Opinions and observations expressed on this blog reflect the authors' individual experiences and should not be construed to be financial advice. None of the members of this blog are licensed financial advisors. Please consult your own licensed financial advisor if you wish to act on any recommendations here.

Monday, May 31, 2010

Economic Data Summary: Week Ending May 28th, 2010

We've finally gotten to a point where I think all data series have had some level of explanation or are at least straightforward enough that we can cut right through them. In any case, the data this week were somewhat of a mixed bag, though still show that the economic recovery remains intact. Without further ado:

April New and Existing Home Sales

As expected both new and existing home sales had very strong months in April. New home sales were up 14.8% at an annual rate and existing home sales were up 7.6%. However, this was largely due to the homebuyer tax credit. As we have discussed previously, that is likely to distort the data going forward for some time to come. How much the distortion will be has yet to be seen, but my guess is that it will be significant. The depressed home sales in the coming months will probably weigh on prices that have otherwise firmed recently, which takes us to our next data...

March S&P Case Shiller House Price Index

Sputtering. That is the appropriate word to use for what had been some decent house price increases in mid through late 2009. Seasonally adjusted, house prices did edge up somewhat in March in the markets followed by the 10-city index, but the broader 20-city index fell slightly from 146.0 to 145.93. Not a huge decline, but still it does indicate that house prices are likely to remain moribund for some time to come.

Sunday, May 30, 2010

Bury Your Money Like Kimchi!

We've touched on South Korea here already recently, but I wanted to come back after some reading I happened upon. Here on the downside of that bull market peak in the beginning of this year, it appears that market recovery may not be as quick as once predicted. This is not unusual, as the recoveries from 1929 and 1980 sputtered and fell several times before more stable growth trends took hold. The Star Tribune from this morning, from a Wall Street Journal article that I have since been unable to locate, theorized that the real value of the market may be as low as 50% of where we are hovering now. We could continue to see short bull markets, but I'm thinking that an overall downward trend may continue for sometime now.

That being said, the New York Times postulates that the uncertainty in the Korean peninsula is not particularly so. Kim Jong Il is an unwell man, but the Korean memory is a long one, and avoiding military conflict is likely to be the ultimate goal here. Kim is the crack baby misbehaving for attention.

So, between the Event Risk and uncertainty of the professionals in the face of it, and the (potentially totally wrong) prediction that the market will continue to roll downward, and the overall terrific environment South Korea has been and will continue to be as its vast rural population enters the modern world, I think we should be on the lookout of Korean opportunity.

Is this a fair follow-up to BQ's first post on Korea?

Friday, May 28, 2010

End of Month Open Thread

Well, it's been quite a month for the markets and I hope that those of you who were unfamiliar with financial markets have learned something here. This open thread is a chance to share your thoughts, experiences, suggestions, or whatever else you feel like.

Thursday, May 27, 2010

Threading Strategies Together

Several different strategies have been discussed here on Finance Monitor along with numerous individual investments and I thought I would provide some context on how to view the discussions in the context of your own investments. The fundamental goal of this post is to weave several different posts on different subjects together. I will try to provide links so that you can quickly look up the prior discussions.

I guess the proper way to start this conversation was with the prior post on risk reduction in portfolio construction. This is one way of looking at your macro strategy, though there are many potential variations on this broader strategy. Within the core portfolio, either use equity index funds or balanced funds and basically just try to keep your overall allocation right, unless you want to be a little more active here. Then, you can engage in what was discussed on the post on dynamic asset allocation.

To do this, use the SPY and TLT ETFs at a basic level. If you have less than $2,000, I strongly encourage you to only re-balance when interest rates suggest you make a large reallocation from stocks to bonds or bonds to stocks. If you re-balance with every twinge, you'll get eaten alive by commissions. For example, let's say the model changes each month and you re-balance with $7 commissions each time (on both purchase and sale) with a $2,000 balance. You will incur $14 a transaction 12 times for a total of $168 in commissions. That would be 8.4% of your portfolio or greater than your average annual gain. With $20,000, it's 0.84%, which is bad, but not ruinous. If you are so fortunate to get up to $100,000, the fees are very low indeed. The ETF fees for TLT and SPY are also very low. In the case of SPY they are 0.09% per year and 0.15% on TLT.

Tuesday, May 25, 2010

Interesting Perspective on Bottom Fishing in Europe

There's a good Wall Street Journal article about the dangers of some of the more popular European ETFs. The principal issue that the authors highlight is that these indexes may be too heavily tilted toward the banks. As someone who lost a fair amount of money on bank stocks during the worst of our financial crisis, I am more discerning about bottom fishing than I used to be, so this caught my attention.

I still think there might be some money to be made in the broad ETFs like EWP, but indeed the better way to play this rout of European stocks is to look for the companies least effected by the crisis, but that have gotten destroyed anyway. The article mentions Telefonica (TEF), which has gotten absolutely clobbered and now yields over 8% with an 8-9 PE, depending on which earnings estimates you use. That's not bad and also Telefonica is unlikely to suffer severe damage. Communications outlays are not as vulnerable as other forms of consumer discretionary spending.

The same goes for stocks here. United Technologies (UTX) is down from $77 to $66 and it really isn't that likely to be effected by primary, secondary, or even tertiary effects of the European crisis.

What do you all think? Does this view make sense to you?

Monday, May 24, 2010

Event Risk: Thy Name is Korea

For those not familiar with the terminology, "event risk" is a fairly simple concept and I am almost ashamed to use the term because of its simplicity. It simply means that there is the risk that a major event outside of regular market forces will shake a specific company or even an entire market. For example, BP's event risk has been the ongoing oil spill. Simple enough concept.

With that out of the way, let's move on to South Korea and the escalating crisis with the North over the sinking by the North of a South Korean naval vessel. This is yet another instance of where one must pay attention to politics when making investment decisions. South Korea is an attractive market in a number of ways. The government is fiscally stable, the economy is clearly in a high growth mode, companies are becoming increasingly profitable, and China provides a great long term driver of export growth. There's an awful lot to like. However, they do have an absolutely berserk neighbor to the north.

However, as serious as this crisis seems, it is not clear that the Korean markets have taken the risk as seriously as one might think.

Against EEM, an overall emerging markets index ETF, EWY, the South Korean iShares ETF, has not done that much worse, certainly not so much worse as to indicate broad investor skittishness. Compared to the potential for ruin the South Korean economy should a war commence, this response seems modest. Of course, even when U.S. markets became aware of the Cuban Missile Crisis, stocks did not sell off particularly fiercely either. Maybe markets generally are fairly unimpressed by political (broadly defined) turmoil. Even in Thailand, ongoing political violence has barely dented the market lately.

