Friday, November 30, 2012

Barry's Annual Holiday Book Survey

My friend Barry's Holiday Book Survey is back! The short version of the directions is: CLICK HERE and fill out. And then please tell friends about it as well. 

If you are interested in previous years' results, they are HERE. Here is Barry's slightly longer description:
In the last couple of years I have compiled a yearly list of book recommendations from a group of colleagues, family and friends. This year I have expanded the list of participants and have also automated the process by using a webpage to collect, sort and present the book recommendations. 
To participate in the survey and or register to receive notification when it has been compiled, just click on the link below and you will be taken to the book survey webpage. I have designed the survey to make it both quick and easy to use. If you want to be emailed when the results of this survey are compiled and be notified of future surveys, then you must register (1st or 3rd radio button) on the book survey website. Future mailing lists and notifications will only be generated from those who have registered on the website. 
At the bottom of the book survey webpage is the survey. Please fill in the book’s title, author’s first and last name and the books genre (dropdown menu) in order of importance, #1 being your highest book recommendation and #5 being the lowest.

Neil deGrasse Tyson: Does the Universe Have a Purpose?


Warren Buffett & Carol Loomis on Marketplace

Found via the Corner of Berkshire & Fairfax.


Related book: Tap Dancing to Work

Related previous posts:

Fireside Chat with Jeff Bezos & Werner Vogels

Found via the Corner of Berkshire & Fairfax.



Related previous post: Jeff Bezos on Charlie Rose

Richard Duncan quotes

Longer excerpt from The New Depression (taken from my Kindle highlights, so the excerpts aren’t necessarily the paragraphs I have put them in below, and there may be things in between that I didn’t highlight).
Part of the reason that monetarism failed to produce the anticipated results was due to changes brought about by globalization.
Nevertheless, the monetarists would have met with greater success if they had broadened their definition of money even further. Their mistake was to fail to see that there is no distinction between fiat money and credit. They should have included all dollar-denominated credit instruments in their definition of money. Or, put differently, they should have replaced money with credit in the equation of exchange, because by the 1980s there was less and less difference between the two. Now there is essentially none.
...because of financial innovation, credit has become more like money. Most credit instruments have long met the three criteria that define money. They can serve as a medium of exchange, they are a store of value, and they are a unit of account. In the past, however, they were not liquid. Now they are. The repo market makes them liquid. The repurchase market allows the owner of any credit instrument to obtain cash immediately by agreeing to repurchase that asset at a specified date in the future. Treasury bonds, municipal bonds, corporate bonds, GSE debt, and asset-backed securities are all now completely liquid. In other words, the entire $52 trillion in credit market debt outstanding is liquid and, therefore, money-like.
So, with money having become more like credit and credit having become more like money, there is little point in making any distinction between the two. Moreover, in recent decades, the quantity of credit has become so great relative to the quantity of money that it has made money irrelevant. 
The principal reason that monetarism became incapable of achieving the results expected of it was that money became indistinguishable from credit. After 1968, the thing that had been money, gold, made up a smaller and smaller fraction of the money supply, so small that it became completely irrelevant to the overall economy. It is the credit supply, not the money supply, that counts now. Therefore, the quantity theory of money must be revised to incorporate that change.

Wednesday, November 28, 2012

Bruce Berkowitz at the University Of Miami

Found via GuruFocus.


William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour

Found via ValueWalk.


Nassim Taleb on CNBC



Related book: Antifragile: Things That Gain from Disorder

Three Steps to Becoming the Master of Your (Office) Domain – By Robert Greene


Related book: Mastery

Broyhill Asset Management: Solid as an OAK

Great presentation on the investment merits of Oaktree (OAK).

Link to: Solid as an OAK


Related link: Broyhill Q3 Update


UPDATE 1/2/2013: A Conversation About Oaktree

Warren Buffett & Carol Loomis on The Daily Show

Link to:


Related book: Tap Dancing to Work

Warren Buffett and Carol Loomis on CNBC

Link to Part 1

Link to Part 2

Tuesday, November 27, 2012

Nassim Taleb: my rules for life


Carol Loomis and Warren Buffett on Charlie Rose


Related book: Tap Dancing to Work

60 Minutes: Discovering the secrets of lions

Dereck and Beverly Joubert have been filming Africa's lions for 30 years and their discoveries have challenged conventional wisdom. Lara Logan reports.


John Mauldin: Capital Formation and the Fiscal Cliff

Warren Buffett speaks with Matt Lauer

Mr. Buffett and Ms. Loomis were also on Charlie Rose last night. I'll post a link to that when it is available.



