This was quite the busy week, at least in terms of interesting stories and links. Here is my own (biased) list of favorites:
It turns out that the Dow Theory Still Works. (Who knew?)
Slate’s Dan Gross looks into vice investing versus socially responsible funds in (the amusingly titled): God vs. Satan: Who’s the better investor?
This week’s Apprenticed Investor takes a look at how our emotions wreak havoc on investing returns. Curb Your Enthusiasm. Turns out the solution to this is just a little brain damage.
Don’t overlook the (surprisingly) good two part series in the Washington Times on China:
This week’s music and film discussion covers a lot of ground:
Content Consolidation & the Long Tail looks into how consolidated media of all sorts (radio, movies, and even journalism) lowers the variety and quality. Problem for these companies are that there are free and easily accessible replacement available on line.
And for those hardcores who are interested, Why Payola Matters.
I mentioned (via the NYT) the shameful behavior by Altera management not allowing analysts with a sell rating on the stock to ask questions in their conference call; Well, now that Altera apologized to the analyst it snubbed, we can all thank Gretchen Morgenson of the NYT.
One of my favorite stock blogs is Jeff Matthews Is Not Making This Up; Its got just the right mix of snark and info.
And just for laughs, Hacking Halo so Warriors do Ballet
with Ray Dalio, Chief Investment Officer, Bridgewater Associates
WHEN YOU MANAGE NEARLY $120 billion in institutional
assets and your hedge fund provides consistent returns of about 15%, after fees,
on average, every year for nearly 16 years running, who wouldn’t want to hear
your views on the economy? Dalio, founder of Westport, Conn.-based Bridgewater
Associates, has built an organization renowned for its penetrating analysis of
world markets and its ability to seize investment opportunities among different
asset classes, particularly the credit and currency markets. Clients gain access
to Bridgewater’s latest thinking on global markets through the firm’s Daily
Observations newsletter. We thought you might like to get the scoop straight
from the horse’s mouth.
Barron’s: What’s your outlook for inflation?
Dalio: I think inflation is gradually trending higher.
It won’t emerge as a threat probably until late 2006. World economies are late
in the economic cycle, and there are not the same excesses there used to be. The
dollar will go down a lot and commodity prices will go up a lot. There is a
structural surplus of labor and there’s disinflation from labor and manufactured
goods and productivity, but commodity inflation will offset that. The rate at
which this will occur will be gradual at first, and as we get later into 2006
we’ll have run out of slack and there will be more of a depreciation in the
value of the dollar and more appreciation in commodity prices and the Fed will
lag that move. Real rates will be relatively low.
You’re not concerned the Fed tightens too much?
No, I don’t believe they will tighten too much. Rates will
continue to rise and the Fed will continue to tighten, but their moves will lag
the forces of positive economic growth, a declining dollar and rising commodity
prices. The Fed is looking at general inflation, and that will rise slowly. The
economy is growing at a moderate pace, and so any tightening will be
comparatively slow and modest. The balance- of-payments issue is a major issue,
but it is not going to be a major problem this year. This year will be the first
attempt to remedy the problem, but what is going to happen is our
balance-of-payments position is going to worsen a lot. In 2005, 2006 and 2007 we
are going to see our current-account deficit go from 5½% to 6½% to 7½% of gross
domestic product. Our need for foreign capital is going to continue to grow at
the same time that China’s desire to buy our bonds — and Japan’s to some
extent, as well — will diminish. China’s desire to have an independent monetary
policy will be a driving factor. But there is a bipolarity in the world: The
mature industrialized countries are in relative stagnation, and the big reason
the U.S. is growing faster than most of other countries is because we are being
lent capital. We are substantially dependent on foreign lending.
To put that in perspective, we import about 65% more than we
export. Then there are the emerging countries. These countries, with their
economic booms, are running current-account surpluses and are net lenders to the
developed world. This is a very, very healthy set of circumstances. Emerging
countries are using their capital to pay down their debts, and they are buying
the U.S. Treasury bonds to hold their own currencies back. There is a very
favorable structural shift in wealth to developing nations. We are very, very
bullish on emerging countries, particularly Asian emerging countries and their
currencies. Fundamentally, though, you have to ask yourself whether the ties
between us and the emerging countries that are buying our bonds will last. It
doesn’t make sense. The balance-of-payment situation reminds me very much of the
Bretton Woods breakup in 1971.