So, why the post title indicating that South Korea is a poster child for event risk? I would say it is because if what South Korea is facing isn't event risk, I don't know what is. And if this is major event risk, why is the market not more concerned than it is? Am I reading the situation entirely incorrectly?

Also, if anyone has any special insights on the ongoing Korean tensions, I'd be happy to hear them. There might be some money to make here for those that fancy investing in Korea.

Sunday, May 23, 2010

Economic Data Summary: Week Ending May 21st, 2010

The data released in the past week were mixed, the first week in a while where that was true, however there does not seem to be much of a change in the overall trend of steady, moderate economic growth.

April Consumer Price Index (CPI)

This is the measure of prices paid by consumers for a pre-determined basket of market goods. Along with the PCE deflator, it is one of the two primary methods for determining the rate of inflation for consumers.

In April, the headline number fell 0.1% and is up 2.2% year on year. The April decline was driven by lower energy prices and that trend will probably continue for a couple more months with the recent decline in crude oil prices as well as gasoline and natural gas prices. The core rate, less food and energy, was flat for the month and is up 0.9% year on year. Inflation is very modest and there are few signs that it will accelerate soon in any meaningful way.

April Producer Price Index (PPI)

This is essentially the CPI for businesses, focusing on manufacturers in particular. There's really not much more to say about it except to say that, along with the CPI, these releases can move markets when there are concerns about Federal Reserve interest rate moves. This is because when markets are on edge fearing rate hikes, strong inflation numbers will change interest rate expectations to the upside and hurt equity and bond prices.

Like the CPI, the headline number was down 0.1% month on month, driven by energy. Year on year, the finished goods index was up 5.5%, which would look scary under most circumstances. However, as recently as July of last year the PPI was down 6.9% year on year so the comparisons are somewhat skewed. PPI is subject to much more wild swings than CPI because changes in raw materials prices are felt more rapidly and are not moderated by the fact that not all price increases are passed on to consumers.

April Housing Starts

"In Defense of the Humble Balanced Portfolio" - Morningstar

I stumbled across this good article from Morningstar "In Defense of the Humble Balanced Portfolio". This relates to a previous discussion on overall investment strategies and several subsequent posts on asset allocations and portfolio construction.

Incidentally, they do note some shortcomings of a simple static 50/50 stock and bond mix, or any static ratio for that matter, which is what prompted me to work on the dynamic asset allocation model over the past year or so. Even the automatic rebalancing target date funds have their problems as they rebalance at linear rates that may not be opportune given market cycles. That's why I prefer the dynamic, interest rate signal approach.

What do you all think?

Saturday, May 22, 2010

Is BP a good buy at these levels?

Disclaimer: I am in no way trying to diminish the environmental damages to the Gulf Coast. In fact, I am more than outraged about it. However, remember that on this blog we play the role of cold, Ayn Rand-like, cynical capitalists. 

Whenever there is a company just getting its ass handed to it (that's a technical term) like BP (BP) is, there is always some appeal in possibly nibbling at it. Indeed, BP has gotten absolutely slaughtered over the past several weeks.

Compared to the other integrated oil companies, like Exxon Mobil (XOM) and ConocoPhillips (COP), it has been downright ugly. 

That being said, it is unclear exactly what the damages to BP will be. If the losses will be only in the range of a few billion dollars, then they're very cheap right now. If, on the other hand, they get hit with $40, $50, or $60 billion in damages and punitive fines, then they're not so cheap. Given that this is an election year and politicians love issues like this because they make for great righteous indignation and extreme sweeping measures, it's anyone's guess.

I personally say no to this because I am risk averse and I don't like the size of the unknowns here. There is the possibility that BP is barred from future exploration and development, for example. However, disagreement is what makes a market. What do you all think?

Q: How do I value stocks anyway? A: Umm....

One of the basic questions that is brought up time and again is: Is the stock market overvalued or undervalued? Investors are chronically asking this question and the debate between the two factions is what creates a market. Those who think their stocks have had their run will sell and those that think that those stocks can continue to run will buy and where the two meet is the price of the stock. The question for you is which side of that trade do you come down on?

I wish there was an easy answer here, but there is no easy answer. I don't subscribe to any one view of it. Efficient market theorists insist that the price of a stock is always justified because that is what the market values it at. Well.... that's nice, but kind of useless. Then, to quote Cheech Marin's character at the end of From Dusk Till Dawn, "One place's just as good as another". Put in terms of market history, buying Microstrategy (MSTR) at $3,000 a share in March of 2000 made just as much sense as buying Ford (F) at $1 in late 2008.

Dismissing this idea for a moment, how then should stocks, or the stock market at large, be valued? One idea for the overall market is by relative valuation. This is the previously mentioned earnings yield (1/PE * 100%) and compare it to long term bonds. If the earnings yield is at 5% and the 10-year Treasury Note is at 3.5%, stocks seem cheap. If the earnings yield is at 4% and the 10-year Treasury Note is at 7%, stocks are horrifically overvalued. There are some problems with this method in that it is possible that the "E", or earnings, in the PE ratio may be temporarily distorted. Also, interest rates can change in a hurry. It is not uncommon for long term rates to move 100 basis points in a six week period.

If you have taken a microeconomics class that has discussed financial markets at all, or any finance class, you have heard of the Dividend Discount Model. There are two problems with this as well. One is that many companies do not pay dividends, or do not pay particularly large dividends as a matter of policy. As a result, these companies get the shaft in this method of valuation. Also, you have to make the leap of faith that some given level of dividend growth will be sustainable. Just because a company has grown dividends at 8% each year for the past ten years does not mean that they will continue to do so. Case in point: the financials during the 2007-2008 period. If you valued those companies with the assumption that their current dividends were a good proxy of their dividends over the next five years, you would get hosed. Purely conceptually, however, this is probably the best method. It's just that it is difficult to apply to a large number of stocks.

Endowment Losses

I just read an interesting article

The part I found most interesting was the table showing losses. It might be comforting to know that Harvard, with a team of experts, still lost a lot during the recession.

