I finally got around to seeing "The Romantics" this weekend, watching it on Netflix streaming cable.

I would have thought that it would have a lot going against it for me. It's aimed at women, a "chick flick". Also it's a reunion flick in which old friends from college get together later, and I can think of any number of such movies– "The Big Chill", "The Secaucus Seven", "Four Weddings and a Funeral", "St. Elmo's Fire"– that I didn't like. To my surprise, though, I found "Romantics" to be fun to watch. It was funny, interesting, and kind of thought-provoking.

Usually my problem with the college reunion flicks ("Big Chill", etc.) is that I don't like the feeling I get, that the movie kind of assumes that my worldview will be fairly compatible with the groupthink that's accumulated among the reunioners, and I feel that the movie is trying to pull me in, slowly boiling me like a lobster. Somehow "Romantics" avoids that fate. Many of the snark reviewers focused on their dislike of the characters, and I can't disagree with them on that. Tom, the groom, flits back and forth between Laura, his supposed true flame, and Lila, his security blanket. He seems kind of dim-witted. Lila is forgiving beyond any bounds of decency. Laura is "self-absorbed", as the snarkers say, because no ethical concerns ever stop her from going ahead with what she thinks will fulfill her. But it doesn't make sense to judge the movie on the character of the characters, and maybe the fact that I didn't particularly like the characters helped me keep my objective distance, so I didn't feel like the boiled lobster. By no means was the author setting up any of them as model citizens–it's about the ambiguity of where they're going to take their lives.

Anyway, I give it a thumbs-up. It kept me interested and absorbed, and it's more memorable than most movies out there.



 A little boy says, "Guess what I'm thinking?". I say "when are we going to play monkey in the middle." The little boy says, "No. I'm thinking of when I am going to be a millionaire?". I ask him when he thinks that will be? He says, "maybe when I'm 10 or 12."

Anatoly Veltman writes: 

1. Can't be sure (but the way a few trillion ballooned to 14 trillion deficit), everyone may be a millionaire by then.

2. Can't be sure which prof. on my first day in Business School said: general goals (like becoming rich) don't get one there. It is a step-ladder plan of how to get there that may.

3. Can't be sure of precise spelling after all these years (was it Sir Brian Bixley?), but he introduced "marginal utility" to my Microeconomics 101 audience in an entertaining fashion of "villas at the cote d'azur" vs hamburgers. He further confided that his goal in life was to die with his debt maximized! I pray he hasn't delivered just yet — and is alive and well.

4. Can be sure of one thing. He, of all the lucky kids, will well receive his early lesson: The richest are not the people who have the most. They are the people who need the least.

Kim Zussman adds:

From Greg Mankiw

"De Gustibus non est Taxandum"

Bryan Caplan quotes a passage from Daniel Kahneman's Thinking, Fast and Slow (which I have not read, but plan to):A large-scale study of the impact of higher education… revealed striking evidence of the lifelong effects of the goals that young people set for themselves. The relevant data were drawn from questionnaires collected in 1995-1997 from approximately 12,000 people who had started their higher education in elite schools in 1976. When they were 17 or 18, the participants had filled out a questionnaire in which they rated the goal of "being very well-off financially" on a 4-point scale ranging from "not important" to "essential."…Goals make a large difference. Nineteen years after they stated their financial aspirations, many of the people who wanted a high income had achieved it. Among the 597 physicians and other medical professionals in the sample, for example, each additional point on the money-importance scale was associated with an increment of over $14,000 of job income in 1995 dollars!In other words, one reason that people differ in their incomes is that some people care more about having a high income than others.

Russ Sears writes:

For kids, both money and numbers are largely abstractions. I would suggest that one of the important lessons a parent is to give to kids is to understand how money relates to the reality of "being very well off financially" or goals they set in general. From what I have observed most parents do not tie the kids life goals into what financial steps it takes to get there. While a young kid, parents want to teach their kids not to worry about money, that it is their responsibility to take care of them and supply their needs and wants. Both the epidemic now the norm of assumed "adultlescence" of young 20 somethings (why else would 26 year old need to still be on Mom and Dad's health insurance) and the now common "failure to launch" of young adults suggest that many parents are not doing their kids any favors by perpetuating this when their kids are in their teens.

