Monthly Archives: April 2014

the biggest story nobody is talking about is very bad news for california

Yesterday, Toyota announced that it is relocating its North American headquarters from the LA suburb of Torrance to the Dallas suburb of Plano.

Toyota is far from the first company to leave California for Texas in recent months. In the last three years, public California companies Copart, Waste Connections, Primoris, Vermillion, Pain Therapeutics, and Tenant Healthcare have all joined the exodus.  Many private companies have moved as well, including Santa Monica money manager Dimensional Fund Advisors, which moved to Austin three years ago. But these previous relocations have been minor tremors in terms of employment and tax revenue. Toyota’s move is a major earthquake. It’s the kind of shift that can remake a region.

Unless California gets its act together and rethinks how it treats the private sector that drives its economy, many more vital employers are going to move and the Golden State is going to wind up looking a lot less golden.

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free labor: here’s to the beginning of the end of the ncaa

This isn’t about investing or the world of finance (though it is about one of the most profitable businesses in the world), but I’d like to take a moment to acknowledge the football players at my graduate alma mater, Northwestern. Tomorrow, they’ll be voting on whether to form a union. I hope they vote yes but no matter what happens, I admire their guts and the strength of their ideals.

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flash in the pan

Just in time for the release of Michael Lewis’s new book, Flash Boys, news came down this week that several high frequency trading firms have been subpoenaed by New York’s attorney general.

As Lewis writes about, HFT is a new variation on one of the oldest scams in the money management game: front-running. In simple terms, high frequency traders use sophisticated methods to detect and profit from tiny fluctuations in stock prices. They usually earn pennies a share or less on individual trades, but they execute huge numbers of transactions to earn huge (and largely risk-free) returns. One New York HFT shop recently acknowledged that it had made money on over 1000 consecutive trading days using this strategy.

Like all front runners, HFTs exploit advance information about a security that is unavailable to the wider markets. The losers in this and all other forms of front-running are Jane and John Q. Public–the poor schmoes who play by the rules and wind up paying more when they buy stocks and earning less when they sell them. In other words, HFT is yet another example of Wall Street insiders turning our financial markets into the equivalent of the 1919 World Series–a rigged game.

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This past week’s sell-off might signal the beginning of the end to several recent manias, especially in the biotech, social media, and cloud computing sectors. But, to my amazement, one mania seems to be going strong. As just about every stock in the markets got eaten for lunch on Friday, a new restaurant company called Zoe’s Kitchen debuted—and jumped 65 percent.

I know a fair amount about the restaurant business, both the good and bad of it. I am lucky enough to own a restaurant that’s doing quite well (knock wood). A few years back, I owned another restaurant that didn’t do well. Like most eateries, it failed in less than three years. As a money manager, I’ve been studying the industry and investing in restaurant companies for thirty years, and I’ve never seen anything like this “fast casual” craze.

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