Thursday, May 20, 2010

Strategy Sessions - Part 2: Building Your Portfolio to Protect Your Assets

As I have previously mentioned, there is somewhat of a trade off between the potential, and I will emphasize potential, for high returns and the volatility that you will incur. This relationship is not absolute as, for example, adding some stocks to an all bond portfolio actually reduces your volatility over time. However, it is a fair starting point for considering how to construct your portfolio. All of the following is based off of my own personal views and does not necessarily represent "best practices" in the industry.

Regardless of your volatility preferences, any portfolio should start with a core position or positions. Depending on how much you have to invest and whether or not you meet investment minimums, this position can either be an broad market index fund (S&P 500, Wilshire 5000, or something that tracks a global index like the FTSE All World Index) or a similar ETF. Balanced funds (a mix of stocks and bonds) are also a good choice for core portfolio holdings. If you don't meet minimum investment requirements from your desired mutual fund (ie Vanguard often has a $3,000 minimum), then I say go the ETF route. You also will have greater flexibility in changing ETFs than you will with conventional mutual funds. Just keep an eye on fees. For a small portfolio (<5,000), core positions should be the bulk of what you have. For larger portfolios, core positions can be as little as 25%, in my view.

A quick aside, on fees, you should never pay loads (up front fees) on your mutual funds and keep an eye on expense ratios. If you are paying over 0.80% in annual fees, reconsider your position. Just a .40% differential on fees can cost you 16% in long term returns. Put another way, if you would have had $100,000 in your fund at retirement, you will have $84,000. You want those extra $16,000, so keep your eye on fees.

The next layer of your portfolio can venture out a bit into more volatile, but not crazy investments. Along the fund route, these are things like sector funds that track individual market sectors you think will do well, or broad basket emerging market funds or their equivalent ETFs (EEM, for example). This can also be composed of a basket of positions in various blue-chip companies if you choose to use individual stocks. If the core portfolio is your castle, this is your outer wall. I don't know exactly what to call this, so I will go with meso-portfolio. You have your core portfolio, then your meso-portfolio. I like the scientific sound of it.

From there, you can build your exploratory positions. These can be specific country or region emerging market funds, mid and small cap stocks (provided that they have decent analyst coverage), and so on. The larger your portfolio, the larger these positions can be.

A Brief Note on Financial Crises and Safe Harbors

One of the great new contrarian pieces of "knowledge" has been that you can hide from a developed market financial crisis in emerging markets. This was said in 2007 and 2008 when we went into the soup and it was said again this time during the ongoing European financial crisis. Just to show how silly that idea is, here is a chart from June 1, 2008 through March 1, 2009:

The green candlestick line is the S&P 500, the olive line is the FXI from yesterday, the purple line is the iShares MSCI Emerging Markets Index Fund (EEM) and the light blue line is the iShares Brazilian Index Fund (EWZ). As you can see, over this period, the U.S. outperformed all of those markets for the duration of the worst of the crisis.

Similarly, in the current crisis the pattern has been continued:

The pattern is repeated, to varying degrees. So, what is the safe harbor? U.S. Treasuries have been, are, and will likely continue to be the last best hope for investors in the midst of a crisis. I could show the chart from 2008, but that's just beating a dead horse. Here's the most recent performance with the iShares Barclay's 20+ Year Treasury Bond Fund (TLT) represented by the.... I guess that's salmon colored line:

As you can see, long-duration U.S. Treasuries are a good safe harbor for assets in short term financial crises, regardless of whether they are here in the U.S. or if they are in Greece, China, Japan, or wherever else there might be a crisis. That being said, as a long term prospect, I am not thrilled with the outlook for Treasuries at the moment as I have indicated previously. As interest rates rise in the future, you will get slaughtered for a large position in them. In the short run they might be appealing, though even here I'm not sure how much more upside they have. I think we are probably within a couple weeks of the worst of the European crisis being behind us, though it will get ugly before it is over.

Someone may ask "What about gold?". In response I say, "Treasuries > gold" in a crisis. It was true in 2008. It is true now. Gold is only superior in a time of hyperinflation.

Anyway, those are my thoughts.

Wednesday, May 19, 2010

Investing in China: Now, Later, or Never?

I will preface this entire discussion by saying I am not an expert on China. I do not know a word of Mandarin (or Cantonese for that matter), I do not know the names of more than 25 Chinese companies, and I have never been there. I do, however, know a fair amount about Chinese history and Chinese economic development. As there are a few of you that know more about certain aspects of China, I welcome your input.

Of course, when any economy is growing 11% a year, there is a great temptation to want to invest in that country's markets. With China, where the economic prospects seem so favorable, this is particularly true. However, historically the Chinese stock market has proved a treacherous mistress. For most of the ten years leading up to 2006, Chinese stocks, measured by the CSI 300, did not do particularly much of anything even while the economy boomed. Then, between 2006 and early-2008, Chinese stocks increased nearly six fold, one of the most powerful rallies by a major economy's markets in history. Then, over the next ten months, stocks fell 73%, wiping out most of the gains of the past three years. Over the ten months from October 2008 to August 2009, stocks rallied by better than 100%, out-pacing most other markets. 

Since then, however, China has been an unusually poorly performing market, even rivaling some of the troubled European markets. The CSI 300 has fallen from 3,750 in August to 2,762 now, making it one of the few bear markets anywhere in the world. Its best proxy listed here, the iShares FTSE/Xinhua China 25 Fund (FXI), has badly trailed the S&P 500 over 
the past year. Despite all of the talk about China being a better place to invest, the
markets have said otherwise:

Tuesday, May 18, 2010

Goldman Sachs: Good at making money for themselves. Their clients... not so much

There is a very interesting story from Bloomberg. This is somewhat outside the purview of this blog, but still it is an interesting story that should warn people against listening to what the big firms have to say.

I guess the other piece of advice I have for all of those who consider themselves beginners and don't know this, always read Bloomberg every morning, afternoon, and evening. It is far and away the best financial coverage out there, particularly when you want some coverage of foreign markets.

Sunday, May 16, 2010

Economic Data Summary: Week Ending May 14th, 2010

The economic data this week were once again fairly positive so the general story of a moderately strong economic recovery remains in place. I will editorialize a bit here to say that compared to the expectations of many 8-12 months ago, we are having a much stronger recovery than projected.

April Industrial Production

My personal favorite coincident indicator as it is the proxy for determining the demand for goods. Manufacturers will not produce if they do not think that there is a market for their goods. The one wrinkle in this is that inventory trends can be a short term driver of the industrial production index, making it unclear how much growth is due to restocking of inventories and how much is actually because of growing end-demand. Industrial production is released by the Fed right about the middle of the month every month.

