Prieur’s readings (August 3, 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.

• John Hussman (Hussman Funds): Profiting from the tooth fairy, August 3, 2009.
It is a general investment rule that by the time that a particular thesis makes it to the cover of national news magazines, it is largely discounted by the markets. Momentum-based, trend-following, simplistic thinkers with a speculative bent generally do very well during bubble periods (though not over the full cycle). Such analysts are often able to do what we can’t bring ourselves to do, which is to risk other people’s financial security on raw price momentum, or on speculative themes that are contradicted by historical data, or that logically cannot be true.

• Edmund Conway (Telegraph): Economic crisis, and a crisis for economics, July 29, 2009.
The financial meltdown has forced ‘the dismal science’ of economics to go back to basics.

• Nouriel Roubini (Forbes): The road ahead for the global economy, July 30, 2009.
Will a weak recovery lapse into chronic stagnation?

• The beginning of the end, July 31, 2009.
New GDP figures suggest some hope for America’s economy. But the pain is far from over.

• Liz Rappaport and James Areddy (The Wall Street Journal): Bond worry: will China keep buying?, July 31, 2009.
Shaky auctions of Treasury notes this week reignited concerns about whether the government can attract buyers from China and elsewhere to soak up trillions in new debt.

• Nina Easton (Fortune): Washington learns to treat China with care, July 29, 2009.
The economic crisis has shifted the balance of power, so the US has stopped lecturing its biggest lender.

• Bill Powell (Time): Can China save the world?, August 10, 2009.
… the resilience of the Chinese economy is no mirage. If Beijing can come through the global crisis without an economic meltdown of its own, its leaders’ reputation and confidence will be boosted. An economic model that survives the worst downturn since the Great Depression will have undeniable appeal in the developing world, at a time when the Washington Consensus is thoroughly shot. Beijing, before the crisis, was already rising, its global reach and influence expanding. As the rest of the world falters, that is truer than ever. China is not yet the leader of the global economy. But it’s getting there.

• Zachary Karabell (The New Republic): They’re winning, August 1, 2009.
Why is China’s stimulus working so much better than ours?

• Michael Pettis (Financial Times): Brace for a decade of lower Chinese growth, July 29, 2009.
Willingly or unwillingly, US debt levels will decline over the next several years. As a result American consumption will grow substantially slower than the US economy, and so the trade deficit will decline. For the rest of the world, even ignoring the possibility of a decline in global investment, a contraction in the US trade deficit will bring with it a period in which economic growth will be less than consumption growth. This matters, especially for China. If the Chinese economy was the biggest beneficiary of excess US consumption growth, it is likely also to be the biggest victim of a rising US savings rate.

• Frederic Neumann (Financial Times): Emerging Asia must heed the risks of bubbles, August 2, 2009.
As the region decouples from the west, monetary policy should be tailored more to address local growth conditions.

• The barbarians are coming, again, July 28, 2009.
There are signs of revival among private equity’s giants.

• Martin Jacomb (Financial Times): Keep the financial watchdog  – but on a tight leash, July 30, 2009.
The Tories’ proposal to abolish the Financial Services Authority is a howler and would be a costly mistake.

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