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Monday, October 31, 2005

This Week's Carnival Of The Capitalists

This week's COTC is up at TriplePundit. There's lots of good material this week. Here's some of it:
Coyote Blog has some interesting thoughts on the “Payday Loan” industry.

James Hamilton at Econbrowser discusses the latest GDP figures.

FMF at Free Money Finance gives us Seven Ideas for Maximizing Retirement Savings.

Harvey Multani at Fiscal Times presents A quick guide to stock market technical analysis.

Abnormal Returns has a piece on the difficulties of forecasting with regards to investments.

Old Niu blogs about Market Index Target Term Securities. For the finance folks among us, their payoff is esseentially the payoff of a portfolio of zero-couppon bonds and a long-term call option on the S&P.

David Porter at Pacesetter Mortgage Blog believes "Stated Income" Mortgage Loans are bad for America. He also shares how Mortgage Pre-Approvals create problems for many Realtors.

Finally, although this is not finance related, BigPictureSmallOffice has some good stories on how people mess up in interviews.

As I've said before, look around - my tastes are probably different from yours. That's what makes it interesting.

Update 11/1/05: The link to BigPictureSmallOffice was a bad one. It's been fixed.

Sunday, October 30, 2005

Is The Yield Curve a Leading Indicator?

Lately, there's been a lot of talk about how the changing shape of the yield curve means that we're either going into a recession, not going into a recession, or have a healthy economy (take your pick). Arturo Estrella, Senior VHF of Research at the New York Fed (and all-around smart guy) that reviews the academic research on this topic. The whole piece is pretty technical (and probably not suitable for the layman), but he also provides a FAQ (Frequently Asked Questions) page with the "quick and dirty" answers. Here's a summary of the evidence from the first question on the FAQ:
Q: What Does the evidence say, in short?

A: The difference between long-term and short-term interest rates ("the slope of the yield curve" or "the term spread") has borne a consistent negative relationship with subsequent real economic activity in the United States, with a lead time of about four to six quarters. The measures of the yield curve most frequently employed are based on differences between interest rates on Treasury securities of contrasting maturities, for instance, ten years minus three months. The measures of real activity for which predictive power has been found include GNP and GDP growth, growth in consumption, investment and industrial production, and economic recessions as dated by the National Bureau of Economic Research (NBER). The specific accuracy of these predictions depends on the particular measures employed, as well as on the estimation and prediction periods. However, the results are generally statistically significant and compare favorably with other variables employed as leading indicators. For instance, models that predict real GDP growth or recessions tend to explain 30 percent or more of the variation in the measure of real activity. See astral and Hardouvelis (1991). The yield curve has predicted essentially every U.S. recession since 1950 with only one "false" signal, which preceded the credit crunch and slowdown in production in 1967. There is also evidence that the predictive relationships exist in other countries, notably Germany, Canada, and the United Kingdom.
Click here for the whole thing.

HT: Economist's View for the link.

If you like pictures instead of words or numbers, Smart Money has a little Java applet that show you the "Living Yield Curve". Click on this link for a quick explanation of the yield curve and a picture show that goes through the changes in the curve over time.

Saturday, October 29, 2005

Comparing Tax-Free and Taxable Bonds

Here's a little calculator that allows you to compare municipal bond yields to those offered on taxable investments (thanks to Sound Money Tips for the link). However, in case you're interested, here's the math behind the calculations.

Let's assume that you are in the 25% marginal tax rate (to see your actual tax rate, look at the table at the bottom of the page where the calculator is located). This means that if you earn an additional dollar, the government takes $0.25 of it in taxes. So, if you're in this bracket, you "keep" 75% (i.e. 1 - 0.25) of any additional taxable income that you earn.

So, for any taxable interest rate TI and any tax rate t, your after-tax interest (ATI) would be:
TI x (1-t) = ATI
Since the interest on municipal bonds is tax exempt, their after tax interest rate is the same as their stated rate.

So, assuming this 25% marginal tax bracket. let's compare a taxable bond paying 6% to a municipal bond paying 5%. The after tax interest on the taxable bond is
6% (1-0.25) = 4.5%
Since this is lower than the interest rate on the municipal bond (5%), the municipal bond is a better investment, since it gives you a higher after tax yield.

Next, what would the taxable bond have to pay in order to make it as attractive as the municipal bond? To answer this, start with the same equation:
TI x (1-t) = ATI
With a little algebra, you can solve for the equivalent taxable interest:
ATI / (1-t) = TI

or, in our specific example,

5%/(1-.25) = 6.33%
So, in this case, in order for a taxable investment to be as attractive as the municipal bond, it would have to yield 6.33%. If it paid this interest rate, it would provide the same after-tax return (5%) as the taxable bond.