In line with what we have been seeing out of the manufacturing diffusion indices, industrial production showed strong growth in April with 0.8% growth on the headline number. Below the surface, business equipment grew 1.0% and construction supplies 2.8%. March and January were revised higher, February lower. The diffusion indices also showed broad based growth.

Here's a look at the manufacturing index subset (does not include utilities and mining):

Yes, we are still far below the peak, but the pattern of recovery remains firmly intact. There are not even signs of wheezing at this moment.

Thursday, May 13, 2010

Why Does My Stock Give Me Heartburn?

A fundamental question that nearly all investors have asked at one point or another or even still ask after many years in the market: Why does my stock bounce all over the place? All stocks are volatile to some extent because the overall market is volatile, but some are much moreso than others. Why does this happen?

There is no simple answer to this, but there is a basic framework that drives volatility in individual stocks and it can also be applied to the broader market as well in particular circumstances. The basic framework is along the following lines:

1. Volume levels (What % of shares outstanding trade in a given day?)
2. Earnings certainty (How stable are projected earnings?)
3. Previous volatility (Investor expectations are heavily based on the past. If a stock has been volatile in the past, investors assume it will be volatile in the future and this becomes a self-fulfilling prophecy)

Volume is a major factor for determining the stability of stocks. While low volumes do not necessitate that every day will be an adventure, they do make a stock more vulnerable to large moves. The basic logic is that if a stock only trades 50,000 shares a day, one huge buy order or one huge sell order can have huge sway over the course of the stock because generally there is not enough liquidity to absorb a large spike. However, if, say, a large buy or sell order hits Walmart (WMT), the high level of volume in Walmart shares will moderate that movement and prevent aberrant moves because the market's opinion of where the price of Walmart should be is much more developed than for, say, Consolidated Graphics (CGX). Broadly speaking, this dynamic means that larger companies will be less subject to volatility, but it is slightly more complicated than that. Some large stocks are more volatile than small companies for other reasons, two of which are listed below.

Asset Allocation: A Dynamic Model

There are many approaches to asset allocation and I will try to give them all justice in turn. However, as promised, I will unveil one approach that I worked on for several months designed to pull off a difficult task: Picking the precise moments to shift in and out of stocks.

The model relies on three basic indicators:

1. The spread between earnings yield on the S&P 500 Index and the yield on 10-year Treasury Bonds
2. The spread between 10-year Treasury Bond rates and 90-day T-bills (one measure of the slope of the yield curve)
3. The spread between AAA rated corporate bonds and 10-year Treasury Bonds

For the uninitiated, earnings yield is calculated in the following way for an individual stock:
(1/PE ratio)*100% = earnings yield

For example on a 25 PE: (1/25)*100% = 4% earnings yield

The basic logic for each indicator being included is as follows:

1. The earnings yield spread is a measure of the relative valuation between stocks and bonds. A wide spread indicates that stocks are undervalued while an inverted spread indicates that stocks are overvalued.

2. The yield curve measurement relies on the predictive power of the Treasury yield curve for predicting major economic cycles. A heavily upwardly sloped yield curve indicates that the market expects short rates to rise in the near term because economic growth, and therefore inflation expectations, will be rising. An inverted yield curve indicates the opposite.

3. The corporate credit spread measurement is a proxy for financial panic and complacency. A wide spread indicates that markets are skittish and investors will only buy corporate bonds at severe discounts to Treasuries. A narrow spread indicates the opposite. This is a contrarian indicator. It is specified to give favorable signals when things look frightening for corporate credit.

Without getting into too many specifics at this point, the model relies on a composite score of the three indicators to give signals of when to re-balance your portfolio. The more favorable the composite becomes, the more you should shift into stocks. The more it indicates unfavorable conditions the more you should shift into bonds. Fairly simple, though the calculations were a pain.

The model has upper and lower bounds for asset allocation of 80% and 20% meaning that neither stocks or bonds can ever be less than 20% of your portfolio. I may respecify this to allow for 100% allocations, but I am not sold on that idea yet.

Here's a chart of how one specification of this model allocates:

It may look very volatile, but bear in mind this is over 57 years and it is crunched into a single graph.

Now, the fundamental question is: How does this work in practice? Does it provide a high rate of return with high rates of stability?

Well, historically back tested it produces a compounded annual growth rate of 8.0% vs 7.0% for an all-stock portfolio over the same period. More importantly, it does this with a lower range of volatility. The annual standard deviation for returns is 8.6% for the model and 15.3% for an all stock portfolio. Graphically, it looks something like this (red line is all stocks, blue line is the model under the specification above):

The graph is in logarithmic terms because it provides a more accurate picture. As you can see, the model is still prone to some losses in severe market downturns, but on the whole it is more stable.

One challenge of the model is that it is subject to long periods of under-performance like any balanced portfolio. The trick to the model is that it makes up a lot of ground in bear markets because it correctly moves investors into a bond-heavy position just before major declines. It does move back into stocks too soon in 2008, but it does have investors fully invested at the bottom and in for the subsequent rally. In the bear markets of 2000-2002, 1990, 1981-82, and 1973-74 it performs very well indeed.

Of course, the future might not look anything like the past, but I think such an approach is promising.

What do you all think?

Btw, the model currently suggests an 80-20 stock/bond split.

A United (?) Kingdom

So the Tories are back in power! And the Lib Dems are part of the coalition?

Whatever your political leanings, I think there is consensus that this is a strange alliance. And I think that this will have implications for the UK stock market.

For the sake of being bold, below is my hypothesis, please add your comments to it!

I predict that this coalition will last around two years and that we will see another UK election around summer of 2012. I think that David Cameron and Nick Clegg will actually personally get along, but they are closer aligned than their parties. So this points to a rather quick dissolution of the coalition. The reason I am giving them two years is that I think since both parties have been out of power for so long, they will not be eager to leave. But eventually, things will build up (I think it is likely that the Tories will not follow through on election reform) and the party base will get upset.

Second prediction is that this will be the new norm for the next several (maybe 4-6???) years. I think that the Lib Dems are on the rise and that Labour is on the way out. But, I'm not sure there will be a clean switch, instead I think this could be the start of some major three way action.

Why does any reader of this blog care? Normally I am pretty dismissive of the effect of so called "political turmoil" and its effects on the stock market (think about the big effect the Dems were suppose to have in 2006 or 2008), but I do think this UK election is significant since I really believe that there are now three viable parties in the UK. And this comes at a time when debt levels in UK are rising. I don't think any party will have the power (or the will) to make the tough decisions coming up... and I think the UK's economy will suffer.

