Brain Crusher: How Do You Make A Lopsided Bet? Learning from Errors

Table Tennis Players

Thinking Outside the BOX

You bet a group of hustlers/bettors that if there is enough prize money–$500,000 or more, you will play the winner of this match http://youtu.be/Ne9LVpnYeFQ in a two-out-of-three match in games to twenty-one.  You have only played twice before against your little sister and lost. You win $500,000 or you lose $500,000.  However, you get to choose how you will play the game of table tennis (ping pong). Both of you are under the same rules/equipment and you must abide by the rules of table tennis—hit the ball over the net, one bounce, no touching the net, etc.

You have 15 days to prepare. What are you gonna do? This story comes from a true story of a famous proposition gambler.

If you lose, then these guys will help you pay: http://youtu.be/aPLvu-Zg-mE. Your career is over.

Table Tennis

Please don’t post the answer if you know the true story behind this bet. Otherwise, try your hand and win a prize.

I hate the term, “Thinking Outside the Box” but I provide this puzzle/quandary as a way for you to think about investing in an unusual way. GOOD LUCK!

The most powerful mind is the quiet mind. It is the mind that is present, reflective, mindful of its thoughts and its state. It doesn’t often multitask, and when it does, it does so with a purpose.

Improving As an Investor

Lecture_01_Sanjay Bakshi_Improving as an investor

http://fundooprofessor.wordpress.com/2013/09/08/klein-vs-kahneman/

ValueAct, An Activist Investor, and Microsoft; SYRIA in a Chart

banker sacrifice

Microsoft Case Study

Is there an opportunity hiding in plain sight? Perhaps a leap spread opportunity? Why did Balmer go now and what can ValueAct help Microsoft do in terms of capital allocation? Perhaps the risk/reward allows for an opportunity? Do you own work. Plus, you can study ValueAct’s other investments.

MSFT LOGO

MSFT_ValueAct_ltr-Q1_13-MSFT

Ubben-VIC-Presentation VALUE_ACT

 

 

 

Understanding Syria

Syria

The chart is a spin-off of the most amazing letter to the editor ever written, whichappeared in Thursday’s Financial Times. It also explained the entire Middle East, in a few short sentences. Here they are:

  • Sir, Iran is backing Assad. Gulf states are against Assad!
  • Assad is against Muslim Brotherhood. Muslim Brotherhood and Obama are against General Sisi.
  • But Gulf states are pro-Sisi! Which means they are against Muslim Brotherhood!
  • Iran is pro-Hamas, but Hamas is backing Muslim Brotherhood!
  • Obama is backing Muslim Brotherhood, yet Hamas is against the U.S.!
  • Gulf states are pro-U.S. But Turkey is with Gulf states against Assad; yet Turkey is pro-Muslim Brotherhood against General Sisi. And General Sisi is being backed by the Gulf states!

Welcome to the Middle East and have a nice day.

http://www.washingtonpost.com/blogs/worldviews/wp/2013/08/26/the-middle-east-explained-in-one-sort-of-terrifying-chart/

GOLD AND DEFLATION

http://www.lewrockwell.com/2006/12/gary-north/gold-and-deflation/

 

Have a good weekend!

 

Wmt vs. Cost Analysis; A History of Debt and Gold in Charts

Professor

Back to School!

The key is not to predict the future but to be prepared for it.–Pericles

Wal-Mart vs. Costco

Data         WMT      Cost Difference
Supercenters 3158 448
Discount Stores 561 0
Sam’s Clubs 620 0
Neighborhood Mkts 266 0
Foreign Stores 6,148 174
    10,753 622 17.3 times
Employees 2,200,000 147,000  14.97 times
Stock Keeping Units (SKUs) 70,000 3,600  19.4 times
Revs. ($bil.) 495 107       4.63 times
Return on Tot. Cap (VL) 15% 13% 2%
Ret. On Equity (VL) 22% 14.50% 7.50%
Gross Profit Margin 24% 10% 140%
Oper. Income/Margin 5.90% 2.85% 100%
Sales per square foot 437 976 110%
Book Value $25 $25 0%
Price Aug. 2 $78.55 $119.10
P/BV 3.1 4.8 55%
Debt 37000 4800
Equity 82,500 13,825
Debt to Equity 45% 35%
Est. Growth
     Sales 6.50% 8.50%
     Earnings 9% 11%

cost vs wmt

sm cost vs wmt

Comparing

I think when you compare numbers, what strikes you is the difference in # of SKUs between retailers. WMT’s business model is much more labor intensive coupled with a lower-income customer. The squeeze on the middle class has crimped WMT.  You would think with WMT’s higher ROC and ROE compared to COST’s that WMT would not be lagging CostCo’s in share price performance but remember that COST is growing faster above its cost of capital and has more room to grow than behemoth, Wal-Mart. In other words, CostCo can redeploy more of its capital at higher rates than WMT can (grow its profits faster).