I would suggest that parents talk about what is expected of the teen starting to go to college, and give a dollar figure to both the profession and life styles young teens and kids talk about when they talk about what they want to do when they "grow-up"; besides just encouraging them to dream and share these dreams.



 No way bears can succeed until these stocks continue to trade near all time highs. AAPL quadrupled since 2009 and also GOOG performance is impressive. How can these trends be reversed? It seems they do not have much to do with the European debt issues, housing crisis and middle east tensions. People buy ipads, iphones and android devices to play Angry Birds anyway. There is a cultural shift ongoing that needs to be understood and Blackberry might be doomed.



Outback Fight Club is an amazing documentary on youtube about Fred Brophy's tent boxing group that travels around rural Australia taking on all challengers has so many market lessons. Watch for the moves that have no style or symmetry and come out of left field, as they can be the most deceiving and the most devastating….no doubt there are lots more lessons in this film.



At the core of the tipping point theory is the phenomena called 'critical slowing down'. This means that systems which are getting close to their tipping points take a longer time to recover when they are thrown out of balance.

Here is one of the graphs for the experiment. There is some semblance to Rocky's mountain collapse prediction.

Tipping points, at which complex systems can shift abruptly from one state to another, are notoriously difficult to predict1. Theory proposes that early warning signals may be based on the phenomenon that recovery rates from small perturbations should tend to zero when approaching a tipping point2, 3; however, evidence that this happens in living systems is lacking. Here we test such ‘critical slowing down’ using a microcosm in which photo-inhibition drives a cyanobacterial population to a classical tipping point when a critical light level is exceeded. We show that over a large range of conditions, recovery from small perturbations becomes slower as the system comes closer to the critical point. In addition, autocorrelation in the subtle fluctuations of the system’s state rose towards the tipping point, supporting the idea that this metric can be used as an indirect indicator of slowing down4, 5. Although stochasticity prohibits prediction of the timing of critical transitions, our results suggest that indicators of slowing down may be used to rank complex systems on a broad scale from resilient to fragile.


Here is Dr. Scheffer's book on critical transitions. It's interesting to compare the graph of a living system approaching a tipping point vs. a straight chemical reaction such as an acid-base titration where there is not much of a "warning" and the tipping point is reached very rapidly.



 Here's a good article listing 12 things that happy people do differently than everybody else. I don't agree with everything on the list and I would add a few anecdotal things points. I wonder if the we could compile a complete list of things happy people do differently. I'll bet there's more than 12 things, probably closer to 100.

Russ Sears writes: 

Perhaps top on my list of New Years resolutions this year is to learn to enjoy effort both intellectually and physically. I believe this will perfect several of the items on the list… including 1. Take care of your body (and mind). Practice "Flow" 2. Savor Life's Joys (by practicing "Living") 3. Setting goals 4. Develop coping skills.

All these are achieved mainly by loving the challenges of effort. But perhaps more importantly, this will help you maximize the resources you are given.

This is the key to feeling good about yourself and overcoming the fears that turn into opportunities.

I would add to the list: "Learn to guard and value money for the freedom and potential opportunities it can bring to your and your families life".



 When I was a tiny person, my beloved Uncle Lazarus took me to see the films of Charlie Chaplin. I was stunned by the black-and-white silent images of this silly, funny, pratfall-prone loner with the squooshy mushroom hat, the baggy pants, the cane and the clown shoes. Which he occasionally cooked—and ate! Movies were imprinted on me at the young age of 4 or so as black-and-white, privileged emporia in the company of beloved people.

Why go into this?

Because Hazanavicius’ THE ARTIST brings back the closeted smiles and the secret wonder that went dormant lo those years ago in a cramped theatre in Manchester, England.

In THE ARTIST, it’s Hollywood, 1927.

People are different today from how they were before the advent of ubiquitous cameras, TV, YouTube and Andy Warholic ‘15 minutes of fame’ for everyone including your cousin Pillethia. People held their faces and bodies in a way quite other than how we position our features for the world today. This film captures the expressions before we got so full of ourselves, before we were so all-fired smart and foible-averse about every damned thing around us.

