Prieur’s readings (November 17, 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.

Michael Lerner and Ethan Hill (GOOD.is): The new Nostradamus, October 1, 2009.
Can a fringe branch of mathematics forecast the future? A special adviser to the CIA, Fortune 500 companies, and the US Department of Defense certainly thinks so.

• Paul Lim (The New York Times): 10 years later, a much less expensive Dow 10,000, November 14, 2009.
Investors may take some comfort now that the Dow Jones industrial average is back above 10,000 after slipping to around 9,700 at the end of October. But the return to 10,000 also serves as a bitter reminder that stocks have gone virtually nowhere, on balance, for more than a decade. Look a bit deeper, though, and you’ll find that there have been some changes in the domestic market, too, in the last 10 years – and largely for the better. Some of them, however, are hard to see at first glance.

• Tracy Alloway (FT Alphaville): The not-so-small small bank CRE problem, November 16, 2009.
Last week, the Federal Reserve Bank of Atlanta president Dennis Lockhart spoke of a “feedback loop” between US commercial real estate, regional banks and unemployment – something so acute it could derail the country’s economic recovery. Thanks to Deutsche Bank’s fixed income team, this article now presents the problem in pictorial form.

• John Carney (Clusterstock): How a government bailout created today’s commercial real estate catastrophe, November 16, 2009.
By now we all know that “the next shoe to drop” as a result of the bursting of the credit bubble is commercial real estate. In a pattern familiar from the housing crisis, the value of commercial real estate has been plunging while the volume of distressed commercial real-estate loans is rapidly rising. The problems in commercial real estate could slam financial institutions, especially smaller regional and community banks, with billions of dollars in new losses. That, in turn, could snuff out whatever chances we have of a sustained economic recovery.

• John Hussman (Hussman Funds): “Should come as no shock to anyone“, November 16, 2009.
As a result, moving into 2010, a fresh round of mortgage losses should come as no shock to anyone either. I’ve noted that we are facing a predictable second wave of defaults, based on a mountain of scheduled resets for Alt-A and Option-ARM mortgages, which began in recent weeks and will continue through 2010 and 2011. One of the counter-arguments against such concerns is the assertion that “the majority of these mortgages have already been modified”. Unfortunately, this assertion is not true.

• Alec MacGillis (The Register-Guard): The stimulus – unlike the New Deal, Obama’s plan does not put people on the public payroll, November 15, 2009.
Why has a White House that talks so much about boosting employment steered clear of the most direct strategy that could keep Americans on the job? Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers’ private-sector employment or by creating new government-paid jobs.

• Daniel Gross (Slate): Coming soon: Jobs! November 14, 2009.
Some recent data points, and an understanding of the behavior of companies at different phases of the business cycle, suggest we’ll have job creation sooner rather than later.

• Carlo Cottarelli (iMFdirect): Post-crisis – what should be the goal of a fiscal exit strategy?
One obvious fallout of the global financial crisis is a huge deterioration in fiscal conditions, particularly in advanced countries. Pretty much everybody agrees that something has to be done about this, and that fiscal policy needs to be tightened once the economic recovery has firmly established. The first step is to stabilize the debt-to-GDP ratio.

• Ambrose Evans-Pritchard (Telegraph): China has now become the biggest risk to the world economy, November 15, 2009.
Far from taking over as the engine of growth from an exhausted West, China is making matters worse. Its “beggar-thy-neighbour” policies continue to play havoc with global trade and risk tipping the world into a second leg of the Great Recession.

• Simon Schama (Financial Times): China’s on-off American romance, November 16, 2009.
The attraction of yang and yin drew the two empires to each other in an enduring, if bitterly unequal relationship.

• Peter Garnham (Financial Times): Renminbi sparks strong views, November 16, 2009.
As Barack Obama undertakes his first official visit to China, the fate of the renminbi is again in the spotlight of the international currency market. Ever since the People’s Bank of China changed the wording of a key currency policy statement last week, there has been speculation about whether and when the Chinese currency will be allowed to strengthen.

• Jeremy Shapiro and Nick Witney (Financial Times): How Europe can be heard in Washington, November 15, 2009.
Europeans must steel themselves to discuss, within the EU, the big issues on which Europe must engage the US.

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