Finally, here's how you calculate the tax rate that would make you indifferent between the taxable and tax-free investments. Start with the same basic equation, and solve for "t":
TI x (1-t) = ATI;

solving for "t",

t = 1 - (ATI/TI)
Using the information from this example, t = 1 - 5/6 or 16.67%. So, if you were in the 16.67% tax bracket, the two investments would give you an identical after-tax return (in this case, of 5%). If your tax bracket is above this rate, the municipal bond would be preferred, and if your bracket is lower than this, you'd prefer the taxable bond.

Friday, October 28, 2005

Betting on The Next Supreme Court Justice (redux)

It's time to look once again at prediction markets for the next Supreme Court Nominee.

As I've posted repeatedly, I'm a BIG fan these markets. For the unitiated, a prediction market (typically, but not always) trades "futures" contracts. These contracts pay $1 if a given event occurs (and $0 otherwise). Some simple math shows that the fair price for this contract is the buyer's (or seller's) subjective probability as to the event occurring.

Prediction markets are interesting tools for aggregating dispersed information. Let's see how they might be helpful (at least in theory) in helping to predict the next Supreme Court Nominee. In this case, I'll use the contracts currently trading at Tradesports as an example. To see the current contracts trading on this market, click here. Note: Information changes, and so will the prices for these contracts by the time you read this. The illustration I'm using here is as of 2:40 p.m.

As of the time of this post, the market has put the highest valuation on the contract for Samuel Alito (last traded at 27). This contract opened the day at 11.9 (reflecting a subjective probability of Alito's nomination of 11.9%). After the market opened, the marginal trader thought that the contract was undervalued at that price. In other words, this trader thought that the chance of Alito's being nominated was greater than 11.9%. So, he would put in a buy (called a "bid") order at above 11.9. As long as the next "marginal" trader" believes that the probability of Alito being nominated was greater than the current price, he would put in another bid order, which would push the price higher. This would continue until the marginal trader thinks that the price exactly equals his assessment of the probability of the nomination.

So why does this help aggregate information? It all rests on the idea that at least some individuals have superior information and are willing to trade on it. If the informed trader (say, someone who works in the Bush Administration, or has their ear to the Washington grapevine) has a good idea that Alito would be nominated, they would start buying if the price was too low (i.e. below their assessment of the probability of nomination). If they thought that the price was too high (i.e. above the price that reflects their assessment of the probability), they'd sell the contract.

This trading would take place until the marginal trader thought that the price was "fair" (i.e. reflected their individual assessment).

For those wanting to learn more, there's an extremely very comprehensive collection of materials on prediction markets at Chris Masse's website here.

Thursday, October 27, 2005

Hedge Funds and Takeover Defenses

One of the things I always enjoy is the way the players in any game adjust to each other (and adjust to each others' adjustments, and so on...). Here's the latest example.

Finance theory says that the takeover market can help discipline underperforming managers: If the managers do a bad job they'll drive the value of the company down. If the value of the firm goes low enough, another firm (or investor) can buy the firm "on the cheap", fire the managerial turkeys, and reap the benefits of a firm that has gone up in value. However, underperforming managers realize this and often take steps to thwart this process either by enacting anti-takeover defenses before the fact (the so-called "poison pills) or by maneuvering to eliminate a takeover bid once it occurs.

Here's the latest installment of this continuing saga.

As hedge funds have grown in size, they've become an increasingly more important factor in the takeover market - they have money, sophisticated investors, and they're willing to throw their weight around. Not surprisingly, managers and boards don't like this trend, So, they've come up with some new anti-takeover tactics to thwart the threat to their continued control posed by the funds. Business week has an amusing (at least to me) article on this phenomenon titled "Take Your Best Shot, Punk". Here's one of the better anti-takeover strategies they highlight:
Hedge funds are usually savvy operators, but sometimes even they get outmaneuvered by a simple tactic. New York-based Pembridge Capital Management wanted change at iconic trading-card outfit Topps Co. and was set to nominate three directors. Before its annual meeting on June 30, Topps appeared to meet one of Pembridge's key demands when it hired investment bank Lehman Brothers (LEH ) to explore a sale of its candy unit.

So the board asked Pembridge to withdraw its nominees, which it did. Then, on Sept. 12, the company announced that it wasn't selling the candy business after all. Pembridge had fallen victim to one of the newest defenses thrown up by companies desperate to fight off tough demands or a takeover -- a ploy called the head fake. Topps did not return phone calls asking for comment.
There are a number of other clever managerial moves highlighted in the article. Click here for the whole thing.

It might be interesting to do an academic study on how the presence of a hedge fund investor effects takeover outcomes. Just off the top of my not-nearly caffeinated enough head, I'd guess that having one on board would make the takeover more likely to go through, and at a lower takeover premium.




Financial Services Parody (via Michael Covel)

Here's a little something to lighten your day. It's short clip that's a parody of financial services ads.

HT: Michael Covel

Wednesday, October 26, 2005

My Blog is Worth $29,356.08???

Business Opportunities has a "blog valuation calculator". Just a little higher and I'll be making minimum wage based on all the hours I put into this. But at least it keeps me off the streets.

Tip-o-the-hat to Marginal Revolution for the link.