The stars of this rags to riches (to rags to riches) tale are unknown to American viewers, virginal essences in a riveting romantic danceteria of amusement, smirks, joyous bursts, back-room skullduggery and twirling moustaches. French Jean Dujardin, as George Valentin (possible reference to silent film-dream-o Valentino?), is a dashing Douglas Fairbanks-like handsomer-than-life star of the silents, a man of smooth facial planes, broad shoulders and can-do loving heartiness. His co-star, a winning Venezuelan brunette hoofer who climbs the heady, unsteady ladder to dazzling stardom, is Bérénice Bejo, playing Peppy Miller. Perfect name for her energetic shpritzy style of flirtatiousness and talent. As Peppy fizzes higher, and gets her star-making big break, Valentin sinks into the west, a victim of the unstoppable newest craze, Talkies. Valentin won’t budge for the surging trend. And his voice isn’t all that euphonious, we gather. Will he make it?

As Bejo rockets to fame, tracking the maturation of the [American] film industry, she achieves éclat that outsparks poor unvoiced Dujardin/Valentin by a swirling album of sweetheart of America features, done in that page by page calendar style we hazily recall from old film-reels.

Oddly, one’s trepidations about seeing–even enjoying–such a throwback homage to the past in an art field we are so comfortable at dissing and dashing are allayed about three minutes in. The costumes, cars, music, subtitles and hair-do’s beguile and convince us we are seeing not a brand new offering, but a misplaced treasure we somehow managed to misplace for 80-odd years. Those Weinstein folks really know how to throw a throwback.

The fascinating faces, grimaces and unsheltered expressions that carry the day in this early Hollywood re-evocation are delicious to witness and relive. People could attain stardom with a lucky entrance, a toothy grin, a mild romance…all the stuff that disappeared with Lana Turner’s (1920-1995) ‘discovery’ at Schwab’s Pharmacy, at 8024 Sunset Boulevard, sipping a soda. Handy mythology: Even then, the industry was pretty hard boiled.

All that aside, one of the more striking aspects of the film–which also features a gruff John Goodman, a dutiful servant played by James Cromwell, and a long-suffering wife done to a pin-curl by Penelope Ann Miller–is how the audience files out.

As the credits roll, pretty much everyone wears that warmest of coats: A smile on their lips, a tap dance itching to escape the peep-toed shoes on their feet, and a hum warbling inside their throats.

Even a cheeky verbal exchange with Harvey Weinstein himself (the man can be notably testy, as you’ve probably heard) couldn’t wipe the smile overrunning my scarf.



 1. Every store in London was having a sale of 50% or more except for the Bates one I went to to buy a hat, and all the big stores like Harrods had queues of at least 2 hours. In Paris, no stores had sales and business seemed quite slow except for the health food stores that substitutes quinoa for rice and hummus. Why is there so much better retailing in London than Paris? Does it have to do with the service rate or National Character? The marginal utility for consumers to buy goods in London and Europe rather than property seems to be a function of the much larger ratio of space to population in US versus Europe. When you have 100 square feet to a person, goods seem very attractive and the Holidays with all their bargains, bring out in London "50% of the population". By the end of a week, people are willing to spend a lot more to buy things than at the beginning when they're still testing the waters and looking for bargains. Can this be quantified in markets?

2. The drop and close below 1200 on Dec 19, 2011 is right out of the playbook of the Trojan War. Time and time again a day before the death of one hero or another, in this case Hector as he firebrands the Greek ships and kills and wounds one Greek defender after another, including Ajax, Menelaus, and Odysseus, the Gods look down, especially Zeus, and say, "look he's going to die tomorrow, let him have a blaze of victory today before he goes to Hades as he's put up a good fight and is the favorite of a few mistresses and daughters." One receives a pretrial settlement letter from Dan about a HP executive's harassment of a party planner, including his showing her his million dollar balance at the ATM. And it gets him in trouble because there is an obvious attempt to cover up through his assistant who might not be buyable off now that he is no longer top guy. It's right out of the Trojan war where all the problems arise from romance and the fate of the war hinges on who can seduce Zeus the last, and which Goddess is consumed by revenge the most because Paris chose Aphrodite and how they can use their wiles to turn the tides of war.