Alex's Conclusion: Avoid too much exposure to the UK over the next several years!

Wednesday, May 12, 2010

Adventures around the World

Well, this will be my first post and then most likely my last post until the end of July. I will be traveling around the world: first a month in China and then three weeks in Europe.

Why does Finance Monitor care? Well, I can be our first investigative journalist! I will do my best to keep my eyes open for unique companies as well as seeing the depth to which international companies have penetrated the far reaches of the earth.

For example, when I visited China in 2008, I learned that Western toilets were a huge deal. The Chinese were (maybe still are?) transitioning from pit toilets to what we would call toilets. And the company to get a toilet with? Kohler! Too bad they are private...

So here is a list of places I will be in China (most likely flying, so these will be the only places):
Hong Kong

And in Europe the big cities are (with car and train travel between them):

So questions for everyone:
1. Any international company you want me watch for?
2. Any Chinese or European company I should look into?
3. What else should I look for?

Strategy Sessions- Part 1: Overview of Asset Allocation Versus Individual Securities

Steve brought up an interesting fundamental debate that investors have to resolve in their own heads: Should I be a stock picker or should I focus on asset allocation?

To put my own chips on the table here, I do both. Yes, it's a cop-out, but at the same time there is some value in it. Spreading your bets around not only different securities, not only around different asset classes, but even among different strategies does reduce the possibility of catastrophic loss and that is one of the chief objectives that any individual must bear in mind when making investments. Part of the reason I pick individual securities is that it simply keeps me interested in the market. The other reason is that I firmly believe that, with a good research methodology based on the fundamental value of companies, you can beat the market. However, I made my peace with the idea that I will not always beat the market and a lot of people do not come to terms with that.

As to the issues regarding picking individual securities, you must have a stomach of steel to handle the volatility. I own upwards of 18 different stocks at any one time so a large move in any one of them does not usually phase me. However, this sort of environment is not appropriate for many people for any number of reasons. Quite frankly, there is nothing wrong with being uncomfortable with high levels of volatility. It's a natural human reaction. If you do not feel able to keep up with the pace of the market, I would recommend broader strategies that focus more on asset allocation. Quite frankly, there is a damn good chance you will actually do better than being a trader or a stock picker. There's a great deal of evidence from economists and financial historians to support that idea.

To that end, I have devised a dynamic asset allocation tool designed to allocate into appropriate levels of stocks and bonds based on credit market indicators. The basic theory is that credit markets give indications of when you should get in and out of the market. I have always believed, with substantial empirical research from countless economists to support this belief, that interest rates are vital market signals and that relationships between different interest rates and those interest rates versus equity prices can be valuable investing tools. The model I have worked on will need revision as time goes on, but I think the general premise is solid.

In a few future posts related to this broader subject I will:
1. Discuss the dynamic asset allocation model introduced here
2. Outline some reasons why some individual stock holdings may be more subject to volatility than others
3. Introduce some methods for reducing volatility while still leaving open possibilities for gains
4. Whatever else I might think of

I'm doing this somewhat backwards because I am actually somewhat giddy to share the dynamic asset allocation model.

Tuesday, May 11, 2010

Strategy at this dynamic juncture

Investment is a new game for me. My first curiosity for this blog is strategies with which we can approach the endeavor of turning our money into more money. Day-trading seems a tedious project, but it seems to me that there is opportunity in such a strategy at this time. Owning MTW and MICC gives me motion sickness, watching them go up and down.

Then again, perhaps long term appreciation is a better strategy; less risky, less of a pain. Or some union of these strategies? Does anyone have thoughts on this issue or know good resources to educate myself with?

Sunday, May 9, 2010

German Regional Elections and Their Consequences

It pays to follow results such as these when we are in the middle of a crisis. Whatever you think of Angela Merkel, the rout of her party and its coalition partners in the North Rhine-Westphalia regional elections might spell deepened trouble for financial markets this coming week. Her government's backing for the bailout package for Greece seems to have a lot to do with these election results. As such, continued sovereign intervention in the European financial crisis appears doubtful. This is especially true as the most recent election result in the United Kingdom still has not produced a definitive outcome, and whatever coalition government emerges will be too weak to take on something as unpopular as bailing out fragile southern European economies. 

Stay tuned and keep your eyes peeled. This may have already been anticipated by financial markets, but one cannot be sure. 

Update: It appears given market futures that this is not having a huge impact on the markets and that they are instead focusing on the larger than expected responses by the EU and ECB in the last 24 hours. I'm glad to see that Jean Claude Trichet lost out and that the ECB will be providing assistance to governments should they be shut out of the private bond markets. His prior unwillingness was the cause of the Thursday and Friday blood baths. 

Saturday, May 8, 2010

Economic Data Summary: Week Ending May 7th, 2010

This was an unambiguously positive week for economic data. If you don't have a lot of time on your hands, take that much from this post. Nearly every single indicator is moving in the right direction and most are improving in a big way.

As before, I will provide a brief description of why the data set is important if I have not covered it before.

April Employment Report

Bureau of Labor Statistics Link

For the uninitiated, this is arguably the most widely watched economic indicator and the one with the greatest impact on markets. What's nice about it is that the Bureau of Labor Statistics releases the data for the previous month within no more than 9 days of its completion and sometimes as little as 2. It is thus very timely and of very broad scope. Timeliness and scope are the two major factors that give an economic report its market moving potential.

Importantly, remember that the unemployment rate and the headline number of job creation are derived from two different series. The unemployment rate is derived from the Household Survey of employment, which is a monthly survey of approximately 30,000 households. The Establishment Survey is used to determine the number of non-farm payrolls created or lost in the course of a month. This is a survey of north of 300,000 employers covering a huge chunk of total employment. As such, the non-farm payrolls number is the more accurate as well as the more important of the two. The unemployment rate is an interesting talking point, but is not necessarily an accurate snapshot at any given time of labor force utilization, regardless of what measure you use.

So what happened in April? 290,000 non-farm payrolls were created and the unemployment rate edged up from 9.7% to 9.9%. Job gains were also revised up in March and February. The slight increase in the unemployment rate has to do with job seekers becoming encouraged by labor market conditions and returning to the labor force. The several hundred thousand if not millions who exited the labor force during the prior two years kept unemployment from rising more and will also keep it from falling too rapidly as jobs start coming back.

