Greece: No second bailout, no euro

ATHENS, Greece (AP) -- Greece's government warned Tuesday that the debt-crippled country will have to ditch the euro if it fails to finalize the details of its second, euro130 billion ($169 billion) international bailout and that more austerity measures may need to be implemented.

A key component of the package, which was agreed last October, is that Greece has to persuade its private creditors like banks and investment firms to take a steep hit on the value of their holdings of Greek debt. Greece has the highest debt burden relative to the size of its economy in the whole of the 17-nation eurozone and the writedown will help get it down to more manageable, though still high, levels.

Spokesman Pantelis Kapsis said that negotiations in the next three or four months with international debt monitors will "determine everything," including whether Greece escapes a disastrous bankruptcy.

Greece is being kept afloat by a first, euro110 billion ($142 billion) international bailout agreed in May 2010, after investors shocked by the country's huge budget deficit and debt mountain demanded sky-high interest rates to continue buying Greek bonds.

An additional rescue package was agreed in October, after it became clear that the first batch of funds would not suffice, but that deal has yet to be finalized.

Sorting out the details of the bailout is the main task of the coalition government headed by former central banker Lucas Papademos, whose short mandate is expected to expire in early April.

"This famous loan agreement must be signed, otherwise we are outside the markets, out of the euro and things will become much worse," Kapsis told private Skai TV.

Europe at the Brink - A WSJ Documentary

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Killer Whale vs Great White Shark

Found via The Big Picture.

In 1997, just off the Farallon Islands, a group of whale watchers watch an Orca prey upon a great white shark.

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Gundy learns to trust his instincts

Found via @tferriss.

"There's so much growing that goes on that can only happen during experience," Gundy said. "... [There's] the evolution but also the mistakes, making mistakes, and sitting in my office and thinking, 'OK, how can I eliminate that, and what's the solution for the next time?' It was patience and making mistakes."

Coaches don't have a lot of time to sit in their office and think. When Gundy took the job, someone told him to keep a fire extinguisher on his desk, because that's what a head coach does.

"You just put fires out all day and then you get home," Gundy said. "And you continue to do it. And I thought, that doesn't sound right. That doesn't sound like much fun. That is exactly the way it is, for the most part." Gundy remembered what T. Boone Pickens, the billionaire godfather of Oklahoma State athletics, told him when he got hired: (1) take risks, and (2) be unpredictable. So he began to ask questions. Why did Oklahoma State get to the end of the season with more players in the training room than on the field? Why did certain coaching hires click and others not? Gundy asked questions, and he didn't go to the Coaching 101 textbook for his answers.

Take the injury issue. The old-school reaction to not winning enough is to double down, to make a team tougher, to tackle more and hit more. But Gundy saw a team spent physically and emotionally.

"Our guys were losing too much weight during two-a-days," Gundy said. "In August, it's 100 degrees down here, and we practice a lot. We said, OK, why is that happening? Obviously, we're on the field too much. So what's the answer? We've got to back off. How much can you back off?"

Strength coach Rob Glass started trying to quantify what had been done because it had always been done. How many steps can a wide receiver run in August and still be fresh in November? How much pounding can an offensive lineman take before his shoulder needs to be reassembled? If the approach sounds familiar, it should. Brad Pitt made a movie about it.

"Like 'Moneyball,' we do a lot of things, put a lot of thought into formulas," Gundy said.

Gundy didn't back off -- he stopped. Two-a-days?

"We started [compiling] all that about three years ago, and we started putting it in effect really this year," he said. "Last spring, spring ball, we did not scrimmage one time and tackle to the ground. This August, we did not scrimmage one time and tackle to the ground. Nothing."

Two-hour practices? Out. The Cowboys are on the practice field five hours a week. Gundy took the risk. He made the unpredictable decision.

"We were confident in all the research that we've done," he said, "... but there's always a risk because it's still football. My coach [at Oklahoma State] was Pat Jones. He's still around here, does some radio talk shows, and he's a good friend of mine. He told me I was crazy. I said, 'You may be right.' But I guess what I'm saying is, I'm not afraid to take a chance."

