Monthly Archives: March 2013

Source: Intel, Found via The Big Picture




Shrewd or spirited initiative and resourcefulness.

This morning Sir Richard Branson blogged about a glass bottom boat startup he loaned money to in the British Virgin Islands.  The bulk of his short post is about the startup and his plans to continue to fund startups in the BVI.

What struck me most about his post was his first paragraph: “It takes gumption to become an entrepreneur. You need to show initiative, bravery and resourcefulness. You also need a lot of help along the way

I’ve often thought about the most important qualities of an entrepreneur but to me, gumption might be the most important.  It’s not always the smartest or most well funded that survive; it’s the shrewd, resourceful, and dedicated.  While those qualities don’t guarantee success I would argue they’re fundamental to it.

You show me an entrepreneur who has made it without gumption and I’ll show you one lucky bastard.

For those of you who don’t stay up to date on Ag related investing, farmland has been absolutely killing it:

There are a few structural drivers behind this and it’s expected they’ll remain strong tailwinds for the asset class:

  • Global Population continues to increase – more mouths to feed (increasing demand)
  • Maxed out Crop Yields – for a long time the amount of crops we were able to grow per acre of land increased with population growth – we became expert farmers and were able to squeeze more and more out of the land (see chart below – this also explains why everything you eat today is made from corn) that increase in yield is starting to stall (squeezing supply)
  • Reduction in arable land due to development (squeezing supply)

So how do you get on the Farmland gravy train?  Besides buying a farm outright you can invest through the new platform Fquare.  It appears to be a crowdfunding platform designed to give accredited investors diversified exposure to US farmland.  Unfortunately their website falls well short of answering even the most basic questions of how the platform works.

I don’t know enough about Fquare to endorse it or not – I only mention it here because (1) it appears to be a cool confluence of agriculture and technology, and (2) I haven’t posted anything about Ag investing until now.

Great NYT piece about all the lessons learned after our financial crisis.  You could have had a blank article after that headline and the point would have come across but instead Jesse Eisinger has a great article about JPM, it’s major trading loss last year, and how it not only deceived shareholders but was not even bothered by regulators.

We have not learned our lesson and it is surely sewing the seeds of the next great financial crisis.  Check it out.

NYT: Lesson Learned After Financial Crisis: Nothing Much Has Changed

A few of the money shots:

What we now know about the incident is that, as the cliché has it, the cover-up was worse than the crime. The losses out of the London office weren’t enough to take down the bank. But as they were building, JPMorgan traders fiddled with risk measures and valuations. The bank’s risk managers defended the traders and pooh-poohed the flashing red signals. The bank gave incorrect information to its regulator. Top executives then made misleading statements to shareholders and the public. All the while, the regulator served its typical role of house pet.


So let’s take a moment to celebrate a handful of American heroes, Mr. Levin and the staff members at the Senate Permanent Subcommittee on Investigations. Because of them, this corruption has come to light. Friday’s hearing served to emphasize how lonely Mr. Levin’s efforts are. Senator John McCain, Republican of Arizona and the new ranking minority member on the committee, did a yeoman’s job of asking a few questions. Senator Ron Johnson, Republican of Wisconsin, made a few incoherent statements using the au courant phrase “too big to fail,” then scuttled out of the hearing. None of the other senators, Democrats and Republicans alike, bothered to show up.

Every Monday, John Hussman publishes incredibly robust market commentary.  He has become increasingly bearish as the equity rally we’ve seen since March 2009 steams forward.  His latest market commentary Investment, Speculation, Valuation, and Tinker Bell is no exception.  What sets Dr. Hussman apart from most market pundits is the amount of data and analysis he brings to the table – it’s often times overwhelming and probably too much for your weekend investor to get through.

In his latest commentary he provides an interesting quote from Buffett:

Warren Buffett was correct about profits as a share of GDP in November 1999 (and it would be useful if he remembered today how correct he was): “In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%… Maybe you’d like to argue a different case. Fair enough. But give me your assumptions. The Tinker Bell approach – clap if you believe – just won’t cut it.”

This quote caught my eye.  Using the incredibly handy FRED database excel plug-in, I decided to test this statement.  Below is a chart depicting Corporate Profits After Tax as a percentage of Nominal GDP.  Buffett was dead on with his 6% remark – since 1947 this measurement has averaged 6.1% through 2011.  In the chart below I assumed corporate profit growth of 5% for 2012 (I’m not sure what that number actually was but this is a quick and dirty analysis).  The result: corporate profits are extremely elevated compared to GDP, 2.3 standard deviations above the average if you use my 5% assumption for 2012, 2.2 standard deviations if you just look at 2011 as the latest.  Ironically it was right around 1999, when Buffett made that statement, that corporate profits as a % of GDP bottomed out and began their sustained run above 6%.

 Corp Profits % of GDP

Although I don’t have the data, I searched for “Corporate Profit Margins” and found many charts that looked like the one below.  The embedded Grantham quote is just icing on the cake, if you can read it (I didn’t actually notice it until I pasted it into this post, score).

Some have pontificated that higher profit margins are the result of broader international activity among corporations and are here to stay – Hussman, who has done is homework, has found no convincing evidence of that.  In an earlier commentary he points out that “Elevated corporate profits can be directly traced to the massive government deficit and depressed household savings that we presently observe… one will not be permanent without the other being permanent… any normalization in the sum of government and household savings is likely to be associated with a remarkably deep decline in corporate earnings

SO – what gives?  Probably corporate profit margins but WHEN that happens is anyone’s guess.

…and that is your contrarian view of the markets, thanks for joining.

P.S. Hussman’s commentary from the week before addresses the subject of corporate profit margins in much greater detail, including a version of the chart I so cleverly put together.  Unfortunately I read his posts in reverse chronological order.  For a much deeper dive on the subject read his Two Myths and a Legend post.

From Howard Marks’ latest quarterly letter The Outlook for Equities.  Looks like someone posted the full letter here.  It’s only nine pages and worth your time.

Bull Market Stages

  1. When a few forward-looking people begin to believe things will get better
  2. When most investors realize improvement is actually underway, and
  3. When everyone’s sure things will get better forever

Bear Market Stages

  1. When a few prudent investors recognize that, despite the prevailing bullishness, things won’t always be rosy
  2. When most investors recognize things are deteriorating, and
  3. When everyone’s convinced things can only get worse

As for where we’re at today (in US Equities) he thinks we’re somewhere in the first half of stage two of a bull market – pessimists no longer control market prices, but certainly neither have carefree optimists taken over.