That said, the market knows this and has handicapped Costco with a higher price to book and P/E ratio than WMT’s. As an individual investor, your time might be better spent looking at smaller, more unknown companies to find mis-valuation. Also, when a company gets as big as WMT (1/2 TRILLION $ in sales), the law of large numbers sets in and the company becomes a magnet for social engineering and protest. But if you had to have me choose what company to own over the next ten years, I would choose COST because its moat is stronger (greater customer captivity) shown by its huge inventory turns/high sales per square foot plus greater PROFITABLE growth opportunities.  However, I do see WMT becoming more focused rather than expanding overseas where their local economies of scale are lessened.

My analysis is cursory, but for those that picked out the main differences, you have a better grasp of whether WMT can raise its employees’ wages to the level of Costco’s. It can not unless it reduces its SKUs and employees.

More analysis from others:

Why Wal-Mart Will Never Pay Like CostcoBloomberg writer Megan McArdle hits the nail on the head with her analysis of the situation in Why Wal-Mart Will Never Pay Like Costco.Wal-Mart is trying to move into Washington, a move that said local housing blog has not enthusiastically supported. Hence, we’ve been treated to a lot of impassioned reheatings of that old standby: “Costco shows it’s possible” for Wal-Mart to pay much higher wages. The addition of Trader Joe’s and QuikTrip is moderately novel, but basically it’s the same argument: Costco/Trader Joe’s/QuikTrip pays higher wages than Wal-Mart; C/TJ/QT have not gone out of business; ergo, Wal-Mart could pay the same wages that they do, and still prosper.Obviously at some level, this is a true but trivial insight: Wal-Mart could pay a cent more an hour without going out of business. But is it true in the way that it’s meant — that Wal-Mart could increase its wages by 50 percent and still prosper?Upper-middle-class people who live in urban areas — which is to say, the sort of people who tend to write about the wage differential between the two stores — tend to think of them as close substitutes, because they’re both giant stores where you occasionally go to buy something more cheaply than you can in a neighborhood grocery or hardware store. However, for most of Wal-Mart’s customer base, that’s where the resemblance ends. Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco’s business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.

As it happens, that matters a lot.  Costco has a tiny number of SKUs in a huge store — and consequently, has half as many employees per square foot of store. Their model is less labor intensive, which is to say, it has higher labor productivity. Which makes it unsurprising that they pay their employees more.

But what about QuikTrip and Trader Joe’s? I’m going to leave QuikTrip out of it, for two reasons: first, because they’re a private company without that much data, and second, because I’m not so sure about that statistic. QuikTrip’s website indicates a starting salary for a part-time clerk in Atlanta of $8.50 an hour, which is not all that different from what Wal-Mart pays its workforce.

Trader Joe’s is also private, but we do know some stuff about it, like its revenue per-square foot (about $1,750, or 75 percent higher than Wal-Mart’s), the number of SKUs it carries (about 4,000, or the same as Costco, with 80 percent of its products being private label Trader Joe’s brand), and its demographics (college-educated, affluent, and older). “Within a 15–minute driving radius of a potential site,” one expert told a forlorn Savannah journalist, “there must be at least 36,000 people with four–year college degrees who have a median age of 44 and earn a combined household income of $64K a year.” Costco is similar, but with an even higher household income — the average Costco household makes more than $80,000 a year.

In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket … which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).

Wal-Mart’s customers expect a very broad array of goods, because they’re a department store, not a specialty retailer; lots of people rely on Wal-Mart for their regular weekly shopping. The retailer has tried to cut the number of SKUs it carries, but ended up having to put them back, because it cost them in complaints, and sales. That means more labor, and lower profits per square foot. It also means that when you ask a clerk where something is, he’s likely to have no idea, because no person could master 108,000 SKUs. Even if Wal-Mart did pay a higher wage, you wouldn’t get the kind of easy, effortless service that you do at Trader Joe’s because the business models are just too different. If your business model inherently requires a lot of low-skill labor, efficiency wages don’t necessarily make financial sense.

