This post provides links to some thought-provoking articles I have read over the past few days that you may also find of interest.
• Randall Forsyth (Barron’s): The market’s formula: a square-root rally, June 4, 2009.
After nailing a 40% surge since early March, Doug Kass sees “potholes” in the road ahead.
• Donald Luskin (SmartMoney): Good news has arrived for investors, June 5, 2009.
Three months ago, within days of the bottom in stocks, aggregate forward earnings started to turn around. It was less than a ringing endorsement at first. It just meant that the decline in earnings was now expected to get less bad – not that earnings would actually grow. But it was a perfect buy signal. And now aggregate forward earnings are on the verge of forecasting that earnings growth is back. It’s a buy signal. And if the pattern holds, it will be a good one.
• Holman Jenkins Jr. (Hoover Institution, Stanford Univeristy): The financial markets and fear itself, June & July 2009.
Why investor confidence plunged.
• Mohamed El-Erian (Financial Times): Why Bernanke is right to be worried, June 3, 2009.
Fed chairman Ben Bernanke’s congressional testimony on Wednesday warrants careful attention by market participants – this at a time when policy measures play an unusually large role in determining both absolute and relative values in many markets.
• Paul Krugman (The New York Times): The stagflation myth, June 3, 2009.
The appearance of stagflation was a win for conservative economics, but it was conservative monetary economics that was partly vindicated: Milton Friedman’s assertion that there is no long-run tradeoff between inflation and unemployment turned out to be correct, and is now part of the standard canon. But where is the Great Society in all this? Nowhere. The claim that stagflation proved the badness of liberal ideas is pure propaganda, which not even conservative economists believe.
• Martin Wolf (Financial Times): Rising government bond rates prove policy works, June 2, 2009.
Stanford’s John Taylor and the Harvard historian Niall Ferguson have both argued in the FT that the US fiscal path is unsustainable. Martin Wolf’s view is that there are powerful arguments against fiscal retrenchment right now and he welcomes recent moves in the bond markets.
• Gillian Tett (Financial Mail): Crowded debt sales risks causing “auction fatigue“, June 4, 2009.
Make no mistake: the potential for an accident is rising, as the auction calendar fills. Fingers crossed that the phrase “government bond auction fatigue” is not something that ever hits the headlines of the mainstream press this year. Even – or especially – in those dangerous summer months.
• The Economist: Central banks’ exit strategies – this way out, June 4, 2009.
The Federal Reserve weighs plans to unwind its unconventional stimulus.
• Niall Ferguson (Telegraph): The trillion dollar question: China or America?, June 1, 2009.
Who is going to come out of the economic crisis stronger and with the whip hand – China or America?
• John Authers (Financial Times): China’s health gives rise to fresh growth theory, June 5, 2009.
• David Pilling (Financial Times): China’s success outstrips democracy for now, June 3, 2009.
Twenty years after Tiananmen Square the party has it both ways: authoritarian government with increasing, though circumscribed, market liberalisation.
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