3. A trip to the British Museum starts with a building cramming exhibit of Russian Architecture right after the Revolution to show the Russian's spirit and intelligence, and the love and egalitarianism of Russia by the British right now. But at the British Museum a room is devoted to Roman everyday life then compared to England today, and the conclusion is that it's pretty much the same with the soldiers being able to retire to a nice plot of land after 20 years of service then and now. But on looking closer one sees that most of the wealthy in Greek times were the freed slaves who were able to fill the everyday jobs of merchants, doctors, and financiers since they were not tarnished by striving for money and didn't possess extensive land holdings.

 4. Throughout Europe the opportunity cost of time is close to zero. Queues are everywhere because free admission is given to all the attractions. One can only get into the Louvre through a back entrance as the lines at the front are 3 hours long, but when you do get in, you have to walk through 10 miles of religious paintings depicting sacrificial and revengeful scenes from the Bible. No such luck at a the Musee D'Orsay where one would have to wait 5 hours to get in, even after purchasing a ticket at the only billetiere open in Paris.

5. London is the theater capital of the world, and it's nice to see the common man at all the events, enjoying his ice cream between acts at 1/4 the price of US events. I have to walk out of Crazy for You and Matilda, two of the hits there, because the music is terrible, and the plots totally contrived and hateful to the business person. The Crazy For You plot is exactly the plot of the current Muppets movie with their depiction of the heartless business man who wishes to close down the theater and the decent poor folk who must stage a show to earn enough to buy out the theater from the evil profit mongers. I enjoyed Three Days in May which shows men as they should be with compromises between Churchill, Chamberlain, and the Hunting Saint that led to the British refusing to surrender as it becomes clear that France was going to capitulate in a week. "Neville, can I chat with you for a half hour before the meeting tomorrow. Without your support, I'll have to resign because I don't believe we should give up," Churchill said. How many times one has been in that position as every man was for himself as in this case the estimate that came back from the front was that 2000 men would be returned from the Dardanelles rather than the 250,000 that came back. Worst of all as Churchill pointed out to his cabinet dissenters, is a show of uncertainty and disharmony as the public would leap on the weakness and the whole battle would be lost. One finds the courage and diplomacy of Churchill inspiring in this case, and one did have it in his rackets career.

 6. A highlight of the trip is a visit to Ile de la Cite to see the prisons where the upper class and producers were kept before being guillotined. But instead one lands at the Sainte Chappelle where one is seated in the first row of this 14th century church, to hear a medley of Renaissance music with harpsichord, viola, various flutes and a singer. The highlight as always is a Couperin and Bach piece which is invariably ingenious and beautiful compared to the predecessors. One was mistakenly given a VIP seat here as the reservation made from a fancy hotel and I am reminded of the most valuable thing I got from Soros other than the two tennis can thing. Once I had pneumonia and the hospital mistakenly heard that I was a partner of Soros and they gave me the best room in the hospital, about 2500 square feet with a beautiful view of the park. I did meet a great Dr. there, Dr. Lou Depalo, who I would recommend to anyone with a respiratory problem of any kind, who bought me a Barrons, and I bonded with when it turned out that he had a total love of the Master and Commander canon and unlike me was a nautical personage.

Gary Rogan comments: 

I was in Paris with my wife and daughters over the week preceding and including Christmas. We didn't do much shopping since it was mostly about taking the kids to the main museums, and they all know how much I hate "shopping" but we did spend a couple of ours at Galerie Laffayette, their main shopping mall, on Christmas Eve and the level of energy seemed pretty good to me, but I don't have too many comparison points. I also didn't see any sales signs, but could that be a sign of strength?

The outdoor shopping area at the lower end of Champs Elysees was so crowded in the evening it was almost impossible to walk, and this is definitely not the height of the tourist season. The faces of people on the metro which we used a lot seemed somewhat grim, but that's also hard to interpret without recent comparison points.

Rocky Humbert comments: 

 1. Back when I lived in the UK in the 1980's, there were semi-annual sales (post-Christmas and July). This was a tradition at the likes of Selfridges, Harvey Nichols, and the other serious London department stores. Prices were generally not discounted except during these sales. No self-respecting Londoner would shop at Harrods (except at the food court) — as it was mobbed with foreign tourists, and the prices were exorbitant. Perhaps a current Londoner can share whether the semi-annual sale pattern still exists.

