World Beta Blog

I often post links to books I am currently reading, and readers have emailed me with suggestions that I review or at least comment on my opinion of the books (which I will do in the future.) I added up all of the books I ordered on Amazon.com and Half.com so far this year, and it totals 76. My favorite so far is the just released Hedge Hunters: Hedge Fund Masters on the Rewards, the Risk, and the Reckoning, but then again I am a sucker for the “Market Wizard” style books. (PS Did you know there is a Market Wizard FOF run by Jack Schwager?)

Best Book Combo has the ability to search what site has the best total price, including shipping, for a book. Abebooks.com has the best price for Hedge Hunters. Although, I wish they would add half.com.
–
I added the SnapShots widget to my blog, which allows the reader to preview hypertext links. I think it is pretty cool, but if you don’t like it, leave a comment.
–
Is LKI going private?
–
When I posted earlier in the year about ETFs I’d like to see, a number of readers suggestion the frontier countries, and it looks like it could be on the way.
–
Why is it that women are more likely to be fat than men? According to this list, White Castle certainly isn’t helping.
–
Tired of junk mail? CatalogChoice can help to get rid of it.

Just a reminder, never let your money and aspirations for it control you and dominate your life. You may find your possessions strangling you . . . (Photo from Chema Madoz.) Have a great weekend, and go Rockies!

I am in Chicago next week speaking at the NAAIM ETF Conference. And for the third straight speaking engagement, they have spelled my name wrong (since corrected). If anyone is at the conference, stop by and say hello. (Although I must say the offer to speak at Hedge Fund Royale could have been fun if I could afford London again!)

I am really glad to hear that Warren Buffett is cheering for the Rockies. From the article:

Jordan’s Furniture, the Warren Buffett-owned local chain famous for commercials featuring brothers Barry and Eliot Tatelman, earlier this year promised free furniture – including sofas, dining tables, beds, and mattresses – to customers who bought between March 7 and April 16, so long as the Sox win the fall classic. Now, there’s a real possibility that Jordan’s could be paying back millions to customers.

He wouldn’t disclose how much Jordan’s might have to pay out, but the money won’t come out of Jordan’s back account: Tatelman bought an insurance policy to cover any losses in the event the Sox win the title.

Still, Tatelman said the chain took almost 30,000 orders during the contest. One customer stands to get back $40,000, Tatelman said.

“He did his whole house,” he said.

If I was one of these customers, I would take out a hedge at a casino in Las Vegas. You can pick the Rockies to win the series at +360 right now. So, the customer that bought the $40,000 in furniture could guarantee a positive payout for the cost of ~ $11,000. Sox win – he wins $40,000 of furniture – $11,000 hedge = ~$29,000. Sox lose, he wins $40,000 in Vegas. Somebody send me this guys email!

Here is a video link of the story.

–

Well, to go along with the new MOO ETF , we now have COW.
–
Confused about hedge fund clones? Here is a good summary from EDHEC. Our friends ART, ABI, ARB, T-Rex, Altera, MAST, and ABS are all there. Now will someone from one of these i-banks please email me with a bid for www.hedgefundclone.com so I can go to the Rockies game this weekend?
–
What is the Deep Moat Double?

–
To go along with the January Effect, it looks like the first day of the month produces consistent returns.

The sunsets here in LA the past two nights remind me of the storyline from “The Road” by Cormac McCarthy. I read it in one sitting on a flight back here. Creepy. (I also ordered his book Blood Meridian.) My best wishes go out to my neighbors to the North and South.

–

I am eagerly anticipating getting to read Venter’s new biography (A Life Decoded: My Genome—My Life). I also found some interesting archived speeches from the TED conference. A few notes from Venter’s speech:

Microbes make up about half the Earth’s biomass
Animals make up 1/1000 Earth’s biomass
Each mL of seawater contains 1 million bacteria
Each mL of seawater contains 10 million viruses

I’m pretty sure the number in LA bay is a bit higher. Ick.

And the always controversial Richard Dawkins, “The Universe is Queerer that we can Suppose”:

–
Whenever I have 5 minutes to kill, I play around with StumbleUpon. It’s a browser addition that lets you input your favorites and randomly visit other sites that people with similar interests prefer. Is you like (or dislike) World Beta, let your opinion be heard and click on the logo below!

Inflation? Nahhhh. Even cocaine prices are up 24% this year. (That is a pic of Raekwon from Wu-Tang, whose new album drops in December.) Barry Ritholtz over at The Big Picture talks a lot about the CPI and how it is a poor indicator of inflation.

Below are two charts. The blue line is the 12 month % change in cash gold (moved forward 14 months). The red line is the 12 month % change in CPI. The second chart is the first chart with a 40 month moving average. As you can see, gold is pretty good at predicting inflation. (Sorry for the lack of labels, CPU is tweaking out.) The data is from 1970 – present. The longer term view is that CPI is going higher.

A nod to Tom McClellan for the logic behind this chart. (He runs the McClellan Market Reports service.)

—-
Speaking of blow (ups), here is a great article on the quant mess this Summer from the MIT Technology Review magazine. (Part 1 and Part 2.)
—-
Whenever it’s a slow day, I like to check out the posts on Ed Seykota’s FAQ.
—-
What is the Hinderburg Omen? Here is some more background. Does the fact that it has been firing off signals recently mean the end of this bull market is near?
—-

So, countries that have high taxes also have large numbers of sexual partners. Maybe I should continue to live in the US and buy a vacation house in Scandinavia?

