Prieur’s readings (November 25, 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.

• Rob Arnott (Research Affiliates) The “3-D” hurricane force headwind, November 2009.
The heroic rally of the past eight months has many thinking the good ole days are back and that mainstream 60/40 investing is alive and well. But flourishing pines at the mountain’s base do not constitute a thriving and shelter-providing forest in the heights above. A longer term perspective reveals that some powerful gales of inflation may surprise us on the trail to real returns over the coming decades. Most investors have very little invested in assets that are likely to serve them well in that brave new world. None of these observations is likely to help us in the weeks and months ahead. But, the long term does matter; institutional investors ought to be prepared for the shocks that, to us, seem almost inevitable in the years ahead.

• Randall Forsyth (Barron’s): Are dollar bears too bullish? November 24, 2009.
It would be so simple to follow the playbook of the inflationary 1970s. Today’s deflationary threat is more dangerous, however.

• Jim O’Neill (Times Online): Globetrotting puts “official” figures into perspective, November 23, 2009.
Let us approach 2010 thinking about the opportunities that the aggressive response of international and domestic policymakers – and the world itself – offer us.

• Brian Milner (The Globe and Mail): Why Niall Ferguson is still bearish, November 23, 2009.
Harvard University financial historian Niall Ferguson has climbed to the head of the doom brigade – and the bestseller lists – with his strong views, clear prose and prescient pronouncements about the global financial crisis. The Oxford-schooled native of Glasgow, whose latest best-seller, The Ascent of Money, is now out in paperback, continues to make waves. This article provides excerpts of an interview Mr. Ferguson did with Report on Business.

• Martin Wolf (Financial Times): Give us fiscal austerity, but not quite yet, November 24, 2009.
Slashing deficits now would be wrong. What is needed, instead, are credible fiscal institutions and a road map for tightening that will be implemented, automatically, as and when (but only as and when) the private sector’s spending recovers.

• Brian Wesbury and Robert Stein (Forbes): This recovery can’t get no respect, November 24, 2009.
The United States economy is in a V-shaped recovery after hitting bottom during the panic of 2008. A vast (and we mean vast) majority of the data signals a very sharp recovery from the lows of last winter. Commodity prices, stock prices, department store sales, housing, manufacturing indexes, credit spreads and dozens of other economic measures reflect a recovery. The only thing that hasn’t turned around yet is the job market. However, the job market is, and always has been, a lagging indicator of economic recovery. Stack it all up and it should be a no-brainer to accept the fact that the economy is on the mend. But wait a minute … it ain’t that easy. No matter where we go, no matter who we talk to, optimism is argued against, put down, dismissed and ignored.

• Bart Hobijn and Charles Steindel (Federal Reserve Bank of New York): Do alternative measures of GDP affect its interpretation? November 23, 2009.
Gross domestic product’s high correlation with unemployment and inflation makes it a key measure of the US economy. Yet the somewhat arbitrary nature of the GDP construction process complicates interpretation and measurement of the indicator. A study of an alternative measure of GDP designed to address the published series’ limitations finds that the adjusted measure differs in its representation of the long-term trend – but not the short-term fluctuations – of GDP.

• Robert Zoellick (Financial Times): Heed the danger of asset bubbles, November 24, 2009.
The revival of John Maynard Keynes should not lead us to ignore Milton Friedman: Where will all that money go?

• Alan Abelson (Barron’s): Long way for nothing, November 23, 2009.
Our wobbly economy and monstrous deficits dogged President Obama on his Journey to Asia. Despite the big stock market rally, we aren’t better off than we were before Lehman went under.

• Paul Farrell (MarketWatch): Goldman’s secret moral pathology, November 24, 2009.
Fifteen symptoms of a Wall Street disease destroying democracy and capitalism.

• Ambrose Evans-Pritchard (Telegraph): Greece tests the limit of sovereign debt as it grinds towards slump, November 22, 2009.
Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance.

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