The Big Picture

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• Gauging the Momentum of the Labor Recovery
• Halloween Warning: Don’t Drink and Fly . . .
• 10 Thursday PM Reads
• How Do You Use Linked In? (Infographic)
• Corporate Profits After Tax
• 10 Thursday AM Reads
• Found Stock Certs: Spot the Selection Bias

Gauging the Momentum of the Labor Recovery Posted: 01 Nov 2013 02:00 AM PDT

Halloween Warning: Don’t Drink and Fly . . . Posted: 31 Oct 2013 05:36 PM PDT Spotted on Sea Cliff, this is my favorite Halloween decoration seen this season:

10 Thursday PM Reads Posted: 31 Oct 2013 01:30 PM PDT My afternoon train reading: • History says buy (FT Alphaville) see also High profits to keep equity bubble at bay (FT) • The S&P 500 Has Not Been Particularly Difficult to Beat… (Advisor Perspectives) • Are Buybacks All They're Cracked Up to Be? (MoneyBeat) • Keep the Economists off the Trading Desk (Reformed Broker) • my new favorite tumblr: Strange Bloomberg Headlines (Tumblr) • Perils in Philosophy for Austerity in the U.S. (NY Times) • 8 Fascinating Reads (Motley Fool) • Rich people think the economy is doing just fine. Here's why that matters. (Washington Post) but see Bill Gross to top 1%: We’ve been lucky, now let’s pay more in taxes (CNN) • After Walt Mossberg and David Pogue: Waiting for the Next Great Technology Critic (New Yorker) • Robert Glasper: Jazz for a New Generation (WSJ) What are you reading?   Changes in Global Prosperity Source: Harvard Business Review

How Do You Use Linked In? (Infographic) Posted: 31 Oct 2013 11:30 AM PDT click for complete graphic Source: Power Formula via Forbes See also 5 Clever Uses of LinkedIn   click for ginormous graphic Via: PowerFormula for Linkedin Success

Corporate Profits After Tax Posted: 31 Oct 2013 08:30 AM PDT Billions of dollars, seasonally adjusted, after tax without inventory valuation (IVA) and capital consumption adjustments (CCAdj). Source: FRED   I have been trying to explain to some of my more Fed obsessed friends there are factors outside the central bank that matter also. One such factor is corporate profits. As the chart from the Federal Reserve Bank of St. Louis shows, after tax Corporate Profits are at all time highs. And while the inclination is to say this is driven exclusively by programs like QE and ZIRP, the pre-crisis profit picture was also very rosy. (Rates were very low than also). I am hard pressed to believe that corporate profits are due exclusively to ultra-low rates. There is no doubt that financing costs are lower, but that is offset by tightened credit. Demand for goods and services has been increasing only modestly. While private sector growth has been repsectable 3-4% — the public sector continues to be a net negative drag on growth. State and municpality layoffs also have the effect of depressing demand. The corporate sector is actually well positioned: Balance sheets are the cleanest in a long while. Companies are running very efficiently, with limited head count (we see evidence of this in stubbornly high unemployment rates). Productivity gains are hard to come by because productivity has risen so much over the past 20 years. Business Intelligence software is allowing firms to make changes on the fly — it used to take several quarters before enough intel could be gathered to shift manufacturing or supply chain decisions. It now happens in real time. ~~~ Yes, the Fed is a factor in high corproate profits — but its not the only factor.

10 Thursday AM Reads Posted: 31 Oct 2013 06:00 AM PDT My early morning reads: • Da Bears: The Dow’s New High: Bull’s Last Gasp? (Barron’s) see also Are markets at risk of 1999-style Fed bubble? (CNBC) • Surprise! Greek Recovery Makes Stocks World's Best (Bloomberg) • The economy may dash expectations that the Federal Reserve could scale back its bond buying sooner rather than later (WSJ) but see The Market's December Taper Fear Is Only Going to Get Worse (WSJ) • Six signs you’re reading good criticism of economics (Evolving Economics) • Apple should be like Bloomberg (Reuters) see also Speed and Power Packed Into a Thin iPad Air (All Things D) • Why CEOs don’t support the Tea Party (Fortune) • Congratulations, America! Your deficit fell 37 percent in 2013. (Wonkblog) see also The Myth of the Exploding Federal Government, Part 1 (Off the Charts) • From Anonymity to Scourge of Wall Street (Dealbook) • Obesity: A new appetite-increasing mechanism discovered (Science Daily) see also The Neuroscience of Why Gratitude Makes Us Healthier (Daily Good) • Britain Is Experimenting With a Glowing, Seemingly Self-Aware Bike Path (Atlantic Cities) What are you reading?   US Budget deficit fell 37% so far in 2013 Source: Wonkblog