Gains were very widespread with the diffusion index for employers shooting up well over 60 at 64.3. This is well within the range of a healthy economic expansion, indicating far more employers are adding jobs than cutting them. Really impressive is how much manufacturing is coming back with 79,000 jobs created there in just the last three months. Of course, losses in manufacturing were enormous during the pit of the recession such as in April of last year when 149,000 jobs were lost, but this is a good sign. All major categories also gained jobs.

Now, I think the most important figure from a macroeconomic perspective is the aggregate weekly hours index. The reason is that this indicates what is the total amount of work happening in the economy. Theoretically, weekly hours could be declining while payrolls are rising and vice versa. As such, aggregate weekly hours is the best indicator of demand for labor. It has also risen substantially from the bottom last year :

Importantly, this is recovering far more rapidly than it has in the prior two recessions. Those expecting the slow "jobless recovery" that we got used to recently might, I will emphasize "might", be surprised.

April ISM Manufacturing and Non-Manufacturing Surveys

ISM Manufacturing Survey Link
ISM Non-Manufacturing Survey Link

For those who remember the post on the Chicago PMI and regional Federal Reserve indexes, these are the same sort of survey based diffusion indices. There is relatively little more to add to them except to say that they have much more sway on the market. The ISM manufacturing index in particular has historically had one of the most dramatic impacts on market movements of any indicator. This is because it is a national survey of manufacturing that is released on the first trading day of the month for the prior month. Manufacturing is the best leading indicator of the economy as a whole and the survey comes out right after the month is over. The non-manufacturing index is conducted in the same way, but even though it covers a larger sector of the economy it has a shorter history (only has been conducted since 1997) and seemingly worse tracking to the overall economy.

The ISM manufacturing index registered at a very strong 60.4%, indicating a very strong rate of expansion in manufacturing. Importantly, the new orders index came in at 65.7% with 52% reporting better orders and only 8% reporting lower orders. Put simply, this is beyond strong and indicates continued moderate to high rates of overall economic growth over the next few months at least.

The non-manufacturing index came in at 55.4%, which is fairly solid. The business activity index rose to a whopping 60.3% with 39% reporting higher activity and only 10% lower activity. Employment was a little weak, but the monthly employment report out of BLS contradicts this.

March Construction Spending 

Census Bureau Construction Spending Link

This is pretty self-explanatory. It represents annualized outlays on private non-residential, private residential, and public construction projects. As it trails by more than a full month, it does not have particularly much market impact.

In March, spending rose by 0.2%, but this was driven almost entirely by public expenditures. Private non-residential and residential outlays fell by 0.7% and 1.1% respectively. Construction outlays have proven to be a continued source of weakness and non-residential in particular is unlikely to recover any time soon.

Jobless Claims

DOL Jobless Claims Link

Claims fell a little to 444,000, but they had been upwardly revised for the prior week. The level of jobless claims is proving stubbornly high, but it doesn't seem to be correlating with weakness in the labor markets. If this level correlates with what we saw in April's employment report, then it is good news, but this has clearly become harder to interpret.

April Car Sales, Personal Income and Spending, and April Chain Store Sales

Car sales in April were down a little from March as incentives were reduced, but still are on a recovery track. That said, at an 11.2 million annual rate, these are still very low levels of car sales.

Personal income and spending for March you would think would be a more closely followed report, but it really doesn't tell us much we didn't know already due to more timely indicators. Nonetheless, both income and spending showed strength in March. Spending was mainly bolstered by depleted savings and government transfer payments, so the trends of March will be difficult to repeat for long. However, with employment growth resuming, the "quality", for lack of a better term, of future consumption growth will likely improve. Link

April chain store sales were weak due to both bad weather in certain parts of the country and, more importantly, the shift of the Easter holiday. When the Census Department releases its Retail Sales report next week we will get a better sense of it. Normally these reports have a  large influence on the markets due to their timeliness, but this week it was hard to tell due to the strangeness of Thursday.

Anyway, these and other reports are summarized on the Bloomberg Calendar

Friday, May 7, 2010

Where/how to buy/sell?

I have a mutual fund that I have been putting a small amount of money into over the past 1.5 years. The transaction happens automatically every month and was setup through a financial planner that I was using at the time because I didn't know where to start. Because of this, I lose a small amount of the investment every month to fees, maybe something like 1%. I am looking to reduce or eliminate this loss. I may also be looking to buy individual stocks which the financial planner doesn't do.

I have looked at a few different online trading sites, but never really got a good feel for any of them. How is everyone else here buying and selling?

Thursday, May 6, 2010

Today's Ridiculous Performance and Lessons From It

I had the misfortune of being at a very boring series of presentations when all hell broke loose today, but I've read enough about it now to make some comments on it.

Whenever you are going through a period of market stress like we are, the market is vulnerable to truly massive daily swings. It's similar to setting off a firecracker behind someone suffering a panic attack. Today, there were some, to put it bluntly, bullshit trades that rapidly sold off major issues such as Procter and Gamble by ridiculous amounts. Just in case you don't know, P&G at one point today fell from $62 a share to $39 a share on absolutely no news whatsoever. On a stock with 2.9 billion shares, that erases $67 billion in market value in an instant. When a stalwart like P&G drops that much, many programmed trades will be slated to sell as well largely because that big of a drop in P&G leads to a major decline in the DJIA and S&P 500.

Additionally, those not engaging in program trading will get extremely afraid and they will liquidate. Of course, at those discounts people will rapidly come in and snap them up. Accenture(ACN) getting knocked down to a penny a share will trigger buying, for instance.

Now, what should you do in periods of market stress, such as when we are worried about a rolling series of European sovereign debt defaults? The answer is that if you have some stocks that you are looking at and want them at lower prices, keep some long term limit orders out there at 10-15% discounts. If the panic trades don't occur, no skin off your nose. If they do, you make out pretty big. The trick is just to make sure that you don't commit more than your brokerage balance.

Because we have had a fairly sharp decline in the past several days, there is the possibility of margin calls tomorrow or early next week so there is the possibility of a less dramatic, but longer lasting repeat of today. The European debt crisis is going to come to a head in a hurry. Right now if you have a cash position, such as myself, start looking at some stocks that you have been eyeballing, but have not been enamored with the prices. Put out some low limit orders (though don't do 30-45% discounts) on your favorites. 5, 10, 15% discounts are probably good ideas right about now.

