Kraven

I am not familiar with it from the standpoint of retail investors. I have some familiarity with it on the institutional size, but it's been a while. The biggest risk is counterparty risk. That is, that you lend the securities, whoever you lent them to fails (goes bankrupt) and you don't get your securities back or only with tremendous cost, delay and aggravation. Frankly, for the minimal amounts I am sure you would get doing it retail, I just don't see the point in doing it. But then again, as I said, I have no familiarity with it being done on the retail side.

None of these are notes from the 1930s. I have read pretty much everything I can find on Graham and I have never seen class notes from the 1930s. Would love to get my hands on them if they exist. There are 2 things I can think of. One, the 1934 1st edition of Security Analysis was actually put together from notes taken by Dodd in Graham's lectures. Perhaps those notes survived and are in someone's files. I recall that when he died, Dodd's daughter gave Buffett his copy of the 1934 edition which was heavily marked up for updating. The other thing I can think of is that there are a series of Graham's lectures which were transcribed verbatim from a series given at the NY Institute of Finance between 1946-1947. I quickly read through the thread on the Boglehead's board you linked to. Very amusing. A debate on whether or not Graham actually said that in the short run the market is a voting machine, but in the long run it's a weighing machine. A few people looked (quickly) at Security Analysis and The Intelligent Investor and determined he never said those words. Someone then reached at to the highest authority, Jason Zweig (who did something unspeakable in his "updating" of The Intelligent Investor) and Zweig determined he also didn't say it. Zweig then reached out to Buffett who ultimately says if Graham didn't write it, he certainly said it around the office, in classes, etc. Board members then determined that it isn't Graham's view, but actually Buffett's (!) and that Graham thinks the market IS a voting machine, and Graham and Buffett have 2 different views. LOL This is one of those quotes that has simply been misquoted along the way. Graham didn't say it exactly, but it IS what he intended and I'm sure he did say it the way Buffett remembers it. If people could only crack open the book (Security Analysis), they would see that in the context of how it was written, it was meant to say what Buffett says it says. Graham makes 2 points. One is that the market price of securities is frequently out of line with the true value and, two, there is an inherent tendency for it to correct. He goes on to say that while the 2nd point is true in theory, it often doesn't work out that way and even when it does it can take a very long time. The point is that in the short term people are emotional and don't pay attention to the fundamentals (i.e. it is a voting machine), but that in the long run, in theory and often enough in practice that it's a true statement, essentially enough people come to their senses and "vote" properly based on the underlying value (i.e. a weighing machine).

Good points, so think what they could do with a big team. Nothing wrong of course with them billing extra for "hazard" work. The only thing I would disagree with you about is them taking their sweet time because they have other clients. I maintain that if the client (the company) calls senior management at PWC and makes a fuss, they will be all over it. The fact that this hasn't happened isn't good. A further thought Sanjeev to your earlier point. If the gaps are simply due to carelessness and oversight, that obviously isn't good, but it isn't fraud. Honestly, at this point, the answer would be that someone senior enough would become the sacrificial lamb and be hung out to dry. They would say we are so sorry, we (management) did not exercise proper oversight and we are dedicating ourselves to putting proper procedures in place. We have gotten rid of the bad apple and this will never happen again. We will restate, as necessary, and we look forward to regaining your trust. That this hasn't happened is again a bad fact. I have no idea if this plays in at all, but in the Asian culture there is a lot of weight placed on face saving, pride and the like. It is not a culture that likes to admit they are wrong. All of these things could be weighing on the ultimate resolution of the issue.

Sanjeev, I agree completely. Everything should be on pdfs. It might not be which is careless of them. But it shouldn't take this much time which is why I suspect at best the truth is grey. Look, at the end of the day, we all want to say hey, if they're perfectly above board why should they have to do this? And that is true, but unfortunately not the world we live in. They have been accused of something, right or wrong, and they should have "opened the kimono" as we used to say in less pc times. The fact that they haven't is a bad fact.

I don't recall whether they are using PWC as a special auditor or not. I haven't followed the situation that closely. There are a couple of points I can make. If PWC is doing this special audit, apart from their regular accountants, that shouldn't really matter. It does take time to get the lay of the land when you get a new piece of business (I'm talking about the accountants here), but this is what they do. PWC obviously took the job. They have been doing this for quite a while now if I'm not mistaken. Is it weeks? A couple months? I don't even remember any more. If company management called up PWC management and said "this is bad, we are being accused of something that is 100% false and we need help. Send us your best people and as many as you can. This needs to be done yesterday." PWC should be able to do that. This is what they do and they would want to make a great impression and try to steal the business from E&Y. You are right that things are different in China. Different cultures do things differently. That doesn't mean that things are fraudulent. However, even if it's not done the way "we" would do it, there is a "way". That is, there is a truth out there. How long should it take to find that truth? And if it's grey, that is, ownership is murky, that is obviously a very bad fact. If it isn't grey, then find the papers, let the auditor sign off on it. It's not like PWC doesn't have teams in China at this point who know the people, the language, the culture, the customs, etc. I suspect that at best it is very grey. The truth won't be absolute in this case. If it was, my gut tells me it would have come out already. That means that there IS crisis control going on, but it's complicated and they are organizing things.

