Prieur’s readings (July 2, 2009)
This post provides links to a number of interesting articles I have read over the past few days (while touring through Europe) that you may also enjoy.
• Gary Stix (Scientific American): The science of economic bubbles and busts, July 2009.
The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money.
• Matt Taibbi (Rolling Stone Magazine): The great American bubble machine, July 9-23, 2009.
From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again.
• Bill Gross (Pimco – Investment Outlook): “Bon” or “non” appétit?, July 2009.
Investors who stuffed themselves on a constant diet of asset appreciation for the past quarter-century will now be enclosed in a cage featuring government-mandated, consumer-oriented fasting. “Non Appétit,” not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the US. Because this is so, short-term policy rates will be kept low for longer than cyclical norms, and the outlook for risk assets – stocks, high yield bonds, and commercial and residential real estate will involve just that – risk. Investors should stress secure income offered by bonds and stable dividend-paying equities.
• John Hussman (Hussman Funds): Green shoots and a grain of salt, June 29, 2009.
Let’s take a breath. Economic reports – especially growth rates – can be very misleading when they are not placed into context. In short, beware of analysts bearing indicators that all is suddenly well, and check their facts.
• Martin Feldstein (Financial Times): The Fed must reassure markets on inflation, June 29, 2009.
The immediate challenge is to reassure investors about both the risks of inflation and the projected growth of fiscal deficits.
• Robert Samuelson (Washington Post): “Reforms” won’t prevent future crises, June 29, 2009.
Since its earliest days, the United States has suffered periodic financial crises. Now we’re in the midst of another crisis. It would be reassuring to think that the Obama administration’s financial “reforms” — or, indeed, any conceivable alternative — would prevent these collapses for all time. Dream on.
• Martin Wolf (Financial Times): The cautious approach to fixing banks will not work, July 1, 2009.
The financial system had to be rescued from its own mismanagement of risk. This is not going to be changed by external supervision, which would be like moving the regulatory deckchairs on the deck of the Titanic. It is going to be changed only by fixing incentives.
• Brad Setser (Council on Foreign Relations): The savings glut. Controversy guaranteed, 30 June 2009.
It is quite possible to believe that the buildup of vulnerabilities that led to the current crisis was a product both of a rise in savings in key emerging markets, a rise that – with more than a bit of help from emerging market governments – produced an unnatural uphill flow of capital from the emerging world to the advanced economies, and policy failures in the US and Europe.
• Anatole Kaletsky (Times Online): How the ECB’s fig leaf has completely withered away, June 29, 2009.
Leaving aside the question of whether it is a good or a bad idea to print money, which of the world’s leading central banks is printing money faster: the Fed or the European Central Bank?
• Wolfgang Münchau (Financial Times): Germany and France need to sing in tune, June 29, 2009.
Debates over fiscal approaches aside, it is probably not a good idea for the two largest members of the eurozone to move in opposite directions.
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