“Without question, one of the notions buoying Wall Street optimism here is the hope that the Fed will pull another rabbit out of its hat by initiating QE3. That’s a nice sentiment, but it does overlook one minor detail. QE2 didn’t work.

Actually, that’s not quite fair. The Federal Reserve was  indeed successful at provoking a speculative frenzy in the financial markets, which has now been completely wiped out. The Fed was also successful in leveraging its balance sheet by more than 55-to-1 (more than Bear Stearns, Lehman, Fannie Mae, Freddie Mac, or even Long-Term Capital Management ever achieved), and driving the monetary base to more than 18 cents for every dollar of GDP – a level that requires short-term interest rates to remain below about 3 basis points in order to maintain price stability ( see Charles Plosser and the 50% Contraction in the Fed’s Balance Sheet ). The Fed was indeed successful in provoking a wave of commodity hoarding that affected global supplies and injured the poorest of the poor – particularly in developing countries. The Fed was successful in setting off a very predictable decline in the value of the U.S. dollar. The Fed was successful in punishing savers and the risk averse, and driving investors to reach for yield in risky investments that they would normally avoid were it not for the absence of yield. The Fed was successful in provoking those with strong balance sheets to pay down existing higher interest-rate debt, and in creating an incentive for those with weak balance sheets to issue more of it at low rates, resulting in a simultaneous deterioration of credit quality and compensation for risk in the financial system. The Fed was successful at boosting the trading profits of the banks that serve as primary dealers, by announcing precisely which securities it would be buying prior to Treasury auctions, and buying them on the open market a few days later from the dealers that acquired them. The Fed was successful in creating a portfolio of low yielding securities that will be almost impossible to disgorge without capital losses unless the Fed holds them to maturity. On proper reflection, the list of the Fed’s successes from QE2 is nothing short of stunning.

It is beyond comprehension why anyone would wish for more of this recklessness.”

How Ray Dalio built the world’s richest and strangest hedge fund.

by John Cassidy July 25, 2011

Great article on Ray Dalio, Bridgewater Associates founder.

PDF version of Ray Dalio’s Principles. Great read.

Ray Dalio’s principles – Bridgewater Associates

WSJ Article about the Khan Academy and learning videos on YouTube.

“I soon discovered that people all over the world were watching my YouTube videos. More important, teachers were using them to change the basic rhythm of their classrooms. They asked their students to watch the videos at home and then used class time for actual problem-solving. Instead of 30 students listening passively to a one-size-fits-all lecture, they were learning at their own speed. Some could focus on filling in gaps in their arithmetic while others were able to jump ahead to trigonometry—and it all took place in the same classroom. It is often said that technology makes modern life less personal, but in this case, it has allowed teachers to take a big step toward humanizing their instruction.

Today, with the help of some generous donors and a die-hard user base of students and parents around the world, Khan Academy is now a team of six people building software and content, and we have more than 2,200 videos, covering everything from arithmetic and calculus to biology and physics. Surreal as it seems to me, the simple videos that I started making for my cousins have now been viewed almost 45 million times and are being translated into more than 10 languages.”

“Combine Skills. The first thing you should learn in a course on entrepreneurship is how to make yourself valuable. It’s unlikely that any average student can develop a world-class skill in one particular area. But it’s easy to learn how to do several different things fairly well. I succeeded as a cartoonist with negligible art talent, some basic writing skills, an ordinary sense of humor and a bit of experience in the business world. The “Dilbert” comic is a combination of all four skills. The world has plenty of better artists, smarter writers, funnier humorists and more experienced business people. The rare part is that each of those modest skills is collected in one person. That’s how value is created.

Fail Forward. If you’re taking risks, and you probably should, you can find yourself failing 90% of the time. The trick is to get paid while you’re doing the failing and to use the experience to gain skills that will be useful later. I failed at my first career in banking. I failed at my second career with the phone company. But you’d be surprised at how many of the skills I learned in those careers can be applied to almost any field, including cartooning. Students should be taught that failure is a process, not an obstacle.

Find the Action. In my senior year of college I asked my adviser how I should pursue my goal of being a banker. He told me to figure out where the most innovation in banking was happening and to move there. And so I did. Banking didn’t work out for me, but the advice still holds: Move to where the action is. Distance is your enemy.

Attract Luck. You can’t manage luck directly, but you can manage your career in a way that makes it easier for luck to find you. To succeed, first you must do something. And if that doesn’t work, which can be 90% of the time, do something else. Luck finds the doers. Readers of the Journal will find this point obvious. It’s not obvious to a teenager.