If you want Wal-Mart to have a labor force like Trader Joe’s and Costco, you probably want them to have a business model like Trader Joe’s and Costco — which is to say that you want them to have a customer demographic like Trader Joe’s and Costco. Obviously if you belong to that demographic — which is to say, if you’re a policy analyst, or a magazine writer — then this sounds like a splendid idea. To Wal-Mart’s actual customer base, however, it might sound like “take your business somewhere else.”
Read more at http://globaleconomicanalysis.blogspot.com/2013/08/wal-mart-is-not-costco-so-why-should-it.html#s5mT9QlDRl4fqLdG.99

 

From www.Morningstar.com

Concentrating on fewer stock-keeping units generates buying power for Costco on par with, or perhaps even greater than, larger mass merchants. At first glance, excluding gasoline, at about $60 billion in U.S. sales Costco seems at a scale disadvantage against Wal-Mart’s WMT $265 billion domestic purchasing power. However, Costco concentrates its merchandise purchases on 3,300-3,800 active SKUs per warehouse, compared with the average 50,000-75,000 SKUs at a Wal-Mart superstore. As an illustration, if we assume a straight average, that calculates to more than $16 million in sales per SKU at Costco compared with just over $3.5 million-$5 million per SKU at Wal-Mart. Moreover, the company limits its buys to only specific, faster-selling items. Costco turns its inventories in less than 30 days. This variable cost parity with larger mass merchants, along with the little or zero mark-up requirement of its membership business model, produces price leadership for Costco on the products it chooses to sell.

Note sales per square foot: http://www.wikinvest.com/stock/Costco_Wholesale_(COST)/Data/Sales_per_sq._ft

Unlike its big-box peers, Costco’s international operations generate returns above its cost of capital. The company owns about 80% of its properties, operates its business at an EBIT margin below 3%, and is at the earlier stages of international expansion but still generates on average 12% returns on invested capital because of its low fixed asset base. In its fiscal 2012 year, just 439 domestic warehouses generated roughly $60 billion in revenue (excluding fuel). That calculates to $135 million in sales per unit, or $960 per square feet, which we estimate is about 2.3 times higher than Wal-Mart supercenters. That powerful unit model also works in international markets, where sales productivity levels remain high at $900 per square feet. As result, despite likely lacking logistical scale, returns on net assets for operations outside of North America are roughly 12%, above the company’s cost of capital. This is in contrast to the 6%-7% RONA range for Wal-Mart’s international operations over the past decade.
Economic Moat 05/09/13

We assign Costco a narrow economic moat. We base this on its business model’s loss-leader capabilities and ever-increasing buying power. Membership fees are the main driver of operating profits, so Costco has the ability to sell virtually any consumer product at wholesale rather than retail prices. This makes it very difficult for other retail concepts to compete with Costco on price. Moreover, its price leadership position is reinforced because the company concentrates its merchandise buys on much fewer and faster-turning SKUs, which generates disproportionate purchasing power for its size. Additionally, the company does not advertise and its austere warehouse format requires much lower maintenance capital expenditures. Therefore, the membership wholesale business model has a sustained cost advantage versus other retail operators that sell the same product categories.

Costco WalMart Case   The document to read

COSTCO_Why Good Jobs Are Good for Retailers_ZTon

WMT Annual Report 2013  and Costco 2012 Annual Report (7)

 

For those who feel they DESERVE a prize simply email me at aldridge56@aol.com with PRIZE in the subject heading.

Gold, Debt and History

Gold-Bull-Debt-Bear-in-50-Charts-by-Incrementum-Liechtenstein

Note page 10, the Stock to flow ratio for gold is 65 years compared to about a year for both oil and copper. Gold is money.

Pages 60 to 61, how Austrian Economics is applied.

Notes: I hope to post my rough draft of the CSInvesting Analysis Handbook by the end of the week.  I have a book recommendation coming…….

 

Case Study on Business Models: Wal-Mart vs. Costco

costco

Cost and WMT_CS for background

WMT Logo

CASE STUDY

Can you tell me the key differences between Wal-Mart’s (not just Sam’s Club) and Costco’s business models?  Could Wal-Mart raise it’s minimum wage to Costco’s higher level without effecting profits. Why or why not.

This case gives you a way to learn about different retail business models.  How would you go about answering this question?

HINT: What would be the big difference between a Wal-Mart and a Costco store as soon as you entered?

If a union leader from Wal-Mart wanted to have its members have the same wage rates as Costco, how would you advise?

I am not asking for a valuation, but an analysis of the differences between retail models. Is one better than the other?

Harvard Business School Magazine December 2006

The High Cost of Low Wages

by Wayne F. Cascio

Executive Summary from Harvard Business School 

Wal-Mart’s legendary obsession with cost containment shows up in countless ways, including aggressive control of employee benefits and wages. Managing labor costs isn’t a crazy idea, of course. But stingy pay and benefits don’t necessarily translate into lower costs in the long run.