Stock Repurchases and Shareholder Wealth

Jeff at Jeff Matthews Is Not Making This Up has put up a short post on share buybacks and enhancing shareholder value:
Companies love to talk about “enhancing shareholder value.”

They usually do so when announcing share buybacks that frequently have very little to do with “enhancing shareholder value” and more to do with preventing earnings dilution caused by the generous option grants which the insiders who control the corporate money spigot give themselves, in the interests of “aligning management with shareholders.”
For all the self-congratulatory claptrap, when companies buy back stock it offsets the added shares from all those options grants and helps inflate the “Earnings per Share” calculation so as not to rouse the shareholders’ ire.

According to DuPont’s management, which announced a large share repurchase yesterday morning, the difference between their repurchase and others is that only about half of all announced share repurchases actually get done. (DuPont did not wait around to buy back stock in the open market: instead, the company bought $3 billion worth of stock from a Wall Street firm, which presumably shorted the stock to DuPont.)

One company that probably wishes it had not followed through on its buyback announcements must be Lexmark, the beleaguered printer company which earlier this month announced the biggest earnings miss I can remember at a mainstream technology-related company.
Click here for the whole thing

I was originally going to respond to some of the comments in his blog, but after a few paragraphs I realized that it's worth a full blown post of its own. So, here goes.

There are a lot of academic studies that focus on buybacks. There are usually several "theories" (for the uninitiated, a theory is a fancy academic word for a story) about why buybacks might be shareholder-wealth enhancing. They generally fall into two main camps:

1) The managers are trying to "signal" that the shares are undervalued.

One of the linchpins of academic financial theory is the idea of "information asymmetry". This term refers to a situation where corporate insiders have better information than those outside the firm (and just as important, the outsiders know that the insiders have superior information). As a result, outsiders study managers/insiders' actions in order to figure what their private information is. This gives managers an incentive to "signal" good information.

The key behind the idea of signalling theory is that a signal has to be credible. In other words, there has to be something that makes it harder for a "bad" firm to send the signal than it is for a "good" firm". If not, both good and bad firms could send the same signal, and it wouldn't provide any information.

In the case of a buyback, the signal from a buyback would be more "credible" if the insiders "put their money where their mouth is". The best way for them to do this is if they have significant holdings in the company, and if they elect not to sell the shares back. That way, if the firm really isn't undervalued, a buyback would hurt them.

As an example, let's assume that the company's stock is selling for $50, and managers' private information indicates that it should be selling for $60 (in other words, the stock is undervalued by $10 per share). So, buying the company's shares back at some price between 50 and 60 (it has to be greater than $50 or no one would sell their shares) would be a good investment for the firm. If the managers have significant stockholdings (and they elect not to sell their own shares back to the company), they have just decreased the amount of shares outstanding, and purchased them "on the cheap" (i.e. at a price below their true value). So, they have taken an action that's in their own best interests.

Instead, lets assume that the firm's true value was $40, and that managers announce a repurchase at $50. In this case, if the managers hold onto their own shares, they have just destroyed some of their own wealth (they overpaid for company shares).

2) The other typical "buybacks are good for shareholders" story has to do with what we call an "agency" problem. An agency problem occurs whenever one party delegates resposnibility to another. The agent (the one who is delegated the responsibility) always has incentives to do things that are in their own interests but not in the principal's (the proncipal is the delegator). In a publicly held firm, the managers are the agents of the shareholders.

One agency problem arises from what we call "free cash flow". From an academic perspective, a free cash flow problem arises when the company has more cash on hand than it has good things to invest it in. The idea is that if the managers hold onto the cash, they will invest it whether the investment is wealth creating or not. Take the example of "empire building" - buying other companies to create a bigger firm. Managers have incentives to do this (higher compensation, more prestige, better perquisites, etc..) whether it's in shareholders interests or not.

So, a repurchase removes this cash from managers' control and pays it out to shareholders. As a result, there are lower "agency costs", and firm value rises. Think of it as good news that shareholders have dodged a bullet - if they hadn't paid out the cash, managers would have made dumb (or self-serving) investments with it.

Tuesday, October 25, 2005

Trunk Monkey - The Classroom Edition

These "Trunk Monkey" videos are hilarious. I think I need a "podium monkey" for my classes - no more classroom discipline problems.

Sunday, October 23, 2005

Networking on the Network

Networks are extremely important to professional success - particularly in academia. Unfortunately, graduate students receive almost no guidance on how to do it (other than go to the cocktail party at the reception and introduce yourself to new people).

