I am not just picking on Morgan here.

  • Report this Comment On August 18, 2012, at 1:30 PM, 48ozhalfgallons wrote:

    rtichy: I'm with you about the DNA thing. I suppose that encoding a book into DNA and being able to read it back is fine as long as there's a plot.

  • Report this Comment On August 18, 2012, at 2:44 PM, ivan33 wrote:

    Here is an other article which is distorting the truth and misleading the reader.

    Most, if all of the nations listed are not politically structured as we are - I.e. with States that have significant authority to define vacation time and holidays. Thus they have National laws defining such item. Do we really need the Feds to dictate one more item to us????

    I wonder what the 8-12 legal paid holidays in the US rate at?

  • Report this Comment On August 19, 2012, at 12:35 AM, bbell46356 wrote:

    I thought #1 was also misleading. I read the original article and all the comments were about how we need more vacation in the US. Have these people noticed that most of the countries applauded for their benevolent vacation policies are on the brink of financial disaster. What about their 25% to 50% youth unemployment? It is no coincidence that the huge fixed costs, including time off, associated with employees discourage hiring

  • Report this Comment On August 21, 2012, at 2:01 PM, slpmn wrote:

    #4 is a good one. Is Warren Buffett a genius, or is he just the guy that got lucky with his picks? Some really successful investors may have simply been lucky. If you've got a pool of a million smart people rolling dice for money, some will get rich and some will go broke, and most will break even. We like to think the ones that got rich were smarter than everyone else when really, they were just lucky.

    #1 is a little misleading since we may not have statutory paid leave in the U.S. but the magic hand of the market has ensured that most get at least some kind of paid leave from their employers.

    #6 Shouldn't he be indicted for something? How is he not on trial?

  • Report this Comment On August 22, 2012, at 8:54 AM, TMFDarwood11 wrote:

    California wasn't alone in adhering to its overly optimistic and unrealistic return projections. That other broken state called Illinois has been doing the same thing. Here's a quote from the June 27 online WSJ:

    "One of the most bullish state pension funds is finally acknowledging that its expectations of earning consistently high returns on its investments may be unrealistic......The rate, which has been 8.5% for the past 25 years, is one of the highest among U.S. state pension funds."

    It may not be a coincidence that Illinois has one of the highest, if not the highest, unfunded state pension liabilities in the U.S.

    The chart about "Federal paid holidays and vacations" is also interesting. If our government somehow mandated that all workers be given a 30 day monthly paid vacation, I wonder what that would do to improve the unemployment situation? Or perhaps we'd also be in the pckle as are some of the countries in Europe.

    The only way to know for certain is for our politicians to roll the dice and find out. It seems we have no shortage of gamblers in our government and so who knows, we may soon have a real world experiment here at home.

    As for housing starts, I have a suspicion that about the time that people decide that purchasing a home is a solid idea, that rates will have risen and that door will close. I've held the opinion since 2008 that the Fed will do what it can to keep rates low until 2014, at which time the bulk of option ARM, troubled ARMS, etc. will have rolled by.

    Meanwhile, I've seen statistics that the building of apartments is ramping up in response to rising demand.

    Is all of that really bad? I don't think so. Owning certain things, be it a home or even a stock portfolio is a privilege, an opportunity and may include obligations. I don't think that taking on responsibility is for everyone, and our society has provided ample evidence of that.

  • Report this Comment On August 22, 2012, at 9:58 AM, TMFDarwood11 wrote:

    Oops, I meant to say "30 day annually paid vacation."

    But there are times when a "30 day monthly vacation" might be nice. In February, I'd get a bonus check!

    While I'm at it, Illinois reputedly has $83 billion in unfunded pension liabilities. California's are underfunded liabilities are greater. However, Illinois SERS, Teachers and Universities all have funded less than 50% of these pension liabilities, while California is greater than 70%. For comparison the national average is about 77% funded. My statistics are from the Center for Retirement Research at Boston College.

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