Prieur’s readings (August 31, 2009)
This post provides links to a number of interesting articles I have read over the past few days that you may also find enjoyable.
• Lori Montgomery (The Washington Post): Tax pledge is a target as deficits, debt grow, August 29, 2009.
During last year’s campaign, President Obama vowed to enact a bold agenda without raising taxes for the middle class, a pledge budget experts viewed with skepticism. Since then, a severe recession, massive deficits and a national debt that is swelling toward a 50-year high have only made his promise harder to keep.
• Peter Goodman (The New York Times): A reluctance to spend may be a legacy of the recession, August 28, 2009.
Even as evidence mounts that the Great Recession has finally released its chokehold on the American economy, experts worry that the recovery may be weak, stymied by consumers’ reluctance to spend.
• Cari Tuna, Liz Rappaport and Julie Jargon (The Wall Street Journal): Halting recovery divides America in two, August 29, 2009.
At one extreme of Corporate America is a cadre of companies and banks, mostly big, united by an enviable access to credit. At the other end are firms, chiefly small, with slumping sales that can’t borrow or are facing stiff terms to do so. On Main Street, there are consumers with rock-solid jobs — but also legions of debt-strapped individuals struggling to keep their noses above water. This split helps explain the patchiness of the recovery that appears to be taking hold after the worst recession in a half-century.
• David Cho (The Washington Post): Banks “too big to fail” have grown even bigger, August 28, 2009.
Behemoths born of the bailout reduce consumer choice, tempt corporate moral hazard.
• Wolfgang Münchau (Financial Times): Central banks can adapt to life below zero, August 30, 2009.
At rates of minus 1 or 2%, people would still opt to hold cash in deposits rather than taking the trouble to hide it under a mattress and hire round-the-clock security guards.
• John Hussman (Hussman Funds): A tale of two data sets, August 31, 2009.
As I frequently note, we try to align our investment positions based on the return to risk profile that we can expect, on average, given prevailing market conditions. Our dilemma here is this. There are two sets of data from which to draw those averages. One would include ordinary run-of-the-mill economic and market cycles using post-war data from the U.S. alone. The other is broader, and includes market behavior, both in the U.S. and in other countries, following major crashes. Extended economic dislocations were typically required before fundamentals durably improved.
• Tom Petruno (Los Angeles Times): A good time to reassess strategy, August 29, 2009.
The spectacular rally since March is a gift, of sorts, to people who stayed put through the trauma of the last year. If you’ve thought about making changes in your portfolio but have just sat on your hands, this might be a great time to turn thought into action.
• Buttonwood (Economist.com): The growth illusion, August 28, 2009.
When investors pick the countries they want to back, they tend to be guided by economic growth prospects. The faster an economy grows, they reason, the faster corporate profits will grow in the country concerned, and thus the higher the returns investors will achieve. Alas, this is not the case.
• Lionel Barber (Financial Times): Lunch with the FT: Robert Skidelsky, August 28, 2009.
For much of the past 40 years, Professor Robert Skidelsky has devoted his life to one man: John Maynard Keynes, the economist, civil servant, speculator and co-architect of the postwar Bretton Woods monetary system. Occasionally, he might have wondered where his dedication was leading him. Not now. The global financial crisis has tested to destruction the belief in rational expectations and efficient markets, and Keynes, the arch-pragmatist, is enjoying an Indian summer.
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