Here's an incredibly insightful and thorough guide to networking for academics. It's titled "Networking On The Network", and it's written by Phil Agre, an Information Studies Prof at UCLA. Here's the overview:
  • Section 2 provides a simple six-step model of the networking process.
  • Section 3 considers several advanced topics: noticing emerging themes in your area, using consultation to organize things, ensuring that you get proper credit for your contributions, learning to engage professionally with people from different disciplinary and cultural backgrounds, and deciding where to publish your work.
  • Section 4 describes the relationship between your professional network and your dissertation. Both of them pertain to the process of knitting yourself and your work into a set of professional relationships.
  • Section 5 reveals the mysteries of academic language.
  • Section 6 explains how to get an academic job, building on the networking you've done and on the concepts that underlie networking.
  • Section 7 assumes that you have established yourself in the research community and introduces the topic of advising others.
  • Section 8 explains how to get tenure, emphasizing the "deep tenure" that you attain within your research community rather than the details of departmental politics.
  • Section 9 presents several theories of your career, based on other people's ideas. My own theory of your career is called incremental alignment. Its main purpose is to keep you from overgeneralizing when you find yourself in career circumstances that aren't entirely positive.
  • Section 10 presents a more advanced theory of networking, including the process by which research fields become institutionalized.
  • Section 11 then examines the moral issues that the process of leadership can raise. An appendix provides an annotated bibliography of books and articles on the topic of professional networking.
I'm fortunate when it comes to networking, since my father ran an insurance agency. He came across as a "natural" networker, but if you talked to him about it, you quickly found out that he was extremely systematic about how he went about it.

As a result of his advice, I'm probably a better networker than most in my field. But even if that's true, this guide amazed me in its breadth and depth. If you're a grad student or even a young academic, read it. It'll make a big difference to your career. As an example of how networking helps, both interviews I had at the recent FMA conference came about as a direct result of my contacts I had made previously. So, networking counts. A lot.

HT: Cool Tools for the link.

Saturday, October 22, 2005

Great News For The Boy!

A great day in the Unknown Household! As some of you may know, the Unknown Son was diagnosed with Neuroblastoma almost three years ago to the day (just after his 4th birthday).

Since then, he's gone through almost 20 rounds of chemotherapy, an eight hour surgery to remove the 12 cm. (almost 5 inches, in case you don't speak metric) long tumor in his abdomen (it had grown around almost every major artery and vein in his central cavity), radiation, a stem-cell transplant, and an injection with an experimental drug that's radiation based.

Well, after three years of treatment, we just got his latest round of scans back, we're glad to say that he's completely cancer free.

Thank God for medical research and for us being in the country with the best medical care in the world. His first doctor was good and competent (if a bit young). However, he just wasn't in the same league as the ones we saw later.

His surgeon (one of the best in the country, at Memorial Sloan Kettering in New York City) was able to remove the tumor that no one else would even go near because of its proximity to major arteries and veins.

His second doctor at Johns Hopkins got us hooked into the network of clinical trials. This brought us to Children's of Philadelphia, where he is currently treated.

His current doctor at CHOP is one of the two or three most well-known neuroblastoma researchers on the planet. He said that a year and a half ago, most people would have considered his cancer (because of its resistance to the treatments we'd already tried) incurable. Ten years ago, he'd be dead. Now, thanks to the incredible strides medicine has made, he's not only alive, but cancer free.

Many people complain about the high cost of medical care. I can understand their complaints. But at the same time, whatever they pay the folks who do this research, it's not nearly enough.

Update: here's some good information on Neuroblastoma in case you're interested.

Blogs to Watch

When I started blogging, I benefitted early on from the generosity of others who highlighted my blog. So, from time to time, I try to "pay it forward" and direct traffic (not much, since I'm a small fry in the blogosphere) to other blogs that are new (or new to me), but might bear worth watching. Here are a few of the latest to hit my radar screen:

World As Seen Through Academic Eyes is a blog run by Arun Khanna, a visiting finance professor at Butler University. He just started blogging in September, and he's written some good papers that are available here on the Social Science Research Network. So, I'm hoping he'll add to the number of worthwhile finance blogs out there. In my view, any finance professor with a blog deserves more traffic, so add him to your feed aggregator.

David Porter at Pacesetter Mortgage. He's a mortgage broker in Michigan, and has been blogging since May. He writes about all things mortgage (and real-estate) related and actually knows what a Yak Shaving Razor is.

Investor Relations Blog is about (you guessed it), investor relations. It provides transcripts of earnings conference calls, but also has short articles about IR related things in the news. It's brand new, but looks interesting.

Give them a try, and if you like them, pass them along to your friends.

On Being a Memorable Teacher (via Tomorrow's Professor)

I just got back from the Financial Management Association annual meeting (in Chicago this year - one of my favorite cites to visit). I try to make it to the FMA every year whether I have a paper on the program or not, because it's the best opportunity I have to catch up with most of my academic friends.

One of the conversations I seemed to have again and again this year was how teaching should be fun. A sub-conversation was that if you make time in the classroom high-energy and fun, you can push your students a lot harder and they'll put up with it. They might not like it all the time, but they'll buy into the program. And they'll remember you long after you and they have moved on.

