Archive for the ‘Strictly economics’ Category

Great animation on how the economy works

Monday, September 23rd, 2013

Ray Dalio is CEO of Bridgewater Associates, one of the rockstars of the hedge fund world. I saw a link to the animation below in a tweet from Bill Gross. This animation describes how the economy works in the eyes of Ray Dalio, and its very understandable, especially for the lay person.


As an added bonus, here is a link to something Ray Dalio wrote on his principles–principles of life and management. He wrote this in 2011, and while Ray and I operate from two different worldviews, I think you can take a bite and spit out the bones. A couple of excerpts:

What is written here is just my understanding of what it takes: my most fundamental life principles, my approach to getting what I want, and my ‘management principles,’ which are based on those foundation. Taken together, these principles are meant to paint a picture of a process for the systematic pursuit of truth and excellence and for the rewards that accompany this pursuit. I put them in writing for people to consider in order to help Bridgewater and the people I care most about.


#8 Create a culture in which its OK to make mistakes but unacceptable not to identify, analyze, and learn from them.


#34 Make sure people don’t confuse their right to complain, give advice, and debate with the right to make decisions.

Lots of good stuff.

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors


Economic Recap – week of 06.13.11

Friday, June 17th, 2011

I’ve hit on the sentiment theme a few times now, and I hope I haven’t suggested a bit of pessimism isn’t warranted. This week’s economic releases certainly emphasized the fact that we’ve hit a soft patch in the economic data. Most of the respectable people I’ve read seem to believe that it’s just a slowdown in a sub-par recovery–nothing more for now. Naturally, the more one reads that the more wary one must become. Just like the soured sentiment toward stocks, sentiment can swing either way with respect to the economy, and if most commentators are too sanguine on the current weakness that can present its own problems.

Inflation – both the Consumer and Producer Price Indexes were higher than expected–on all fronts; that is, the core and headline inflation rates were all slightly higher than expected.

Housing – both Building Permits and Housing Starts were better than expected, but both are at such low, relative levels that it hardly matters (chart below). Sure, it’s better than them going the other direction, but it’s little to write home about. There was a 13% jump in Mortgage Applications, but that’s largely because of a continued rise in refinancing activity, not the more-important-to-housing purchase activity. Still, refinancing puts more money into consumers’ pockets, and we need that.

Regional Indicators – the Empire State Manufacturing and Philly Fed reports both now reside in the contraction zone, the one confirming the other.


  • Initial Jobless Claims fell more than expected, but they remain stubbornly above the 400,000 mark.
  • Industrial Production rose less than expected (+0.1% v. +0.2%).
  • Capacity Utilization fell (to 76.7%) instead of rose (77.0%), as economists had expected.
  • University of Michigan Consumer Confidence fell sharply (from 74.3 to 71.8)
  • Leading Economic Indicators, however, rose by +0.8%, whereas economists had expected a drop to -0.3%.

Phwew, ‘glad that’s over

Monday, September 20th, 2010

The National Bureau for Economic Research declared that the recession that began with the first quarter of 2008 officially ended June 2009.  The group’s Business Cycle Dating Committee, made up of seven economists, listed below, decided via a Sunday conference call.

The current members of the Business Cycle Dating Committee are: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; James Stock, Harvard University; and Mark Watson, Princeton University. David Romer, University of California, Berkeley, is on leave from the committee and did not participate in its deliberations.

Here’s the Wordle version of the press release.

And if you want to see the whole, gorey thing, click here.

Quack, quack

The NBER managed to end a lot of bar bets by defining what a duck is.  Check out this selection from the press release.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.

The first paragraph, in a nutshell, describes the business cycle.  The second paragraph, technically speaking, ends all double-dip bets, since the NBER decreed that the recession is over and that the next one will be its very own.  In short, there can now be no double dip since a double dip technically occurs before a recession ends.

It doesn’t matter what one calls it, though, if we dip back into decline in the next several quarters it may not fit the letter of the law, but it certainly will the spirit of it.


Bill Poole, former St. Louis Fed Governor

Wednesday, August 11th, 2010

He was interviewed on Bloomberg radio this morning.  Here are a couple of bits I picked up while sort of listening:

Monetary policy can not fix what is wrong with the economy.

The problem, intead, is regulatory uncertainty.

The result, he said, is that, as a consequence, businesses are afraid to do anything . . . like hire.

He proposed that put a moratorium on new regulations for three years, because “businesses can’t play the game when they don’t know the rules.  It’s like not knowing whether you’re playing poker or bridge.”

When asked by the reporter if the economy is in a liquidity trap, where, at a certain point, lower rates don’t do anything.

His response was, “we’re not in a liquidity trap; we’re in a regulatory trap.”


Debt Overhang: Economics 101 in Magic Marker

Tuesday, July 20th, 2010

Well, this is clever.  The Cleveland Federal Reserve puts out a very low-tech presentation on the debt overhang problem.  Aside from the cuteness, this is great educational stuff, and the implications are profound.