Blaming China for Black Monday is Like Blaming a Bartender For Your Hangover

IMG_3028Pubonomics :

What is happening? Why is China—the country that people once thought was the engine of the world economy—tottering so badly ?

To answer these questions it is necessary to recognize that China was never the engine of the world’s growth. To be such an engine you have to import more than you export. Then you would create a demand that is filled by other countries, which as a result export more than they import. Importers are the engines in the supply trains of the international markets. Exporters are the wagons, pulled by the demand created by the profligates. Think of what drives liquor markets: barmen or drinkers?

→ Quartz

Credit: Michael Lomax, Impossible Bottle

Mastering the Machine

“In any given market, Bridgewater may have a dozen or more different indicators. However, even when most or all of the indicators are pointing in a certain direction, Dalio doesn’t rely solely on software. Unless he and Jensen and Prince agree that a certain trade makes sense, the firm doesn’t make it. While this inevitably introduces an element of human judgment to the investment process, Dalio insists it is still driven by the rules-based framework he has built up over thirty years. “When I’m thinking, ‘What is going on today?,’ I also need to make the connection to ‘How does what is happening today fit into our framework for making this decision?’ ’’ he said. Ultimately, he says, it is the commitment to systematic analysis and systematic investment that distinguishes Bridgewater from other hedge funds. “I hear a lot of people describing what’s happening today without the proper historical context and without the framework of how the machine works,” he says.”

The New York Magazine on the culture of Bridgewater :

The path to Principles began early in Bridgewater’s history, when Dalio began to think that employees, like economies, could be understood as following patterns. Transcendental Meditation informed his belief that a person’s main obstacle to improvement was his own fragile ego; at his firm, he would make constant, unvarnished criticism the norm, until critiques weren’t taken personally and no one held back a good idea for fear of being wrong. Dalio’s chosen investment system depended on such behavior. Unlike at a hedge fund such as Steven Cohen’s SAC Capital, where star traders are given chunks of the firm’s capital to run quasi-independent desks (and offset each other’s losses), everyone at Bridgewater essentially contributes to the same strategy as they work under Dalio and his longtime confidants and co-CIOs Bob Prince and Greg Jensen. Dalio thought radical transparency could optimize the hive mind. “The culture makes you have to listen to other people,” says Giselle Wagner, a former Bridgewater chief operating officer.

→ The New Yorker

Complacency And Incrementalism Are Traps To Avoid

Lawrence Summers :

Famously, while you can fool all of the people some of the time and some of the people all of the time, you cannot fool all of the people all of the time. In the same way, markets may well be inefficient and diverge from fundamental value, and they may well be subject to government manipulation for significant intervals, but it is a foolish government that supposes it can indefinitely maintain speculative prices at politically convenient levels, as the Chinese authorities may soon discover.

→ Financial Times

Bill Gross Thinks The End Is Near

Sorkin: I have to know: Why do you wear your tie like that?

Gross: I came down here to Orange County in ’71 from L.A., and Pimco had this brand-new, beautiful building, but they didn’t have a gym or showers. I was an exercise nut. At noon, I’d change in the bathroom and then run for about five miles. Since there wasn’t a shower, I’d towel off as best I could, but I’d be sweating and hot for an hour or two. So in the afternoon, I began to just not tie my tie. Then a year or two later, I said: “Well, what the hell, I guess I’m not tying it in the afternoon, I’ll just not tie it in the morning either.”

→ The New York Times Magazine

Mr. Bleu

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Delighted to hear Bill Gross’ point of view regarding art collecting. He and his wife seem more impressed by stamps, which they’re renowned collectors.

I’ve never been much of an art aficionado myself, having settled for framing some All American Rockwells neatly clipped from old Saturday Evening Post covers. There was a time though when a well-publicized Rockwell came to auction and Sue and I expressed some interest. Ever since, we’ve been on the art house’s mailing lists and I must admit, it’s fun to browse through the Picassos, Rothkos, and whatever else currently frenzies modern collectors. I’m no expert though, and if I begin to pretend that I am, Sue puts me in my place because she’s the artist in the family. She likes to paint replicas of some of the famous pieces, using an overhead projector to copy the outlines and then just sort of fill in the spaces. “Why spend $20 million?” she’d say – “I can paint that one for $75”, and I must admit that one fabulous Picasso with signature “Sue”, heads the fireplace mantle in our bedroom

→ Janus Capital

Games People Play

Monthly Investment Outlook from Bill Gross :

Good players know that it is critical to move quickly around the board, make acquisitions and then develop the properties by creating hotels. Three hotels on each property are desirable and of course as every Monopoly pro knows, it’s not Boardwalk or Park Place that are the key holdings but the Oranges and the Reds. Same thing in reality’s markets, I would suggest. Which companies and which investments to overweight and how much leverage to use usually point to the eventual winners. But an ample amount of cash is important as well as you land on other owners’ properties. You need liquidity to pay rent or service debt – otherwise you sell assets at a discounted price and are swiftly out of the game. That reminds me of Lehman Brothers and its aftermath. Early in Monopoly, property is king but later in the game, cash becomes king and those without cash and the ability to get it go bankrupt.

→ Janus Capital