I don't have any dog in this fight, but I find the situation interesting. I have done plenty of DD in my time. The fact that the analysts don't want to make the trip says nothing. It doesn't change anything. It's a long trip. People are busy. If the things they need to see and the people they need to meet aren't available, why waste the time. It doesn't matter how urgent you feel it is, if you can't do it right, why bother. That being said, the company's actions are curious. I have known several crisis management teams and either this company doesn't have one working with them, or they aren't good at what they do. I am not commenting on the substance of what the company is or isn't, but the perception and the news. The company should be wanting to put this to bed as quickly as they can. As someone else mentioned, if that means they work all day and night so be it. The auditors work for the company. Believe me, if the company called up senior management there and said this is top priority, drop everything because we're in crisis, the auditors would have a team there doing it. Now if the auditors feel their rear is on the line, they will hesitate. Everyone is now trying to cover themselves. The auditors feel they have potential liability here so they aren't going to move at lightspeed. So that is the conflict. The company may be pushing them to work faster, but the auditors aren't going to do that. The company can't "fire" them now as that wouldn't look good even if nothing is going on. It's a tough situation. You would think that if everything is kosher they could fix this in due course. The fact that this has lingered is probably not a positive sign. As my crisis management friends would say, be truthful, and get it out there fast, loud and often. It's when the truth is grey (or there isn't truth, but lies) that it mushrooms. I'll be interested to see how it all plays out.

Think of commercial paper like a low rate credit card that you have. Say you have a credit card with a low rate. You go out to eat, you buy some t-shirts from the Gap, you go to a movie, etc. and use your low rate card. Why do you use it? Because it's easier than carrying around a ton of cash. In addition, you might not have the cash this second, but you are 99.99999% certain you will. Maybe because your paycheck is coming in a couple of days. You may have plenty of assets, but are you going to liquidate some stocks to go to the movies while waiting for the paycheck? Of course not. I'm not saying there shouldn't be some cash reserves, but magnify this by lots of expenses. There's negative drag in holding too much cash. There is nothing nefarious about CP - it's been in use for many many years and to my knowledge has been very very few defaults. In terms of financials, that's a bit of a different story. They got caught with their pants down in the financial crisis because they committed the cardinal sin - they essentially borrowed short and lent long. That is, they financed themselves in many cases through CP (often through SIVs and CP securitization vehicles), but perhaps more through repos and the like. This is what killed Bear. They couldn't roll their repos at the end and simply ran out of liquid cash. But there is nothing wrong with a strong company using CP so long as it is used correctly.

I would use the app definitely.

This was a good article with interesting background info on Rodriguez.

The sad truth is that the regulators are, in general (with a few exceptions), just not as smart or savvy as the people developing and implementing these instruments. They are always at least 2 steps behind. It makes sense if you think about it. Whether you are at a financial institution or regulator and are going to be working with these things, you have to have some interest in it. So who chooses to work for the regulator making maybe 5, 10, 20 or more times less than the business person? Often it's someone who wants to work less, although at many of these regulators people work like dogs. Literally worse hours than some of the business people. So it's usually the person who would have chosen the business spot, but can't get it. Not always of course, but many times. There are definitely those who want to "do good" and don't care about doing well. The regulators are very good at regulating what has happened in the past. We can be relatively confident that a mortgage driven meltdown won't occur again. Of course each meltdown is unique in its specifics. So while they regulate what has happened in the past, they are very bad about being forward looking and determining what might happen in the future.

Now I can see why WEB called them weapon of mass destruction. In the wrong hands, indeed they are. As with any tool though there are legitimate uses for them. But in the hands of traders and bankers who live by an IBGYBG creed, they can be disastrous.

True, although at the time it was written he was what, in his mid 50s? He had already been in the business and communicating with people in business for years at that point. Everyone deserves a chance to improve of course, but we're not talking about some kid who was just learning the ropes. Just to reiterate, this is nothing against Whitman. I think he's brilliant and his ideas are very interesting.

Very interesting that one can like Security Analysis but be turned off by Aggressive Conservative Investor. I spent the better part of 6 months going through the first 4 editions of Security Analysis line by line and summarizing the essence of each chapter. So I am definitely not looking to be spoon fed :) Somehow I quite did not get all that much out of the Aggressive Conservative Investor. Perhaps I had high expectations going in. My detailed notes on the Security Analysis are at http://vinodp.com/documents/investing/security_analysis_index.html Vinod I agree with the points on Security Analysis. It's a book I love and is always close by. It wasn't lack of understanding of the Aggressive Conservative Investor or that the concepts were difficult, but just extremely poor writing. When I said it was impenetrable, I meant that the writing is so poor, so difficult to parse, that it's frustrating to try and dig out the golden nuggets. I've read his letters and the crux of his methodology is set out there and written much better. Likely someone else in his shop helped clean it up. Reminds me of a comment I got early in my career from a senior person: "Good ideas. Now make it so someone can actually read it."

