Prieur’s readings (October 7, 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.

• Robert Fisk (Independent): Secret plan to ditch the US dollar’s dominance uncovered, October 6, 2009.
Arab states have launched a secret plan with China, Russia and France to stop using the US currency for oil trading.

• Ambrose Evans-Pritchard (Telegraph): China calls time on dollar hegemony, October 6, 2009.
You can date the end of dollar hegemony from China’s decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.

• John Hussman (Hussman Funds): Defensive, but a measure of equanimity, October 5, 2009.
My view continues to be that the intrinsic condition of the US economy has not improved, and that the green shoots we’ve observed are a transient artifact of green dollars poured out by the government. There is little reason to expect this spending to propagate into “organic” growth.

• Francine Lacqua and Jeremy Torobin (Bloomberg): Stiglitz says markets “irrationally exuberant” about recovery, October 6 2009.
Nobel Prize-winning economist Joseph Stiglitz said US unemployment will keep rising and should be the focus for policy makers, and gains in the stock market show investors have been “irrationally exuberant” about a recovery.

• Jeremy Siegel (Financial Times): Long-term stocks win through, October 5, 2009.
The recent bear market has been particularly painful for stocks investors, beginning only five years after the vicious 2000-2002 bear market. For the ten years ending last December, stocks have offered a negative 3.15 per cent real return for US investors, constituting the fourth worse ten year period since 1871. This had led many to question whether the mantra “Stocks for the Long Run,” is still right for investors. But a look at history shows that recent experience is not uncommon and excellent returns are available to those who survive such rough patches.

• Stephen Roach (Financial Times): Crisis breeds short memories, October 6, 2009.
Hope always seems to spring eternal in liquidity-driven financial markets. That is very much the case today in the aftermath of the biggest liquidity injection in modern history. Unfortunately, along with that hope comes an acute sense of short-term memory loss – notably, a failure on the part of the broad consensus of investors to grasp the toughest lessons of the Great Crisis and Recession of 2008-09. This is a dangerous combination for increasingly frothy financial markets.

• Jenny Anderson (The New York Times): Paralysis in the debt markets is deepening the credit drought, October 6, 2009.
A year after Washington rescued the big names of American finance, it’s still hard to get a loan. But the problem isn’t just tight-fisted banks. The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up.

• Niall Ferguson (Telegraph): There’s no such thing as too big to fail in a free market, October 5, 2009.
The collapse of a financial institution is not necessarily a disaster. If free markets are to thrive, we must not allow giant, state-supported banks to believe that they are indestructible.

• Martin Wolf (Financial Times): Finding a route to recovery and reform gets tough now, October 6, 2009.
The economy is back on track, but it is too soon to celebrate victory. Rebalancing, reform and regulation are still needed, none of which will be easy. Resistance from the banks is already threatening to poison the political debate.

• Nouriel Roubini and Ian Bremmer (The Wall Street Journal): How the Fed can avoid the next bubble, October 5, 2009.
The central bank needs to watch asset prices and raise rates quickly when it decides the time is right.

• Steve Forbes (Forbes): Capitalism: A true love story, October 6, 2009.
How is wealth created? … the question is hardly an academic one in the wake of the credit crisis and ensuing global recession. It has profound political implications that will affect our economic future.

• Michael Milken (Financial Times): Prosperity rests on human and social capital, October 4, 2009.
Attractive opportunity still awaits those who do careful research; capital structure still matters; and the best investor analyses markets from both macro and micro views.

• Carol Matlack (BusinessWeek): The peril and promise of investing in Russia, September 24, 2009.
It’s still risky, but for global corporations, the country is simply too big – and too rich – to ignore.

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