Money and Finance
- Bridgewater On An Ugly Inflationary Deleveraging
I thought this was an interesting quote to keep in mind in light of the Fed's open-ended QE announcement today. If we ever start to reach “that phase”, someone please remind me of this excerpt. From a Bridgewater piece with the title “Asset...
- The Secret Of Bridgewater's Success Is In Its Understanding Of The Recession
Found via Canadian Value Investor. The Bridgewater view may be summarized like this:Business and market cycles occur every 5 to 8 years, and may be addressed by policy makers with a typical mix of fiscal and monetary policy.What Bridgewater calls Long...
- More Ray Dalio Quotes
More Ray Dalio quotes from Jack Schwager’s book Hedge Fund Market Wizards. I think the last couple of long paragraph quotes below are especially important in regards to the current situation in the U.S. “We don’t use stops. We trade approximately...
- Bridgewater Q2 Letter: Outlook And Markets Discussion
Via Zero Hedge. The developed world remains mired in the deleveraging phase of the long-term debt cycle. The European deleveraging has been badly managed and is escalating, bringing Europe closer to either a debt implosion or a monetization and currency...
- Credit Crisis - Robert Rodriguez, Fpa Funds
To begin with, I believe FPA Capital Fund and FPA New Income are well structured to weather this credit-crisis storm. FPA Capital stands with nearly 43% in liquidity that we believe should help it withstand the crisis and provide us with the necessary...
Money and Finance
A Template for Understanding What’s Going On - by Ray Dalio
I provided a link to this in a previous post, but I thought I’d also give it its own post as I believe this paper from Ray Dalio is one of the most important things I’ve read all year. As Dalio mentions, there is a big difference between a normal recession and a long wave deleveraging cycle, and the Fed and our policy makers are mostly treating this as a normal recession. The consequences of mistaking this current recession as normal are likely to be quite large, and it is something that investors of all stripes and strategies should probably be paying attention to.
Link to: A Template for Understanding What’s Going On
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Excerpt describing a deleveraging process:
A deleveraging is an economic contraction that is due to a contraction in real capital (i.e., credit and equity) that arises when there is a shortage of capable providers of capital and/or a shortage of capable recipients of capital (borrowers and sellers of equity) that cannot be rectified by the central bank changing the cost of money. In deleveragings, a) a large number of debtors have obligations to deliver more money than they have to meet their obligations, and b) monetary policy is ineffective in reducing debt service costs and stimulating credit growth. In deleveragings central banks can not control money and credit creation by changing the cost of money. Typically, monetary policy is ineffective in stimulating credit growth either because interest rates can’t be lowered (because interest rates are near 0%) to the point of favorably influencing the economics of spending and capital formation (this produces deflationary depressions), or because money growth goes into the purchase of inflation hedge assets rather than into credit growth, which produces inflationary depressions. Deleveragings typically end via a mix of 1) debt restructurings that reduce debt service obligations, 2) increases in the supply of money that make it easier for debtors to meet their debt service obligations, 3) redistributions of wealth, 4) businesses lowering their break-even levels through cost-cuttingand 5) substantial increases in risk and liquidity premiums that restore the economics of capital formation (i.e., lending and equity investing).
- Bridgewater On An Ugly Inflationary Deleveraging
I thought this was an interesting quote to keep in mind in light of the Fed's open-ended QE announcement today. If we ever start to reach “that phase”, someone please remind me of this excerpt. From a Bridgewater piece with the title “Asset...
- The Secret Of Bridgewater's Success Is In Its Understanding Of The Recession
Found via Canadian Value Investor. The Bridgewater view may be summarized like this:Business and market cycles occur every 5 to 8 years, and may be addressed by policy makers with a typical mix of fiscal and monetary policy.What Bridgewater calls Long...
- More Ray Dalio Quotes
More Ray Dalio quotes from Jack Schwager’s book Hedge Fund Market Wizards. I think the last couple of long paragraph quotes below are especially important in regards to the current situation in the U.S. “We don’t use stops. We trade approximately...
- Bridgewater Q2 Letter: Outlook And Markets Discussion
Via Zero Hedge. The developed world remains mired in the deleveraging phase of the long-term debt cycle. The European deleveraging has been badly managed and is escalating, bringing Europe closer to either a debt implosion or a monetization and currency...
- Credit Crisis - Robert Rodriguez, Fpa Funds
To begin with, I believe FPA Capital Fund and FPA New Income are well structured to weather this credit-crisis storm. FPA Capital stands with nearly 43% in liquidity that we believe should help it withstand the crisis and provide us with the necessary...