Jared Diamond: Best Practices for Raising Kids? Look to Hunter-Gatherers

This is an excerpt from his new book (which comes out on 12/31) The World Until Yesterday.

I find myself thinking a lot about the New Guinea people with whom I have been working for the last 49 years, and about the comments of Westerners who have lived for years in hunter-gatherer societies and watched children grow up there. Other Westerners and I are struck by the emotional security, self-­confidence, curiosity, and autonomy of members of small-scale societies, not only as adults but already as children. We see that people in small-scale societies spend far more time talking to each other than we do, and they spend no time at all on passive entertainment supplied by outsiders, such as television, videogames, and books. We are struck by the precocious development of social skills in their children. These are qualities that most of us admire, and would like to see in our own children, but we discourage development of those qualities by ranking and grading our children and constantly ­telling them what to do. The adolescent identity crises that plague American teenagers aren’t an issue for hunter-gatherer children. The Westerners who have lived with hunter-gatherers and other small-scale societies speculate that these admirable qualities develop because of the way in which their children are brought up: namely, with constant security and stimulation, as a result of the long nursing period, sleeping near parents for ­several years, far more social models available to children through ­allo-parenting, far more social stimulation through constant physical contact and proximity of caretakers, instant caretaker responses to a child’s crying, and the minimal amount of physical punishment.

Broyhill Asset Management on Coca-Cola Hellenic (CCH)

An investment in CCH represents a compelling opportunity to own a high quality business characterized by high customer captivity with significant economies of scale at a substantial discount to intrinsic value.  Shares have been dragged down by the weight of the Greek stock index at the same time that revenues have suffered from volume declines in established markets, further compounded by double-digit cost inflation which has proven to be detrimental to margins. Importantly, each of these factors appears to be transitory.  If we are right, we should get paid in two ways as both the earnings and the multiple improve.

The coming shift in the company’s listing from Athens to London appears to have sparked a change in investor sentiment.  We expect this move to serve as an inflection point for the stock, driving further multiple expansion over time.  While current sales and future growth are largely driven by the world’s emerging market population, investors have been unable to take their eyes off of the slow-motion European train-wreck represented by CCH’s more mature market exposure – at least until now.  We believe the voluntary share exchange and the London listing should do the trick and properly refocus investor attention on fundamentals.

Ben Franklin quote

"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."

David Tepper on CNBC

Link to videos:

Tepper: 'Pretty Good Economy, Right Now'

Tepper: Not Much Downside in Markets 

Fed Betting 6% Unemployment Rate Inflation Trigger: Tepper

Hussman Weekly Market Comment: Roach Motel Monetary Policy

Strong leading indicators such as the CFNAI and the Philly Fed Index have been weak for many months, and the deterioration in new orders has moved from a slowing of growth to outright contraction in recent months. In the order of events, a slowing in real sales, personal income, and personal consumption expenditure typically follows – these are called coincident indicators. These growth rates generally only weaken materially once a recession is in progress, and reach their highest correlation with recession about 6-months into the downturn. That’s what we’ve begun to observe over the past few months, adding to our impression that the U.S. joined a global (developed economy) recession during the third quarter of this year. The most lagging set of economic indicators includes employment measures, where I’ve frequently noted that the year-over-year growth rate of payroll employment lags the year-over-year growth rate of real consumption with a lag of about 5 months. As a result, the year-over-year growth rate in payroll employment reaches its highest correlation with recession nearly a year after a recession has started – another way of saying that it is among the last indicators to examine for confirmation of an economic downturn. 

All of that said, our concern about recession emphatically is not what drives our concern about the stock market here. In early March, our measures of prospective return/risk moved to the lowest 1% of historical data based on a broad ensemble of indicators and consistent evidence of market weakness following similar conditions in numerous subsets of historical data. Those conditions remain largely in place today. 

There’s no question that massive fiscal and monetary interventions have played havoc with the time-lag between unfavorable conditions and unfavorable outcomes in recent years, which prompted us back in April to introduce various restrictions to our hedging criteria (see below). Still, present conditions remain strongly negative on our estimates. Meanwhile, the stock market is not “running away” – at best, these interventions have allowed the market to churn at elevated levels. Only a month ago, the S&P 500 Index was below its level of March 2012, when our estimates shifted to the most negative 1% of the data, and was within about 11% of its April 2010 levels, which is the last time that our present ensemble approach would have encouraged a significant exposure to market risk. Notably, as of last week, an upward spike in long-term Treasury yields took market conditions to an overvalued, overbought, overbullish, rising yields syndrome – which has tended to be anathema to the stock market, even prior to the more limited downward bouts of recent years. 

Steve Jobs at Apple's 1997 WWDC

A big thanks to Bill for passing this along! When watching, remember to keep in mind that this was 1997. His foresight into the way much the future would play out was pretty remarkable.


Link

Forbes interviews Cliff Asness

Found via ValueWalk.


Link to Part One


Link to Part Two

Jim Grant on Capital Account

Link

The Death of the Dollar? – By Rob Arnott

To no one’s surprise, the Fed announced that it will replace the expiring “Operation Twist”—in which it was selling $45 billion of short maturity treasuries and buying a like amount of long maturity treasuries every month—with continued purchases of long bonds. The Fed announced in September that it will buy $40 billion per month in mortgage-backed bonds, to help bring life back into the real estate market.