When I got back from Chicago, I received this email from Tomorrow's Professor. For those of you who aren't aware of it, TM is a listserve that sends out emails twice a week on issues of interest to academics. It's a great resource for academics. Click on the link to subscribe (if you don't want the emails, they get posted on the main website with a two week lag). This latest one is titled "#674 IN THE CLASSROOM, EASY DOESN'T DO IT". It's a piece from the University of Richmond's Alumni magazine about Joe Ben Hoyle, accounting professor at the University of Richmond. He's a five-time winner of the University's Distinguished Educator Award, and was recently voted "Most Feared Professor" by the senior class. Here are a few choice parts:

Faculty members have a responsibility to the world to coax the very best from their students because they will certainly become the next generation of leaders. Where they go from here, what they accomplish, how they impact the world, depends in large part on how much we are able to push and nurture their development. I want every student to leave my class at the end of the semester saying, "“I didn'’t know that I could work so hard, and I didn'’t realize that I could learn so much."” Anything less is unacceptable.

...If a teacher challenges students to think and do their best, word gets around campus quickly, but having a tough reputation is both good and bad. When students walk into my class on the first day, they tend to be very quiet and pay attention right away. On the other hand, I am always so disappointed when a student says to me "“I hear you are a good teacher, but I didn'’t take your class because I know you are very demanding."” Isn't that just incredibly sad? I think Richmond will be a better school when students sign up only for classes where teachers push them each day to do their best.

...I use the Socratic method. I call on every student every day in class. I don't ask them to regurgitate material; I ask them questions that I believe will cause them to think and reason —on the spot. That is what adult life is like, especially in the business world. I then follow my initial question with others based on their answers. If I don'’t get good replies from a student, I don'’t just nod and smile; I demand better of them. A student once compared my class to a contact sport. Richmond students should be ready, willing and able to discuss and debate issues. This is college, not high school.

...I want a reasonable effort from my students because students get back based on what they put in. I expect them to study four to six hours each week outside of class so they'll be ready to participate in class discussions. I use carrots and sticks. I say, "“Good job!"” when a student gives me a thoughtful, well-conceived answer, and I say, "“Listen, you can do better than that!"” when a student gives me a bad answer. I don'’t view that as being disagreeable, although I do realize that it injects a bit of tension into the class. But this is not Sesame Street; a bad answer is a bad answer. There is only one primary goal in my class: to improve each student'’s ability to think, reason and understand. Our students realize how capable they are, but human nature loves to take the easy path.

...Our students can do amazing things, but if we don'’t challenge them fully, they will never realize what marvelous talents they truly possess. Signing up for demanding classes might hurt a student'’s GPA, but which is more important: developing a good mind or a good GPA?

Good words - click here for the whole thing. The UR alumni magazine has a great piece on "Tough love Professors. There are some escellent stories there, and worth reading.

I like reading things like these, because they challenge me to push my students harder. I've heard a lot of good reasons why we shouldn't push that hard - the students will complain more, they'll nail me on evaluations, or they'll avoid my class and end up in my colleagues classes, which will make their lives harder. But still, there are compelling reasons to demand a LOT more from our students.

Someone asked me when I got into academia what my goals were. There were the usual ones - publish in top journals, end up at a top school, and so on. But then I realized that these were my professors' goals. It's not that there's anything wrong with them (and yes, I do want to publish in good journals and teach at a good school). However, there were only a few professors I remembered from my undergrad days. Some (in fact most) of them weren't finance professors, or even in the business school. But the memorable ones almost all shared a few characteristics:
  1. They pushed their students far harder than they expected to be pushed. In fact, most were "unreasonable" in their demands.
  2. They got in their students' faces - questioned them directly so they couldn't hide in the back of the class. In fact, most used some variant of the Socratic Method.
  3. They actually knew their students' names (How disgusting! They actually took the time to get to know us!)
  4. They had a great command of their topics
  5. They were high-energy and kept the class on the edge of their seats
  6. They tended to "tease" their students in a good natured way
  7. They had a sense of humor - about their topic, their students, and themselves.
  8. Finally, you got the impression that there was no place they'd rather be at that moment in time than there in that classroom, teaching that particular topic to those particular students.
Every conference, I try to talk to one of my friends in particular. He's been an academic for years (and a very successful one at that) - he's got an endowed chair at a tier-1 research school, and has published in a lot of the top journals. And yet, after 20+ years teaching, he still loves being in the classroom. He said, "Unknown Professor, you move up in this field on the strength of your research (the number and quality of your publications). But you make the biggest impact in other people's lives by what you do in the classroom. I look at teaching like a performance, and I want each class to be a memorable one. And it's the most fun I have all week."

So, I guess I have to add a new goal - to be a MEMORABLE teacher (and to have more fun in the classroom). One of my former students called my teaching style, "High-energy, humorous, user-friendly S.O.B."

I like the sound of that.

And if you're an academic, sign up for Tomorrow's Professor.

Sunday, October 16, 2005

Back in the Saddle

Ah well, back from the conference. All in all, I'd say it was a success.