Related book: Tap Dancing to Work

Monday, November 26, 2012

Richard Duncan quotes

“There is one other aspect of the quantity theory of money that is important to understand. This theory is concerned with the impact that a change in the quantity of money (M) has on the price level (P ). It does not preclude the possibility, however, that other factors in addition to the quantity of money can also affect prices.

It will be essential to keep this in mind when considering the implications of the quantity theory of credit because there has been one development other than the extraordinary proliferation of credit that has had a truly extraordinary impact on prices during recent decades, globalization.

Globalization has resulted in a 95 percent decline in the marginal cost of labor in a relatively short span of time.

…had the price of labor not collapsed, the world would have been beset by hyperinflation long ago.

As the 1980s progressed, however, monetarism lost credibility as it become clear that monetary targeting did not always deliver the expected results. The price level did not change in exact accordance with the quantity of money as the theory held it must. In particular, the velocity of money (V) proved to be erratic and unpredictable.”

–Richard Duncan, The New Depression

George Soros: Why I Agree With (Some of) Friedrich Hayek

Found via The Big Picture.

Notes from the Sohn London Investment Conference 2012

Via Market Folly:

Fault Lines : Fracking in America



Related previous post: The Facts Behind the Frack

Nate Silver: it's the numbers, stupid


Related paper (Taleb: “why political predictions work, not economic ones”): “Prediction Markets” & Game Setups Have Nothing to Do With Real Risks

Leo Babauta talks with Tim Ferriss: How to Learn Anything



Vanguard: Forecasting stock returns: What signals matter, and what do they say now?

Found via The Idea Farm.

Hussman Weekly Market Comment: Overlooking Overvaluation

Presently, on the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That’s about the same point they reached at the beginning of the 1965-1982 secular bear period, as well as the 1987 peak. Stocks are far less overvalued than they were in the late-1990’s, but it is worth noting that nearly 14 years of poor market returns have resulted simply from the retreat from those bubble valuations to the current rich valuations. If presently rich valuations were to retreat again to undervalued levels that have accompanied the start of secular bull markets (see 1982 for example), stocks would produce yet another extended period of dismal returns. That prospect certainly isn’t the reason for our present defensiveness, but it’s worth understanding the dynamic that has produced the pattern of market returns we’ve observed over time.

Nassim Taleb: From fat tails to Fat Tony

Warren Buffett Op-Ed: A Minimum Tax for the Wealthy

Saturday, November 24, 2012

Following the Path to Mastery with Robert Greene

Greene comes on around 13:51.



Related book: Mastery

Related link (6-part article from Robert Greene on Tim Ferriss' site): The Magic of Apprenticeship — A How-To Guide

Excerpts from the article:

From Part III:
What prevents people from not the subject itself—the human mind has limitless capabilities—but rather certain learning disabilities that tend to fester and grow in our minds as we get older. These include a sense of smugness and superiority whenever we encounter something alien to our ways, as well as rigid ideas about what is real or true, often indoctrinated in us by schooling or family. If we feel like we know something, our minds close off to other possibilities. We see reflections of the truth we have already assumed. Such feelings of superiority are often unconscious and stem from a fear of what is different or unknown. We are rarely aware of this, and often imagine ourselves to be paragons of impartiality.

Children are generally free of these handicaps. They are dependent upon adults for their survival and naturally feel inferior. This sense of inferiority gives them a hunger to learn. Through learning, they can bridge the gap and not feel so helpless. Their minds are completely open; they pay greater attention. This is why children can learn so quickly and so deeply. Unlike other animals, we humans retain what is known as neoteny—mental and physical traits of immaturity—well into our adult years. We have the remarkable capability of returning to a childlike spirit, especially in moments in which we must learn something. Well into our fifties and beyond, we can return to that sense of wonder and curiosity, reviving our youth and apprenticeships.

Understand: when you enter a new environment, your task is to learn and absorb as much as possible. For that purpose you must try to revert to a childlike feeling of inferiority—the feeling that others know much more than you and that you are dependent upon them to learn and safely navigate your apprenticeship. You drop all of your preconceptions about an environment or field, any lingering feelings of smugness. You have no fears. You interact with people and participate in the culture as deeply as possible. You are full of curiosity. Assuming this sensation of inferiority, your mind will open up and you will have a hunger to learn. This position is of course only temporary. You are reverting to a feeling of dependence, so that within five to ten years you can learn enough to finally declare your independence and enter full adulthood.