2. In comparing London and Paris, one recalls Adam Smith's (and Napoleon's) observation that England is a Nation of Shopkeepers.

3. The Chair asks, "Why is there so much better retailing in London than Paris?" As Perry Mason would say, "Question assumes facts not in evidence." 

Bruno Ombreux comments:

1. About the traditional semi-annual sales (post-Christmas and July), it is the same in France, but the Winter sales are starting only next Wednesday. Which explains why there were sales in London and not in Paris. Different calendars.

2. About the English nation of Shopkeepers, it can be explained by different cultures too. Sales are widely attended in both countries, but from my anecdotal experience living both in London and in Paris, they are really a sacred institution in London compared to Paris.

Steve Ellison adds:

Kathryn Schulz, in Being Wrong, one of the books on the Chair's recommended reading list, wrote:

In short, we are wrong about love routinely. There’s even a case to be made that love is error, or at least is likely to lead us there. Sherlock Holmes, that literary embodiment of our … ideal thinker, 'never spoke of the softer passions, save with a gibe and a sneer.' Love, for him, was 'grit in a sensitive instrument' that would inevitably lead into error.



 I have recently read Peter Drucker's 5 Most Important Questions You Will Ever Ask About Your Organization, which is based on Drucker's work on helping non profits succeed.

One can't help but think how for profit organizations thrive following similar processes. Would for profit organization be more successful if the mission was not to make money but money was the funding source and market validation of the organizations mission?

In Management Revised Drucker saw companies as organs of society who needed to make a profit because it would do no good to the consumer if the company went out of business and that most executives were failures in pointing this fact out to the public.

Is the only difference between the successful non profit and for profit the funding source for the organization's mission?



 Great article on Happiness: "A Wandering Mind is an Unhappy One"

New research underlines the wisdom of being absorbed in what you do

By Jason Castro

We spend billions of dollars each year looking for happiness, hoping it might be bought, consumed, found, or flown to. Other, more contemplative cultures and traditions assure us that this is a waste of time (not to mention money). ‘Be present’ they urge. Live in the moment, and there you’ll find true contentment.

Sure enough, our most fulfilling experiences are typically those that engage us body and mind, and are unsullied by worry or regret. In these cases, a relationship between focus and happiness is easy to spot. But does this relationship hold in general, even for simple, everyday activities? Is a focused mind a happy mind? Harvard psychologists Matthew Killingsworth and Daniel Gilbert decided to find out.

In a recent study published in Science, Killingsworth and Gilbert discovered that an unnervingly large fraction of our thoughts - almost half - are not related to what we’re doing. Surprisingly, we tended to be elsewhere even for casual and presumably enjoyable activities, like watching TV or having a conversation. While you might hope all this mental wandering is taking us to happier places, the data say otherwise. Just like the wise traditions teach, we’re happiest when thought and action are aligned, even if they’re only aligned to wash dishes.

The ingredients of simple, everyday happiness are tough to study in the lab, and aren’t easily measured with a standard experimental battery of forced choices, eye-tracking, and questionnaires. Day to day happiness is simply too fleeting. To really study it’s causes, you need to catch people in the act of feeling good or feeling bad in real-world settings.

To do this, the researchers used a somewhat unconventional, but powerful, technique known as experience sampling. The idea behind it is simple. Interrupt people at unpredictable intervals and ask them what they’re doing, and what’s on their minds. If you do this many times a day for many days, you can start to assemble a kind of quantitative existential portrait of someone. Do this for many people, and you can find larger patterns and tendencies in human thought and behavior, allowing you to correlate moments of happiness with particular kinds of thought and action.

To sample our inner lives, the team developed an iPhone app that periodically surveyed people’s thoughts and activities. At random times throughout the day, a participant’s iPhone would chime, and present him with a brief questionnaire that asked how happy he was (on a scale from 1-100), what he was doing, and if he was thinking about what he was doing. If subjects were indeed thinking of something else, they reported whether that something else was pleasant, neutral, or unpleasant. Responses to the questions were standardized, which allowed them to be neatly summarized in a database that tracked the collective moods, actions, and musings of about 5000 total participants (a subset of 2250 people was used in the present study).