As for the "business" end of things, I ended up with two interviews and the possibility of a third at one of my target schools that's about a two hour drive from my home (I'll drive there and probably do an informal interview over lunch, since I know about half the faculty there already). Of the four schools I sent information out to, I ended up with interviews at the ones I ranked 1 and 3, and will likely get one at #2.

It was pretty interesting interviewing when I didn't NEED a job (while it's far from ideal, my current school treats me fairly well - it just doesn't meet my long-term goals). Since I didn't need a job, I was able to be relaxed and be myself. I figure that whatever you put yourself forth as, someone won't like it. At least this way I avoid the chance of being rejected for something that's not even me.

Even more important, I know who I am, what I'm good at, and what I enjoy far better than when I first started this professor gig. When you first get out of grad school, unless you went to a top school, you are usually happy to have any job. In most cases, you don't know much about the different possibilities, so you inherit your advisors' preferences (get a job at the best, most prestigious research school you can). For most of us, it's not the best fit. So, the second or third job is usually much better. I'm fortunate to have a wife that supports me in the search (of course, the fact that #1 school is an hour's drive from the Unknown Mother In Law doesn't hurt either).

My presentation went well - the session was sparsely attended, but I did get two good suggestions to add to the paper. So, I came out ahead of the game there. If only it wasn't at 8:30 on a Saturday morning...

The best part of the conference was catching up with old friends, and making a few new ones. My discipline is small enough that it's possible to have at least a nodding acquaintance with a pretty high percentage of the active, conference-going members. In addition, I'm unusual in the finance field because I'm very extroverted (even for a non-academic - in the nerd community I'm off the charts). So, I probably made small talk with at least 50 people over the three days. That's one of the things I like about academia - at times it actually has a "small town" feel to it.

So, it's back to everyday life - two exams to give this week, solutions to a quiz and problem set to post by tomorrow, and a court case to give a deposition at (I do a bit of consulting & expert witness work here and there). In addition, there are two papers that really need my attention.

And last, but most important, I haven't seen the Unknown Wife, Son, and Daughter since Wednesday. I expect to be thoroughly carpet-burned from extreme wrestling with the kids by bed time tonight.

Friday, October 14, 2005

More on FMA

As I mentioned in my last post, I'm at the national meeting for finance professors - the Financial Management Association (or FMA) meeting.

So far, it's been good - lots of catching up with friends from other schools and former grad school classmates. And I'm also doing a bit of interviewing with two schools that are much closer to my and the Unknown Wife's families. The first one went well, and the second is today.

For those of you not in academic finance, interviewing at conferences is pretty strange. In the finance field, there are between 200 and 250 positions open each year, and about 200-250 candidates. When you first hit the job market coming out of grad school, it's not uncommon to have 20 interviews with different schools over 2 1/2 days (half-hour to full hour). The typical school talks to 15-20 candidates.

But, since I already have a job, I can be a bit more selective. I sent out four packets, and will likely end up with three interviews. It helps to know who you are and where you fit, and it's always easier to get a job when you already have one.

If I make the cut at these schools, the next step will be to visit the campuses (they typically bring in 3 candidates) for full-day (and sometimes two-day) visits where I'll meet with faculty, present a paper, and schmooze with the dean of the school of business. If the schools are on the ball, this should take place in November for a job that will start next fall.

Ah well, time to go to another interview...

Wednesday, October 12, 2005

Off to FMA

I'm off to the annual Financial Management Association (FMA) meeting. FMA is the annual geek-fest for those in my "tribe". There should be a lot of good papers presented (I'm presenting one of mine, but it's not that good), a lot of catching up with old friends and hooking up with new ones, and some good eating and drinking.

I also have interviews with two schools. I'm happy (but not ecstatic) where I currently am, but these two are better academically, have more resources, and most of all within 150 miles of both my and the Unknown Wife's parents. And as they say down South, "If Momma ain't happy, ain't nobody happy".

It should be fun. The room supposedly has broadband, so I might post some, but I think it's unlikely I'll get to much of it.

Monday, October 10, 2005

Schelling and Aumann Win The Nobel Prize in Economics

It's official - Thomas Schelling and Robert Aumann have just won the Nobel Prize in Economics. For some great commentary and links to information on the two latest laureates, Marginal Revolution has good stuff here, here, here, here, and here.

Although, as a finance guy I was rooting for Eugene Fama.

This Week's Carnival of The Capitalists

The week's COTC is up at BusinessPundit. Happy 2nd Birthday! Here are my picks for this week:
Harvey from Fiscal Times does a great comparison of index funds, mutual funds, and professional managers.

Steven Silvers give us the ironic post of the week - on the SEC's lack of disclosure.

Continuing with the mutual fund theme, Consumerism Commentary discusses ways to avoid fund fees.

Joshua Sharf looks at the cost of lawsuits. He mentions Thomas Sowell's book Basic Economics (one of my all time favorite Econ books)

Barry from The Big Picture talks about how the internet helps pricing efficiencies. It makes the "cost" of search lower, so people engage in more of it.
As always, look around. Tastes differ, and these are just the ones that caught my eye this time around.

