The Case for Long-Termism

Highly recommend reading Keith Ambachtsheer’s recent article on why taking the long-term view is not only good for investing but also society.

There is an important caveat to this positive view of the prospects for continued wealth creation and improved well-being in the twenty-first century and beyond: it assumes that today’s and tomorrow’s public and private investment decisions will be made in time frames long enough to capture the challenges and complexities of the societies in which we now live. In short, it assumes a world in which “responsible long-termism” will be the dominant investment paradigm. – Ambachtsheer

Consumers, elected officials, and investors often miss the value of such a paradigm.


Some exciting news… I founded Kas·ka /kaˈskə/ last December.

Kaska is a dynamic software company. The idea was born out of frustration with existing decision-making tools. Users of data deserve more accessible resources that better utilize existing troves of information in a beautifully powerful format. We build these tools for the action sport and investment space. Kaska helps people make better decisions.

The Cascade Mountain Range was chosen to represent the company because of its rugged terrain and constantly evolving ecosystem that supports life across the Pacific Northwest and beyond.

Kaska is a starting point of opportunity and I look forward to what the future holds. Please get in touch if you have any thoughts on this venture or are interested in working together.

Lagarde, Cohn, Summers, Botin, and Dalio at WEF Davos

“International Monetary Fund Managing Director Christine Lagarde, former U.S. Treasury Secretary Lawrence Summers, Goldman Sachs Group Inc. President Gary D. Cohn, Banco Santander SA Chairman Ana Botin and Ray Dalio, who runs the investment firm Bridgewater Associates LP, speak on a Bloomberg Television debate on quantitative easing. Francine Lacqua moderates the session at the World Economic Forum’s annual meeting in Davos, Switzerland.” – Bloomberg

TGR Almost Ablaze Soundtrack

TGR’s latest film “Almost Ablaze” is by far the best ski movie of 2014. One big takeaway: keep an eye on Angel Collinson, she killed the opening segment, and Nick McNutt, who rides switch out of everything. From Jackson Hole blower pow to numerous jaw-dropping lines in BC, the Tetons, Bosnia, AK… the movie does not disappoint.

With many resorts across the Rockies and Northeast already open, and areas in the Northwest set to roll this week (word on the street is Thursday Mt. Baker opening), below you’ll find an awesome soundtrack to get you psyched on your drive to the slopes. Caught a Ghost “No Sugar in My Coffee“, ODESZA “Say My Name“, “Faded Remix“, “Memories that You Call“, Lust for Youth “Armida“, Breton “S4“, Wise Blood “Alarm“, Hozier “Take Me to Church“… sooooo many good songs!

Snow Dog: Powder Skiing with Paws

Bernese Mountain Dog Snow Mt. Baker

My dog loves to go to the mountain. She knows where we’re headed the night before as I lay out the gear. 6:15 AM rolls around and her paws dance across the hardwood floors, excited to hit the hour and twenty-minute drive.

We stop for breakfast at Maple Fuels before proceeding deeper into the North Cascades. Arriving at the mountain Lola jumps from her crate onto the growing snowbanks, hopping through pillows that surround the parking lot and chasing snowballs. The beauty of being about 3 feet tall is that most storms bring powder days for my friend. It doesn’t take much to tire her out so she recoups in the truck while I hit the slopes.

On a typical resort day, we repeat this process at lunch and after last chair then she sleeps during the drive home.

A video posted by @aaroncareaga on Nov 11, 2013 at 12:13pm PST


Lola’s goal is to venture beyond the resort area this season. She’s warmed the paws on hikes throughout the fall and seems ready to step up her winter game. I’ve been apprehensive to bring her with the past few seasons because ski touring is tough. Planning, assessing risks, packing the right gear, and managing a group is very rewarding but not an easy task.

Do you ski with your dog? Any advice on gear, training, or personal experiences is much appreciated.

Her enthusiasm reminds me of my early days skiing. The anticipation, enthusiasm, adrenaline, and exhaustion that comes with a day in the mountains is universal. It’s easy to lose sight of these feelings as we age and obligations arise. But I am thankful I have Lola to keep me grounded.

The Secret Recordings of Carmen Segarra

“An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks and prevent another financial crisis. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she bought a tiny recorder, and started secretly taping.” – ProPublica Article

Intergenerational Disparity

Neil Howe (LifeCourse Associates and Saeculum Research) was the keynote speaker at a Federal Reserve conference on the balance sheets of younger Americans. Awareness and discussion of this topic is critical to shape more effective social policies in a rising wealth inequality and stagnant growth environment. Many older groups find it hard to relate to the current economy because their wealth was grown in a prosperous economy – 80% of life is just showing up. Unfortunately, younger cohorts face a vastly different experience.