What does this mean?

The Federal Reserve Board will now be “printing” $85 billion a month in new U.S. dollars in order to buy $85 billion a month in bonds, up from $40 billion a month previously. Doing the math, that’s $1,020 billion—just over $1 trillion—a year. The Fed’s balance sheet had $800 billion in assets before the Global Financial Crisis started in 2008; it’s now over $3 trillion, set to rise $1 trillion a year.

If we’re spending $1 trillion a year more than we produce as a nation (the national deficit) and are financing it by printing $1 trillion a year of crisp newly printed bills (actually, bits in a computer), we’re on a dangerous path. Printing our own money to buy our own debt works fine… until it doesn’t.

Richard Duncan: Wealth Preservation through Diversification

The excerpt below is from the final chapter of The New Depression by Richard Duncan on inflation and deflation.

Wealth Preservation through Diversification

The hard truth is that it is not easy to preserve wealth. If it were, the families who were wealthy 200 years ago would still be wealthy today—and generally, they are not. In the very harsh economic environment that is likely to prevail over the next ten years, it is likely that a great deal of wealth is going to be destroyed. The economic system is in crisis and government policy, rather than market fundamentals, will determine the direction of asset prices. If the government fails to borrow and spend enough, the economy will collapse into a deflationary spiral. If it borrows, prints, and spends too much, there will be very high rates of inflation.

Future government policy simply cannot be foretold with any degrees of precision. Active wealth managers will have to rapidly adjust their portfolios in response to changes in policy. That will be no easy task, even for the experts. Those unable to devote all their time and energy to deciphering the kaleidoscopic changes in the politics and policies of Washington have the option of constructing a broadly diversified investment portfolio that would ensure significant wealth preservation regardless of whether the price level moves up or down.

The following are five components of a diversified portfolio:

1. Commodities generally perform well in an inflationary environment and suffer in times of disinflation or deflation. Gold and silver benefit most from quantitative easing, which undermines public confidence in the national currency.

2. Stocks tend to rise (1) in a healthy economic environment, (2) when central banks create money and pump it into the financial markets (so long as they don’t cause too much inflation), (3) when the government runs a budget surplus and crowds in the private sector, and (4) when the trade deficit is larger than the budget deficit. The last two will be explained below. Stocks tend to perform badly when inflation at the CPI level exceeds 4 percent, in a weak economic environment, and, particularly, during a severe period of debt deflation.

3. Bonds benefit from disinflation or mild deflation and suffer when there is inflation. In the third quarter of 2011, the yield on ten-year government bonds fell to a record low of 1.7 percent. The Fed played a role in pushing the yields down by printing money and buying bonds. There was more to it than that, however. There was also a private sector flight to safety into government bonds as a result of fears that the Greek government would default on its debt, which would have resulted in a systemic banking crisis. Furthermore, U.S. yields seemed to be declining for the same reasons that Japanese bond yields had fallen after Japan’s economic bubble popped: the lack of viable investment opportunities elsewhere in the economy.

The yield on ten-year JGBs (Japanese government bonds) has fallen below 1 percent. It is possible that U.S. government bond yields will as well. However, the risk-reward tradeoff of investing in government bonds with such low yields appears highly unfavorable, particularly given the risk that inflation could easily move very much higher at some point during the next ten years.

4. Rental property can provide a relatively steady stream of income, although, as the experience of the last 15 years demonstrates, the capital value of the property can fluctuate widely. U.S. home prices have fallen by more than 30 percent on average since the crisis began and they could fall further, even significantly further in the case of a severe debt-deflation scenario. Even then, if well located, rental properties would continue to generate rental income. In a worse-case scenario, rents would fall significantly from current levels. If they do, however, most other prices would also tend to be much lower, leaving the owner relatively just as well off.

5. Financing rental properties with fixed-interest-rate debt adds a further element of portfolio diversification. Borrowing at fixed interest rates provides a hedge against inflation. Should inflation move higher, the rents would adjust upward, but the debt owed would remain the same, which would effectively reduce the burden of the debt. The risk, however, is that in a severe debt-deflation, rents would fall so much that the rental income would be insufficient to service the mortgage. A prudent loan-to-value ratio mitigates that danger.

Those are the basic options: commodities (including gold and silver), stocks (preferably stocks with a good dividend yield), bonds, rental property, and fixed-interest-rate debt. In combination, they form a broadly diversified portfolio capable of preserving a significant amount of wealth in practically any conceivable economic environment.

During a period of high rates of inflation, the value of the bonds and the stocks would fall, but the price of the commodities would appreciate. Meanwhile, the rental property would continue to generate cash flow and the inflation-adjusted burden of debt would decline.

In case of deflation, commodity prices would fall. Stock prices would also fall, but the decline would be offset to some extent by dividend income. The value of the bonds in the portfolio would rise. And the rental income would continue to generate cash flow, although in lower amounts if rents adjust downward. Mortgage payments would remain unchanged.