Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Investing Here and Abroad

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Recently I was reviewing the performance of the (small) trusts that I manage for my nieces and nephews. The site www.trustfundsforkids.com contains the performance and stock selections for each of the three portfolios if you are interested (not plugging it for cash… no advertisements there).

A friend of mine said that I had beaten the relative benchmarks in my fund performance and I was feeling pretty good about myself. However, I realized that the benchmarks that we are commonly using, the NASDAQ and NYSE, didn’t really apply because so many of the stocks that I selected were foreign companies – thus the relative benchmarks would be the high-flying international indexes where my performance would be comparatively… retarded, to use a politically-incorrect term.

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“Eating Your Own Dog Food”… or not

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There is a common business phrase called “Eating your own dog food” which basically says that you are using the same systems, products or processes as your customers. In this sense you are in the same situation as your customer, taking the same risks, and suffering the same negative outcomes (should they occur). This behavior generally aligns the interests of the company with that of its customers.

Recently collateralized debt obligations have been in the news. These products were created by Wall Street firms and then pitched to their customers as low-risk ways to get a higher return than traditional “vanilla” bonds, CD’s and T bills. A number of asset based mortgages, for example, were grouped into a single security and sold in “tranches”, with each tranche having different risk characteristics and corresponding returns.

Unless you don’t have access to media of any type you’ve probably heard about the great credit crunch that is occurring right now. Many CDO’s are stuck in the pipeline of the various companies or off-balance sheet entities that were selling them because demand dried up overnight; those that are already sold are being re-rated by the debt rating agencies at much lower credit levels (one recently fell all the way from “AAA” to “junk” in a single swoop) causing many customers and many Wall Street firms to swallow big losses.

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The CTA

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A few weeks ago I was riding a bus to work (usually I walk, but sometimes I take the bus if it is right there). The bus had a canned announcement saying that if the CTA didn’t get a funding increase, the CTA was going to discontinue this route.

There were a large number of routes at risk. Most of the routes that only run during rush hours, like the 125, were “on the block” to be cut.

As I looked around the full bus, it really hit me what the CTA’s problem is – they can’t figure out if they are trying to make money or if they are trying to provide a public service.

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Hedge Funds and Jim Gaffigan

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I was watching Jim Gaffigan (the comedian) on Conan O’Brien the other night and he was talking about the “innovation” of the upside-down ketchup bottle. He said that for years we basically were always holding it upside down and then after fifty years someone figured out, hey, let’s just have it come out the bottom in the first place. He said that future generations wouldn’t look on us favorably because it took us so long to grasp something so obvious…

A pretty funny joke but in fact this is sadly applicable to hedge funds, of all things. Let me explain the connection.

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Cook County – An Amazing Quote

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A couple of years ago I thought I had heard the most ridiculous quotation when Putin said that the collapse of the Soviet Union was “the greatest geopolitical catastrophe of the century.”

While activities in Cook County, Illinois, have little historical importance compared to the end of the USSR that quote was what leaped to mind when recently, the County Board President Todd Stroger was discussing the county’s huge deficit of $307 million and said:

“Do I think that there could be fat somewhere… there could be up to a million dollars worth of fat, maybe.”

Only the Putin quote rivaled Mr. Stroger’s quote for sheer banality.

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