Prieur’s readings (September 21, 2009)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• Richard Beales (The New York Times): Exuberance defies sober new reality, September 17, 2009.
Is irrational exuberance back in the markets? Evidence abounds that it may be. With financial chaos abating, the return of risk appetite in stock and lending markets is logical – up to a point. But risk-taking that aspires to the boom-time norm, rather than a more sober new reality, could be premature and dangerous.
• James Grant (The Wall Street Journal): From bear to bull, September 19, 2009.
Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.
• John Hussman (Hussman Funds): Strenuously overbought, September 22, 2009.
Our measures of market action gauge aspects of market behavior well beyond the obvious recent trends of major indices, and include measures of investor sponsorship that we observe through trading volume, as well as extremes in the extent and duration of prevailing trends. On these fronts, I am concerned. I should note that we are not “calling” or “predicting” a market decline in this particular instance. Rather, we are tightening of our defenses because the overall conformation of evidence we observe here has generally not followed by an acceptable return/risk profile, on average.
• Alan Abelson (Barron’s): All hail the hero, September 21, 2009.
Ben Bernanke gets an accolade from Warren Buffett. Goodbye to high-tech front-running.
• Lex (Financial Times): Gold, September 9, 2009.
Like a cure-all tonic prescribed by a travelling rural huckster, gold somehow seems to be good for nearly everything that ails us. Just consider the diverse economic backdrops that have caused its price to spike over the years: stagflation, financial panic, speculative mania and currency debasement. But the US is not Weimar Germany and, in spite of interest rates that make gold ownership cheap, the opportunity cost of owning it is still unattractive in the long-run.
• Harry Dunphy (Yahoo Finance): IMF approves sale of some of its gold, September 18, 2009.
IMF approves sale of its gold to be used in funding lending and shoring up its finances
• Gwen Robinson (FT Alphaville): Faber on China: Still right after all these years…, September 18, 2009.
Love him or hate him – his utterings on markets and investment in general frequently generate controversy – Marc (aka “Dr Doom”) Faber is often proved right. In quite a few decades of punditry, Faber has called US recessions, gold rallies and the top – as well as the bottom – of many market cycles correctly. He likes to go against conventional wisdom but those who follow his advice claim it pays off, in spades.
• Sergei Venyavsky (The Associated Press via Yahoo News!): Russian premier Putin says US dollar issuance ‘uncontrolled’, calls for diversified reserves, September 18, 2009.
Russia’s Prime Minister Vladimir Putin on Friday said other currencies besides the dollar should be used as global reserves to reduce the risks posed by swelling US debt. Putin, who spoke at an international investment forum in the Black Sea resort of Sochi, chided the US for “an uncontrolled issue of dollars” and said the American currency’s dominance had been “one of the triggers” of the global crisis.
• The New York Times: Tired protectionism, September 18, 2009.
After President Obama decided to impose a 35% tariff on Chinese-made tires, China reacted angrily and predictably: threatening to impose its own tariffs on American auto products and chicken meat. Nationalist bloggers urged China’s leaders to strike back even harder and to stop buying United States government debt. Both governments need to make sure the situation doesn’t spin out of control. A trade war would have no real winners and millions of losers in both countries.
• Liaquat Ahamed (The New York Times): The future of global finance, September 17, 2009.
International finance has always been one of the more elusive areas of economics, in part because the channels through which capital moves around the world are so tortuous that the system looks as if it had been thought up by Rube Goldberg. It’s not surprising, therefore, that among all the various forces and factors to be blamed for the current global economic crisis, the most difficult to get one’s head around is the international monetary system.
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