Photographer: Jennifer S. Altman

Tumblr founder David Karp

If you’ve heard anything about Yahoo chief executive Marissa Mayer’s announcement that Yahoo would spend $1.1 billion to buy Tumblr, it’s that the deal is about making Yahoo “young” and/or “cool” again. The thinking is that Tumblr, “popular with the highly coveted 18-to-24-year-old demographic,” can bring in an audience attractive to advertisers before Yahoo rides off into the sunset in the tracks of the old America Online. Coming just about exactly a year after Facebook’s initial public offering, it’s a sign for many observers that the social media wars are getting even more heated, with “young” and “cool” as the prize. The risk is that Tumblr’s “cool” users will desert Tumblr if Yahoo makes it old and boring.

As a fan and active user of Tumblr, I find myself puzzled here. I’m not sure what “cool” means in much of the writing about Tumblr. Mostly it seems to me that “young” and “cool” are basically marketing-speak, translating to a vague idea that if you get a lot users who are are young and tech-savvy, another popular buzzword, you can advertise a lot to them. As long as they’re not also broke, which the young and cool often are. “Cool” also may be an awkward euphemism for “stuff that seems mysteriously popular” (read: animated GIFs).

I may have left my 20s behind, but I think I can explain what’s cool about Tumblr without resorting to marketing-speak, and it starts with dropping the idea that Tumblr is involved in some kind of race for dominance among social networks. Tumblr has a social element, but at its core it’s a very elegant publishing platform for anything–from text to images to video–that demands stylish presentation without the full complexity of a magazine. That’s why Tumblr has attracted a following among what folks think of a the creative classes, in areas like art and advertising. That in turn has led to a virtuous cycle in which other designers and developers build tools to make publishing on Tumblr slicker and better.

Want some examples? You don’t have to go far. Bloomberg.com’s photo editors started a Tumblr blog to highlight Bloomberg’s best photos; you can see it here. Then there’s my own experience. My wife is an artist and has used sites built with Tumblr to collect her work online, and as a home base for the painting classes she teaches in New York.

The first of those was built using only free tools. For the second, we invested less than $30 in a beautiful template built by a talented developer and customized it for our needs. These were not just the cheapest options for us: they were also sleeker and more professional-looking than more expensive alternatives. Bigger companies have built Tumblr blogs to communicate with customers. I’ve also used Tumblr for what would probably be called “rapid prototyping,” building mockups of what would turn out to be bigger projects — including this blog.

If all this sounds like an advertisement for Tumblr, that’s OK, because it’s a product I like a lot. And would pay for. That’s where my view of Tumblr diverges from that of many folks.

Apple, even in its darkest days, remained “cool” because Apple’s computers were positioned as a company that made great tools for people in the creative professions. That feels like a much more workable path forward for Tumblr than the plan of advertising to the Abercrombie & Fitch kids that many folks envision. The notion that you can aggregate enough young eyeballs to make randomly throwing advertisements at them profitable has been around since the beginning of the internet age, and so far it hasn’t borne much fruit. Yahoo has tried plenty of variations — The New York Times’s Andrew Ross Sorkin points to Geocities, a $3.6 billion acquisition that turned out to be a big zero. My hope as a Tumblr user is that Yahoo has something better in mind.

Right now Tumblr hosts 108.8 million blogs. Undoubtedly a great number of those are brief experiments. Just as many folks join Twitter, post once or twice and realize that they’re more interested in reading than posting, so too with Tumblr. And many users, myself included, have set up more than one Tumblr. That still likely leaves hundreds of thousands of people for whom Tumblr has turned out to be a genuinely useful platform for communication. As one of them, I’d be willing to pay for Tumblr now (no, I’m not volunteering to send Yahoo a donation) and probably willing to pay for more features later.

Yahoo could try to make money from Tumblr by crowding out content with ads purported to appeal to teens and twentysomethings. That’s the MySpace model – not a big hit. Or Mayer can look to active users like me, keep improving Tumblr, and charge money for a killer product. That seems a little cooler.

Photograph by Lucasfilm/20th Century Fox/Ronald Grant/Everett Collection

Is that Han Solo? Or Ben Bernanke at the controls sending the market into hyperdrive?

Bloomberg’s Whitney Kisling earlier this week looked at the U.S. stock market and found a notable milestone: the Standard & Poor’s 500 Index gains over the last 50 months match the gains of the late 1990s. That raises the implicit question: is a crash right around the corner? The likely answer, based on measures of valuation that Kisling looks at, is no. Her story carefully analyzes the differences between the market today and in the 1990s. The increases then were driven by one sector, technology, and weren’t matched by a similar rise in corporate profits.

