GuruFocus: Berkshire Hathaway Pulls Out Of Municipal Bond Insurance

The municipal bond insurer that Berkshire Hathaway formed in 2007 has largely pulled out of insuring new bonds issued by cities and states, Barron's reports in this week's edition.

Berkshire Hathaway Assurance Co. was formed during the struggles of MBIA and Ambac to insure the bonds of municipalities and states. At the time it was seen as a brilliant way for Berkshire to take advantage of its stellar credit rating to grab a large share of a relatively safe business.

But as Barron's points out, "cash-strapped cities and states have been forcing premiums down." Warren Buffett never takes on a risk that he doesn't get well compensated for, and he's apparently decided that municipal bond insurance isn't a good bet at these premium levels.

That Which Does Not Kill Me Makes Me Stranger - By Daniel Coyle

A big thanks to Miguel at Simoleon Sense for passing this along.

Questions about the muscle-centered model came up again in 1989 when Canadian researchers published the results of an experiment called Operation Everest II, in which athletes did heavy exercise in altitude chambers. The athletes reached exhaustion despite the fact that their lactic-acid concentrations remained comfortably low. Fatigue, it seemed, might be caused by something else.

In 1999, three physiologists from the University of Cape Town Medical School in South Africa took the next step. They worked a group of cyclists to exhaustion during a 62-mile laboratory ride and measured, via electrodes, the percentage of leg muscles they were using at the fatigue limit. If standard theories were true, they reasoned, the body should recruit more muscle fibers as it approached exhaustion — a natural compensation for tired, weakening muscles.

Instead, the researchers observed the opposite result. As the riders approached complete fatigue, the percentage of active muscle fibers decreased, until they were using only about 30 percent. Even as the athletes felt they were giving their all, the reality was that more of their muscles were at rest. Was the brain purposely holding back the body?

‘‘It was as if the brain was playing a trick on the body, to save it,’’ says Timothy Noakes, head of the Cape Town group. ‘‘Which makes a lot of sense, if you think about it. In fatigue, it only feels like we’re going to die. The actual physiological risks that fatigue represents are essentially trivial.’’

From this, Noakes and his colleagues concluded that A.V. Hill had been right about the automatic brake, but wrong about its location. They postulated the existence of what they called a central governor: a neural system that monitors carbohydrate stores, the levels of glucose and oxygen in the blood, the rates of heat gain and loss, and work rates. The governor’s job is to hold our bodies safely back from the brink of collapse by creating painful sensations that we interpret as unendurable muscle fatigue.

Fatigue, the researchers argue, is less an objective event than a subjective emotion — the brain’s clever, self-interested attempt to scare you into stopping. The way past fatigue, then, is to return the favor: to fool the brain by lying to it, distracting it or even provoking it. (That said, mental gamesmanship can never overcome a basic lack of fitness. As Noakes says, the body always holds veto power.)

‘‘Athletes and coaches already do a lot of this instinctively,’’ Noakes says. ‘‘What is a coach, after all, but a technique for overcoming the governor?’’

The governor theory is far from conclusive, but some scientists are focusing on a walnut-size area in the front portion of the brain called the anterior cingulate cortex. This has been linked to a host of core functions, including handling pain, creating emotion and playing a key role in what’s known loosely as willpower. Sir Francis Crick, the co-discoverer of DNA, thought the anterior cingulate cortex to be the seat of the soul. In the sports world, perhaps no soul relies on it more than Jure Robic’s.

Some people ‘‘have the ability to reprocess the pain signal,’’ says Daniel Galper, a senior researcher in the psychiatry department at the University of Texas Southwestern Medical Center at Dallas. ‘‘It’s not that they don’t feel the pain; they just shift their brain dynamics and alter their perception of reality so the pain matters less. It’s basically a purposeful hallucination.’’

Noakes and his colleagues speculate that the central governor theory holds the potential to explain not just feats of stamina but also their opposite: chronic fatigue syndrome (a malfunctioning, overactive governor, in this view). Moreover, the governor theory makes evolutionary sense. Animals whose brains safeguarded an emergency stash of physical reserves might well have survived at a higher rate than animals that could drain their fuel tanks at will.

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Related books:

The Talent Code

Outliers

Talent Is Overrated

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Paul Volcker on Charlie Rose

Video:

Part I

Part II

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WSJ Q&A: Shiller Sees 5 Years of Stagnant Home Prices

Is the slump in U.S. home prices bottoming out?

Shiller: The situation has definitely changed. With our numbers — the S&P/Case Shiller home price index — going up sharply. It looks like a major turnaround. We’ve been watching that for three months now, and we have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real. But it probably isn’t the beginning of a major boom, just because the economy is in such bad shape. There’s also a chance that it will reverse. It’s still only three months old, so it’s very hard to be sure at this point. The most likely scenario is that it won’t continue at this high rate of increase, but that it will neither go down a lot, nor up a lot.

So the index will move sideways for a while?

Shiller: Yes, for a while, meaning five years.