For more perspective on the intergenerational disparity, check out FRB St. Louis AVP Emmons presentation on Gen X and Y’s financial challenges in the shadow of the baby boom.

10 Minutes of Mindfulness

“When is the last time you did absolutely nothing for 10 whole minutes? Not texting, talking or even thinking? Mindfulness expert Andy Puddicombe describes the transformative power of doing just that: Refreshing your mind for 10 minutes a day, simply by being mindful and experiencing the present moment. (No need for incense or sitting in uncomfortable positions.)”

Football Coach vs. Pension Manager Salary

Compensation priorities at public institutions are out of whack.

As most people know, the highest paid employee at public universities is usually the football coach. Don’t get me wrong, I love a good football game. But millions rely on public pensions to supplement income through retirement. Chief investment officers and their staff are integral components to the success of pension funds. Underperformance by even a few percent compounds into enormous losses in value over seasons. With retirees and taxpayers on the hook for unfunded plan burdens, is this the best use of funds?

Thankfully data is available to facilitate this social introspection. Below are compensation statistics from the top 5 highest paid public football coaches and top 5 largest public pensions.

Football Coach vs. Pension Manager Salary

Football Coach Salary Portfolio Manager Salary

Nick Saban is the highest paid coach with a school salary of $5,395,852. Mr. Saban’s salary is 10.8x the salary of the CIO at the country’s largest public pension. All of the retirement systems listed above have liabilities that exceed assets, meaning they currently do not have enough money to pay future benefits. Just as in football, the best and brightest investment professionals gravitate towards the highest paying sector. It’s no wonder why most pensions are on track to not meet obligations: misaligned board mandates, inadequate portfolio management and poor risk management.

With so much at stake, can we afford not to reassess priorities?


Apple Q3 Results & iWatch Patent

Apple released its third quarter results today for the period ending June 28, 2014. The company earned $7.7b ($1.28 eps) on $37.4b in revenue. Both sales revenue and iPhone volume came in under analyst forecasts spurring a mixed reception.

Few highlights:

  • gross margin of 39.4%
  • largest revenue growth (28% YoY) in China
  • iPod volume (-36%) and revenue (-40%) down over the past year
  • double digit revenue growth YoY in Mac, iTunes, and accessories
  • NASA uses 26,000 iPhones, education space has bought 13m iPads
  • App store has paid $20b to developers, half in just the past year

Q4 guidance:

  • revenue between $37 and $40b
  • gross margin between 37% and 38%
  • OPEX between $4.75 and $4.85b
  • other income of $250m
  • tax rate of 26.1%

After closing slightly up for the day shares traded down in after hours. Stellar growth over the past decade has set the bar high leaving investors bored with recent performance. Regardless of sentiment, Apple’s sales, margin and unit volume rival any company in the world.

Apple AAPL Q3 Earnings Stock Volume

If you’re interested in more visuals, QZ put together some nice charts summarizing Apple’s results and Asymco provided great coverage of Cook and Maestri’s conference call.

Apple was also granted a comprehensive smartwatch patent today. In describing what the patent calls iTime, “the electronic device can utilize the additional electrical circuitry or devices provided within the electronic wristband to augment the capabilities of the electronic device.” The long discussed project has yet to officially appear but rumors are for a fall unveil and holiday or early 2015 launch.

Apple iWatch Patent July 2014


Infrastructure Policy: Safety Threat & Economic Drag

Infrastructure policy affects highways, roads, sewer systems, public schools, and many other structures relied upon by the public. The total spent on construction relative to United States productivity continues to hit new lows. As federal programs face revenue shortfalls and funding priorities shift with election cycles and voting blocs, national attention is necessary to realign this trend.

Public Construction Spending as % of GDP

It’s estimated that one in every nine bridges in the country are structurally deficient and about $76 billion dollars in additional funding is needed to repair the bridges alone. Safety hazards can be mitigated, economic growth spurred, tax revenue increased, and jobs created if action is taken. Restructuring these systems to increase public-private investment partnerships is one of many potential improvements.