If you don't want to be as adventurous, there is the possibility that there may be some modest gains left in treasuries, for which you can buy TLT. This, in my opinion, is not the end of this Euro-induced panic yet, but the worst of today was, well, bullshit.

Monday, May 3, 2010

Back from the Dead? Mortgage Bond Insurers

These were among the earliest and most severely injured casualties of the mortgage crisis and frankly I had ignored them for a long time. However, I noticed that in the past year that they have really begun to rally in a huge way. MBIA (MBI) and MGIC (MTG) have been coming back the quickest with Ambac (ABK) and PMI (PMI) lagging somewhat. Ambac is the worst among them as it has shown no real signs of recovery while PMI has had an incredible percentage move, but is still off more in proportion to the high compared to MGIC and MBIA.

How much upside is still left in them? I will confess to not really understanding the businesses well enough to get a good sense of whether or not the analyst estimates for earnings are sensible. Still, MGIC, MBI, and PMI are worth looking at even after their large recoveries. In assessing whether or not their valuations make sense, how their businesses have changed compared to 2006 is absolutely vital to understand. I will confess to not knowing a great deal on how these changes have transpired.

If anyone else has any insights, I would be curious.

Sunday, May 2, 2010

Making Money Off of Europe's Mess: Spain

There is no question that the Euro Zone is troubled right now and will be for some time to come. Greece, Portugal, Ireland, Spain, and possibly Italy are all going to be in the soup for several years. In Greece, nominal GDP is not expected to recover to pre-crisis levels until 2017. Spain and Portugal probably aren't quite that bad, but Spain is clearly still reeling under the collapse of their massive property bubble. Portugal is more troubled than Spain, but it is harder to play Portuguese stocks from here due to relatively few Portuguese ADRs. Sure, there is Portugal Telecom (PT), but that is a stock that is neither good to short or long. It's just not particularly dynamic.

As far as Spain goes, this is an interesting one to watch. The worst of the real estate crisis is making its way through the banks now, though there will be heavy residual damage for a few years to come. The continued malaise of the real economy in Spain will lead to escalating consumer/business defaults and delinquency rates, putting pressure on profits. Additionally, if a major financial crisis befalls Portugal, Spain would likely suffer some collateral damage in both financial markets and real economic activity with reduced exports.

All of the problems both specific to Spain and general to the Euro region have caused Spanish stocks to languish while the rest of the world continues to erase the losses from 2007-2008 very rapidly. The iShares Spain ETF (EWP) is off from a 52-week high of $52.67 a share and is now muddling around $39.62. Similarly, major Spanish banks such as Banco Satander (STD) and BBVA (BBVA) are at very depressed levels. Compared to other regions of the world that have had nice recoveries in their financial markets, this presents a major opportunity.

However, I am not sold on the idea that it would be wise to get involved just yet. It is not at all clear that the debt crisis is anywhere near resolution yet. Also, with Moody's and S&P continuing to downgrade all of the suspect European countries' debt, who knows what might happen.

What do you all think?

Handy Dandy Personal Finance Calculators

I've been a religious Bloomberg visitor for probably nearly nine years, but I never noticed that they had this absolute bevy of personal finance calculators. A few of these I have at one point or another made a spreadsheet for, but most of them I have not. Definitely worth checking out.

Saturday, May 1, 2010

Stock Picking: Consumer Staples

Yes, probably the most boring sector, but one that is useful for analyzing when constructing the core positions of your portfolio.

As nearly anyone who knows me is familiar with, I have a large position in Procter and Gamble(PG). While this has performed well for me over the past nine and a half years, it is increasingly apparent to me that it may no longer be the best choice in the sector. In fact, it may not have been the best choice in the sector for the past few years.

Colgate(CL) and Church & Dwight(CHD)have been posting far better growth numbers as well as better stock performances in the last few years. P&G's earnings report this last week was fairly disappointing as well. It had appeared to be positioned nicely to move into the high 60s if only the earnings report and the subsequent forecast had been solid. Alas, they were not, and the stock has languished in the low to mid-60s for the past several months.

P&G is making significant efforts to increase its emerging markets exposure where there is plenty of growth potential, particularly in Latin America and India. The problem has been that Unilever, CHD, and CL are already a few steps ahead of them and have posted much better unit volume growth. That being said, P&G is fairly attractive if they can restore any form of growth at all. With $4.12 a share expected for next year's earnings, they trade at barely over 15x earnings, fairly cheap by their standards. That plus a 3.10% dividend make the stock palatable.

However, CL and CHD both trade at much the same forward PE and have a clearer forecast for earnings growth. CL has a decent 2.5% dividend as well, but CHD has a puny 0.81% dividend. Those differentials are important in determining which of these stocks to buy.

If I had to deploy new money right now to one of the three, CL seems to have the best story to tell on the three counts: growth, valuation, and dividends. Colgate's dividend may be lower than P&G's, but on the other two counts, it is vastly superior.

Treasuries vs. Equities - Round 1

The reason I put "Round 1" here is that this will be an ongoing battle that changes with market conditions. As of right now, I would agree with the general sentiment expressed in this article from Seeking Alpha that long term treasuries are a poor place to be at the moment, with an important caveat.

If the Greece situation continues to spiral with little hope of a firm solution, long term treasuries are just about the best place to be. Every time Greece flares up slightly, treasuries have rallied. If there was a protracted debt crisis in Europe, capital would flee the Euro Zone and make its way to the U.S. and seek the safety of government paper.

If you have a modest long term treasury position, as I do myself, I don't see the pressing need to sell. If you have been moving vast amounts into bonds over the past few months, I question the wisdom of that decision. As long rates move up, which they will barring another major financial panic, you will lose money for the next couple of years. In short, your equity position should dramatically outweigh your bond position going forward for a while yet.

The article also addresses an important point about equity valuations which is that there are several ways to look at them. There is the absolute view that, for example, a price to earnings ratio (PE) for the S&P 500 of 20 is high. There is also the relative view which is that a PE of 20 in the context of a 3.70% ten year treasury rate is actually quite modest. Then, of course, there is the fundamental question of which measure of PE to use. Do you use the 12-month trailing earnings number? Do you use operating versus net earnings? Do you use a ten year trailing average of earnings as Robert Shiller does? Do you use the estimates for the next year?

I will address these differences next week in a larger post on how to value equities (an art I am still working on). Of course, you could just take that view that whatever the market pays for a stock is appropriate because all actors are rational and there is perfect information. It makes life easier... until you lose all of your money.

