Greenspan on Inflation

I came across a highly instructive video and interview of Alan Greenspan at Council on Foreign Relations.

Since Greenspan isn't planning to stand for office, he is quite more free with his choice of words than Bernanke, Geithner or Obama can ever be-- at least while they are still in office.

Greenspan is very concerned about the fiscal deficit and points out that the problem is likely far bigger than the numbers suggest today.

And indeed if anything, the numbers that you're citing and the numbers we're looking at out there are probably underestimates of what the actual true most accurate estimate, of the long-term prospects, are.

You've been in government. I've been in government. And you know what happens in those various calculations. You always assume, when confronted with uncertainties about whether A will happen or B will happen, you always choose the most favorable one.

And reality doesn't like that, and it seems to cause problems. So I think this is a far more severe problem, mainly because of the issue of the markets essentially crying wolf once before.

Anyway, here are some of the ways that you can witness this very interesting talk. If this topic interests you, I highly recommend setting aside an hour or so to watch the complete video.

• Browser embedded video (highlights and complete)
  
• Highlights in Quicktime [mp4 video]
  
• Complete Video in Quicktime [mp4 video]
  
• Transcript

More sane words from Tom Gayner

As I posted before, I like to follow Tom Gayner of Markel Corporation (NYSE:MKL). He is certainly a student of the Graham-Dodd school of thought. Listening to him and learning about the way he manages money for his employer can be quite instructive.

In the latest Q3 conference call, he talks about the whims of the market and his team's continued focus on value.

I would like to add a bit of perspective that comes from a slightly longer time horizon than we have all become accustomed to in our fast paced world. At Markel, we cannot control what the stock market thinks of us, and what value or multiple the market assigns to our balance sheet and the future prospects. All we can control is our effort to do our best in building the book value per share of the Markel Corporation.

His long term perspective is comforting.

We didn't foresee $4 a gallon gasoline, the sub-prime mortgage debacle, the housing crisis, the Madoff Ponzi scheme, any of the other Ponzi schemes or any of the other hugely important macroeconomic events that subsequently occurred. We also did not know that at Markel we would restructure our insurance operations and face a government backed entity as our largest competitor.

He is talking about AIG, no doubt. He goes on...

If someone had told us that these bad things were going to happen, and we knew it with 100% certainty that their forecast was correct, we probably would've hunkered down, became very defensive and ultraconservative in our dealings and made very little money during the last five years. As it turns out, without that knowledge we instead methodically kept going to work every day, and trying to make the best of each day’s opportunities.

As a result this company through our daily activities of disciplined underwriting and investing produced $121 of book value per share. This equals comprehensive income for our shareholders of over $1 billion during that time frame. Even with a weaker dollar, that is still a lot of money.

I respectfully submit that given that all of these external factors we face, these results represent excellent stewardship of your capital through one heck of a storm. They also speak to the value of working hard on the past on front of you each day, continuing to put one foot in front of the other and not letting negative forecasts or macroeconomic factors create fearfulness and to paralyse you in inaction or negativity.

I think the last sentence says it all. It reminds me of Graham's one word response to a question about how one should live through the nasty downturn of the 1930s-- "endure".

Complete Markel Transcript for Q3 2009 is available via SeekingAlpha.

Disclosure: I own a small piece of Markel Corp. at the time of this writing.

Much ado about oil

There is much debate in the media about oil demand and supply. And in a typical media fashion, they make prophecies and predictions. A sensible investor must not base their buy or sell decisions based on these, almost daily, predictions.

However, for a keen investor, these predictions do show a lot about Mr. Market's current view of the future. Reading predictions can be highly instructive if one tries to read between the lines.

For example see this prediction about oil demand around the world. It is interesting to me to see that the prediction factors in increased energy efficiency for the OECD countries. But it naively expects that the non-OECD world, namely rising giants like China and India wouldn't inherit these efficiencies.

[Source: This article]

America's Reserve Currency Advantage

There is much in the media about the reserve currency and related debates. This may be confusing to much of the public. I found that this short little quote from this article describes it quite succinctly.

Some say that America’s role as the principal issuer of the global reserve currency gives it an unfair advantage. America has a unique ability to borrow from foreigners in its own currency, and wins when the dollar depreciates, since its assets are mainly in foreign currency and its liabilities in dollars.

Mr.Market's Headlines

Economist's columnist was astute to notice the declining quality of headlines being produced by Bloomberg.

IT is not easy writing headlines but Bloomberg seems to have adopted a strategy of cramming as many nouns as possible into a sentence. The result can be mind-boggling. A few weeks ago, I was baffled by the following. "Sleep-At-night Money Lost in Lehman Lesson Missing $63 Billion". But that was topped by two of today's efforts: "Geithner Saying Be Like Bullish Buffett Can't Make J P Morgan Boost Lending" and "Japan Tops China Buying Treasuries as Lost Decade Survivors Debunking Pond". I rather like the idea of a "debunking pond" into which we should tip the authors of all ridiculous theories, but what does it all mean?

Before critics of my errant typing jump in, I don't think these are errors; merely an attempt by the website to include "stopwords" that will get noticed by search engines and ensure the story gets more exposure. Any more ridiculous examples welcome.

Payback: Debt and the Shadow Side of Wealth

Investing requires a lot of reading. In fact, I think I spend far more of my time reading than looking at stocks. This reading habit sometimes takes me well beyond reading quarterly statements, annual reports or conference call transcripts. This time it unexpectedly led me to a book called Payback: Debt and the Shadow Side of Wealth by Margaret Atwood.

The book is largely about the history of debt as a phenomenon. Atwood expands it to touch various topics that we often take as existing by themselves-- topics such as taxes, justice and interest. It is written from a personal perspective and is quite insightful, when it isn't being humorous. Although the gravity of the topic is quite evident and she never lets the reader forget that.

So what does this book have to do with Investing? A whole lot. Debt is something that is intertwined with the modern notions of capitalism-- which is an investor's prime playground. I think to play nice and smart in the playground, it is important to know the history of the rules we play within. I think this book serves that purpose well.

I'd love to hear people's comments on this book.