Prieur’s readings (July 30, 2009)

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Bill Gross (Pimco – Investment Outlook): Investment potions, August 2009.
A 3% nominal GDP “new normal” means lower profit growth, permanently higher unemployment, capped consumer spending growth rates and an increasing involvement of the government sector, which substantially changes the character of the American capitalistic model. There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields, as well as selectively chosen emerging market commitments where nominal GDP growth prospects are tilted upward as opposed to gravitating to new lower norms.

• After the fall, July 27, 2009.
The collapse in world trade has stopped, but there is no sign of a recovery.

• Paul Ormerod (Financial Times): Animal spirits rarely stay down for long, July 27, 2009.
History shows that very few recessions last longer than two years. And most recoveries, once they start, are strong.

• Anna Jacobson Schwartz (The New York Times): Man without a plan, July 25, 2009.
As Federal Reserve chairman, Ben Bernanke has committed serious sins of commission and omission – and for those many sins, he does not deserve reappointment. I am certain that there are economists whose reputations for outstanding academic work in monetary policy are every bit as distinguished as Mr. Bernanke’s, and who have good judgment and experience within the Federal Reserve System. President Obama should choose one of them.

• Nouriel Roubini (The New York Times): The great preventer, July 25, 2009.
Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0. The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression. For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.

• Floyd Norris (The New York Times): Politicians accused of meddling in bank rules, July 28, 2009.
Accounting rules did not cause the financial crisis, and they still allow banks to overstate the value of their assets, an international group composed of current and former regulators and corporate officials said in a report to be released Tuesday. The report, from the Financial Crisis Advisory Group, also deplored successful efforts by politicians to force changes in accounting rules and said that accounting standards should be kept separate from regulatory standards, contrary to the desire of large banks.

• Stephen Roach (Financial Times): I’ve been an optimist on China. But I’m starting to worry, July 29, 2009.
Unlike most, I have been a steadfast optimist on China. Yet I am starting to worry. A macro strategy that exacerbates worrying imbalances is ultimately a recipe for failure. In many respects, that’s what the global crisis and recession of 2008-09 are all about. China will not get special dispensation from the most critical lesson of this post-crisis era.

• Vitaliy Katsenelson (Morningstar): The China bubble is coming – but not the one you think, July 27, 2009.
The longer the excess persists, the harder gravity will bring China’s economy back to Earth.

• David Pilling (Financial Mail): Washington risks taking China too seriously, July 29, 2009.
Far from being a sign of strength, Beijing’s vast foreign reserves are the side-effect of an over-reliance on exports.

• Jeremy Warner (Telegraph): Stock markets are rising even as the economy bombs – what’s going on?, July 27, 2009.
Why is the stock market going up when the economy is going down? The answer might seem self evident; it is because rightly or wrongly investors are looking through the present economic gloom to a durable recovery a year or two hence. Yet this somewhat simplistic question demands more nuanced explanations than that.

• Joe Hagan (NY Magazine): Tenacious G, July 26, 2009.
Inside Goldman Sachs, America’s most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism

• Erin Davies (Time): Why counting money can make you happier, July 25, 2009.,8599,1912574,00.html
We all know money buys luxuries like sports cars and Manolo Blahniks, necessities like groceries, and intangibles like preferential treatment. (When was the last time Donald Trump waited in line for anything?) Now there is evidence that just counting money can produce valuable psychological benefits.

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