In addition to awakening us to just how much our minds wander, the study clearly showed that we’re happiest when thinking about what we’re doing. Although imagining pleasant alternatives was naturally preferable to imagining unpleasant ones, the happiest scenario was to not be imagining at all. A person who is ironing a shirt and thinking about ironing is happier than a person who is ironing and thinking about a sunny getaway.

What about the kinds of activities we do, though? Surely, the hard-partiers and world travelers among us are happier than the quiet ones who stay at home and tuck in early? Not necessarily. According to the data from the Harvard group’s study, the particular way you spend your day doesn’t tell much about how happy you are. Mental presence -the matching of thought to action - is a much better predictor of happiness.

The happy upshot of this study is that it suggests a wonderfully simple prescription for greater happiness: think about what you’re doing. But be warned that like any prescription, following it is very different from just knowing it’s good for you. In addition to the usual difficulties of breaking bad or unhelpful habits, your brain may also be wired to work against your attempts stay present.

Recent fMRI scanning studies show that even when we’re quietly at rest and following instructions to think of nothing in particular, our brains settle into a conspicuous pattern of activity that corresponds to mind-wandering. This signature ‘resting’ activity is coordinated across several widespread brain areas, and is argued by many to be evidence of a brain network that is active by default. Under this view our brains climb out of the default state when we’re bombarded with input, or facing a challenging task, but tend to slide back into it once things quiet down.

Why are our brains so intent on tuning out? One possibility is that they’re calibrated for a target level of arousal. If a task is dull and can basically be done on autopilot, the brain conjures up its own exciting alternatives and sends us off and wandering. This view is somewhat at odds with the Killingsworth and Gilbert’s findings though, since subjects wandered even on ‘engaging’ activities. Another, more speculative possibility is that wandering corresponds to some important mental housekeeping or regulatory process that we’re not conscious of. Perhaps while we check out, disparate bits of memory and experience are stitched together into a coherent narrative – our sense of self.

Of course, it’s also possible that wandering isn’t really ‘for’ anything, but rather just a byproduct of a brain in a world that doesn’t punish the occasional (or even frequent) flight of fancy. Regardless of what prompts our brains to settle into the default mode, its tendency to do so may be the kiss of death for happiness. As the authors of the paper elegantly summarize their work: “a human mind is a wandering mind, and a wandering mind is an unhappy mind.”

On the plus side, a mind can be trained to wander less. With regular and dedicated meditation practice, you can certainly become much more present, mindful, and content. But you’d better be ready to work. The most dramatic benefits only really accrue for individuals, often monks, who have clocked many thousands of hours practicing the necessary skills (it’s not called the default state for nothing).

The next steps in this work will be fascinating to see, and we can certainly expect to see more results from the large data set collected by Killingsworth and Gilbert. It will be interesting to know, for example, how much people vary in their tendency to wander, and whether differences in wandering are associated with psychiatric ailments. If so, we may be able to tailor therapeutic interventions for people prone to certain cognitive styles that put them at risk for depression, anxiety, or other disorders.

In addition to the translational potential of this work, it will also be exciting to understand the brain networks responsible for wandering, and whether there are trigger events that send the mind into the wandering or focused state. Though wandering may be bad for happiness, it is still fascinating to wonder why we do it.



 Here are a few more random comments on Sears and real estate:

1. It seems correct that the balance sheet carrying value of the some of the owned real estate is below its market value — if the pieces were sold in an orderly fashion. This statement is confirmed by the last 10K (page 24), in which they did a couple of sale & leaseback "S&LB" transactions. For example, they did a S&LB on a Sears Auto Center in October 2006 — and for accounting purposes, the excess of proceeds received over the carrying value of the associated property was deferred. [BUT, we] closed our operations at this location during the first quarter of 2010 and, as a result, recognized a gain of $35 million on this sale at that time. Note: they don't disclose what it cost to cancel the lease. And furthermore, given that they have a junk bond credit rating now, any S&LB's that they might enter into would have to be done at unattractive prices. That is, the cap rate for a Walmart S&LB might be 4% or 5%; my guess is that for Sears, it is now well into the high single digits…

More importantly, the problem with valuing Sears on the real estate portfolio is that they are the elephant in the room. When Alexander's went bankrupt, the stock actually rallied because they had a crown jewel in their 59th Street NYC story — and they could then reject the other leases. Because Sears has such a huge and geographically diverse portfolio, it's unclear to me how they could monetize it in a meaningful way except for S&LB (not an option right now). There is not enough commercial demand.