Consider Costco and Wal-Mart’s Sam’s Club, which compete fiercely on low-price merchandise. Among warehouse retailers, Costco—with 338 stores and 67,600 full-time employees in the United States—is number one, accounting for about 50% of the market. Sam’s Club—with 551 stores and 110,200 employees in the United States—is number two, with about 40% of the market.

Though the businesses are direct competitors and quite similar overall, a remarkable disparity shows up in their wage and benefits structures. The average wage at Costco is $17 an hour. Wal-Mart does not break out the pay of its Sam’s Club workers, but a full-time worker at Wal-Mart makes $10.11 an hour on average, and a variety of sources suggest that Sam’s Club’s pay scale is similar to Wal-Mart’s. A 2005 New York Times article by Steven Greenhouse reported that at $17 an hour, Costco’s average pay is 72% higher than Sam’s Club’s ($9.86 an hour). Interviews that a colleague and I conducted with a dozen Sam’s Club employees in San Francisco and Denver put the average hourly wage at about $10. And a 2004 Business Week article by Stanley Holmes and Wendy Zellner estimated Sam’s Club’s average hourly wage at $11.52.

On the benefits side, 82% of Costco employees have health-insurance coverage, compared with less than half at Wal-Mart. And Costco workers pay just 8% of their health premiums, whereas Wal-Mart workers pay 33% of theirs. Ninety-one percent of Costco’s employees are covered by retirement plans, with the company contributing an annual average of $1,330 per employee, while 64 percent of employees at Sam’s Club are covered, with the company contributing an annual average of $747 per employee.

Costco’s practices are clearly more expensive, but they have an offsetting cost-containment effect: Turnover is unusually low, at 17% overall and just 6% after one year’s employment. In contrast, turnover at Wal-Mart is 44% a year, close to the industry average. In skilled and semi-skilled jobs, the fully loaded cost of replacing a worker who leaves (excluding lost productivity) is typically 1.5 to 2.5 times the worker’s annual salary. To be conservative, let’s assume that the total cost of replacing an hourly employee at Costco or Sam’s Club is only 60% of his or her annual salary. If a Costco employee quits, the cost of replacing him or her is therefore $21,216. If a Sam’s Club employee leaves, the cost is $12,617. At first glance, it may seem that the low-wage approach at Sam’s Club would result in lower turnover costs. But if its turnover rate is the same as Wal-Mart’s, Sam’s Club loses more than twice as many people as Costco does: 44% versus 17%. By this calculation, the total annual cost to Costco of employee churn is $244 million, whereas the total annual cost to Sam’s Club is $612 million. That’s $5,274 per Sam’s Club employee, versus $3,628 per Costco employee.

In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing, and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry. While Sam’s Club and Costco generated $37 billion and $43 billion, respectively, in U.S. sales last year, Costco did it with 38% fewer employees—admittedly, in part by selling to higher-income shoppers and offering more high-end goods. As a result, Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam’s Club. Costco’s stable, productive workforce more than offsets its higher costs.

These figures challenge the common assumption that labor rates equal labor costs. Costco’s approach shows that when it comes to wages and benefits, a cost-leadership strategy need not be a race to the bottom.

Have a GREAT WEEKEND and HAPPY LABOR DAY to those in the U.S.

Best response gets a choice of prizes.

THE FOURTH REICH

 Why the U.S. IS Using Syria as a Pre-Text to War

http://www.youtube.com/user/StormCloudsGathering?feature=watch

Always ask, “Qui Bono?” Who benefits from a Mid-East War?

The U.S. needs to attack Syria to stop Russian pipelines from feeding Europe and hastening the fall of the Petrodollar:  http://www.tfmetalsreport.com/podcast/5015/holiday-tradition-fresh-jackass

140 Years of Monetary History in Ten Minutes

Home-Sales-Economic-Recovery

 

“Fighting for Peace is like Screwing for Virginity” — George Carlin.

A Must-See Video on Monetary History:

http://hiddensecretsofmoney.com/blog/140-Years-Of-Monetary-History-In-10-Minutes  (Yes, there is the fear sale–buy precious metals since the world will end, but look past that to learn about monetary history in an entertaining video.  You can also view Mike Mahoney’s other videos.) 

The difference between currency and money: http://hiddensecretsofmoney.com/videos/episode-1 (Hint: Money is a store of value.) www.moneyfornothingthemovie.org

Gold: https://www.valcambigold.com/charts.aspx

Things that make you go Hmmmm… ttmygh_26_aug_2013

Whenever a government puts restrictions or controls on a commodity, you buy!

