Howard Marks with an inconvenient truth...

In recent years, the US has simultaneously experienced economic growth, low inflation, expanding deficits and debt, low interest rates, and rising financial markets. It is important to recognize that these things are essentially incompatible. They generally haven’t co-existed historically, and it is not prudent to assume they will do so in the future.

Howard Marks

When a proven contrarian speaks...listen

Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies -- these do not require the security-level analysis that is required for true price discovery.

This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.

Michael Burry (patient zero in The Big Short)

Things that make you go hmmmm....

As of second quarter 2017, there are now only 16 short dedicated hedge funds nationally

Source:  Hedge Fund Research

There are currently 110 cryptocurrency dedicated hedge funds, 84 of which launched in 2017.

Source:  Reuters


Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.

Thomas Sowell

The diversification myth...

Wide diversification is only required when investors do not understand what they are doing. 

Warren Buffett


I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept anywhere...If you really see it, put all your eggs in one basket and watch that basket very closely.

Stanley Druckenmiller

Bloomberg on "safe spaces" and "microaggressions"

The most useful knowledge that you leave here with today has nothing to do with your major. It’s about how to study, cooperate, listen carefully, think critically and resolve conflicts through reason. Those are the most important skills in the working world, and it’s why colleges have always exposed students to challenging and uncomfortable ideas.

The fact that some university boards and administrations now bow to pressure and shield students from these ideas through “safe spaces,” “code words” and “trigger warnings” is, in my view, a terrible mistake.

The whole purpose of college is to learn how to deal with difficult situations — not run away from them. A microaggression is exactly that: micro. And one of the most dangerous places on a college campus is a safe space, because it creates the false impression that we can insulate ourselves from those who hold different views.

We can’t do this, and we shouldn’t try — not in politics or in the workplace. In the global economy, and in a democratic society, an open mind is the most valuable asset you can possess.

Michael Bloomberg, April 2016 University of Michigan commencement address

The dangers of wishful thinking...

While the crash only took place 6 months ago, I am convinced we have now passed through the worst--and with continued unity of effort we shall rapidly recover.  There has been no significant bank or industrial failure.  That danger, too, is safely behind us.

Herbert Hoover, May 1, 1930.  

The Great Depression is generally recognized to have lasted another 10 years, with US GNP not reaching 1929 levels again until 1940.  The Dow Jones Industrial Average also proceeded to drop roughly 85% in the 24 months immediately following this comment.

To be a contrarian...

The real question is whether you dare to do the things that are necessary in order to be great.  Are you willing to be different, and are you willing to be wrong?  In order to have a chance at great results, you have to be open to being both.

You can't take the same actions as everyone else and expect to outperform.

Howard Marks


There are only three ways of trying to handle a mountain of unsustainable debt.  The options are:

1.  Maintain economic growth at a sufficient rate to service the debt.  We believe this is grossly unlikely.

2.  Repudiate the debt.  Since we also operate within a debt based monetary system (in which money is lent into being by banks), default broadly equates to Armageddon.

3.  Inflate the debt away.

Tim Price

The dangers of central bank intervention...

It is a property of evolutionary adaptive systems--life, technology, business, the economy--that small errors are required to avoid large ones, because error is information which the overall system uses to ensure stability.  Errors tell the system what doesn't work so that over time it "chooses" what does.  Naive interventionists which override small errors in the name of stability therefore starve the system of information it needs to remain stable.  In fact, they guarantee large scale system instability, as much larger errors occur in stability without volatility.

Nassim Taleb


The problem with bubbles is that they force you to look like an idiot before the peak, or an idiot after the peak.

John Hussman


In individuals, insanity is rare;  but in groups, parties, nations, and epochs, it is the rule.




Europe has 7% of the world's population, 25% of its output, and 50% of its social spending.

Seth Klarman, 2013 letter.  He went on to say that "europe isn't fixed," which is looking fairly prescient in 2016.

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