From Part IV:
By nature, we humans shrink from anything that seems possibly painful or overtly difficult. We bring this natural tendency to our practice of any skill. Once we grow adept at some aspect of this skill, generally one that comes more easily to us, we prefer to practice this element over and over. Our skill becomes lopsided as we avoid our weaknesses. Knowing that in our practice we can let down our guard, since we are not being watched or under pressure to perform, we bring to this a kind of dispersed attention. We tend to also be quite conventional in our practice routines. We generally follow what others have done, performing the accepted exercises for these skills.

This is the path of amateurs. To attain mastery, you must adopt what we shall call Resistance Practice. The principle is simple—you go in the opposite direction of all of your natural tendencies when it comes to practice. First, you resist the temptation to be nice to yourself. You become your own worst critic; you see your work as if through the eyes of others. You recognize your weaknesses, precisely the elements you are not good at. Those are the aspects you give precedence to in your practice. You find a kind of perverse pleasure in moving past the pain this might bring. Second, you resist the lure of easing up on your focus. You train yourself to concentrate in practice with double the intensity, as if it were the real thing times two. In devising your own routines, you become as creative as possible. You invent exercises that work upon your weaknesses. You give yourself arbitrary deadlines to meet certain standards, constantly pushing yourself past perceived limits. In this way you develop your own standards for excellence, generally higher than those of others.

In the end, your five hours of intense, focused work are the equivalent of ten for most people. Soon enough you will see the results of such practice, and others will marvel at the apparent ease in which you accomplish your deeds.

From Part V:
When a machine malfunctions you do not take it personally or grow despondent. It is in fact a blessing in disguise. Such malfunctions generally show you inherent flaws and means of improvement. You simply keep tinkering until you get it right. The same should apply to an entrepreneurial venture. Mistakes and failures are precisely your means of education. They tell you about your own inadequacies. It is hard to find out such things from people, as they are often political with their praise and criticisms. Your failures also permit you to see the flaws of your ideas, which are only revealed in the execution of them. You learn what your audience really wants, the discrepancy between your ideas and how they affect the public. Pay close attention to the structure of your group—how your team is organized, the degree of independence you have from the source of capital. These are design elements as well, and such management issues are often hidden sources of problems.

Think of it this way: There are two kinds of failure. The first comes from never trying out your ideas because you are afraid, or because you are waiting for the perfect time. This kind of failure you can never learn from, and such timidity will destroy you. The second kind comes from a bold and venturesome spirit. If you fail in this way, the hit that you take to your reputation is greatly outweighed by what you learn. Repeated failure will toughen your spirit and show you with absolute clarity how things must be done. In fact, it is a curse to have everything go right on your first attempt. You will fail to question the element of luck, making you think that you have the golden touch. When you do inevitably fail, it will confuse and demoralize you past the point of learning. In any case, to apprentice as an entrepreneur you must act on your ideas as early as possible, exposing them to the public, a part of you even hoping that you’ll fail. You have everything to gain.

From Part VI:
Each age tends to create a model of apprenticeship that is suited to the system of production that prevails at the time. In the Middle Ages, during the birth of modern capitalism and the need for quality control, the first apprenticeship system appeared, with its rigidly defined terms. With the advent of the Industrial Revolution, this model of apprenticeship became largely outmoded, but the idea behind it lived on in the form of self-apprenticeship—developing yourself from within a particular field, as Darwin did in biology. This suited the growing individualistic spirit of the time. We are now in the computer age, with computers dominating nearly all aspects of commercial life. Although there are many ways in which this could influence the concept of apprenticeship, it is the hacker approach to programming that may offer the most promising model for this new age.

The model goes like this: You want to learn as many skills as possible, following the direction that circumstances lead you to, but only if they are related to your deepest interests. Like a hacker, you value the process of self-discovery and making things that are of the highest quality. You avoid the trap of following one set career path. You are not sure where this will all lead, but you are taking full advantage of the openness of information, all of the knowledge about skills now at our disposal. You see what kind of work suits you and what you want to avoid at all cost. You move by trial and error. This is how you pass your twenties, thirties or forties. You are the programmer of this wide-ranging apprenticeship, within the loose constraints of your personal interests.

You are not wandering about because you are afraid of commitment, but because you are expanding your skill base and your possibilities. At a certain point, when you are ready to settle on something, ideas and opportunities will inevitably present themselves to you. When that happens, all of the skills you have accumulated will prove invaluable. You will be the Master at combining them in ways that are unique and suited to your individuality.