The rally now is much broader than the 1990s technology boom. You can see that in the chart below. That shows the S&P 500 (the white line) rising neatly in tandem with the Dow Jones Industrial Average (yellow). That’s very different from what you would’ve seen in the 1990s, when Nasdaq technology companies pulled away from the rest of the market.

There is one sector that, tellingly, has outperformed the rest of the market. It’s financials; the S&P 500 Financial Sector is the purple line. Obviously one reason for this is that banking crashed harder in the first place. Another reason, though, is that part of what has fueled the market boom has been monetary stimulus. That has benefited financials most–but it has also propped up the rest of the market. The real test of whether current prices are sustainable will come when that support disappears.

When I originally posted this in the TMN newsletter, I ended here. There is another question, though, that’s worth thinking about: if shared prices aren’t about to fall, how much further does the stimulus-fueled ascent have to go?

One useful way of thinking about that comes in the work of two economists at the New York Fed, Fernando Duarte and Carlo Rosa. Duarte and Rosa look at the current equity premium, the excess returns that stocks offer over bonds. In their post “Are Stocks Cheap?” they find the premium stands at a historic high. So if interest rates on bonds rise to their long term average and share prices stay where they are, then that equity premium will return to the long-term average.

If that’s the case, then as Fed support disappears then the S&P’s climb can taper off gently. Note the “can” there. It’s also possible that the cycle of Fed stimulus and market momentum pushes the market into what Appaloosa Fund Management LP’s David Tepper recently called “hyperdrive.” In that case, all bets are off, and, much like in Star Wars, “hyperdrive” catapultes you to locales that mostly turn out to be dangerous.

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Photographer: ZenShui/Yves Regaldi/Getty Images

Need a reliable store of value in case of economic calamity? Look no further.

On Monday, gold futures fell 9.3 percent, the biggest one-day drop in 33 years. With two-day losses of 13 percent, gold’s steady decline since October 2012 has turned into an almost unprecedented rout.

Is there an explanation for this? You bet. Actually, there’s no shortage of explanations. The Wall Street Journal and Bloomberg Businessweek‘s Peter Coy point to lowered inflation expectations. Commodities brokers see a broad drop in metals driven by a weakening China. Goldman Sachs & Co. analysts, who presciently cut their gold forecasts last week, cite fears that central banks will cut their gold reserves. If you want more, John Cassidy has a list over at the New Yorker.

All of the explanations of why gold has fallen come on the heels of many recent predictions that gold was set for a rebound. Witness, for instance, the way-off-base forecasts from Merrill Lynch’s technical analyst in February. The gyrations of the gold market have proven themselves to be  impervious to analysis. As JPMorgan Chase & Co. economist Joseph Lupton put it to Businessweek, “Gold is an animal unto itself.”

Indeed. When gold is going up, any explanation will do to explain the advance: a world economy in crisis, central banks printing money. And when it goes down, suddenly a slowing economy in China explains the drop.

The deeper issue here is that the most common explanation for gold’s ascent — that it’s a hedge against inflation and monetary debasement — hasn’t held water for a long time. That explanations seems to reflect a belief built up some 30 or 40 years ago. From 1973 to 1980, a period in which inflation was generally over 6 percent in the U.S., gold skyrocketed.

What happened next is worth looking back to. Gold plummeted in 1981, a year in which prices rose 8.9 percent. Notably it fell right through the very sharp recession of late 1981 and early 1982. It offered no particular protection against either rising pricing or economic contraction. Much the same is turning out to be the case now.

As gold has risen through a period of low inflation, the notion that gold is a “hedge against inflation” has been replaced with the more general thesis that “gold is a hedge against economic uncertainty.” The last days have blown that up. Nothing has happened to reduce the world’s economic uncertainty. You might think that the Cypriot crisis would have shaken investors’ confidence in other currencies enough to send gold up. It hasn’t. The New Yorker‘s Cassidy calls the price of gold a “fear index.” That’s true: Gold rises in periods of turmoil. But the link between the price of gold and real economic conditions is weak. Investors who one moment see a world economic panic and rush into gold can as another moment see a gold panic and rush for the exits.

