Cranbrook, Romney and Bullying

Creds: Cranbrook class of 1964. Full scholarship student. Williams College BA, Harvard Business School MBA. U.S Army 3 years-First Lieutenant, Airborne, citation with V device.


The recent article in the Complainer states that Mitt betrayed the honor, trust and opportunity offered him as a son of Cranbrook. The Cranbrook Song is then quoted in full.

As I thumbed through my old copy of the Brook (yearbook), I was struck by the fact that we all had short hair, were almost exclusively white, and with students of faiths other than Christianity few and far between. Admittedly Cranbrook was nominally Episcopalian and we were required to attend Chapel three times a week but aside from the Chaplain and assistant Chaplain being Episcopal clergy, there was little connection to the church. Bloomfield Hills at the time was almost exclusively white and waspish.

Typical of many prep schools at the time, the students most looked up to were the athletes. Fortunately for many of us, there were only around 60 boys per year and as a result those who showed effort and desire could find there way onto some interscholastic team. Generally pure brain power was not a path to leadership or recognition. Many of the athletes were in fact quite smart with many members of the class of ’64 attending most competitive schools. Mitt ’65 initially attended Stanford. 

The yearbook has Mitt pictured in three clubs. These were Glee Club, Pre-Med Club and The Forum (a club thats mission was to connect the Cranbrook student with events in the real /outside world). From recollections from several friends-all class of ’64, Mitt was remembered as a young man who often tried a little too hard to be funny. While his later success is impressive, our collective memories were of a young man who did not excel at the things that mattered to the majority of the Cranbrook student body.

The incident with John Lauber seems out of character with the Cranbrook at the time which is what makes it more troubling. There was always sarcasm and verbal jousts but I know of no other incident of a similiar nature. There was in fact another student in Mitt’s class who in the spring of 1964 bleached the front part of his hair. He was an athlete and nobody was offended or gave him any grief. Also, to my recollection, there was little or no gay bashing at the time. This was before the time when high school students came out. In fact I never suspected any students of being gay-even some who came out when they were older. 

I was reminded by one of my friends that he had been “different” and as a result had a more difficult time at Cranbrook that the more main stream students. Different in his case was non athlete and a year older than the rest of us. From my part, there were some differences between those students with parents with money and those of us whose parents had little. The 99% drove new cars to school and vacationed in Aspen, the 1% of the student body who had less, walked to school, or came by bus and worked at menial jobs during the summers. This gap could be narrowed somewhat if a poorer student excelled on the playing fields.

To the reported act of cruelty to the blind teacher, troubling. The teacher was certainly visually impaired but I know of no other incident or prank where he might have been injured. The usual prank occurred in his honors english class. At the back of the classroom, there was a large window which opened into the next classroom. On several occasions students in his class would take seats on the far side of the window and raise their hands. Due to his lack of depth perception he evidently thought they were in the same room.

Do the actions of an entitled teenager besmirch the reputation of Cranbrook? I don’t think so. This is a school that also gave us Ivan Boesky and Bob Woodruff, one who went away for a while and one who has done more for wounded veterans than anyone of our generation. Cranbrook has produced those who served and those who thought they were too smart to serve. All institutions produce both the good and the less good. 

Kudos to Flip Maxwell and all for the guts to talk and to those who remember Mitt in a better light. I wish Mitt had remembered the events-some remorse would have helped.

Cranbrook today has evolved with the times. Thanks to Ben Snyder and others the school is well integrated with students of all shades, cultures and religions. Heck there are even girls now and being openly gay is accepted as a normal part of the world. We even have a President who is in favor of gays being able to marry-progress from 1965.

I am finally reminded of another Cranbrook graduation hymn/song.

“Forty years on when afar and asunder

Parted are those who are singing today

When we look back and forgetfully wonder

What we were like in our work and our play”







ETNs versus ETFs

They are not the same animal. ETFs are backed by underlying portfolios made up of the securities that make up whatever Index the ETF is based on. When shares are bought, the Market Makers deliver to the Issuer the required portfolio of stocks, bonds or commodity futures. When investors sell shares, the Market Makers turn in those shares and the ETF portfolio delivers out the underlying securities. 

With ETNs, the fund is guaranteed either by the Issuer of by a third party-generally a bank. When investors buy shares from Market Makers, the Market Makers generally send cash to the Issuer in return for shares. The Issuer then hedges the risk in many different ways but there is not a portfolio of securities that is owned by the shareholders. The ultimate guarantee to the shareholders is the viability of the guarantor-the shareholder has no claim on the underlying portfolio.


I don’t believe that ETFs and ETNs should be lumped together as it confuses less well educated investors.

Seed Money 3

The problem  of Issuers  ETFs  finding seed money from Market Makers seems to have faded. With most new issues being seeded at between $2.5  and $5.0 million the amounts have helped solve the situation with these numbers being down from the $15 to $35 million per issue of several years ago.

