Financial Reading Recommendations & Next Blog

This week I am doing research for the next blog in which I'll discuss the most likely future economic environment for the US: deflation, inflation or stagflation (high unemployment rate with inflation) and what the best investments for that economic environment might be. The US may be headed for sustained high unemployment and inflation. Readers who are old enough may remember the aptly named misery index from the 1970s which equaled the unemployment rate plus the inflation rate. If you are interested in the misery index and the historical and current data for the misery index you can check the following website: http://www.miseryindex.us


I read some very interesting documents and websites during the last week:

A.K. Barnett-Hart's Harvard undergraduate thesis about the market for subprime mortgage backed Collator Debt Obligations (CDOs) is a must read. This may be the best, most clearly written and most interesting document about subprime mortgage backed CDOs out there. If you want to understand CDOs and all the problems/issues that caused the financial meltdown this is required reading. Better yet, it should be required reading for every US congress person and financial regulator. President Obama should invite Ms. Barnett-Hart over to the White House for lunch to get a better understanding of the financial regulations needed by the US. URL for the thesis: http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOmeltdown.pdf

The Yale 2009 Endowment Investments report (thanks Barry) is a very interesting document with a lot of good financial and investment information: http://www.yale.edu/investments/Yale_Endowment_09.pdf. David Swensen, Chief Investment Officer of Yale’s endowment for the last 25 years, is one the top money managers in the world. His return on investment has been 13.4% per year over the last 20 years. He has increased his allocation goal in real assets (real estate, oil and gas and timberland) to 37% for inflation protection and to capitalize on pricing inefficiencies in the asset class (from 29% in 2008). His allocations in domestic and foreign equities have decreased by 8% from last year. After reviewing the changes he is making in the endowment’s allocations it looks like he is protecting the endowment from inflation vulnerability in the future. Thus it would seem that Mr. Swensen is betting that an inflation environment looms in our economic future.

I reviewed the Feds website on the money supply of the US: http://www.federalreserve.gov/releases/h6/Current. This site lets you check out what is happening with the US money supply. There is a lot of interesting information on this site, for example: the increase of money in saving accounts and the overall increase in US money supply since 2008. It is interesting that the Feds ceased publishing the M3 numbers in March 2006 with the result that it is now harder to track the money supply growth. M3 includes the following: M2 + all other certificate of deposits (large time deposits, institutional money market mutual fund balances, deposits of euro dollars and repurchase agreements). The Feds did this, they say, to save money and because the data was not needed. I will start checking this website once a month for economic information.

The following 3 financial books are ones that I have read over the last 3 months and recommend. If you are interested, you can select the link and get a review of the books from the Amazon website:

The Ascent of Money: A Financial History of the World

The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History

The Big Short: Inside the Doomsday Machine



© 2010 Paul Cusick

Paul