Friday, October 07, 2005

The 2005 IgNobel Prizes

The winners of the 2005 IgNobel Prizes have been announced. My personal favorites are:
MEDICINE: Gregg A. Miller of Oak Grove, Missouri, for inventing Neuticles -- artificial replacement testicles for dogs, which are available in three sizes, and three degrees of firmness.

PEACE: Claire Rind and Peter Simmons of Newcastle University, in the U.K., for electrically monitoring the activity of a brain cell in a locust while that locust was watching selected highlights from the movie "Star Wars."

ECONOMICS: Gauri Nanda of the Massachusetts Institute of Technology, for inventing an alarm clock that runs away and hides, repeatedly, thus ensuring that people DO get out of bed, and thus theoretically adding many productive hours to the workday.
Click here for the link. Hat tip to David Tufte at VoluntaryXchange for the link.

And just to show that economics applies to everything, David has also written a piece on the economics of neuticles. It's all about asymmetric information (or, inquiring minds want to know).

Wednesday, October 05, 2005

Hissssssss (from Marginal Revolution)

This piece from Marginal Revolution gives some indicators that the housing bubble may be slowing:
Lots of evidence that the housing market is slowing; prices are not rising as quickly as in the past, inventory is building and perhaps most tellingly insiders are selling shares of home building firms at record pace.
Click here for the whole thing.

Insider trading is a good example of a "costly signal" sent by managers. However, while trading patterns of insiders provide information, a lot of research has shown that insider sales are typically much less informative than insider purchases. This is because insider purchases result from an insider "putting their money where their mouth is". In contrast, insider sales can occur for either information-based or non-information based reasons (it could be just that the manager's son just wrapped the Porshe around a tree, and the manager needs money). This is further complicated by the general trend that insider sales have increased in recent years due to the increasingly common use of equity and option-based compensation.

As an aside, I'd be interest in seeing if insider purchases at home building firms have also tailed off. If so, that would add more credence to the insider signal.

Truth Laid Bear Gives Me the Bird!

Tuesdays are my long teaching day - I leave the house at 8 a.m., teach my first class at 9:30 a.m., and don't get back home until 9:30 at night. Hey, it's still better than the everyday hours for some folks, but I typically don't look forward to this day of the week.

At least I started with some good news - I've evolved to a big flappy bird. Now if I can only stay there.

Update: since the original posting on the 4th, my number of links on TTLB has dropped from 27 to 12, but my rank has jumped from the mid 7000's to 4736 (an "adorable rodent"). I have no idea why. Anyone have any clues?

And yes, I've probably heard the rat jokes before.

Monday, October 03, 2005

This Week's Carnival Of The Capitalists

This week's COTC is up at Drakeview. It's the 104th COTC, and there are lots of good pieces this week. As usual, here are my picks.
There's been a lot of talk about inflation lately. The Watchful Investor, Jim Waddell answers investors concerns in What is inflation?. His post covers a lot of other ground, too, like money, gold standard, democracy, price and Subarus.

Warren Meyer at Coyote Blog discusses governments and markets in Water: The Only Market the Government Screws Up Worse than Oil.

Joseph Weisenthal at The Stalwart, examines recent IPO activity in Metcalfe's Law, Reed's Law Revisited; Question New Valuation Models.

We just discussed EVA (Economic Value Added) in my Advanced Corporate Finance class. Here's an application -- Frank Scavo suggests that CIOs start Using Economic Value Added (EVA) to justify IT investments.

Moneywise covers investing at The Real Returns with some yield information for various investment classes in Reverse Valuations of Stocks and Bonds.

David Foster of Photon Courier has a nice piece on the relations between bond prices and interest rates in The Bare Bond Basics.

Brian at Financial Reference talks about Superfund, a new hedge fund being marketed to middle income investors in 2 and 20. Maybe it's just me, but I'd be leery of naming an investment after a toxic waste cleanup program...

Phil Town at Rule #1 Blog: Phil Town on Investing writes Why Speculation is a Bad Idea. I think the title says enough. Read it.

Sandeep Srinivasa at Datum writes on prediction markets in Prediction markets: real life psychohistory?

Finally, since a week doesn't go by at Financial Rounds without taking a shot at Sarbanes-Oxley, we have Barbara of Trying to Catch Up. She writes Sarbanes-Oxley Sucks (Really),. It's all about the bureaucracy.
Like I said, there are a lot this week. These are only a smattering of the pieces, but they're the ones that caught my eye.

Saturday, October 01, 2005

Oh Boy! $9 1/2 Million!

Thought this was humorous. What makes it funny is that it came to my "unknownprofessor@hotmail.com" address. I added bold type for emphasis.

ATTN:FROM THE DESK OF:ALEXANDER OLAWALE
Alexander Olawale & Associates
No. 54 Broad Street, Lagos.