His books are classics. Whitman is a very smart man. All that being said, I have found his books to be impenetrable. I rarely don't finish a book, yet found his to be very difficult to get through and didn't finish the Aggressive Conservative Investor. He spends the first 50-100 pages telling the reader what he is going to be telling them, but never provides too much detail. The rest of those pages is in rants about others in the market and how his approach is much better. Personally, I would stick with his shareholder letters which are fantastic and have his views distilled into something that is actually readable. Just my 2 cents.

I read it and enjoyed it. It's really more like a long booklet than a book. I would have loved for it to be longer with more detail. That isn't a criticism, I simply found it interesting and would have liked more. I liked the way they put the clips of the various newspaper articles, but wish they had included the entire article and not just the headline and first paragraph or so. I found myself reading them and then all of a sudden it is cut off! For someone who doesn't know a lot about the company I felt it gave me a decent background on them and I came away suitably impressed. For those who haven't read it though, I will note that as it was prepared by the company it isn't as hard hitting as a third party book might be. Don't get me wrong, they do point out their mistakes, etc., but with a gentle touch. No harm in that of course so long as you keep in mind who wrote it. One thing I could have done without is the constant "fair and friendly" refrain and that Prem is the most wonderful human being to have ever walked the earth. Sacrilege, I know, but a bit too kool aid like for me. All in all though I do recommend it as an informative, fast and enjoyable read.

No, securitization is not new. I wasn't sure if there was a point to this post or if it was simply to point out something of interest, but either way it was an interesting example. Securitization gets a very bad rap. There is nothing inherently wrong with it. It is simply a vehicle by which to accomplish a financing. Securitization is as good as the structure set up and the assets used to support it. Put bad ingredients in or cook them wrong and you have a mess.

Did anyone actually end up shorting a boatload of things? ;D Harry, do you always measure performance on a minute to minute or daily basis? :) Can you tell me how you've done since 10:53 am this morning? Because based on that I will decide whether your picks were good ones or not.

Funny - you're not the first to jump on Hester for that. I guess when attacking the messenger doesn't do it, attacking opposing board members is the natural next step. Oh lord, come on people, get a grip. I have no dog in this fight. Other than finding the various threads amusing and interesting, I really don't care all that much about Chinese RTOs. I know Hester and he has no connection to any of these nefarious characters. He is a very good, smart guy. Of course, I am just another anonymous poster and haven't been around all that long either. So perhaps the plot thickens. The paranoia is getting to people. If my (albeit anonymous) word isn't good enough for people, I'd be happy to privately let Sanjeev know who I am. I can certainly demonstrate to him that my word means something and that when I vouch for someone that is meaningful.

You're that guy who when asked what he would do for a million dollars would answer "as little as I had to" =) Wow, a million bucks seems so trivial since the days of Breakfast Club. So many great lines in that movie. I remember seeing it as a double feature of all things along with Purple Rain.

You're probably wrong. Personal experience is an overweight contributor when making predictions. ;D Indeed. This seems to be some kind of anchoring bias.

Moody's is an expert at predicting negative effects after they have occurred. They need to wait to see what happens in order to accurately forecast.

Wow, i thought you were kidding! http://dealbreaker.com/2010/01/jeffrey-gundlach-not-set-up-by-tcw-big-fan-of-dr--fellatio-series/ He did say in the interview that he used to be a drummer for a rock and roll band! Oh well I guess some habits die hard. He is an interesting guy to say the least. One thing I will say about him is that he has been able to navigate through the MBS minefields seemingly with ease and with superior returns. The large collection of porn and dildos rubbed many people the wrong way (ask the old TCW crew!), and to the extent the porn and dildos don't get you the arrogance does, but he has talent. An iota less talent and with his baggage he would have long been out of the game.

There's no holier than thou attitude or delicate sensibilities. Say whatever the hell you want. I can see how you misinterpreted the symbol SURW for Suri Cruise. Common mistake. As I said, say whatever you want. Don't talk about children though in a manner that suggests than being sold. I will speak for myself only. I don't find it funny. The rest of your schtick is just fine. Stay with jokes about saving money by making your gas tank smaller and you will keep an audience.

Harry, a good list of ideas. Thanks for posting it. I am familiar with some of the bank names you mentioned. Many are quality banks, but I don't see really any that are cheap. That being said, I will note that I'm not sure why PKBK is on the list. I had only taken a very quick look at it before. NPAs about 7% of assets. Texas Ratio almost 100%. Not sure how that fits with one of the best banks in America.

The Davidwoo schtick is amusing generally. The car with the small gas tank is funny. But please refrain from speaking about children like this. I don't want to be a hardass but it's very odd and frankly quite sketchy.