Monday, January 19, 2015


Nassim Taleb on EconTalk (LINK)
Nassim Nicholas Taleb, author of Antifragile, Black Swan, and Fooled by Randomness, talks with EconTalk host Russ Roberts about a recent co-authored paper on the risks of genetically modified organisms (GMOs) and the use of the Precautionary Principle. Taleb contrasts harm with ruin and explains how the differences imply different rules of behavior when dealing with the risk of each. Taleb argues that when considering the riskiness of GMOs, the right understanding of statistics is more valuable than expertise in biology or genetics. The central issue that pervades the conversation is how to cope with a small non-negligible risk of catastrophe.
Pat Dorsey talks to Google about his book The Little Book That Builds Wealth (video) [H/T ValueWalk] (LINK)

Horizon Kinetics - 4th Quarter Market Commentary (LINK) [Their individual strategy letters also have their investment theses on several companies, HERE.]

Paul Graham: What Doesn't Seem Like Work? (LINK)
Few people know so early or so certainly what they want to work on. But talking to my father reminded me of a heuristic the rest of us can use. If something that seems like work to other people doesn't seem like work to you, that's something you're well suited for. For example, a lot of programmers I know, including me, actually like debugging. It's not something people tend to volunteer; one likes it the way one likes popping zits. But you may have to like debugging to like programming, considering the degree to which programming consists of it. 
The stranger your tastes seem to other people, the stronger evidence they probably are of what you should do.
Barry Ritholtz talks to Bill Gross (Part 1) (LINK)

MLPs: Looking for Value in Oil’s Bargain Bin (LINK)

Behind the 8% plunge in China's stock market (LINK)

Grant's made it's call on the Swiss franc from September free for all to view (LINK)

No One Was Supposed to Lose This Much Money on Swiss Francs (LINK)

Swiss Franc Wiped Out Everest’s Main Fund (LINK)

Hussman Weekly Market Comment: QE and the ECB: "Authorize" is a Slippery Word (LINK)
Last week, the Swiss National Bank abandoned its attempt to tie the Swiss franc to the euro. For the past three years, the SNB has been trying to keep the franc from appreciating relative to the rest of Europe by accumulating euros and issuing francs. As the size of Switzerland’s foreign exchange holdings began to spiral out of control, Switzerland finally pulled the plug. The Swiss franc immediately soared by 49% (from 0.83 euros/franc to 1.24 euros/franc), but later stabilized to about 1 euro/franc. While numerous motives have been attributed to the Swiss National Bank, the SNB made its reasons clear: "The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified." In effect, the SNB simply did what the German Bundesbank wishes it could do: abandon the policies of European Central Bank president Mario Draghi, and the euro printing inclinations he embraces. 
A quick update on what we call our "joint parity" estimates of currency valuation (see our recent discussion of the Japanese Yen in Iceberg at the Starboard Bow). Considering long-term purchasing power parity (which certainly does not hold in the short-run) jointly with interest rate parity (see Valuing Foreign Currencies), we presently estimate reasonable valuations of about $1.35 for the euro, and about $1.13 for the Swiss Franc - so after the wild currency moves of last week, we suddenly view the Swissie to be almost precisely where we think it shouldbe relative to the dollar. At least one hedge fund and a number of FX brokerages were wiped out last week as their customers were caught with leveraged short positions against the franc. Data from the CME shows asset managers and leveraged money heavily short the euro (with commercial dealers on the other side), and by our estimates, the decline in the euro is overextended. That's a high-risk combination for euro shorts. 
This week, the European Central Bank will authorize a fresh program of quantitative easing in Europe. My impression is that the structure of this venture will be far different from what seems to be commonly envisioned (and priced into an exchange rate that is has already overshot to the downside). The political realities for Germany have led it to shift its focus from opposing QE outright to changing the structure under which QE will proceed. It’s that potential impact on the structure of QE that seems underappreciated. Germany has two primary interests here. One is to ensure that any losses are borne by the individual member states, and the second is that as few euros as possible are created with the backing of questionable sovereign debt. Put simply, Germany’s agreement to allow QE to proceed is likely attached to particular strings that limit its exposure to the sovereign debt of its less credit-worthy neighbors.