India and Gold

Gold miners: http://denaliguidesummit.blogspot.ca/2013/08/hurricane-surge-for-gold-miners.html

1987 Edwards_0 Pzena_Commentary 2Q13 or Value vs. Growth Investors

RC&G_Investor_Day_2013 Sequoia’s Investor Day

Meet the New Federal Reserve Chairman

witchdoctor1

Aristotle on Tyrants

Submitted by Simon Black of Sovereign Man blog,

Nearly 2,400 years ago, Aristotle wrote one of the defining works of political philosophy in a book entitled Politics.

It’s still incredibly relevant today, particularly what he writes about tyranny.

The ancient Greeks used the word ‘turannos’, which referred to an illegitimate ruler who governs without regard for the law or interests of the people, often through violent and coercive means.

Aristotle attacks tyrants mercilessly in his book, and clearly spells out the criteria which make a leader tyrannical. You may recognize a few of them:

  1. Aristotle suggests that a tyrant rises to power by first demonstrating that he is a man of the people:

“He ought to show himself to his subjects in the light, not of a tyrant, but of a steward and a king.”

and

“He should be moderate, not extravagant in his way of life; he should win the notables by companionship, and the multitude by flattery.”

  1. But once in power, a tyrant uses all available means to hold on to power, including spying on his people:

“A tyrant should also endeavor to know what each of his subjects says or does, and should employ spies . . . and . . . eavesdroppers . . . [T]he fear of informers prevents people from speaking their minds, and if they do, they are more easily found out.”

  1. Furthermore, Aristotle tells us that a tyrant thrives by creating division and conflict– “to sow quarrels among the citizens; friends should be embroiled with friends, the people with the notables [the rich]. . .”
  2. Controlling the economy and stealing the citizens’ wealth is also another mark of a tyrant:

“Another practice of tyrants is to multiply taxes. . . [and] impoverish his subjects; he thus provides against the maintenance of a guard by the citizen and the people, having to keep hard at work, are prevented from conspiring.”

  1. And as Aristotle points out, a tyrant also attempts to disarm the people such that “his subjects shall be incapable of action” because “they will not attempt to overthrow a tyranny, if they are powerless.”
  2. Naturally, a tyrant “is also fond of making war in order that his subjects may have something to do and be always in want of a leader.”
  3. Aristotle also tells us that tyrants hunt down those who oppose their power:

“It is characteristic of a tyrant to dislike everyone who has dignity or independence; he wants to be alone in his glory, but anyone who claims a like dignity or asserts his independence encroaches upon his prerogative, and is hated by him as an enemy to his power.”

  1. Ultimately, though, Aristotle concludes that “No freeman, if he can escape from [tyranny], will endure such a government.”

He’s right. And in the past, people had to rise up in the streets to defeat tyranny.

Fortunately, there are many tactics available to freedom-oriented people today that don’t involve violent revolution.

For rational, thinking people who find themselves living in a state that is rapidly sliding into tyranny, one of the most important steps to take is reducing exposure to that government.

If you live, work, bank, invest, own property, run a business, hold your precious metals, store your digital data (email), etc. all in the same place, you are running some serious ‘sovereign risk’.

In many cases, you can move precious metals overseas, set up a foreign bank account, or create an offshore, encrypted email account with a few mouse clicks.

Take a look back at Aristotle’s points. If the majority of them look familiar, it may be time that you look around the world for alternatives.

US planned war on Syria (What a surprise!)

http://web.archive.org/web/20130129213824/http://www.dailymail.co.uk/news/article-2270219/U-S-planned-launch-chemical-weapon-attack-Syria-blame-Assad.html

Regional Econ. of Scale with Govt. Privileges: The Bunny Ranch


The Economics:

1207-jimi-lynn-document-1

http://www.tmz.com/2012/12/23/bunny-ranch-prostitute-jimi-lynn-lawsuit-brothel-contract-lube/

http://www.tmz.com/2012/12/23/bunny-ranch-prostitute-jimi-lynn-lawsuit-brothel-contract-lube/

 

Economic Indicator: Whore house traffic is down by 40%. Times are tough!

Visiting the Bunny Ranch: http://anotherworldblog.wordpress.com/2011/02/01/trapped-at-the-bunny-ranch-part-2-interview-with-a-prostitute/

Bubble Watch and Readings

Bubble Watch

BUBBLE WATCH

Read more in the Short Side of Long: SSOL_Issue_09

FREE

Free issue of Summer Readings from Grant’s:

http://www.grantspub.com/about/Thank-you-summer-e-issue.cfm?submissionGuid=ce75b4fa-1803-4c6f-babe-4f235d19c459

The Dao of Capital:Dao-of-Capital-Spitznagel A kind reader alerted me to this excerpt of a book by an ex-pit trader. We never crossed paths but if you seek the truth eventually your path will cross with others of like-mindedness. The author gives an accurate portrayal of pit trading. An interesting read of an Austrian Trader/Investor.

https://www.santangelsreview.com/ Sign up for his weekly newsletter

Farnum Street

From the desk of Shane Parrish …. (Farnum Street)
On Sunday, August 25, 2013

 

Start here.

