Prieur’s readings (October 12, 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.

• Andy Xie ( Why one bubble burst deserves another, September 28, 2009.
The financial crisis taught crucial lessons about the dangers of bubbles, loose regulation and debt. It’s a pity we didn’t learn.

• John Hussman (Hussman Funds): Zen lessons in market analysis, October 11, 2009.
The best way of preparing for the future is to take good care of the present, because we know that if the present is made up of the past, then the future will be made up of the present.

• John Authers (Financial Times): Manufactured surprises will keep stocks rolling, October 10, 2009.
A stronger recovery would help earnings but would also bring the risk of higher interest rates to ward off inflation in the new year. Without the stronger recovery, stocks are subject to disappointment. But these are issues for the future. For the next few weeks, US companies’ earnings are buoyed by the weak dollar, and they will probably deliver the hoped-for positive “surprise”, which will keep stocks rolling along.

Jesse’s Café Américain: The speculative bubble in equities and the case for deflation, stagflation and implosion, October 10, 2009.
As part of their program of ‘quantitative easing’ which is another name for currency devaluation through extraordinary expansion of the monetary base, the Fed has very obviously created an inflationary bubble in the US equity market. The most probable path is a lingering death for the dollar over the next ten years, with a productive economy that continues to stagger forward under the rule of the financial oligarchs.

• Gregor Macdonald ( Are gold and US Treasuries in conflict?, October 8, 2009.
As a number of observers watch both gold and Treasuries go higher in price, they’re concluding that one of these asset classes must be wrong. My current view is that gold and Treasuries are both partaking of the same surge in liquidity, now washing over most asset classes.

• Paul Krugman (The New York Times): The madness of the monetary hawks (wonkish), October 10, 2009.
I’ve been writing about the worrying signs of hawkishness at the Fed – quite a few Fed presidents seem to be itching to tighten monetary policy, even though the economy remains deeply depressed. But just how far are we from the point at which monetary policy should start tightening?

• Michael Pettis (China Financial Markets): Currency depreciation and global imbalances, October 9, 2009.
The US trade deficit unexpectedly narrowed in August, according to the Commerce Department in a report released yesterday. Exports were up slightly and imports down, mostly because of a reduction in oil imports, I think, but the trade deficit was still a hefty 3.6% of GDP. So does this mean that the rebalancing is grinding forward?

• Angela Monaghan (Telegraph): (UK) House prices “have further 17pc to fall“, October 8, 2009.
The recent rises in house prices will prove to be a false dawn because of the broader problems facing the British economy, Fitch Ratings said yesterday.

• Rowena Mason (Telegraph): Prickly oil-rich nation seeks submissive, wealthy multinational for lasting relationship, October 9, 2009.
This seems to be the gist of Iran’s attempt to woo foreign investors, after its deputy oil minister told reporters that it is apparently “ready” for a relationship with the private sector. The truth is that Iran has gone out courting for a wealthy suitor because it is running out of cash. Persistent underinvestment in its oil and gas fields – with funding directed instead towards a costly nuclear programme – meant that even in the good times production was declining by between 4 and 8pc every year.

• Willem Buiter ( Beware asset market & credit booms bubbles & busts in emerging markets, October 8, 2009.
There is a growing asset bubble in the emerging markets.

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