2. As I noted in my original post about Sears, Eddie's story was originally a real estate/asset play. That was 7 years ago. Generally speaking the retail real estate market is obviously quite soft, and there are few big footprint vendors who are expanding at the moment. This will eventually turn. A national tax on internet sales could help. So could a turn in the economy. But that's macro stuff.

3. It's notable that they sold $240 million of commercial paper to Eddie Lampert's Hedge Fund. (page 88) during 2010. In the latest 10Q, Eddie's commercial paper holdings declined to $220 million (page 18) and $100 million of the money was identified as Eddie's Personal money. This bears watching. Because as we know, during 2011, Sears drew down about $400 million in its bank lines.

I think the bullish case for Sears is that they find a new store format/model that works. This is what they've been trying to do with their throwing spaghetti against a wall. Once they do, the can continue to shrink the portfolio of existing underperforming stores. There is some historical precedent for this: For example, Melville Corp (aka Melvillle Shoe Co) was founded in 1922 had 7,282 stores at one point. They shed all of their retail chains … except for CVS (40%) … and today CVS is a successful drug store operator. Similarly Dayton Dry Goods Company (founded in 1902) had a series of successes and failures before they morphed into Dayton Hudson and now the successful Target Corporation. Most attempts to turn these companies around fail however, etc. Ames, Caldors, Montgomery Ward, Woolworth's. Even now-successfull Macy's went through bankruptcy.

So, if you want to give Sears the benefit of the doubt, I think what you need to see is a new store format that WORKS. They are not investing the required capX into their existing stores. And if they lose the confidence of their bankers and vendors, they implode. Lastly, the pundits who say that they've got tons of cash never mention where the cash is coming from. It's coming from Eddie's hedge fund and from the revolvers that they are drawing down. Also troubling is that even if they find a format that WORKS, how are they going to finance the conversion to the new format. That takes a ton of capital, and their cost of capital is going through the roof. The time window is quickly closing for them to succeed at a turnaround.

One last thought: Apple computer has about $40 BILLION in cash on their balance sheet and has almost no long term debt. They have 929 million shares outstanding. So that's $43/share in cash! So, with the stock trading at 400 minus $43(cash) = the stock is really trading at about $350/share. They are supposed to earn $35/share next year. So the stock is trading at 10x earnings *net of cash* for the "premier" sexy tech/retail(cult) stock that is financially strong and doing great (right now). I have no opinion on Apple. I mention this only because as an investor, one should not only consider whether Sears is "cheap" or whether it will succeed. One should also consider alternative uses of one's capital …. and I subtract out Apple's cash in this example because Charles' theme was to subtract out Sears' real estate. Just a thought.

Finally, Eddie & Co own about 61% of the outstanding stock now. The company has repurchased about $6 Billion in stock over the past 7 years (at much higher prices). So, the float is thin. The stock could be extremely volatile (in both directions) because of this.

Happy new year.



 Pro horseplayer interviewed in Harvard mag (via this trader's blog). Touches on evolution from Bacon…

Steve Crist On Turf Betting via Stableboy selections:

Twenty years ago, if you made your own speed figures [a method of standardizing horses’ running times for comparison, popularized by noted handicapper and Washington Post columnist Andrew Beyer ’65] and followed horseracing closely, you had a real edge over the majority of the public. But now, so many of the bad gamblers–the people who should be pulling handles on slot machines–have left racing for casinos that one of the great regrets of current horseplayers is: ‘Where did all the suckers go?’ You want to be betting against people who are betting based on colors and jockeys and hunches. -from Harvard Magazine article "Horseplayer extroardinaire"

Who’s the sucker in the markets today?



Stocks have more correlated recently than any time over the past 30 years:

1. Correlation between assets and asset classes increases during panic/selloff mode, but in 2011 the stock market finished flat

2. One would expect increasing deployment of ETF's and other index derivatives to increase individual stock correlation per unit volatility over time, but are there other explanations? ZIRP, globalization of markets, HFT, abandonment of stock-picking in favor of beta exposure, other?