The most popular article this week was: 66 Personal Development Habits For Smart People.

Last week’s Brain Food covered: Richard Feynman’s love letter to his wife, The Laws of Simplicity, 3 Moocs by Nassim Taleb, an interview Maria Konnikova, and a lot more.

 

Books

What I’m reading

A Few Lessons From Sherlock Holmes, Peter Bevelin
Peter is easily one of my favorite authors. This book comes out next month but I was lucky enough to snag a pre-release copy. Peter’s books tend to be hard to find after they come out, so you’ll want to pre-order. One of his other books,Seeking Wisdom: From Darwin to Munger, is the best book you’ve never read. He also wrote: A Few Lessons for Investors and Managers From Warren Buffett.

Let My People Go Surfing: The Education of a Reluctant Businessman
Patagonia founder Yvon Chouinard expands on the history of the company as well as how his business philosophy has changed over time. I had no idea they almost went bankrupt a few times. (He summarizes the book pretty well in thishour long talk.)

See the big list of what I’ve been reading.

 

 

What do Farnam Street readers read?

I’ve had a few requests for this recently.  Here’s a quick look at what books Farnam Street readers purchased in July (alphabetical order).

30 Lessons for Living: Tried and True Advice from the Wisest Americans
(I interviewed the author, Karl Pillemer)

A Little History of the World: Illustrated Edition

Antifragile: Things That Gain from Disorder

Berkshire Hathaway Letters to Shareholders
(Most of these are freely available. Reading Warren Buffett’s shareholder letters helped me understand business more than my MBA. It was also a lot cheaper.)

How Children Succeed: Grit, Curiosity, and the Hidden Power of Character

How to Read a Book: The Classic Guide to Intelligent Reading

It’s Not All About Me: The Top Ten Techniques for Building Quick Rapport with Anyone

Manage Your Day-to-Day: Build Your Routine, Find Your Focus, and Sharpen Your Creative Mind

On a Beam of Light: A Story of Albert Einstein

Seneca, Volume IV, Epistles 1-65 (Loeb Classical Library No. 75)

The 5 Elements of Effective Thinking

The Decision Book: 50 Models for Strategic Thinking

Writing That Works; How to Communicate Effectively In Business

 

Sponsored by: #ogilvychange — Little ideas from big thinkers

 

Still Hungry?

 Prince Rupert’s drop (also known as Dutch tears) are glass objects are created by dripping molten glass into cold water. The glass cools into a tadpole-shaped droplet with a long, thin tail. The water rapidly cools the molten glass on the outside of the drop, while the inner portion of the drop remains significantly hotter. When the glass on the inside eventually cools, it contracts inside the already-solid outer part. This contraction sets up very large compressive stresses on the exterior, while the core of the drop is in a state of tensile stress.

 The adult brain is far more malleable that we thought, and so learning can be child’s play if you know how. (↬ Dan Pink)

+ Peter Thiel – You are Not a Lottery Ticket (an interesting follow up to the link from last week: A wide-ranging conversation between Gary Kasporov and Peter Thiel)

Hear Vladimir Nabakov Read From the Penultimate Chapter of Lolita.

+ Before You Hit Send, Read This.

Why Mega-Projects Always End Up Costing More Than Expected (There are a host of fascinating incentives on the part of the companies, the politicians, as well as numerous biases such as the planning fallacy at play.)

The Psychology of Bidding on The Price is Right.

 

 

Skyscraper Index in China plus Boom, Bubble, and Bust Course!

Skyscraper Index bMises Updates         Friday, August 23rd, 2013

In the French daily Le Monde, Mark Thornton recently commented on the ongoing drive to build more and more skyscrapers in China.

In a feature from the business section entitled “Les villes chinoises veulent toutes leurs gratte-ciel géants,” La Mondetakes note of the phenomenon that is the skyscraper-dense Chinese city, and specifically, the completion of Shanghai Tower, now one of the tallest buildings in Asia.

http://bastiat.mises.org/2013/08/mark-thornton-on-skyscrapers-in-la-monde/

Mises Academy

3118

Bubbles, Booms, and Busts

 Econ_BBB_2013_D — with Mark Thornton

COST: $59   LENGTH: 6 WEEKLY LECTURES
DATES: SEPTEMBER 18, 2013 – OCTOBER 29, 2013  STATUS: UPCOMING

This course will cover special topics in Austrian Business Cycle Theory, including the “Skyscraper Index,” the art of predicting downturns, and the causes of the housing bubble and burst that led to the 2008 financial crisis.