Now, after the collapse of the last few days, there doesn’t seem to be any more  reason to think that gold is a hedge against anything. If your aim is to protect against erratic and unpredictable turns in the world economy, gold seems like the last instrument for doing so. The exception may be if you think that we’re in for a worldwide apocalypse in which nations and currencies disappear. If we are, yes,  gold could well rise in value, though shelf-stable canned meat is likely to rise more.

Above, a chart of the recent performance of canned fruits and vegetables (I couldn’t find canned meat at the Bureau of Labor Statistics) versus the inflation rate. As you can see, in the last years of economic dislocation you would have done fairly well stockpiling canned goods, nicely beating inflation, as well as many other asset classes. Over the long haul, that’s not such a great investment.

Investors in gold seem to fall into two categories. On the one hand are those, like George Soros, who believe that the last few years of gold prices reflect a speculative bubble — which they’ve been happy to ride. On the other end of the spectrum are those, like John Paulson, are those who believe that gold is a reliable store of value in a period of monetary debasement. Notably, Paulson, in the second camp, is still heavily invested in gold as it falls, while Soros seems to have largely gotten out.

Photographer: Susana Gonzalez

The U.S. twenty-dollar bill: A widely accepted tool for everyday transactions.

Last month, I wrote a post titled “Sorry, Bitcoin Isn’t a ‘Currency’” pointing out that whatever the merits of Bitcoin as an investment, its use as an actual currency useful for buying and selling was minimal. I wrote it thinking that I was largely reminding folks of an obvious point. Apparently not. The post elicited more than 200 comments. Maybe there were two or three people who agreed with me in there; I might have missed them.

By and large, the comments insisted that actually there were plenty of people doing real business using Bitcoins. They pointed me toward retailers like Bitcoinstore.com, a retailer of electronics and other goods that did more than $500,000 of business in March. So far this month, Bitcoinstore, according to its website, has sold $142,250 worth of products. Good for them: hats off to anyone willing to experiment with new business models.

What really matters though is that it’s a tiny fraction even of the $42.7 million in Bitcoin trades conducted in just the last 24 hours at the biggest Bitcoin exchange. There are folks who make purchases with Bitcoin (one commenter claims he now buys all his pizza with bitcoin; yes, it can be done, but it’s faster and cheaper to call Domino’s directly). In the main, though, the folks making purchases with Bitcoin seem to be those using it as an investment.

Listen to Tony Gallippi, the chief executive and co-founder of BitPay, a Bitcoin payment processor. Bitpay last month processed $5.2 million worth of Bitcoin purchases. He contacted me, through his PR folks, after my earlier post and kindly volunteered to walk me through the Bitcoin transaction process. Merchants who use Bitpay generally set prices in dollars or euros. Bitpay then converts that to a price in Bitcoins.

One striking part of this process: Gallippi’s company guarantees a dollar or euro to Bitcoin conversion rate … for 15 minutes. Yes, 15 minutes. That’s what pricing is like when you’re talking about a currency that fluctuates in value the way that Bitcoin does. If you want to know what you can buy tomorrow for the Bitcoins you have stored today, forget about it. Your two Bitcoins might be enough to buy a cheap laptop today, and maybe a powerful computer next week … or maybe just a box of cookies.

Gallippi himself came to Bitcoin as an investor. He saw the value of Bitcoins rise when it first made the news and fall back down again. Says Gallippi: “You had guys like Chuck Schumer going on national TV saying, ‘You can buy drugs with this.’ All that did was drive up the price.” Like many Bitcoin investors, Gallippi himself is now spending some of his Bitcoins, which he got at prices were as low as two dollars. Gallippi calls that a “wealth effect,” in which investors who got Bitcoins at five or ten dollars are now toting up some of their gains. Gallippi thinks that “not a single one” of those is ready to sell all his investment.

Source: Mt. Gox.

In 24 hours, the value of a single Bitcoin on the biggest exchange, Mt. Gox, has gone as high as $266 and as low as $105.

And that’s precisely the problem. Gallippi points out a few uses in which Bitcoin fills a void, like secure international transactions from countries like Indonesia from which merchants are unwilling to take credit cards because of fraud. We can grant that. Is that likely the main clientele for Bitcoinstore.com? I seriously doubt it. I think Gallippi had it right with the wealth effect and the investors cashing in a bit of their winnings. Gallippi’s biggest client? An outfit that takes Bitcoins in payment for precious metals.