Conquer Fear. I took classes in public speaking in college and a few more during my corporate days. That training was marginally useful for learning how to mask nervousness in public. Then I took the Dale Carnegie course. It was life-changing. The Dale Carnegie method ignores speaking technique entirely and trains you instead to enjoy the experience of speaking to a crowd. Once you become relaxed in front of people, technique comes automatically. Over the years, I’ve given speeches to hundreds of audiences and enjoyed every minute on stage. But this isn’t a plug for Dale Carnegie. The point is that people can be trained to replace fear and shyness with enthusiasm. Every entrepreneur can use that skill.

Write Simply. I took a two-day class in business writing that taught me how to write direct sentences and to avoid extra words. Simplicity makes ideas powerful. Want examples? Read anything by Steve Jobs or Warren Buffett.

Learn Persuasion. Students of entrepreneurship should learn the art of persuasion in all its forms, including psychology, sales, marketing, negotiating, statistics and even design. Usually those skills are sprinkled across several disciplines. For entrepreneurs, it makes sense to teach them as a package.”

WASHINGTON — Higher energy costs and the steepest rise in food prices in nearly four decades drove wholesale prices up last month by the most in nearly two years. Excluding those categories, inflation was tame.
…

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.
….

These are some pretty big inflation numbers.  I hope the idea of core inflation goes away for good soon.
When will the mainstream press start talking about stagflation?

Had some doubts about them two years ago. I tried to get a quote for a Stirling Engine from SES while working on a research project for a Utility. They declined to provide a proposal or more details about the equipment.

‘Geithner played down concerns that the surge in oil prices will derail the U.S. recovery. “By almost any measure you look at, the economy is gradually getting stronger,” he said. ‘

This was an interesting article in the December 18th 2010 issue of the Economist.

Some quotes:

“PhD graduates do at least earn more than those with a bachelor’s degree. A study in the Journal of Higher Education Policy and Management by Bernard Casey shows that British men with a bachelor’s degree earn 14% more than those who could have gone to university but chose not to. The earnings premium for a PhD is 26%. But the premium for a master’s degree, which can be accomplished in as little as one year, is almost as high, at 23%. In some subjects the premium for a PhD vanishes entirely. PhDs in maths and computing, social sciences and languages earn no more than those with master’s degrees. The premium for a PhD is actually smaller than for a master’s degree in engineering and technology, architecture and education. Only in medicine, other sciences, and business and financial studies is it high enough to be worthwhile. Over all subjects, a PhD commands only a 3% premium over a master’s degree.”

….

“The organisations that pay for research have realised that many PhDs find it tough to transfer their skills into the job market. Writing lab reports, giving academic presentations and conducting six-month literature reviews can be surprisingly unhelpful in a world where technical knowledge has to be assimilated quickly and presented simply to a wide audience. Some universities are now offering their PhD students training in soft skills such as communication and teamwork that may be useful in the labour market. In Britain a four-year NewRoutePhD claims to develop just such skills in graduates.”

“Memo to Ben Bernanke – throwing money out of helicopters isn’t monetary policy. It’s fiscal policy. How is this not clear?

The proper way to deal with a major debt crisis – indeed, the only way nations have ever successfully dealt with major debt crises – is through debt-equity swaps, restructuring and writedowns. There are numerous ways to achieve this with mortgages. My preference would be swaps of principal for pooled property appreciation rights (administered, but not subsidized by the Treasury). In any event, until our policy makers wake up to the need to restructure debt, so that the obligation is modified for both the debtor and the creditor, our financial system will increasingly tend toward a giant Ponzi scheme. We are racing toward the financial equivalent of a mathematical singularity, where the quantities become so large and outcomes become so sensitive to small changes that the whole system becomes unstable.”

Bernanke and Geitner really need to go away, will be much less damaging to the US when consulting and getting paid to speak. Much like Alan Greenspan, can’t believe that guy still gets editorials in the WSJ and others.

Here are a few paragraphs:

“The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.

Later, a parliamentary inquest determined that no institution should again be entrusted with such powers as the suspension of gold convertibility had dumped in the lap of those bank directors. They had meant well enough, the parliamentarians concluded, but even the most minute knowledge of the British economy, “combined with the profound science in all the principles of money and circulation,” would not enable anyone to circulate the exact amount of money needed for “the wants of trade.”

The same is true now at the Fed. The chairman, Ben Bernanke, and his minions have taken it upon themselves to decide that a lot more money should circulate. According to the Consumer Price Index, which is showing year-over-year gains of less than 1.5 percent, prices are essentially stable.

In the inflationary 1970s, people had prayed for exactly this. But the Fed today finds it unacceptable. We need more inflation, it insists (seeming not to remember that prices showed year-over-year declines for 12 consecutive months in 1954 and ’55 or that, in the first half of the 1960s, the Consumer Price Index never registered year-over-year gains of as much as 2 percent). This is why Mr. Bernanke has set out to materialize an additional $600 billion in the next eight months.”