Greenlight Capital Q4 2013 Letter

Via ValueWalk:

Link to: Greenlight Capital Q4 2013 Letter

Ray Dalio on CNBC

[UPDATE: Full video found via ValueWalk.]


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Joel Greenblatt on CNBC

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TED Talk - Bonnie Bassler: How bacteria "talk"

Feeding the healthy bacteria in the gut is essentially the purpose of the growing popularity of supplementing one's diet with Resistant Starch. For more on that part of it, read THIS and listen to THIS.


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Atul Gawande on Charlie Rose (August 2013)

I think I missed this last year, but it’s worth catching up to now. They discuss Gawande’s article on the speed of innovation (HERE). I saw it as I was looking for a link to Bill Gates’ interview on Charlie Rose last night, which has yet to be put online yet.

Link to: Atul Gawande on Charlie Rose

Hussman Weekly Market Comment: Superstition Ain't the Way

“The problem with QE is that it works in practice but it doesn’t work in theory.” 

- Ben Bernanke, Outgoing Federal Reserve Chairman, January 16, 2014 

"When you believe in things that you don't understand, then you suffer. Superstition ain't the way." 

- Stevie Wonder, Superstition, 1972 

Bernanke clearly meant it as a joke, but it is also an unfortunate statement on recent monetary policy. It's poetic that Stevie Wonder recorded Superstition in 1972, just before the stock market fell by half. A few weeks ago, William Dudley made the same point as Bernanke – even the Fed doesn’t quite understand how quantitative easing works. What FOMC officials are really saying is that aside from a very predictable effect on short-maturity interest rates, there is no mechanistic link between the monetary base and any other variables – financial or economic – that they are trying to control. There is a sense that creating more monetary base helps stocks advance, and that this contributes to economic confidence. What’s missing is a transmission mechanism that operates through identifiable banking and economic channels – other than promoting a speculative reach-for-yield and the psychological exuberance that accompanies a bull market. 

The fact is that Treasury bond yields are above where they were when QE2 was initiated in 2010, and year-over-year growth in non-farm payrolls, civilian employment, real GDP and real final sales have at best done little but hover at the thresholds that have historically bordered expansion and recession. Good economic policy acts to ease constraints that are binding, and monetary policy can clearly be useful in that regard – particularly during liquidity crises when depositors are rushing for cash. At present, however, quantitative easing acts by massively loosening a constraint that is not binding at all, drowning the economy with idle bank reserves that aren’t even desired. That’s going to have negative consequences. 

The chart below shows the ratio of bank reserves to the M1 money supply. We are increasingly moving away from a “fractional reserve” banking system, as the relationship between reserve creation and lending has collapsed. Idle bank reserves now exceed the amount of demand deposits in the U.S. banking system by more than two-to-one, and exceed 25% of all deposits in the U.S. banking system. Keep in mind that these reserves don't "go into" the stock market (every buyer of stocks is matched by a seller who gets the cash). Rather, these reserves may change owners, but stay in the banking system in aggregate, depressing short-term interest rates, and resulting in a pool of zero-interest deposits that change hands from one uncomfortable holder to another. 

Buffett Leans on 29-Year-Old Cool to Oversee Problems

Thanks to Matt for passing this along.

When Warren Buffett bought half of a commercial mortgage finance company in 2009, he hired a 25-year-old fresh out of business school to keep tabs on the investment.

Since then, Berkadia Commercial Mortgage LLC has earned back most of the $217 million that his Berkshire Hathaway Inc. spent on the deal. The business also helped propel Tracy Britt Cool’s career.

Now 29, Cool is one of Buffett’s most-trusted advisers, traveling the country to assist a constellation of companies too small to command her boss’s direct attention. The billionaire said his confidence in Cool is one reason he agreed to buy party-supply seller Oriental Trading. In 2012, she was named chairman of that business and three other units, including paint company Benjamin Moore. The subsidiaries have combined sales exceeding $4 billion and more than 10,000 workers.

“There are companies that I’ve never been there, and we’ve owned them a lot of years,” Buffett said in a telephone interview. “Tracy is available to work on things that I probably should work on, but either am too busy or too lazy.” He added: “She thinks like I would.”

Albert Edwards and Dylan Grice: Bearish Forecasts from Two Top Strategists

Found via ValueWalk.

It’s been nearly 18 years since Albert Edwards forecast an “ice age” in which bonds would outperform equities. He’s been right until just recently, when cumulative returns on the two classes converged. But Edwards insists that his thesis is still accurate – deflation will be the force to propel bonds over stocks, he says. Dylan Grice, meanwhile, warns that the markets operate on an unstable equilibrium that could devolve into apocalyptic conditions.

The two spoke at Societe Generale’s annual research conference in London on Jan. 14. Edwards is the firm’s global strategist. Grice is the director of research at Edelweiss Holdings, a Zurich-based investment manager. Prior to that, Grice worked alongside Edwards at Societe Generale.

“We are one recession, one slip away from outright deflation, both in the euro zone and in the U.S.,” Edwards said. That would adversely affect equities, he said.

If that message wasn’t sufficiently foreboding, Grice warned of a societal breakdown that would be far more disruptive.

The financial markets measure trust through yield, according to Grice. Investors should not be lulled into assuming today’s record-low yields (in both equities and bonds) imply similarly low degrees of risk. That is incongruous with current political developments, he said.

“It is wrong. It is the last hurrah,” Grice said. “This is not just an economic but a social phenomenon.”

Gates Foundation 2014 Annual Letter

By almost any measure, the world is better than it has ever been. People are living longer, healthier lives. Many nations that were aid recipients are now self-sufficient. You might think that such striking progress would be widely celebrated, but in fact, Melinda and I are struck by how many people think the world is getting worse. The belief that the world can’t solve extreme poverty and disease, isn’t just mistaken. It is harmful. That’s why in this year’s letter we take apart some of the myths that slow down the work. The next time you hear these myths, we hope you will do the same.

- Bill Gates

Seneca quote

“It is not that we have a short space of time, but that we waste much of it. Life is long enough, and it has been given in sufficiently generous measure to allow the accomplishment of the very greatest things if the whole of it is well invested. But when it is squandered in luxury and carelessness, when it is devoted to no good end, forced at last by the ultimate necessity we perceive that it has passed away before we were aware that it was passing. So it is—the life we receive is not short, but we make it so, nor do we have any lack of it, but are wasteful of it. Just as great and princely wealth is scattered in a moment when it comes into the hands of a bad owner, while wealth however limited, if it is entrusted to a good guardian, increases by use, so life is amply long for the one who orders it properly.” -Seneca, On the Shortness of Life

(Source of the quote above)