It makes sense that one of the few ways folks actually spend their Bitcoins is exchanging them for gold, another investment. In the short term the value of Bitcoins isn’t driven in any way by the actual use of Bitcoin in trade. It’s driven by speculators who see it as an investment that’s going to rise in value. The main interest in Bitcoin comes from people holding a lot of them as an investment–which, come to think, might explain why they’re so loud in insisting on Bitcoin’s many uses.

After the last few hours of Bitcoin trading, it’s hard to imagine that anyone can really imagine that the Bitcoin market is driven in any way by long-term demand for an anonymous currency. The last few hours provide an excellent demonstration that what we’re seeing here is entirely a speculative mania. Yesterday, when I started writing this post, the value of a Bitcoin spiked up as high as $266. Then it fell as as low as $105, and as of this writing trades at about $151. Mt. Gox, the biggest Bitcoin exchange couldn’t keep up with the demand–or, worse, with the selling.

If you bought Bitcoins a month ago, you’ve done very well. If you bought in yesterday it hasn’t been a very nice ride. The Mt. Gox press release explains the sudden drop as a combination of panic and technology problems. People, the release says, “started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!” Does that sound like a currency you’re eager to switch to for their everyday business dealings?

Photographer:Alex Cid-Fuentes/Bloomberg News

After all the criticism, Bank of America may have tamed the Merrill Lynch bull after all.

Correction: An earlier version of this post referred to “Merrill’s purchase of Countrywide Financial Corp.” As the last sentence correctly said, it was Bank of America that bought Countrywide, before it bought Merrill Lynch.

Bank of America Corp. reported executive pay last week, and for the third year investment banking head and co-Chief Operating Officer Thomas K. Montag got paid more than his boss, CEO Brian T. Moynihan. Montag’s $14.5 million paycheck can be material for plenty of (justifiable) hand-wringing whether bankers are overpaid. Also worth thinking about, though, is what it says about Bank of America’s 2008 deal to buy Merrill Lynch & Co.

When that deal was announced, the markets hated it, slicing off $32 billion of Bank of America’s market cap, and things got worse from there. After the merger was done, Merrill promptly posted (surprise!) a $15 billion loss … and yet paid out $3.6 billion in bonuses. That’s the backstory. Now, three years later, Montag, who came from the Merrill side — he started there in 2008, after a career at Goldman Sachs & Co.– is the highest paid executive at Bank of America.

And you know what? That deal doesn’t look nearly so bad. Bloomberg’s Hugh Son wrote that Bank of America has “relied on Montag’s investment-banking operations to support the company while Moynihan dealt with struggling consumer units that handle mortgages and credit cards.” Some numbers from Bank of America’s last annual report underline this. For last year, Bank of America’s Global Banking, Global Markets and wealth management units — that is, the parts of the company that came mainly from Merrill Lynch — reported $9 billion in profits. Meanwhile, the rest of the bank reported $5.3 billion in profits from commercial banking, and a $6.5 billion loss from real estate. That last part is largely the unfortunate legacy of Bank of America’s purchase of Countrywide Financial Corp, maybe one of the great acts of corporate self-sabotage of all time.

In this context the Merrill purchase doesn’t seem so bad. When it was announced, the deal was worth roughly one-third of Bank of America’s market cap. Now the Merrill side appears to provide the bulk of its profits. Certainly if Bank of America had waited for a fire sale, it would have gotten Merrill at a better price. But then we’re in the realm of hypotheticals, and who knows whether a deal could have gotten done then at all.

In retrospect it looks like Bank of America did get one of the world’s great banking franchises at an opportune time. That’s a lot better than can be said for the company’s other acquisitions. Bank of America chief Ken Lewis did buy Countrywide, once the country’s largest mortgage originator, in a fire sale — and his successor has been paying for it ever since.

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Photographer: Elin McCoy/Bloomberg

A tasting of wines from Margaux. Unlike some older Bordeaux, these are not too expensive for any sane person to drink.

In the current issue of Bloomberg Pursuits, Bloomberg wine writer Elin McCoy writes about Domaine de la Romanee-Conti, the ne plus ultra of fine Burgundy. The latest release of DRC’s flagship wine, the 2009 vintage, sells for $15,000 a bottle, older bottles for as much as $2,000 an ounce.

Still, as McCoy points out, DRC has been outperforming other wines at auction, largely because of the Burgundy craze among Chinese collectors. All of this raises a question that goes beyond DRC: Do the prices for top wines bespeak a bubble?