Economic Data Summary: Week Ending April 30th, 2010

This will be the first of my weekly economic data summaries. Understanding the economic trends of the world is very important to making prudent investment decisions and in order to understand the trends, you must know how to read the data.

Because I know readers will have disparate familiarity with various data sets, I will post brief summaries of how the data should be looked at in terms of importance for the next few weeks. Eventually it will only be analysis.

1st Quarter GDP
The releases of Gross Domestic Product are not overly consequential to financial markets for the most part largely because higher frequency data sets (retail sales, home sales, industrial production) come out well before the first reading on GDP. Hence, GDP rarely surprises by wide margins.

So what did GDP tell us this week? First quarter growth at an annualized 3.2% (vs 3.4% expected) was a fairly strong number, though it was slower than last quarter's 5.6% pace. A few of the major components were also robust:

Personal consumption expenditures + 3.6%
Business investment in equipment and software +13.4%
Exports +5.8%

Business investment in particular has been quite encouraging and these numbers have been reflected in durable goods orders as well as industrial production in recent months. In the previous recession, business investment took a long time to truly begin recovering whereas this recovery in business investment appears to be coincident with the overall recovery.

Some have said but for the inventory adjustments, growth would have been meager. I wonder where these people were when the inventory adjustments made our contraction look much steeper in Q4 2008 and Q1 2009. Frankly, inventory adjustments are not just some accounting game, but I can discuss that another time.

That being said, there were some notable weak points. Residential investment fell after rising in Q4 while business investment in structures (mainly commercial real estate investment) continued to implode. Both of these areas will be weak for some time to come.

GDP release here: BEA GDP Release

Chicago PMI, Kansas City Fed Survey, Richmond Fed Survey

Some of the many manufacturing surveys that are expressed in the form of a diffusion index. This is an index where the number of respondents saying business is getting worse is subtracted from those saying business is getting better. The Chicago PMI uses the 50 level to indicate break even while the Richmond and Kansas City Feds use 0. Some take a strict level such as 14% say business was getting better while 12% said it was getting worse for a level of 2, or 51 in the case of the Chicago PMI. Others do seasonal and other adjustments and the exact calculation is hard to determine. We will go over this in the national ISM release next week.

In any case, these are good first indicators for the turning points in the economy. They come out earlier than nearly any other indicator and are generally pretty useful as proxies for industrial production. I used these indicators (specifically the Richmond and Kansas City Fed surveys) last year to get the edge on some who thought that the economy was not recovering rapidly enough to justify the stock market rally.

What are they saying now? All signs are good to go.

The Chicago PMI came in at a very robust 63.8, well into rapid expansion territory. Production, New Orders, and Employment indexes came in at 63.1, 65.2, and 57.2 respectively.

Link: Chicago PMI

The Kansas City and Richmond Feds confirmed the strength of the manufacturing recovery. I'll spare you the details and you can instead go to the sources:

Kansas City

Jobless Claims

Weekly initial unemployment insurance claims are a high frequency data set that are fairly useful in determining the health of the labor market. They should be interpreted as, for lack of a better term, the gross number of people losing employment and going on UI benefits. You will see the ill-informed saying "450,000 people lost their jobs last week? How is this good news?". That's not what this series is. Even in boom times we almost never get below 300,000 a week. The labor market is highly dynamic.

Jobless claims have become difficult to interpret in this recession. As we have moved toward job gains in the monthly employment reports, they have not declined in the manner one would expect. Last week we stayed at around 450,000, which is normally a pretty horrid number. However, this appears to be at approximately the break even point for right now. Part of what may be happening here is that temporary employment has really taken off in recent months and as temporary workers move between jobs at the temp agencies more are going on UI. Also, the Senate has periodically delayed UI benefit extensions and when they do eventually get approved those who re-apply for UI benefits that had been on them previously count as new initial claims.

In general, the decline in UI claims seems to have flattened out, which is a little worrisome. We will see what happens next week with the monthly employment report.

Link: DOL Initial UI Claims

The Rest: Consumer Confidence, MBA Purchase Applications, Weekly Retail Sales

There was also the Michigan Consumer Confidence Index. Economists worry a lot about consumer confidence as a proxy for spending, however, evidence is mixed as to how useful these surveys are at predicting spending behavior.

Weekly retails sales as reported by ICSC and Redbook show month to month declines from March, but this appears to have to do with the Easter calendar shift more than anything. Retail sales are still well on a path to recovery.

Mortgage Banker Association Purchase Applications have had a strong run due to the home buyer tax credit, but will likely fall off with its expiration. Frankly, real estate data of nearly every kind will be very hard to interpret for months thanks to these distortions. This is not a political position on whether or not it should have been done, but it is a warning in looking at any home sales data for some time.

View these at the Bloomberg Economic Calendar

Welcome to Finance Monitor

Welcome to our new blog!

I will kick this off by addressing a few fundamental questions:

1. What will be discussed on this blog?
Anything pertaining to investing, personal finance, economics, real estate, or general business news. It's a fairly broad mandate.

2. Why "Finance Monitor"?
I chose a monitor lizard to be the mascot of the blog not just because I like lizards, but because I think the cold blooded, single-minded nature of a monitor lizard encapsulates the mission of this blog well. That is that we will focus solely on discussions that aim to make us more money. I am not going to ascribe some higher purpose to it. There is of course some general benefit from the acquisition of more knowledge, but at the end of the day you acquire this particular set of knowledge to make money.

3. Can I contribute?
Anyone can contribute, and indeed I am relying on you to do so, to a discussion of the subjects covered on this blog. Nearly any discussion will add to everyone's well-being, even if it is not readily apparent. The more views that are brought to bear on a subject, the better the outcome will be.

4. What are the rules?
Very simple rules, really:
a. No political discussions. We are apolitical here. Any injection of political viewpoints unless there is clearly a financial implication (ex: a civil war has started) will be frowned upon.
b. Keep moralizing to a minimum. This is for all intents and purposes an amoral blog as well. We are profit maximizing. If investing in an oil company makes sense, it makes sense.
c. No more than 10 posts a week per contributor. This isn't a hard and fast rule in case something really interesting happens like the 2008 financial crisis, but this is to prevent the blog from becoming overwhelmed. Frankly, I am more concerned about the opposite, which brings me to...
d. Everyone who wishes to participate should contribute one post per month. This can mean that in a 3 month period you contribute three posts one month and then slack for a little while, but ideally we will all get involved.

Anyway, those are the basics. I will start contributing some posts just to get the ball rolling.