After the event, I had an opportunity to spend a couple hours having Breakfast with Dave.  We view the world in very similar lenses and I think Dave is one of the few economists on the street who “gets it” – in this case, “it” is the extended impact of deleveraging on the global economy.  Very much enjoyed breakfast and getting to know the Gluskin Team, as well as hearing about Dave’s experience at the Munk Debates.  Thanks for breakfast guys.

P.S.  William – the raffle was a terrific success!!

• There is a gene for value investing.  For Klarman, it’s natural, but for a lot of people it is against human nature – while everybody appreciates a bargain, everyone also overreacts and gets scared when the market is going down.
• Investing is the intersection of economics and psychology.  The economics is not that hard.  Controling the emotion is harder and it comes with experience.
• Value investors have to be patient and disciplined.
• Leverage can magnify returns but it also magnifies losses. If you are leveraged and greedy you blow up.
• You need to balance arrogance and humility.  When you buy anything, it is an arrogant act.  You need the humility to know that you might be wrong.
• Buffett evolved through three states: from buying cigar butts and getting something for free; to buying great businesses at cheap prices; to buying great businesses at fair prices and holding on forever.  Klarman is still in phase one.  Buffett has a better eye for great businesses.
• Klarman does not have a Bloomberg on his desk, but he sits on a trading desk thinking big thoughts – “we are not traders.”
• Baupost is making medium-to-long term investments – three to five years or longer.
• The only reason to care about market gyrations is to buy something cheaper – benefit from volatility.
• Baupost’ s rhythm is opposite most of the market’s rythym.
• When the market goes straight up, the little guy finds it irresistable and get’s sucked in. The return for all mutual funds in the 90s was 600 bps higher than the average investor’s return because they get in at the wrong time and out at the wrong time.
• Buying is easier.  Selling is hard.  There is no timing element.  You can never know how good a bargain someone will offer you tomorrow.  If you see a dollar laying around for sixty cents, you have to buy it, and buy a little more if it falls further.  The risk is that the dollar isn’t really worth a dollar.
• A lot of stocks are cheap for a reason.  Many stocks are perennial undervalued because they are mismanaged.  Good management adds value.  Bad managements think of themselves first.
• Klarman had no interest in the firm when he started Baupost. He looks for people that will put clients first.  If you do this, you will do great.
• When people give money to instituional managers, there is a giant separation between the interest of the money and the interest of the stewards of the money.
• The Earnings of financials hit 40% of the broad market several years ago. It seems ridiculous that we are an economy that only makes money from making money. The financial industry as a whole does not add any value.  Finance, in terms of complex secruties, etc. is disturbing.
• The sovereign crisis is a large serious problem.  But the real problem is the banks that own government debt.  If one bank goes, they will go like dominoes.  The problem is the system is so interconnected.
• Subordinated debt holders should take a haircut when businesses fail.  If Citi had done that, they would not have needed a bailout.  These things can be accomplished differently.
• In this particular case, the problem in Europe is so large, they will likely need assistance.  Governments have created the problem by encouraging moral hazard.  We need to demand that our politicians man up and do the right thing.

http://www.valueinvestingworld.com/2011/11/charlie-rose-interviews-seth-klarman.html

• Three big themes: deleveraging; monetary and fiscal policy out of ammunition; political will has deteriorated to address structural issues.
• We have reached our debt limits.  Europe has reached their debt limits.  Now the process is in reverse.
• You can break the world into two parts. The developed debtor world, which is deleveraging.  And the emerging creditor countries.
• The key is to spread it out as long as long as we can so it is not disorderly.
• If we just cut spending by 3% and raised taxes by 3% we would cut the deficit in half over ten years.  Instead we have a political division so there is no compromise, which is extremely dangerous during a deleveraging process.
• Resolving the public sector debt does not resolve the problem.  Overindebted individuals face the same problem.
• The social impact of extended unemployment is a cancer to society.  The unemployed must be made productive.
• Reality works in a certain way.  You have to understand reality.  Europe has a debt problem.  There are three options.  Transfer the money. Print the money. Or write-down the debt.
• We all should recognize that we can be wrong.  Success comes from knowing what you don’t know.
• The number one principle at Bridgewater is if something doesn’t make sense, you have the obligation to explore it.
• One of his favorite books is Einstein’s Mistakes.
• The great fallacy of all of mankind is people know more than they do.
• Every place has to have a culture.  Culture is values.
• Bridgewater is an unusual place with an unusual culture. The number one principle is don’t believe anything.  Think for yourself.
• An independent thinker has to have a different point of view than the next person.
• The cost of being wrong is a terrible thing.  So worry about being wrong.
• Everybody is looking at what to do, and each approached it with a bias, but no one has thought about or discussed how the economic machine works.
• There is not enough discussion on how to get people to be self-sustaining.
• The most important thing you can give anyone is opportunity.
• The number one problem today is our leaders are not having a quality dialogue.
• There are two worlds.  Debtor developed countries and emerging creditors.  Classically, the US and China.
• Those worlds can be divided into those that can and cannot print.
• Europe cannot print.  There is a limit to wealth transfers. They will likely print (ultimately) and take haircuts.
• China cannot control credit growth.  This is an emerging credit bubble.  This is a dangerous thing that the Chinese must gain control of.
• The US is in a deleveraging.  We don’t have the ability to ease via monetary policy.  It is not as effective.  On top of that, we have social tension.
• We should be able to grow at a rate comparable to income growth – 1.5% to 2% – but unemployment creates social tension analogous to that existing in Greece, Spain, etc.
• That is the best case scenario.  If we have a disruption, we can not recapitalize the banks.  It is not feasible.
• You have to have agreement to have a plan.  You can not have people at odds.
• Our job is to stay one step ahead.
• I suppose I’m concerned.  It is a test of us.  It is a test of our society.

http://www.charlierose.com/view/interview/11957

http://www.telegraph.co.uk/news/worldnews/europe/eu/8897662/EU-bans-claim-that-water-can-prevent-dehydration.html

They may not have figured out the debt crisis just yet, but at least they have scrapped the bans on bent bananas and curved cucumbers.

Let’s say you come home from work and find there has been a sewer backup in your home, and you have sewage up to your ceilings.  What do you think you should do…raise the ceilings, or pump out the shit?