Take a look at the chart below, which shows the Liv-ex Fine Wine 100 Index of prices for 100 frequently traded high-end wines back to July, 2000. You’ll see that for five years it stayed flat, rising 265 percent through the middle of 2011 before slipping down. Over the last few months the wine market seems to have resumed its ascent.

Source: Liv-ex data, via Bloomberg terminal

The Liv-ex Fine Wine 100 Index peaked in 2011. There’s still room for it to go down further.

Does that mean that it’s now reached its natural level, or that the bubble is still filled with air? The hard thing about bubbles is that there’s no decisive answer to whether you’re in a bubble until after it’s over. In periods of high prices, there’s generally no shortage of folks ready to say that prices have just reached a permanent new plateau. So it is with wine. The growth of the global ultra-rich is one reason prices could have gone up.

That said, I’m skeptical that the number of folks actually drinking wine at $1,000 a sip has exploded. Yes, there’s a new Chinese market, but it seems to be driven largely by people who are more interested in the investment value of their cellar than the liquid in their glass. McCoy has covered that vividly. At the end of 2011, she wrote about Chinese banks funding wine purchases. Let’s assume that the impulse to open a nice wine with dinner dissipates when you’ve financed your cellar with borrowed money.

Wine prices are now already about 20 percent below their peak. It’s tempting to assume that now that having leveled off they’re set to rise again. Don’t count on it. Rarely is the first sharp descent the true end of a bubble. On this subject, it’s hard to beat the conclusion of McCoy’s 2011 story, so I won’t even try. She wrote then, “My nickname for the Chinese wine investment market? Duchang. It means ‘casino.’” That was right near the very top of the market. There’s still plenty of room to keep falling.

Photographer: Laura Segall/Bloomberg

In Phoenix, competition among investors has driven home prices up 35 percent, but it’s now sending rents downward.

Judging by investment news, there seems to be every sign that the housing market is heating up. Home prices are drifting upwards, cities like Phoenix are saturated with investors, mortgage-backed securities are back. Blackstone Group LP, the country’s biggest real estate investor–which has already invested $3.5 billion to buy 20,000 single-family homes – has obtained a credit line of $2.1 billion to buy even more. Meanwhile KKR & Co. just raised a $500 million fund for real estate investments. There seems to be no shortage of folks willing to provide money to invest in a housing upturn.

Only one thing is missing here: individual home buyers. Bloomberg’s John Gittelsohn and Prashant Gopal yesterday dove deeper into the housing revival, and found a market driven by big investors competing against each other. Some tellings stats: in Miami last year, institutional investors accounted for 30 percent of home purchases; in Phoenix it was 23 percent.

This latest report helps unravel a paradox of the current housing economy: With all the real estate investment action, you’d expect the number of new mortgage loans to be shooting upwards. No such luck. Look at the chart below, which shows new purchase mortgages through the 3rd quarter of 2012, using data from the Mortgage Bankers Association. For that quarter, buyers took out $129 billion in purchase loans. Not only is that much lower than the numbers from the boom, but it’s less the post-crash levels of 2009. You need to go back to the mid-1990s to get back to numbers like those (and they’re not adjusted for inflation).

In an earlier version of this post, for the TMN newsletter, I suggested that Blackstone has made a sophisticated move here, funding a bet on the long-term value of property by renting in the short term to buyers still locked out of the housing market. Gopal and Gittelsohn’s newest reporting, however, raises some questions about this strategy. Other investors are also crowding into rental housing. The consequence is that, as the story explains, rental prices are falling even as sales prices for the kinds of houses Blackstone wants — three bedrooms, built after 1990 — rise.

The bet on rentals does at least give big institutional investors an out if the housing recovery is not sustained. I suspect that’s a possibility many eager individual investors haven’t really considered. Every bust does reach a trough, but not every market climbs back to its boom-time high. Think of Nasdaq after the tech crash.

Right now we’re in the midst of a sharp decline in the home ownership rate. That might mark a temporary blip, or the beginning of a long period in which it is harder to secure a mortgage. If it’s the second, then players like Blackrock that are focused on properties they can rent at least have a backstop, while smaller investors counting on selling their properties in a big new housing boom will get burned.

The National Council Chamber in the Federal Palace, Bern. Swiss legislators now must work out how to implement the ‘rip-off’ resolution.

In his new book Thinking, Fast and Slow, the Nobel-winning psychologist Daniel Kahneman, demonstrates how when people are confronted with difficult questions, they tend to get around them by answering easier ones. You can’t find a better example than the just-passed Swiss referendum on abusive pay.