Lectures

Lectures will be Wednesdays at 5:30 p.m. Eastern time.

Reading

All readings will be free and online. A fully hyper-linked syllabus with readings for each weekly topic will be available for all students.

Grades and Certificates

The final grade will depend on quizzes. Taking the course for a grade is optional. This course is worth 3 credits in Mises Academy. Feel free to ask your school to accept Mises Academy credits. You will receive a digital Certificate of Completion for this course if you take it for a grade, and a Certificate of Participation if you take it on a paid-audit basis.

Refund Policy

If you drop the course during its first week (7 calendar days), you will receive a full refund, minus a $25 processing fee. If you drop the course during its second week, you will receive a half refund. No refunds will be granted following the second week.

CRW_5998

MARK THORNTON

Mark Thornton is an American economist of the Austrian School.[1] Thornton has been described by the Advocates for Self-Government as “one of America’s experts on the economics of illegal drugs.”[2] Thornton has written extensively on that topic, as well as on the economics of the American Civil War, economic bubbles, and public finance. He successfully predicted the housing bubble, the top in home builder stocks, the bust in housing and the world economic crisis.

Thornton received his B.S. from St. Bonaventure University (1982), and his Ph.D. fromAuburn University (1989). Thornton taught economics at Auburn University for a number of years, additionally serving as founding faculty advisor for the Auburn University Libertarians. He also served on the faculty of Columbus State University, and is now a senior fellow and resident faculty member at the Ludwig von Mises Institute.[3] He is currently the Book Review Editor for the Quarterly Journal of Austrian Economics.[4]

PROHIBITION STUDIES

Libertarian organizations including the Independent Institute,[5] the Cato Institute,[6] and the Mises Institute have published Thornton’s writings on drug prohibition and prohibition in general. Thornton contributed a chapter[7] to Jefferson Fish‘s book How to Legalize Drugs. He has also been interviewed on the topic of prohibition by members of the mainstream press. His research and publications are the basis of the Iron Law of Prohibition which states that the enforcement of prohibition increases the potency and danger of consuming illegal drugs. [8] Thornton’s first book, The Economics of Prohibition, was praised by Murray Rothbard, who declared:

Thornton’s book… arrives to fill an enormous gap, and it does so splendidly…. The drug prohibition question is… the hottest political topic today, and for the foreseeable future…. This is an excellent work making an important contribution to scholarship as well as to the public policy debate.

ECONOMIC BUBBLES

Thornton has also written on economic bubbles, including the United States housing bubble, which he first described in February 2004.[9][10][11] He suggested that the “housing bubble might be coming to an end” in August 2005.[12] His work on market bubbles has been cited by journalists[13][14] and other writers.[15][16] Economist Joseph Salerno noted that “Mark Thornton of the Mises Institute was one of the first to jump on this—to start writing about the housing bubble.”[17] Similarly, economist Thomas DiLorenzo has written that “[i]t was Austrian economists like Mark Thornton . . . who were warning of a housing bubble years before it burst.”[1] He also called the top in the housing market. He developed and published his Skyscraper and Business Cycle model in 2005.[13] His Skyscraper Index Model successfully sent a signal of the Late-2000s financial crisis at the beginning of August 2007. [14][15]

Political activities

Thornton has also been active in the political arena, making his first bid for office in 1984, when he ran for the U.S. Congress. He became the first Libertarian Party office-holder in Alabama when he was elected Constable in 1988. He was the Libertarian Party Candidate for the U.S. Senate in 1996 (also endorsed by the Reform Party) coming in third of four candidates. Thornton also served in various capacities with the Libertarian Party of Alabama including Vice Chairman and Chairman. In 1997 he became the Assistant Superintendent of Banking and a economic analyst for Alabama Governor,Fob James.[2]

Thornton has been featured as a guest on a variety of radio and internet programs and his editorials and interviews have appeared in leading newspapers and magazines.

Books

ACADEMY COURSES

VACATION! Gold Mining Case Studies

SUMMER

Time has come to head to the beach because I might start to sell ALL my miners after a 20% to 80% rise from the depths of the five-year bear market.

It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. –Edwin Lefevre in Reminiscences of a Stock Operator

Case Studies

Why don’t YOU have a crack at valuing these companies? I will provide supporting materials.