You may settle on this one place or idea for several years, accumulating in the process even more skills, then move in a slightly different direction when the time is appropriate. In this new age, those who follow a rigid, singular path in their youth often find themselves in a career dead end in their forties, or overwhelmed with boredom. The wide-ranging apprenticeship of your twenties, thirties or forties will yield the opposite—expanding possibilities as you get older.

Friday, November 23, 2012

Richard Duncan quotes

Longer excerpt from The New Depression (taken from my Kindle highlights, so the excerpts aren’t necessarily the paragraphs I have put them in below, and there may be things in between that I didn’t highlight).
[Irving] Fisher reasoned that the velocity of money, its rate of turnover, depends on “individual habits” and “technical conditions” and has no discoverable relationship with the quantity of money. “It will depend on density of population, commercial customs, rapidity of transport, and other technical conditions, but not on the quantity of money,” he wrote.
He also explained that the impact of a change in the quantity of money on the volume of trade (T) only lasts during a transition period.
He described the dynamics of the transition period as follows. An initial increase in the quantity of money (M) causes the price of goods sold by the business community to increase more quickly than the rate of interest they are required to pay to finance the production of those goods. That results in higher profits for businessmen. The improvement in profits prompts businesses to borrow and invest more, thus producing a pickup in the volume of trade (T). Sooner or later, however, interest rates begin to increase due to rising inflation. Eventually, interest rates catch up with the increase in prices, thereby causing profit margins to contract again. At that point, the business community realizes it has been too optimistic about profits. Consequently, businesses stop borrowing and investing, so the volume of trade (T) contracts again. 
This is essentially a clear and simple explanation of the business cycle, or the credit cycle, as it is sometimes called. While the transition period lasts, the increase in the volume of trade (T) produces a temporary increase in PT (real GDP), followed by a bust in which both the volume of trade (T) and real GDP contract again. At the end of the process, GDP is only higher in nominal terms because of the increase in the price level (P ). 
Fisher was convinced that the duration of the transition period (or business cycle) would always be short-lived because there would always be a limit as to how much the quantity of money (M) could expand. 
In 1912, the legal requirement for banks to hold liquidity reserves against their deposits and the legal requirement for the Fed to hold gold to back the paper currency it printed both limited the “further expansion of deposit currency” (i.e., money). Both those constraints have long since been removed. 
As discussed in Chapter 1, the banks no longer are required to hold meaningful liquidity reserves and the Fed does not back its Federal Reserve notes with gold. That means the amount of credit that can now be created is practically infinite and that the transition period during which the volume of trade (T) (and GDP) can expand is much longer than when Fisher wrote The Purchasing Power of Money. The implications of this change are enormous.

Bill McBride interview

Dylan Grice leaving SocGen

Thursday, November 22, 2012

Nassim Taleb quote

From The Black Swan:
The scientific association with a big idea, the “brand name,” goes to the one who connects the dots, not the one who makes a casual observation—even Charles Darwin, who uncultured scientists claim “invented” the survival of the fittest, was not the first to mention it. He wrote in the introduction of The Origin of Species that the facts he presented were not necessarily original; it was the consequences that he thought were “interesting” (as he put it with characteristic Victorian modesty). In the end it is those who derive consequences and seize the importance of the ideas, seeing their real value, who win the day. They are the ones who can talk about the subject.

Richard Duncan quote

“In recent decades, the usefulness of the quantity theory of money as a tool for analyzing changes in the economy has broken down because the extraordinary expansion of credit has made money irrelevant in comparison. The money supply is no longer the most important factor affecting economic change. It is the credit supply that matters now. Consequently, the quantity theory of money must be adjusted to reflect that fact.” –Richard Duncan, The New Depression

Wednesday, November 21, 2012

GMO White Paper: Japan: After the Quake, After the Floods

Richard Duncan quote

Kyle Bass made a similar point to the quote below on page 5 of his latest letter

“There is a limit to how much debt an economy can bear. That limit is determined by the economy’s ability to generate sufficient income to service the debt. Exhibit 3.18 helps put the relationship between credit and the economy into perspective. It shows the ratio of economic output (i.e., GDP) to total credit market debt in the United States. That ratio represents the return on credit. The sharp decline in the return on credit indicates that in recent decades, the economy has generated steadily less output per dollar borrowed. In other words, there has been a sharp decline in the marginal efficiency of credit. That decline reflects the extraordinary malinvestment that has occurred during the last three decades in particular. It also raises uncomfortable questions about how much more of the financial sector’s capital will be destroyed during the years ahead.”

