the wall street-washington complex is alive and well

Apologies for the sporadic blogging of late. I’ve been travelling a fair amount and I also wrote a piece for CNBC.com on the Five Ways to Spot a Dead Company Walking.

Two important and closely connected events took place in the world of finance since my last post. First, former Fed chair Ben Bernanke announced that he was taking a job as an “advisor” at the massive hedge fund Citadel Group. Then the stock of Goldman Sachs hit $200 for the first time since January of 2008. You might not think these things are related, but to me, they’re inextricably linked–and extremely dispiriting.

More than half a century ago, President Eisenhower warned the nation about the burgeoning Military-Industrial Complex. That monstrous public-private hybrid now sucks up more than half of all discretionary spending. But these recent events prove that the Wall Street-Washington Complex might be even more dangerous.

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don’t tax you, don’t tax me, tax the guy behind the tree

Just in time for tax day, I wrote a post on my Yahoo! Finance contributor page about the biggest tax mistake you can make as an investor. Put simply, the spread between short- and long-term capital gains tax rates is so giant now, you’re better of lighting your wallet on fire than taking profits on investments you’ve held for less than a year. At least all that burning cash might be pretty to look at.

Speaking of taxes and stupid ideas, the New York Times asked a bunch of experts about the worst tax breaks. Their answers should be familiar to regular readers of this blog. I’ve written on just about all of them at some point.

We will be hearing a lot about tax reform in the months ahead, as every presidential candidate will crow about their plans to rein in, reduce, and simplify our country’s insanely complex tax code. The chances that any of these ideas will amount to anything but empty promises on the campaign trail are close to nonexistent, of course, but it can’t hurt to dream, can it?

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Interest Rates Must Go Up

[note: this post originally appeared on my Yahoo! Finance contributor page]

For the past few weeks, Wall Street pundits and prognosticators have been loudly citing every hint of bad economic news as a reason the Fed shouldn’t follow through with its pledge to boost interest rates. “Corporate earnings are down!” they’ve shouted. “Job growth is decelerating! Inflation dropped to zero again! We can’t raise rates in this environment!”

It’s time to stop listening to these market Cassandras. We not only should raise rates, we must raise rates.

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the real march madness: our terrible system of higher education

[note: a slightly different version of this post originally appeared on my Yahoo! Finance contributor page]

I’m a sports fan, but I don’t plan on watching the Final Four this weekend. Sure, the players are inspiring and the games are usually exciting and dramatic. I just can’t bring myself to tune in to a bunch of unpaid employees generating billions for one of the most corrupt rackets in the world, the NCAA. But–as regular readers of this blog know all too well by now–my distaste for so-called amateur athletics pales next to the utter disgust I feel for our broader system of higher education.

Talk about an industry desperately in need of disruption.

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stopped clocks and other foolproof prognosticators

At the start of this year, I did something I rarely do–I opened my big mouth and made some predictions about the stock market:

I expect stock indexes to post muted gains, somewhere in the single-digit range.

Well, we’re almost three full months into 2015 and, to my surprise, I haven’t changed my outlook. If anything, with the S&P almost exactly neutral YTD as of this writing and the Dow down a smidge, I’ve become slightly more bearish. With corporate earnings expected to underperform in the next two quarters and a rate increase almost certainly in the offing, it’s hard to see how stocks can break out and post another year of double-digit gains. Of course, this opinion is exactly that: an opinion. For all I know, stocks could take off again and break 20k by New Year’s Eve. I doubt it, but one thing I’ve learned in this game is that anything and everything is possible.

In case you missed it, I was in New York yesterday and I stopped by CNBC’s Closing Bell program to chat about market volatility and the challenges facing stocks (if you’re reading this by email, you can find the video here):

Thanks to everyone at CNBC for having me. I’d also like to thank David McCann at CFO Magazine for writing about Dead Companies Walking and for a great conversation the other day. I always enjoy meeting smart people, and it’s gratifying to hear that people I respect have enjoyed the book.


back on track: has trinity turned a corner?