3. Is stock correlation mean-reverting (as suggested by the chart), or is there a secular move toward high correlation?

3a. Does high correlation create stock-picking opportunities (babies with bathwater)? Will the type of stocks which traditionally did well after high-correlation periods do well if/when the current high correlation moderates?

4. Does the cause and effect of asset-class correlation differ from stock correlation? Does asset-class decoupling have predictive value (eg commodities, stocks, treasuries in 2011)?



A new book from a University of Toronto Professor takes a look at the 'silo' managers and how it has ruined capitalism…

For newer SLers, the silo was a figurative term used by the Chair for Jack Welch's honey pot as some buysiders call it.



Here's a great article called "guitar tricks for a middle aged dog" describing a 38 year old's successful attempt to learn how to play the guitar. Many lessons in this article can be carried over to trading and other areas of life.



 When director Daldry, who provided the above-average “The Hours” (2002) and the slightly less winsome “The Reader” (2008) approached Sandra Bullock about doing this project, she was still reeling from the disclosures of her then-husband’s public indiscretions with multilevel tattoo’ed women, a swift divorce, and the adoption of a son. Luckily for her (if not for us), despite misgivings, she gave in, and the film we have at least gives her ample opportunity for incessant frowning and unrelenting sobbing.

Tom Hanks, as Thomas Schell, who also headlines this overlong mawkish and contrived effort, appears episodically for whole minutes at a time, with the aggregate not amounting to more than about a dozen minutes all told. John Goodman, playing a wise-acre NY doorman, is arch and spot on, but we get maybe two minutes of him onscreen. He is treated disrespectfully by the 9–year-old offspring of Hanks and Bullock, as mom Linda Schell, but sprat Oskar Schell (see? they are now an 'empty-schell family') is never rebuked for his unacceptable ill manners.

Kid Oskar (note the transformative “k” instead of the more expectable “c” in his name, a tell that the family is once-European, attested to obliquely by the grandpa we meet later on), is an amateur artist, inventor, Francophile and know-it-all peacenik who roams around searching for the lock to match a portentous key left by his father in a closet, inside a vase. The beloved Hanks, Papa Schell, goes to the World Trade Center on the fateful morning, and is no longer around to mentor his 250-watt donnish DNA in short pants.

The film, based on a soapy novel by Jonathan Safran Foer, does not win hearts if you’re looking for serious discussion or narrative about 9/11. The word terrorist is not mentioned even once, let alone the affiliation of perpetrators of the heinous act. In fact, "ELIC" subsumes that stark and still-hurting story for an unrealistic, pseudo-picaresque trek by the ever-scratchy protagonist, son of Hanks and Bullock, played by Thomas Horn. Maybe it’s me, but he never won my heart, and each succeeding scene irritated ever more. Foer is not a great writer, and this is not a very substantial film, though the principals and Jeffrey Wright, Viola Davis and particularly the always-great Maximilian von Sydow (doing a mute old man who has a remarkably coincidental role to play in the kid’s life) do their best.

What should and could have been a wrenching narrative about grief and reconciliation becomes instead the search for the owner of the key Oskar finds in a blue vase. On the basis of a ridiculous hunch that the word Black betokens a last name connected to the key, Osk follows up on all the Blacks in the NYC phonebook, well over a hundred, and a rainbow of the typically atypical. His dutiful mother apparently lets this attractive little genius wander at will around the five boroughs, first alone, then in the company of gramps, Von Sydow.

Horn is so irritating in Foer’s out-of-touch conceit that the kid reads Stephen Hawking as relaxation, yeah; is a brilliant artist the equal of Seymour Chwast; cuts school and lies because he can apparently do no wrong, saved from punishment for truancy and meretriciousness by a too-lax private school and mucho bucks, judging by the apartment we glimpse and its telling proximity to Central Park.

There are a few scenes toward the eventual closing credits that elicited tissues and waterworks by the too-credulous, but this is one ticket you can safely not buy, either for adult or child viewing.

Ms. Bullock might better have steered clear of Extremely Annoying and Incredibly Cloying. OK, cheap shot. The film however extends into what is, we all feel, sacred territory, and it does so in unbecomingly unrealistic and some might say untruthful ways.

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