Gundy tried hiring assistant coaches in the conventional manner. Needed a recruiter? He hired a guy known for recruiting. Needed a position coach? He hired a guy for that position. "But they weren't great hires for me," Gundy said.

Gundy decided to focus on intelligence and loyalty.

Nassim Taleb on Stoics and Stoicism

From Fooled by Randomness:

"Having control over randomness can be expressed in the manner in which one acts in the small and the large. Recall that epic heroes were judged by their actions, not by the results. No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word…..There is nothing wrong and undignified with emotions—we are cut to have them. What is wrong is not following the heroic or, at least, the dignified path. That is what stoicism truly means. It is the attempt by man to get even with probability…..stoicism has rather little to do with the stiff-upper-lip notion that we believe it means…..The stoic is a person who combines the qualities of wisdom, upright dealing, and courage. The stoic will thus be immune from life’s gyrations as he will be superior to the wounds from some of life’s dirty tricks. But things can be carried to the extreme; the stern Cato found it beneath him to have human feelings. A more human version can be read in Seneca’s Letters from a Stoic, a soothing and surprisingly readable book that I distribute to my trader friends.....Good, enlightened (and “friendly”) advice and eloquent sermons do not register for more than a few moments when they go against our wiring. The interesting thing about stoicism is that it plays on dignity and personal aesthetics, which are part of our genes. Start stressing personal elegance at your next misfortune. Exhibit sapere vivere (“know how to live”) in all circumstances…..The only article Lady Fortuna has no control over is your behavior."

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Related books:

Fooled by Randomness

Seneca: Letters from a Stoic

Epictetus: A Stoic and Socratic Guide to Life

Marcus Aurelius: Meditations

Musonius Rufus: Lectures and Sayings

A Guide to the Good Life

Related previous post: The Wisdom of the Stoics: Selections from Seneca, Epictetus, and Marcus Aurelius

Professor Loren Cordain - Diet and Multiple Sclerosis

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Related previous post: TEDx Talk - Dr. Terry Wahls: Minding Your Mitochondria

Bridgewater takes grim view of 2012

Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view.

Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world's biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Prince describes those economies—the US and Europe, in particular—as "zombies" and said they will remain that way until they work through their mountains of debt.

"What you have is a picture of broken economic systems that are operating on life support," Prince said. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in."

In Europe, "the debt crisis is [a] long ways from over," he said. The economic and financial morass will mean interest rates in the US and Europe will essentially be locked at zero for years.

In this bleak environment, Prince said stocks remain vulnerable to "air pockets" from shocks, such as bad news out of Europe. But for longer-term investors looking out over the next decade, he said, equities may be a good buy. There is even money to be made in US Treasurys, despite interest rates near record lows, and gold is likely to resume its climb as central banks print money to bolster their economies, Prince said.

The views of Bridgewater are keenly watched by other investors, given the firm's elevated status in the competitive world of hedge fund investing. Bridgewater's flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macro fund had lost 3.7%, according to Hedge Fund Research.

Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bond markets, Prince said.

Ready to Try On Mr. Buffett's Shoes

Found via the Corner of Berkshire & Fairfax.

It is tough to follow a legend.

Ted Weschler considers himself one of Warren Buffett's biggest admirers, but until this past summer, he couldn't actually see himself working for the Oracle of Omaha. The spotlight and scrutiny that come with such a job simply wouldn't be worth it.

Yet this month, the 50-year-old Mr. Weschler, a hedge-fund manager based in Charlottesville, Va., will join Berkshire Hathaway Inc. to help Mr. Buffett oversee Berkshire's $110 billion in stocks, bonds and other investments. That positions Mr. Weschler, along with 40-year-old Todd Combs, another former hedge-fund manager, as a candidate to take over, some day, a portfolio Mr. Buffett has run with unparalleled success for more than 45 years.