(note: this post originally appeared on my Yahoo! Finance contributor page)

One of my favorite stocks went off the rails a few months ago. After chugging steadily higher and nearly doubling in the first nine months of 2014, railcar manufacturer Trinity Industries (ticker: TRN) went into the ditch—see what I did there?—as one piece of bad news after another hit the company.

T.S. Eliot said April is the cruelest month. He obviously didn’t live through last October as a Trinity shareholder.

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private inequity

Earlier this week, I watched the documentary Page One about the inner workings of the New York Times and the dire financial difficulties daily newspapers face to survive.  It’s a great movie. It’s also a very depressing movie. Journalism is one of my passions. Every year, I lecture at the journalism schools of UC Berkeley and Northwestern, and I believe an informed citizenry is vital for our country’s economic and cultural wellbeing. That’s why it’s so disturbing to see newspapers dying all over the country while glib, superficial, and often politically slanted outlets like Gawker and the Huffington Post thrive.

The movie also touches on another depressing trend in American business–the “strip and flip” mentality of too many private equity firms, and the warped way our tax system aids and abets these destructive behaviors.

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the first rule of short selling is: don’t talk about short selling

(note: this post originally appeared last Thursday on my Yahoo! Finance contributor page.)

Last week, a longstanding short in my fund released one of the grimmest quarterly reports I’ve seen in three decades of managing money. The company’s most important sales metric dropped at a double-digit rate, meaning its near-term revenues are going to be abysmal (after all, today’s sales are tomorrow’s revenues). Its long-term outlook isn’t great either because its most profitable product is fast becoming obsolete. Meanwhile, sales rates for new, less profitable products are modest and the business is hobbled by more than $2 billion in debt, all of which is coming due in less than two years. On the plus side, the company still generates a fair amount of cash, almost $400 million last year. Too bad interest payments to service its monstrous debt load were almost as large.

Declining sales, a sunsetting business model and crushing debt. If that isn’t a recipe for bankruptcy, I don’t know what is. Oh yeah, did I mention that this same company has already filed for Chapter 11 protection twice in the last decade?

I’d love to tell you the name of this business. Hell, I just wrote a book called Dead Companies Walking and this is probably the best example of a company heading for oblivion in the market today. But naming it would almost certainly wind up costing me and my investors a ton of money.

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still majoring in mismanagement

Last fall, I blogged about possible ways to disrupt and improve our vastly overpriced and underachieving higher education system. One of my bright ideas went as follows:

[T]here’s no reason [Harvard] shouldn’t build more campuses in other locations, increasing enrollment even more. If its product is so great, why not scale it out?

Fast forward to this week when I opened the latest Barron’s and discovered that Harvard’s biggest rival is already doing just that:

Yale University has done something that no other Ivy League school has attempted: built a new version of itself halfway around the world, in Singapore.

I believe we’ve got things backwards in this country when it comes to higher education. In my opinion, a university’s reputation shouldn’t be based on how exclusive and expensive it is–that is, how much it costs and how few young people it educates. I think we should reverse that equation and judge our elite institutions by how many quality educations they provide, and at what value. Yale’s experiment in Singapore is a good first step in the right direction (even if it is in China), but it’s not addressing the biggest problem in higher education today:

It costs too damn much!

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you call this a bubble?

(Note: I have started writing for Yahoo! Finance’s new contributor platform. This piece originally appeared there. You can find it by clicking here. If you have a tumblr account, please feel free to follow me to receive my latest posts in your dashboard. If you don’t, I will continue to post them here, as well. Thanks!)

With the Nasdaq hitting 5000 last week and all the talk about whether we’re in a new dotcom bubble or not, it’s been easy to overlook something: most stocks are having a ho-hum 2015, at best. After Friday’s steep selloff, the Dow is virtually flat since January 1st and the S&P 500 is up a grand total of 13 points, or .6 percent, over that same period. The Russell 2000 has fared slightly better. It’s gained about one percent. That’s not bad. But it’s not exactly the stuff that bubbles are made of.

So, is the bull market stampede finally starting to slow? I’m always hesitant to make predictions. For all I know (or anyone else), the markets could rally again this week and shoot up double digits yet again by year’s end. But I will say that the same negative effects that have dampened stocks so far in 2015 will almost certainly get worse in the coming months.

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