Royal Gold (RGLD)

Royal Gold Chart

http://www.royalgold.com/investors/why-invest-in-royal-gold/default.aspx

Video: http://youtu.be/znx74K1-qVg

Streamers: RGLD_VL and SLW_VL

How to value a net smelter return: http://www.goldroyalties.ca/how_to_value_a_NSR_NPI_mining_royalty.php and http://www.frickcpa.com/tvom/TVOM_PV_SS.asp

http://www.theaureport.com/pub/na/precious-metal-royalties-the-new-landscape

http://seekingalpha.com/article/1341411-gold-and-silver-royalty-companies-part-1-the-pros-and-cons-of-royalty-companies

http://seekingalpha.com/article/1367241-gold-and-silver-royalty-companies-part-4-royal-gold-inc

http://seekingalpha.com/article/1532432-clash-of-the-gold-titans-royal-gold-vs-franco-nevada

Romarco Minerals, Inc. (RTRAF) A pre-production gold miner (Speculative)

RTRAF

Brent Cook https://www.explorationinsights.com/. See his work on Yukon Gold http://www.youtube.com/user/ExplorationInsights. View the three videos

http://youtu.be/qwZeJjXmN1A Brent Cook of Exploration Insights discusses junior miners.

Doug Casey:8202013casey (21-minute Audio/Excellent!) on searching for opportunity/miners. His book recommendations : Economics_in_one_lesson and Liberty: The Market for Liberty. His suggestion: Read widely and ask a lot of questions.

Handbooks on valuing mining equities: book_excerpt Invest in Gold and Silver and GSA_2012_User_Guide and Profiting from the Dismal State of Gold miners and Explorers

RTRAF Excerpt: There is another company that I like, but it’s not in production yet. Romarco Minerals Inc. (R:TSX) doesn’t have a full permit, but I feel strongly that it will be able to get permitted. The mine is going to have about 91 million tons of ore at 1.6 grams per ton for a total of 4.8 Moz gold. You are essentially buying this thing for $50/oz at the current trading price of $0.39/share. I believe Romarco will get up and running, because its management knows a lot of large institutional shareholders who would be willing and able to front them some more cash. I believe the Haile project in South Carolina will be a mine in a couple of years.

TGR: How does that $50/oz compare to its peers?

HI: They range from $40/oz to almost $120/oz. It is definitely in the lower range, and it should be because it doesn’t have a permit. It is not as derisked as a producing mine.

TGR: How likely are those permits to come within the next year?

HI: If you asked me that question a year ago, I would have said about 75%. Today, I am going to give you the same answer. There is a very decent chance that the permits are going to come reasonably soon. The permitting process, especially in South Carolina where there are no real mines, is not easy. The company has to have constant discussions with the U.S. Army Corps of Engineers. Romarco claims to be making progress. I am inclined to believe that, but these things always take a lot longer than you would like.

TGR: Meanwhile, Romarco has increased its resource and it has brought in more experienced personnel. What institutional support does it have?

HI: Van Eck Global, BlackRock, Baker Steel Capital Managers, Oppenheimer & Co., Tocqueville Asset Management and so on, the usual suspects. Seventy percent of shares are institutionally owned. Those firms haven’t owned this and watched the stock sink in order to throw in the towel when it actually comes time to build a mine.

TGR: Can this management team get the permitting done?

HI: Yes, it should be able to do it.

Read more: http://seekingalpha.com/instablog/399928-the-gold-report/2024862-somethings-got-to-give-in-the-precious-metals-market-heiko-ihle

Romarco Minerals: http://www.romarco.com/Investors/default.aspx

Instructions: You have two ends of the investing spectrum: A major royalty company and a pre-production mining company–though not a pick and shovel exploration company.

Try to come up with reasonable values. If you can’t, pass. I will present my thoughts upon my return next week.

HAVE A GREAT WEEK/WEEKEND.

Creature from Jekyll Island (The Fed’s History)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called the printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” –Ben Bernanke

The problem is that, as the 2007-2008 experience teaches, the lag between financial turbulence and economic damage may be fairly long, of the order of a year or more. In the meantime, the economic indicators may remain positive.” –Stephen Lewis.

The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved. — Confucius (551 BC – 479 BC)

The Gold and Debt over the next decade chart shows the projection of U.S. debt, assuming gold will continue the same close relationship with debt as demonstrated in the historical gold and debt chart discussed earlier.

Conclusion

Gold’s price is directly proportionate to the massive amount of debt that is being created to keep the current fiat system alive. This will likely continue until a crisis, such as a severe global recession or hyperinflation, strikes one of the major developed economies. Either event will be bullish for the gold price, but for different reasons. The price is being driven by the physical market in the developing countries, especially India and China. China has to continue buying as much physical gold as possible if they expect to eventually compete for world reserve currency status.

CSInvestor: Do you see any problems with the above analysis?