Found Stock Certs: Spot the Selection Bias Posted: 31 Oct 2013 04:20 AM PDT This issue comes up every few years: Someone is rummaging about in their attic or basement (or less romantically, a safety deposit box), and they find some long forgotten stock certificates. I first noticed this as an issue with EMC more than a decade ago. A Massachussetts area man found a few certs that had appreciated somewhat: The man, a 62-year-old salesman who wants to keep his identity under wraps, recently found that some stock he thought he had sold long ago had been quietly gaining value for 13 years. A week ago, it was worth about $4 million. The investor said he bought 3,000 shares of EMC, the data storage company, on a tip from his cousin in 1987, but soon sold 2,000 of them to pay for his children’s college tuition. He forgot about the remaining 1,000 until the state’s Abandoned Property Division, noticing the inactivity, contacted him last month. Sure enough, after spending three days in his cellar with a kerosene lamp, he found the still-sealed envelope with the stock certificates. The shares, for which he paid about $15.75 each, have split several times, making him the owner of 48,000 shares whose latest 52-week high was $104.94. -New York Times, December 03, 2000 I was reminded of that story this week when this one showed up in the Guardian: Man buys $27 of bitcoin, forgets about them, finds they’re now worth $886k Bought in 2009, currency’s rise in value saw small investment turn into enough to buy an apartment in a wealthy area of Oslo.The meteoric rise in bitcoin has meant that within the space of four years, one Norwegian man's $27 investment turned into a forgotten $886,000 windfall. Kristoffer Koch invested 150 kroner ($26.60) in 5,000 bitcoins in 2009, after discovering them during the course of writing a thesis on encryption. He promptly forgot about them until widespread media coverage of the anonymous, decentralised, peer-to-peer digital currency in April 2013 jogged his memory. These sorts of stories typically are used to extol the virtues of Buy & Hold investing, or Set & Forget portfolios. Why is this an example of Selection Bias? I am reminded of the Steely Dan song “Throw Back the Little Ones (and Pan-Fry the Big Ones)”. This method of collecting samples uses outliers — the Big Ones — the wildest and most improbable investing success stories to demonstrate their point. What you do not see are all of the Little Ones, the higher probability, more common versions of the found stock certificate. That narrative usually goes something like “Did you ever here of a company called First Amalgamated Something or Other?” These stories lack the sexiness and Wow! factor of improbably finding a few million dollars in your basement. Here are the headlines that you did not see — because no one shares this information, and due to the natural selection bias of them: • Man Finds Worthless Lehman Brothers Stock Certificates in Attic;  “I thought I sold these,” he cried • Man Inherits 10 million shares of now worthless GM Stock; Great Grandfather dies after 10 year coma “If only he went sooner” • Forgotten AIG shares Almost Worthless; Post Bailout and Reverse Split, boy finds $11 dollars worth of stock; “it was once worth millions” dad laments Or most likely: • Forgotten Penny Stock Certificates Still Worthless I bet for each one of the found millions story, there are 100 worthless unpublished stock cert tales. Steely Dan song after the jump . . .           Throw Back the Little Ones And Pan-Fry the Big Ones Lost in the Barrio I walk like an Injun So Carlo won’t suspect something’s wrong here I dance in place And paint my face And act like I belong here [Chorus] Throw back the little ones And pan-fry the big ones Use tact, poise and reason And gently squeeze them Hot licks and rhetoric Don’t count much for nothing Be glad if you can use what you borrow So I pawn my crown For a ride uptown And buy it back tomorrow [Chorus] Done like a matador I pray for the weekend And hope the little girls still throw roses Else I’ll change my bait And move upstate Before the season closes

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