Oddly, Adrian White, analytic social psychologist at the University of Leicester in England rated what he considered to be the happiest countries in the world. According to White’s data, the top 10 countries in the world with the highest SWL rankings are:

1. Denmark
2. Switzerland
3. Austria
4. Iceland
5. Bahamas
6. Finland
7. Sweden
8. Bhutan
9. Brunei Darussalam
10. Canada

From his site:

The map(goto the site to view)itself mirrors other projection of poverty and GDP. This data on SWB was compared with data on access to education (UNESCO, 2005), health (United Nations, 2005), and poverty (CIA, 2006). It was found that SWB correlated most strongly with health (.7) closely followed by wealth (.6) and access to basic education (.6). This adds to the evidence that from a global perspective the biggest causes of SWB are poverty and associated variables.

Marks, N., Abdallah, S., Simms, A, Thompson, S. (2006). The Happy Planet Index. London: New Economics Foundation.

Taxes? Pffft. . .we’re all getting laid!

(Thanks to reader AF for the links.)

Maybe we should just call this the yawn trading strategy?

Pretty much all of the outperformance for small and microcaps comes in January. Here is a link to an earlier post from CrossingWallStreet on this effect. (Also known as the January Effect.)

I played around with the French Fama data for awhile, and came up with the following statistics. From 1927 – 2007:

The average return in January for the smallest decile(average market cap today is $134 million) was 11%. Add on ~ 4% for bond yields over that time period for sitting in cash the other 11 months, and that is a pretty nice return average return of 15%. The worst month was a paltry -4.27% and there were only 7 down years (only 3 down years if you include cash returns).

Before you cry foul and exclaim this is only an exercise in data mining, the returns have been consistent over the past decade. The strategy would have sailed through the recent bear market with positive returns of 19%, 35%, and 7% for 2000, 2001, and 2002 (including cash returns).

Even the lowest 20% of stocks (average market cap of $212 million today) had an average Jan return of 9.74%. The second quintile still had Jan returns of over 5%($1 billion average market cap). Here are the returns (without cash yields) and charts (with cash yields, log and non-log). Sample small and microcap funds are PZI, IWM, IWC, PZJ, BRSIX, and SAA/UWM (leveraged).

I am a big fan of prediction markets like Intrade, and right now, it is looking like Clinton vs. Guliani. Although, I really wish there were more current event futures – it would be interesting to find out what is really going on with Kobe Bryant.

Intrade actually has the Rockies as underdogs to win the World Series. Betting against the best defensive team in MLB HISTORY? Pffftttt.
–
Tickerspy is a new website that is currently in beta release. It looks like it has the ability to form portfolios to track performance. Here is the Baupost portfolio.
–
Taxes as a % of GDP. Pretty consistent for the last 50 years.

–
I would think there would be an African mutual fund or ETF at this point, but I can’t find any. The SPDR S&P Emerging Middle East & Africa ETF (GAF) is the closest I can find, and South Africa and Israel make up over 80% of the index.
–
Jim Rogers has a new book coming out, and not surprisingly, it is titled A Bull in China: Investing Profitably in the World’s Greatest Market. I must admit, while being a JR fan, this book does not excite me nearly as much as his last two.

–
CXO, like always, does a great job reviewing a working paper that examines magazine columnist stock recomendations. The paper is titled, “The Value of Columnists’ Stock Recommendations“. From CXO:

In summary, the buy recommendations of columnists in prominent business magazines on average underperform an equal-weighted benchmark over the weeks, months and first year after publication. Columnists in Forbes tend to outperform those in Business Week and Fortune

.

Abstract
This study empirically assesses the value of stock recommendations made by columnists in three leading business magazines; Business Week, Forbes, and Fortune, for 2000-2003. We show that the choice of models (index versus benchmark) leads to significantly different assessments of the value of the recommendations. Abnormal returns generated by the recommendations of Business Week and Fortune magazines are found to be negative in the short-term. However, significant abnormal returns are realized prior to the publication of the recommendations. In the short-term, direct recommendations generate significantly greater abnormal returns than indirect recommendations. In the long-term, there is no significant difference between direct and indirect. For a longer horizon none of the stocks recommended provide significant positive abnormal returns.

I think Goldman would call the Rockies making the World Series a 25 standard deviation event. A couple of stats from an article over on ESPN.com:

“Clearly, they had to believe, or they couldn’t have done this, right?

Couldn’t have become the fifth team in the last 70 years to go 21-1 in any stretch of any season.

Couldn’t have become the first team to do that in the middle of one of these mad charges to, and through, October.

Couldn’t have become the second team in history (along with just the 1976 Big Red Machine) to sweep its first two postseason series in any given October.

Couldn’t have become the fifth team of all time to make it from last place one year to the World Series the next.

Couldn’t have become the sixth team in history to fall nine games under .500 and still climb out of that canyon to make it to the World Series.

And, finally, couldn’t have become the first team ever to find itself two games out of a playoff spot with two games to play and somehow survive to scramble into the World Series.

That didn’t really happen. Did it? That wasn’t really possible. Was it?”