Diverging Climate Policy

Australia’s Senate just repealed the country’s carbon tax on a measure supported by Prime Minister Tony Abbott. Just as President Obama stepped up his campaign in fighting climate change, resource-rich nations like Australia, Canada, and Japan are pushing back on environmental regulation. Global decision makers have arrived at the fork in discussion of future of environmental policy.

Existing, Emerging, and Potential Carbon Pricing Instruments (World Bank)

existing, emerging, and potential regional, national and sub-national carbon pricing instruments

Some claim decreased economic activity paired with rising energy costs are driving support for repeal. Brendan Pearson, CEO of the Minerals Council for Australia, says that, “In two years, in direct tax burden alone, it raised $15 billion in new tax, or an annual tax burden of $326 on every single Australian. This compares with an annual tax burden of $4.30 per person for the European carbon pricing scheme and $8.30 per person for the Californian scheme.Consumers have obviously felt the impact enough to support reforming existing regulation even if other analysts disagree on the true overall burden.

Foreign investment is another factor pressing governments looking to grow affected industries. With slow economic growth, shortfalls in government revenue, and conflicting policies between countries it’s expected that competition to provide an attractive business environment will increase over coming years.

Investing Opportunity, FWIW

Changes in policies between developed countries will affect the competitiveness of firms trading internationally. JP Morgan estimates that Australian mining companies will increase by nearly six percent in value if the mining tax is also repealed. Structuring a portfolio to arbitrage diverging burdens across the mine, energy, and related sectors impacted could provide additional returns previously discounted under existing structures. For reference, Q Continuum over at Macro Business worked through the pre-carbon tax valuation, ROE (with tax) and the resulting post-tax valuation of some companies.

Rio Tinto and BHP Billiton both closed down today.

Rio Tinto Australia Valuation Repeal Carbon Tax      BHP Billiton Australia Carbon Tax Repeal Valuation

US Long Term Budget Outlook

The CBO released its updated US long term budget outlook yesterday. Although the outcomes are not as “bad” as previous reports, the drivers of government spending remain on an unsustainable track. The full document can be found here but posted below are slides from this morning’s testimony to the House of Representatives Committee on the Budget.

Here’s the gist:

Although the gap between federal spending and revenues has narrowed recently, CBO’s long-term projections show a substantial imbalance in the federal budget, with revenues falling well short of spending if current laws governing taxes and spending stayed generally the same. After the next few years, growing budget deficits would push federal debt back to and above its current high level. By 2039, federal debt held by the public would exceed 100 percent of gross domestic product, a level seen only once before in U.S. history (just after World War II). Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.


Bond King Jeffrey Gundlach

Barry Ritholtz interviewed Jeffrey Gundlach in his first episode of a new Bloomberg View podcast called Masters in Business. The one-on-one interview premise focuses around how each person got their start and what forces have shaped their economic and investing views. Twenty one shows have been recorded, with Rob Arnott coming up next week.

Upcoming Schedule:

  1. Rob Arnott (July 19)
  2. Arthur Levitt (July 26)
  3. Michael Mauboussin (August 2)
  4. Jack Brennan (August 9)
  5. Jim Chanos (August 16)
  6. Sheila Bair (August 23)
  7. James O’Shaughnessy (August 30)
  8. David Rosenberg (September 6)
  9. Larry Swedroe (September 13)


Even asleep, mentality’s awake
Nobody realizes how much we can take
Let’s save the future of the world for our sake
Crawl forwards ever, backwards never
We were the students but now we’re the ones who teach
We were the children and your lies we did believe
But we ain’t kids no more and we don’t need a speech
Go forwards ever, backwards never


Griffin and Schwarzman on Investing, Geopolitics, and America’s Future

Mike Milken, Citadel’s Ken Griffin, and Blackstone’s Steve Schwarzman share their perspective on supporting US economic growth at the recent Milken Institute conference.

Investing, Geopolitics, and America’s Future:

“Among their many areas of concern and focus are America’s competitiveness, education reform, the U.S.-China relationship, corporate governance, political polarization, regulation, taxation and central bank policies. What are the most important lessons they’ve learned – from both their successes and their failures? What responsibilities come with managing giant asset pools? What keeps these leaders awake at night? What drives their philanthropic initiatives? And what’s next for their personal efforts and their firms?”

Mountain Biking Kootenay Rockies in BC

The beautiful Kootenay Rockies are explored on bikes in a recent Mountain Bike BC video. There’s a lot of variety in the amazing terrain depending on where in the province you travel, I would really like to explore the more eastern side and visit Vancouver Island again. I am definitely planning a few trips up north this season.