The ‘rip-off’ initiative–yes, that’s the official name of the voter proposal–garnered an overwhelming 68 percent support among Swiss voters. Driven by a series of corporate scandals and outsized pay packages, the Swiss approved a requirement for shareholder votes on pay and bans signing bonuses and golden parachutes. The news that pushed the proposal over the top, according to most accounts, was Novartis AG agreeing to pay outgoing chief Daniel Vasella $78 million in a non-compete agreement.

So what did the vote actually accomplish? That’s where the hard question/easy question part comes in.

The complicated question underlying the executive pay debate is “What do 21st century economies do about the startling growth of inequality?” Think about that one for a couple of seconds. Have an answer in mind? No? Well, that’s why it’s a complicated question.

The easier question here: “Do you think a chief executive should be paid $78 million to get lost, or just to show up?” That’s the one that Swiss voters answered. The outcry over Vasella’s exit package had already killed the Novartis deal. The voter initiative codifies the public’s anger at this deal and kills similar ones in the future.

Does this do anything to deal with the complicated question? Not really. What the Swiss vote amounts to is a shareholder protection measure. Except that it’s a shareholder protection measure that (as Dealbreaker’s Matt Levine has also pointed out) most shareholders weren’t asking for. Overall it might mean that top executives get fewer outsized payouts. It could also mean that mediocre and entrenched executives stay on longer. There are sometimes good reasons to pay signing bonuses, though probably fewer good reasons for golden parachutes.

In the debate over the Minder initiative, Swiss Justice minister Simonetta Sommaruga said that giant pay packages do “enormous damage to social cohesion in our country.” That the growth of inequality damages social cohesion is almost inarguable: the greater the differences in income, the greater the gap in outlook.

The real gap in income to worry about, though, isn’t between ultra-rich chief executives and the merely rich tier below them. It’s between the wealthy and everybody else. To be clear: that doesn’t mean that a sweetheart $78 million golden parachute payment is defensible. It means that getting rid of such payments for corporate officers doesn’t address the social cohesion problem.

Like many other efforts to rein in bonuses and executive pay, the Swiss initiative, if it succeeds at all, will succeed in shifting some money from executives to shareholders. There’s just no reason to think that this will shift any more money into the hands of those shouldering the biggest burders of inequality — ordinary workers.

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Photographer: Dmitry Beliakov/Bloomberg News.

Chief executives tend be optimistic about high they can lift their companies.

The value of a company, in theory, is the sum of the income it can be expected to deliver to shareholders in the future. Except for one thing: some of the most valuable and successful companies don’t really deliver much income at all.

Apple Inc. and Berkshire Hathaway Inc. are the two most prominent cases in point. Apple’s shareholder meeting Wednesday ended with no commitment to give some of the company’s $137 billion cash pile back to investors. Meanwhile, as Bloomberg’s Noah Buhayar reported yesterday, Warren Buffett, nearing retirement, now confronts speculation about how much longer Berkshire will continue its no-dividend policy. Google’s $49.6 billion cash holdings, it’s worth noting, are also nothing to sneeze at.

Investors can get back cash through dividends or share buybacks. Apple, which stopped paying a dividend in 1995, brought it back last year. Both Apple and Berkshire bought back shares last year last year, but they are still building up cash a lot faster than they are handing it back to investors.

The resistance to buybacks and dividends makes sense. Buhar notes that Buffett back in 1985 wrote that dividends only make sense when management can’t generate adequate returns by keeping money in the business. That sounds reasonable: why take back money from a manager who will make it multiply faster?

If only managers weren’t somewhat biased on this front. Many believe that they are the best stewards of investors’ money. Not all of them are. Over the long run, even insanely great companies slow down — and the long term aging process isn’t always pretty. Investors trusted Buffett to make better use of their money than anyone else. It’s not clear that they will have the same a priori faith in his successors. Giving back money to shareholders could be the sign of a manager who does not believe in his own abilities — or of one who is wary of believing in them too fervidly.

The run for other private equity firms has been similar. Blackstone Group LP is up 40 percent in the same period, and Apollo Global Management LLC is up 40 percent. One factor in their stock market success: private equity companies have indirectly given equity investors exposure to the frothy corporate debt market. Carlyle’s biggest category of assets is its $12-billion loan portfolio. The question here for investors is whether Carlyle will continue to be as good an investment as the markets for bonds and CLOs cools down.

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