–Richard Duncan, The New Depression

Kyle Bass interview with Darden professor Ken Eades

Found via Zero Hedge.



Tuesday, November 20, 2012

James Grant on CNBC


Vikram Mansharamani: Towering Indicators

The video below is a good reminder before reading the article “China Will Build the Tallest Building In the World in Just 90 Days.



Related book: Boombustology

Howard Marks Memo: A Fresh Start (Hopefully)

Michael Mauboussin on Bloomberg (video)

Found via The Big Picture.


Jim Chanos Saw Autonomy's Problems...


Meg Whitman was also on CNBC discussing the HP-Autonomy deal. Video: HP's Whitman on Autonomy Allegations

Chanos was also on CNBC in July discussing how he thought HPQ was a value trap, HERE.

Jeremy Grantham and Ben Inker's Q3 Letter

Steve Keen on Capital Account


Much ado about liquidity? Lockup expirations and stock prices - By Aswath Damodaran

Jack Schwager on Market Sense and Nonsense

I just got Jack Schwager’s new book, Market Sense and Nonsense: How the Markets Really Work (and How They Don't), in the mail and am looking forward to getting more into it. Unlike most of his previous books, this one isn’t a series of interviews, but rather an overview of the markets and how they work. Joel Greenblatt wrote the foreword.


Monday, November 19, 2012

Carol Loomis' Derivatives Articles from 1994 & 1995

Thanks to Lincoln for passing these along.

Links to articles:


Given the range of complications that derivatives present, outside directors cannot possibly achieve close communion with the contracts their companies hold. Most chief executives won't master the game, either. In the end, the choice of what risks to hedge, what derivatives to employ in doing it, and how to draw the bright line between risk management and speculation will be largely left to financial people down the corridor --some of whom, recent train wrecks notwithstanding, may think of themselves as running a profit center. And on the other end of their phones will be derivatives salespeople trying to sell the latest innovation, which assuredly will not be a plain-vanilla hedge.
It's not a particularly cheerful picture-not for a problem as big as derivatives. So maybe what we need is new thinking, a fresh approach, a suggestion so radical it goes off the page. Here's one: Warren E. Buffett, chairman of Berkshire Hathaway, says he'd deal with derivatives by requiring every CEO to affirm in his annual report that he understands each derivatives contract his company has entered into. Says Buffett: "Put that in, and I suspect you'll fix up just about every problem that exists." In a market that seems to thrive on complexity and obfuscation, such a solution won't happen. It's too simple. But he's right.

What’s on Malcolm Gladwell’s Bookshelf?

Via Farnam Street:

Big Sugar's Sweet Little Lies: How the industry kept scientists from asking: Does sugar kill? – By Gary Taubes and Cristin Kearns Couzens

ON A BRISK SPRING Tuesday in 1976, a pair of executives from the Sugar Association stepped up to the podium of a Chicago ballroom to accept the Oscar of the public relations world, the Silver Anvil award for excellence in "the forging of public opinion." The trade group had recently pulled off one of the greatest turnarounds in PR history. For nearly a decade, the sugar industry had been buffeted by crisis after crisis as the media and the public soured on sugar and scientists began to view it as a likely cause of obesity, diabetes, and heart disease. Industry ads claiming that eating sugar helped you lose weight had been called out by the Federal Trade Commission, and the Food and Drug Administration had launched a review of whether sugar was even safe to eat. Consumption had declined 12 percent in just two years, and producers could see where that trend might lead. As John "JW" Tatem Jr. and Jack O'Connell Jr., the Sugar Association's president and director of public relations, posed that day with their trophies, their smiles only hinted at the coup they'd just pulled off.

How the Chou Income Fund Got Its Mojo

Richard Duncan quotes

“Credit did more to the U.S. economy than make it grow. It also radically changed its composition.

Credit allowed America to buy all the manufactured goods it desired from abroad and credit financed the procurement of services at home. It could be argued that credit creation became the country’s most important industry and debt its principal export.”

–Richard Duncan, The New Depression

Contrary (or Reverse) Brands

Other “reverse brands” mentioned in Moon’s book besides Google include Ikea, JetBlue, and In-N-Out Burger, among others. As she mentions in the book, reverse brands eliminate and elevate.



Jeff Bezos on Charlie Rose


Learning to Love Volatility – By Nassim Taleb


Related book: Antifragile