Equally important is the fairly recent entrance into the seeding space of third party seeders who put up the initial seed in return for various incentives given back by the Issuers. These incentives can be in various forms including reciprocal business, Basis Points in the funds or straight interest on the amount invested in the initial seed.  There generally seems to be an agreed upon tie up period on the seed shares to avoid the Lead Market Maker being in competition with the party holding the seed shares. Of particular benefit to the new arrangement is that the party holding the seed shares is often willing to lend out the shares to the LMM who historically attempt to short shares to the public at a premium to the NAV. Our experience has been that the ability to borrow shares at very decent rates enables the LMM to offer Shares of the ETF at tighter spreads to the NAV. This benefits the public, enables the Issuer to grow its assets more quickly than when shares are difficult or impossible to borrow and therefor expensive to the LMM. This also provides further income to the party doing the seeding. In all a great improvement over the early years of ETF issuance.

Age Bias

My wife turned 65 in December of 2011 and I turned 66 in March of 2012. A number of events occurred which we had not expected.

My wife’s company dropped her from their Health Care coverage-evidently required as they have less than 15 employees. At the same time her life insurance policy though the company was reduced from $50,000 due on her death to $35,000, also due to age. She was encouraged to go on Medicare A and B as the alternative to the company health care policy. The cost naturally jumped essentially cutting her take home pay by roughly $7000 per year.

During the past four months, I was downsized and had to pick up both of our health insurance coverages through Cobra (United Health Care. For a variety of reasons we are currently paying roughly $15,000 per year for health care. After many years of neglect, I have been going through various tests to measure my health. Having had cancer twice and having worked in a high tension job, it was time. Much to my chagrin I found that several of my doctors would not accept United Health Care. In retrospect I shouldn’t have been surprised. A year ago I had a lipoma removed from my back. Had it pre-approved by UHC, only to have them reject the claim several times before eventually paying. Fortunately I had arranged a fixed price for the surgeon (who doesn’t accept UHC) and actually came out a winner when the surgery took almost three hours instead of the expected one hour.

What do I take away from these events? Our health care system is inadequate-punishes the generation that hits 65 and shows little sign of getting better. Maybe there is something to be said about a system similar to Canada or Great Britain.

Yorkville High Income MLP YMLP

Nice launch on this first product from Yorkville. Bloomberg volume was 93,333 shares while Yahoo showed 98,633. Range was suspect as explained in the previous post.

With an expense ratio of .82 and an expected yield in excess of 8% this product should attract investors looking for yield when there is little available in the fixed income market. I count 10 MLP based products with AMJ having the largest AUM at just over $4 billion. AMLP is second with $1.8 billion and MLPI, MLPN and MLPL all with $100 million or more. In terms of daily volume, the new entry YMLP came in 4th of the 10-outstanding for an early day. If the volume can be sustained or grow, this looks like a possibility for a real winner. Will be watching this as to share volume and AUM growth-the yield is attractive.

ETF Warning

First the warning. Watching a new product I noticed that the range for the day was $19.85 the low to $30.12 the high. The product (discussed below) is an ETF of Master Limited Partnerships-basically a yield play.

The only way the high/low range could be this wide is if an unsuspecting investor entered a market order at or before the open of the market. Market makers (on a new issue the source of shares to buy) typically enter wide to very wide quotes to satisfy exchange requirements. Once the market opens and the underlying components of the ETF open, the Market Maker will tighten up the bid and the offer to more accurately bracket/reflect the NAV of the ETF. Frequently the market order that has been entered before the spread has been tightened will be executed at a disadvantageous price. If the price is really poor, there is a mechanism available to either break the trade (cancel) or adjust the price. The unfortunate part of this effort to change a trade is that there is a fairly small time window during which the investor must inform the firm holding his account.


ETFS. I personally never use market orders.

Mutual Funds versus Exchange Traded Funds

I was recently asked by a neighbor to comment on the suitability of a portfolio recommended by a financial advisor. The neighbors are in their early 60’s and relatively unsophisticated when it comes to investments. I never asked the size of their savings.

The couple are most concerned with preservation of capital with some income.

The recommendations consisted of 12 funds. Eleven were mutual funds with a concentration in the fixed income area. One was an ETF (VWO from Vanguard). As I researched the funds, I was surprised to find that three of them carried considerable front end loads-as high as 4.75%. The rationale given was that they were buying active management. An in depth look into the 11 mutual funds showed that they carried fees of between 80 and 190 BP annually. 100 BP on a $100,000 investment equates to $1,000 per year. I looked to find similar ETFs with close to the same risk exposure. In every case there was a comparable ETF (though not actively managed) that carried fees in the range of 15 to 60 BP annually. In addition to the fund fees, the RIA is charging 125 Basis Points to manage the account and more if he had discretion to make trades.

I recommended that the couple ask the Rep to try and find ETFs that fit the same criterion as the Mutual funds chosen. 

There are few active managed ETFs currently in the marketplace. PIMCO and Wisdom Tree having several. Charles Schwab recently announced a suite of actively managed ETFs and several more fund managers have plans. 

Key questions to ask your investment advisor:

Have actively managed funds out performed index funds over the short and long term?

Is there an ETF that matches the mutual fund being recommended, that has a dramatically lower fee structure?

What are you getting for a front end load?