Money and Finance
- Bridgewater On The Fed's Dilemma
Via Zero Hedge: In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interest rates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending,...
- East Coast Asset Management's Q3 Letter
Found via Market Folly. Valuation is the primary driver that informs our investment strategy. Over time the market is meritocratic and rewards investors when they have purchased a stream of future cash flows at a discount. Conversely, the market will...
- 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...
- East Coast Asset Management's Q3 Letter
Found via Market Folly.We live in a post credit bubble world. When the bubble popped in 2008, a meaningful percentage of the excess debt was transferred through bailouts and bankruptcies from over-leveraged businesses and individuals to government balance...
- Charlie Munger's Lollapalooza Effect And This Credit Fiasco
Charlie Munger, Warren Buffett's brilliant sidekick, has expounded many times on innate human biases and incentive effects. For anyone interested in this topic, I highly recommend you read the transcript of an amazing speech he delivered in 1995,...
Money and Finance
East Coast Asset Management's Q2 Letter
Found via Market Folly.
Headlines related to unemployment and pending stimulus expirations have unnerved investors this quarter. As a consequence, equity markets proved volatile with fears that the recovery has been held together by government fiscal and monetary stimulus and when removed the economy will once again spiral into a deep recession. While we have considered this outcome, the weight of the evidence continues to point to a more inflationary scenario. Binary outcomes, such as this, can often be solved through analyzing the source of the greatest incentives.
When Charlie Munger spoke about the Psychology of Human Misjudgment to Harvard Law School students he stated “I think I have been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it.” We conclude that it is not economically or politically feasible to do anything but print money. A “do not fight the Fed” mantra is very instructive right now and it could even be expanded to “do not fight a Fed backed into a corner with no way out.” The Fed’s incentives lie squarely on preventing further job losses, leading this administration into the best chances of re-election, and resetting the bar through debt debasement of post credit bubble developed world liabilities.
We believe that the Fed’s planned wealth effect is truly a wealth illusion effect. While asset prices may climb they will only rise alongside inflation. Printing money moves in a direction of solving the critical incentives that are “front of mind” with central banks. We do not see a strong incentive bias to the contrary that would lead us to believe we are going down a path of austerity measures. In this regard we have been and continue to operate with extreme care in protecting the purchasing power of our clients’ wealth. Accumulated wealth is at greater risk of purchasing power loss than the principal loss of owning a high-quality, competitively entrenched, reasonably priced businesses.
Portfolio construction continues to be a balancing act. Weekly, we ask where the consensus is today and observe that most do not share our viewpoint. Winning by not losing in a world of heightened inflation is a completely different paradigm for investors with thirty years of reinforced biases to the contrary.
- Bridgewater On The Fed's Dilemma
Via Zero Hedge: In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interest rates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending,...
- East Coast Asset Management's Q3 Letter
Found via Market Folly. Valuation is the primary driver that informs our investment strategy. Over time the market is meritocratic and rewards investors when they have purchased a stream of future cash flows at a discount. Conversely, the market will...
- 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...
- East Coast Asset Management's Q3 Letter
Found via Market Folly.We live in a post credit bubble world. When the bubble popped in 2008, a meaningful percentage of the excess debt was transferred through bailouts and bankruptcies from over-leveraged businesses and individuals to government balance...
- Charlie Munger's Lollapalooza Effect And This Credit Fiasco
Charlie Munger, Warren Buffett's brilliant sidekick, has expounded many times on innate human biases and incentive effects. For anyone interested in this topic, I highly recommend you read the transcript of an amazing speech he delivered in 1995,...