Scientists: 'Ardi' Fossil Sheds Light on Origin of Human Species

Ardi lived 4.4 million years ago in the woodlands of East Africa. She spent most of her time in the trees. She stood about four feet tall, weighed 110 pounds, and had long arms, short legs, and a grasping big toe that was perfect for clambering branch to branch. She ate in the trees, raised her offspring in the trees, slept in the trees.

But sometimes she came down to the ground, and stood upright. She could walk on two legs. She was, in a sense, taking baby steps on a journey that would change the world.

"Ardi" is the nickname given to a remarkable, shattered skeleton that an international team of scientists believes is a major breakthrough in the study of human origins. The skeletal remains were painstakingly recovered from the Ethiopian desert along with bones from at least 35 other members of a species scientists call Ardipithecus ramidus. The 15-year investigation of Ardipithecus culminated Thursday in the publication of a raft of papers in the online edition of the journal Science, as well as dual press conferences in Washington and Addis Ababa, Ethiopia.

Dr. Atul Gawande - 2009 Commencement Speeches

Dr. Atul Gawande gave two commencement speeches in June. The first I found via the Farnam Street blog. (Below are some of excerpts. Click on the paragraphs for the entire speeches.)

June 4, 2009 Speech at the HSPH Commencement 2009

We have arrived, I think, at a difficult point in human history. For millennia, before this moment in time, we had little knowledge of what to do to improve and sustain the health of human beings. We lived in ignorance. The average longevity of a person was under 40 years. The body, and how it failed, was largely a mystery.

The 20th century, however, brought an age of remarkable discovery. In the last century, scientists have come to recognize more than 60,000 different diseases and disorders that can afflict the human body — 60,000 different ways the human body can fail. And they have discovered methods of prevention and treatment for nearly all of them — if not to cure them, then at least to alleviate their worst harm and misery.

That knowledge has ranged from how to construct sewage systems well, to how to provide intensive care technologies. And that knowledge is continuing to grow. But having discovered so much, we have hit, in this new century, a new problem — how to actually deliver on all that has been learned.

When Alexander Fleming discovered penicillin in 1928, it was, I think, a kind of fake-out for the future of medicine and for public health. Fleming gave us a simple injection that could cure numerous infectious conditions, and it led us to believe that managing disease would be easy and cheap.

But 80 years later, we found that the truth is far from this.

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June 12, 2009 Speech at the University of Chicago Medical School

Nothing in medicine is without risks, it turns out. Complications can arise from hospital stays, drugs, procedures, and tests, and when they are of marginal value, the harm can outweigh the benefit. To make matters worse, high-cost communities appear to do the low-cost, low-profit stuff—like providing preventive-care measures, hospice for the dying, and ready access to a primary-care doctor—less consistently for their patients. The patients get more stuff, but not necessarily more of what they need.

Fixing this problem can feel dishearteningly complex. Across the country, we have to change skewed incentives that reward quantity over quality, and that reward narrowly specialized individuals, instead of teams that make sure nothing falls between the cracks for patients and resources are not misused. President Obama, I’m pleased to say, committed to making this possible in his reform plan to provide coverage for everyone. But how do we do it?

Well, let us think about this problem the way Jerry Sternin thought about that starving village in Vietnam. Let us look for the positive deviants.

This is an approach we’re actually familiar with in medicine. In surgery, for instance, I know that I have more I can learn in mastering the operations I do. So what does a surgeon like me do? We look to those who are unusually successful—the positive deviants. We watch them operate and learn their tricks, the moves they make that we can take home.

Likewise, when it comes to medical costs and quality, we should look to our positive deviants. They are the low-cost, high-quality institutions like the Mayo Clinic; the Geisinger Health System in rural Pennsylvania; Intermountain Health Care in Salt Lake City. They are in low-cost, high-quality cities like Seattle, Washington; Durham, North Carolina; and Grand Junction, Colorado. Indeed, you can find positive deviants in pockets of most medical communities that are right now delivering higher value health care than everyone else.

We know too little about these positive deviants. We need an entire nationwide project to understand how they do what they do—how they make it possible to withstand incentives to either overtreat or undertreat—and spread those lessons elsewhere.

I have visited some of these places and met some of these doctors. And one of their lessons is that, although the solutions to our health-cost problems are hard, there are solutions. They lie in producing creative ways to insure we serve our patients more than our revenues. And it seems that we in medicine are the ones who have to make this happen.

Here are some specifics I have observed. First, the positive deviants have found ways to resist the tendency built into every financial incentive in our system to see patients as a revenue stream. These are not the doctors who instruct their secretary to have patients calling with follow-up questions schedule an office visit because insurers don’t pay for phone calls. These are not the doctors who direct patients to their side-business doing Botox injections for cash or to the imaging center that they own. They do not focus, the way business people do, on maximizing their high-margin work and minimizing their low-margin work.