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Related article: Ted Weschler: More on Warren Buffett’s Reluctant Sidekick

Hussman Weekly Market Comment: The Right Kind of Hope

Happy New Year. We enter 2012 with a great deal of hope, but our hopes are not for more bailouts, or money printing, or any of the myriad policies that investors seem to hope will save bad investments and sustain elevated valuations. Instead, our hope is that in 2012, the market will finally "clear," in the sense that bad debt will be recognized as bad and restructured; that overleveraged financials will be taken into receivership instead of forcing austerity on every corner of the economy in order to make them flush again; that rates of return will rise enough to compensate and encourage saving - and high enough to encourage borrowers and other users of capital to allocate the funds productively. Of course, in order to restructure bad debt, someone has to accept a loss. In order for rates of return to rise, valuations must decline. In short, our hope is for events that will unchain the global economy from an irresponsible past and open the gates toward a prosperous future. Maybe that is too hopeful, but we are not entirely convinced that bailouts and "big bazookas" will be as easily procured in the year ahead as a confused public has allowed in recent years.

We begin 2012 with the S&P 500 priced at valuations from which we estimate 10-year total returns of just 4.9% annually. This figure would be less discouraging if it were not for the fact that valuations - properly normalized for the cyclicality of earnings - have been tightly related to subsequent returns as far back as one cares to look, and as recently as the past decade. It is true that rich valuations did not prevent the late 1990's bubble (corresponding to late 1980's 10-year total return projections), but the ultimate and predictable outcome of that bubble has been more than a decade of stagnant returns. Back in 2000, it seemed inconceivable that we could be projecting negative 10-year total returns, but that outcome was the natural result of the valuations we observed at the time. Weak returns over the coming decade (hopefully front loaded as a few years of negative returns, followed by normal or above-average returns in the out-years) are likely to be an equally natural result of present conditions.

With 10-year Treasury yields below 2%, 30-year yields below 3%, corporate bond yields below 4%, and S&P 500 projected 10-year total returns below 5%, we presently have one of the worst menus of prospective return that long-term investors have ever faced. The outcome of this situation will not be surprisingly pleasant for any sustained period of time, but promises to be difficult, volatile, and unrewarding. The proper response is to accept risk in proportion to the compensation available for taking that risk. Presently, that compensation is very thin. This will change, and much better opportunities to accept risk will emerge. The key is for investors to avoid the allure of excessive short-term speculation in a market that promises - bends to its knees, stares straight into investors' eyes, and promises - to treat them terribly over the long-term.

Nassim Taleb on the importance (and difficulty) of being willing to change your mind if the facts change

Some quotes from Fooled by Randomness (also posted on Twitter):

Carneades was not merely a skeptic; he was a dialectician, someone who never committed himself to any of the premises from which he argued, or to any of the conclusions he drew from them. He stood all his life against arrogant dogma and belief in one sole truth.

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As the skeptics’ main teaching was that nothing could be accepted with certainty, conclusions of various degrees of probability could be formed, and these supplied a guide to conduct.

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Cicero...He preferred to be guided by probability than allege with certainty—very handy, some said, because it allowed him to contradict himself....This may be a reason for us, who have learned from Popper how to remain self-critical, to respect him more, as he did not hew stubbornly to an opinion for the mere fact that he had voiced it in the past. Indeed your average literature professor would fault him for his contradictions and his change of mind.

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The public person most visibly endowed with such a trait is George Soros. One of his strengths is that he revises his opinion rather rapidly, without the slightest embarrassment....What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate....My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.

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Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.

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There are reasons to believe that, for evolutionary purposes, we may be programmed to build a loyalty to ideas in which we have invested time....Such trait of absence of marriage to ideas is indeed rare among humans. Just as we do with children, we support those in whom we have a heavy investment of food and time until they are able to propagate our genes, so we do with ideas.

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Certainly, the odds in games where the rules are clearly and explicitly defined are computable and the risks consequently measured. But not in the real world. For mother nature did not endow us with clear rules. The game is not a deck of cards (we do not even know how many colors there are). But somehow people “measure” risks, particularly if they are paid for it.

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We have been getting things wrong in the past and we laugh at our past institutions; it is time to figure out that we should avoid enshrining the present ones.