Systematic Relative Strength

From a story today in the Huffington Post:

…in Florida’s Palm Beach County alone, Bank of America has sued itself for foreclosure 11 times since late March, according to foreclosure fraud activist Lynn Szymoniak, who forwarded one such foreclosure filing, dated March 29, 2012, to The Huffington Post.

In the March 29 filing, Bank of America is seeking to foreclose on a condominium and names the condo owner and Bank of America as defendants in the suit. The company is literally seeking damages from itself in order to foreclose on the condo owner.

Banks have been caught suing themselves before. In 2009, Dow Jones columnist Al Lewis uncovered a case in which Wells Fargo had sued itself in connection with a foreclosure in Florida’s Hillsborough County. The bank owned both the first and second liens on the property  and ended up hiring two separate attorneys to deal with the snafu — one to bring the lawsuit and another to defend itself.

Now I really have seen everything.

Trading is like dating. You should only keep the stocks that make you happy.—-Ivan Hoff

This gem is from a longer piece about making sense of the market, but it crystallizes the rationale behind a systematic casting-out process in a relative strength portfolio.  Hold winners, cut losers.

HT: Abnormal Returns

…the Wall Street consensus has a pretty good record of being completely and utterly wrong.—-James Montier

Mr. Montier is on the asset allocation team at GMO and was writing about analysts’ extrapolations for future profit margins, but I think his words may have more general application.  In truth, we have no better ability to forecast, which is why our investment work relies on the systematic application of relative strength.  Prices are usually more accurate than the consensus forecast.

In a very funny, and sad, commentary on how much financial media is done these days, Bill Conerly at Forbes has explicit instructions on how to become an investment guru in six easy steps.  I’ve excerpted the steps below, but you need to read the whole article to appreciate his wit.

1. Abandon all humility.
2. Create a straw man.
3. Invent a secret method.
4. Communicate.
5. Brag.
6. Ignore all criticism.

Obviously we’re doing it wrong!

…is bullish this year, according to Bespoke Investment Group.  Somehow, I doubt that the Sports Illustrated editors take the stock market into account when selecting the cover model!

Funny or Die put out a video that encapsulates how consumers felt about the proposed $5 debit card fee.  Then it veers off and gets really ridiculous.  In truth, financial advisors everywhere–including at Bank of America/Merrill Lynch–are very client-friendly or they wouldn’t be able to make it in the business.  Senior managements are sometimes temporarily tone deaf.  In real life, the fee idea was dumped, but it did result in this over-the-top video!

Source: Funny or Die/Clusterstock

HT: Clusterstock

A funny take on market timing by J.J. Abodeely, echoing a similarly tongue-in-cheek assessment of whiskey by Noah Sweat in 1952.  You can see the full article here.  The relevant part on market timing follows.

My friends, I had not intended to discuss this controversial subject at this particular time. However, I want you to know that I do not shun controversy. On the contrary, I will take a stand on any issue at any time, regardless of how fraught with controversy it might be. You have asked me how I feel about market timing. All right, here is how I feel about market timing: If when you say market timing you mean the loser’s game, the fool’s errand, the speculator’s effort that separates savers from their capital, turns investors into gamblers, lines the greedy pockets of brokers, strategists, and newsletter writers, challenges the irrefutable logic of efficient markets, yea, literally plunders the wealth from widows and retirees; if you mean the evil action that disrupts the well counseled man and woman from the pinnacle of appropriate strategic asset allocation, balanced objectives, long-term orientation into the bottomless pit of fear, and greed, and meaningless noise, high expenses, and tax inefficiency, and short-termism, then certainly I am against it.

But, if when you say market timing, you mean assessing fundamental value compared to price, favoring undervalued assets while avoiding overvalued ones, always demanding a margin of safety and being in cash when none exists; if you mean being opportunistic and forward looking, buying low and selling high; if you mean the activity which saves investors from catastrophic and permanent losses of capital, achieving positive absolute returns, the endeavor that avoids following the herd up the mountain of excess and over the cliff of despair, favoring instead consistent compounding of modest returns, and the ability to sleep well at night; if you mean that undertaking which has provided capital as the gasoline for the engines of economic growth and prosperity, protected purchasing power and met future liabilities, funded robust retirements, sustainable wealth transfer, and philanthropic endowments, then certainly I am for it.

This is my stand. I will not retreat from it. I will not compromise.

JJ Abodeely, 2011

I guess it’s all a matter of perspective!

While the Super Committee is busy working on a debt fix, the rest of Congress is focused on the nutritional value of school lunches.  According to a story at TheStreet.com:

Congress determined that pizza should remain an option for school lunches because the tomato paste on the food counts as a serving of vegetables.  The United States Department of Agriculture had wanted to discount tomato paste as a vegetable, but food companies protested the change, according to The Associated Press.

The USDA required a half-cup of tomato paste be on each slice of pizza in order to count it as a vegetable, but after a $5.6 million food-company lobby, the department knocked that number down to two tablespoons of paste, according to Talking Points Memo, a political news organization.

Obviously tax reformers and debt-reducers need to hire someone in the tomato paste business because the debt fix doesn’t seem to be going so well.

From Josh Brown at The Reformed Broker, his top ten suggestions for a new Ben & Jerry’s ice cream flavor to honor the Occupy Wall Street movement:

10. Occu-pie a la mode

9. Mud n’ Rocks

8. Kleptocracy Krunch

7. 99 Percent Vanilla

6. Class W-Oreo

5. Zuccotti Biscotti

4. Marching Powder

3. Protest Parfait

2. Drummer’s Delight

1. Unemploy-Mint

Source: Ben & Jerry’s

I saw this cartoon on Greg Mankiw’s blog.  Whether it’s efficient markets, modern portfolio theory, or economic stimulus, economists haven’t had much luck with their theories lately!  The way in which supply and demand moves prices is usually a better indicator of reality than whatever the underlying economic theory is.    

(Click to enlarge)  Source: gocomics.com/Wiley Ink

Manufacturers of downward arrows!  Clever article and worth clicking the link for a laugh.

Source: Borowitz Report