Yet the positive deviants do not seem to ignore the money, either. Many physicians do, and I think I am one of them. We try to remain oblivious to the thousands of dollars flowing through our prescription pens. There’s nothing especially awful about that. We keep up with the latest technologies and medications in our specialty. We see our patients. We make our recommendations. We send out our bills. And, as long as the numbers come out all right at the end of each month, we put the money out of our minds. But we do not work to insure we and our local medical community are not overtreating or undertreating. We may be fine doctors. But we are not the positive deviants. `

Instead, the positive deviants are the ones who pursue this work. And they seem to do so in small ways and large. They join with their colleagues to install electronic health records, and look for ways to provide easier phone and e-mail access, or offer expanded hours. They hire an extra nurse to monitor diabetic patients more closely, and to make sure that patients don’t miss their mammograms and pap smears or their cancer follow-up. They think about how to create the local structures and incentives to make better, safer, more appropriate care possible.

I recently heard from one such positive deviant. He is a physician here in Chicago. He’d invested in an imaging center with his colleagues. But they found they were losing money. They had a meeting about what to do just a few weeks ago. The answer, they realized, was to order more imaging for their patients—to push the indications where they could. When he realized what he was being drawn to do by the structure he was in, he pulled out. He lost money. He angered his partners. But it was the right thing to do.

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Related previous posts:

THE CHECKLIST - by Atul Gawande

A Lifesaving Checklist - By Atul Gawande

Related books:

Better: A Surgeon's Notes on Performance

Complications: A Surgeon's Notes on an Imperfect Science

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Related story from a Pabrai Meeting attendee (told via the Corner of Berkshire & Fairfax):

During dinner, Mohnish told the story of when he told Charlie Munger about Atul Gawande (the brilliant surgeon who wrote two excellent books and the essay "The Checklist"). Mohnish asked Gawande whether Munger had contacted him:

Gawande: "He did. He said he really liked my books and what I was doing. Interestingly, a couple weeks after I talked to him I got, in the mail, a handwritten envelope from him. I opened it up and inside was a check addressed to me for $20,000. I called him up and said 'Mr. Munger, I got your envelope. Thank you for the check, but I can't accept this.'"

Munger: "No, no, use it for something good."

Gawande: "Sir, I'm a surgeon. I'm seeing patients all the time. I can't really just spend $20000 to do 'something good.'"

Munger: "No, no, you're smart. You'll figure something out."

Gawande: "Okay, if you really want me to do something with it, I can give it to the Harvard School of Public Health."

Munger: "You fool! If I wanted to give it to the damn Harvard School of Public Health, I would've written a damn check to the Harvard School of Public Health."

Gawande then decided to send it back. A week later, he opens his mail to find another envelope from Munger.

Inside were two checks for $20000. One to Gawande, and one to the Harvard School of Public Health.

Return of the old ways of thinking threatens recovery - By Mohamed El-Erian

Today’s lack of appropriate anchoring frameworks appears to be exacerbating short-termism. The issue goes well beyond the still-limited appreciation of the multi-year realignment of the global economy, which is gaining momentum. It also relates to tendencies well-documented by behavioural economists – such as framing the problem wrongly and refusing to question past approaches.

Given all this, we would be all well advised to follow the admonition of Mervyn King. Last month, the governor of the Bank of England stated bluntly: “It’s the level, stupid – it’s not the growth rates, it’s the levels that matter here.” Investors have not yet accepted his insight that the absolute levels of income, debt, wealth and unemployment, not just the rates of change, are what matters today. They need to, and soon.

Simoleon Sense: Miguel Barbosa's Interview with Michael Mauboussin

My friend Miguel did a great interview with Michael Mauboussin.

Link: Miguel Barbosa's Interview with Michael Mauboussin

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Hussman Weekly Market Comment: We're Speaking Japanese Without Knowing It

If one seeks analysis about the recent financial crisis, and what most probably lies ahead, it would be wise to place particular weight on the views of economists who saw it coming (and ideally those who provided careful analysis rather than hyperbole). I've cited a paper by Reinhart and Rogoff above, which was published by the National Bureau of Economic Research in January of 2008. At a speech at the Princeton Club last week, economist Carmen Reinhart reiterated that by propping up unhealthy banks, the U.S. is unwittingly committing the same mistakes as the Japanese did in their decade-long stagnation, saying, “These are not zombie loans. They're just non-performing. We're speaking Japanese without knowing it.”

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With the financial markets cheerily celebrating the end of the recession, credit spreads back to 2007 levels, and analysts referring to the mortgage crisis as largely a thing of the past, it is natural to ask why I would start pounding the tables again about debt restructuring. Old news. Problem solved. Why even bring it up?

The simple answer is that we have not solved the mortgage mess. We have temporarily buried it under a pile of public money, bailing out bank bondholders at public expense. As I've noted before, the best time to panic, in the financial markets, is before everyone else does. Similarly, the best time to consider responses to credit strains is before they surface. My sincere hope is that if, and I believe when, financial trouble resurfaces, we will be wise enough as a nation to prevent policy makers like Geithner and Bernanke from making the same bailout mistakes twice, protecting irresponsible lenders, and further burdening the nation with debt in the process.

David Winters and Whitney Tilson on WealthTrack

David Winters and Whitney Tilson on WealthTrack: Link to VIDEO

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