Hello,

I am Barrister Alex Olawale a solicitor at law.The personal attorney to a late foriegn expatriate who hails from your country and shares the same last name with you.This is an urgent and very confidential business proposition.

On the 6th of May, 2002 it was reported to us that my Client, his wife and their only daughter were involved in a Local Plane Crash at Kano state,enroute Abuja (The Capital City) all occupants in the Plane lost their lives,unfortunately on this same flight were other dignitaries like the Sports Minister and a host of others.

Since then I have made several enquiries to your embassy to locate any of my clients extended relatives this has also proved unsuccessful.After these several unsuccessful attempts, I decided to track his last name over the Internet, to locate any member of his family hence I contacted you.

I contacted you to assist in claiming this fund from the finance house where he deposited it before his untimely death.

The finance company where t he deceased had an account valued at about USD$9.5million dollars has issued me a notice to provide the next of kin or have the account confisicated within the next ten official working days.

Since I have been unsuccesfull in locating the relatives for over 3years now I seek your consent to present you as the next of kin of the deceased since you have the same last name so that the proceeds of this account valued at USD$9.5 million dollars can be paid to you as the next of kin.

All I need is your full maximum suport and cooperation to enable us achieve this transaction within 10 working days and I guarantee that this will be executed under a legitimate arrangement that will protect
you from any breach of the law.
If you are interested in this transaction, kindly furnish me with your full name, address, private telephone and fax numbers to enable us commence immediately.

Best regards,
Barrister Alexander Olawale.
Does that mean that there was someone with the last name "Professor"?

Since I'm making fun of it, I guess it means I won't get my money. However, I'm willing to sell my right to the money to any interested party for a reasonable offer.

New Additions to the Blogroll

It's been a while, so I finally added some new links to the blogroll:
The Analyst's Accounting Observer is run by a CPA and financial analyst named Jack Ciesielski. In his own words, "The Analyst's Accounting Observer is a research service published by R.G. Associates, Inc., that, simply put, provides "remedial accounting lessons" for institutional investors who should know better". It's not updated all that frequently, but when it is, it's good.

Tick Marks is the blog of Dan Meyer, an Accounting Prof in Tennessee. It's mostly on financial accounting and taxation, but occasionally touches on personal finance. I'm a big supporter of Academic blogs, and this one looks pretty good.

The Real Returns is an investment oriented blog. It spends a lot of time on mutual funds, but also touches on real estate and a fairly wide variety of other investment vehicles. Unlike a lot of other investment oriented blogs, he's not pushing products or a trading system.

The Financial Page is a newer blog (it started in mid-August). It describes itself as being mostly about indexing, primarily with Vanguard Funds. However, it also covers a lot of other investing related topics. As a Finance Professor who believes in efficient markets, I'm a big fan of index fund investing, so give it a read.
All four blogs seem like they're even-handed, informative, and don't have an axe to grind or a product to push. Give them a try and let me know what you think.

f you're using an RSS reader, add these to your list. They're worth it. If not, let me recommend Bloglines. I've been using it for a while, and it's easy and usable from any computer with an internet connection without needing any aditional software.

More On Frist and Insider Trading

Here's some interesting news from the Saturday Wall Street Journal Online:
Senate Majority Leader Bill Frist began exploring ways to sell his shares in HCA Inc. on April 29, more than two months before a July 13 earnings warning caused the stock to fall, according to documents reviewed by The Wall Street Journal.

The timing of his communications about the sales will likely be a key defense for Mr. Frist, who is under investigation for potential insider trading by the Securities and Exchange Commission and the Department of Justice. Mr. Frist's shares weren't sold until July 1 and July 8, just several days before HCA's warning caused the stock to fall 9%. But the timing could help Mr. Frist, since it suggests he started the process long before HCA knew of its financial problems.

Click here for the whole thing (note: subscription required).

While a violation of insider trading laws requires a number of criteria to be met (and I'm sure Steve Bainbridge could go on at length about this), at the minimum it requires that an insider initiate the trades due to his possession of "material non-public information". This is one of the reasons that insider trade volume goes up following earnings announcements and management forecasts. If an insider trades after shortly after an information event like this, it's less likely that they have a huge information advantage.

If Frist initiated started the trading process this far in advance, it's less likely that it was due to information about earnings shortfalls (not impossible, just less likely). However, the article says more:
Investigators are looking at whether Mr. Frist received any inside information between the time he initiated the sale and when it was completed. If Mr. Frist had received inside information about problems, he was obligated to halt any pending sales, even if he had begun the process to sell months earlier, these people said. The scrutiny stems in part from the fact that six HCA insiders sold shares in early June, just weeks before the earnings warning. The SEC is also investigating those sales.

HCA insiders were selling shares throughout the first six months of 2005, including large sales in April, before Mr. Frist registered his interest in selling.

I didn't think this was the case. Stay tuned to Bainbridge's website - I'm sure he'll be commenting on this (or at least I hope so).

Update: welcome to all the visitors from Angry Bear. Come on in and browse a while.