Prieur’s readings (December 28, 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.

• David Merkel (Aleph Blog): Five notes on the current market situation, December 26, 2009.
We are in an ugly situation where most investors do not grasp the gravity of the troubles we are in.

• E.S. Browning (The Wall Street Journal): Adjusted for inflation, Dow’s gains are puny, December 28, 2009.
Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation. Despite its 2009 rebound, the Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. And that is without counting consumer-price inflation. In 1999 dollars, the Dow is only at about 8200 and would have to rise another 28% or so to return to 1999 levels.

• David Adler (Barron’s): A flat dow for 10 years? Why it could happen, December 28, 2009.
Economists known as the “liquidity movement” predicted the financial crisis. Now they say we strangle securitizations at our own peril.

• Vito Racanelli (Barron’s): Back in your own backyard, December 28, 2009.
Emerging-market funds are fast becoming the new crowded trade, if they aren’t already, as institutions and individuals pile into small, overseas markets typically with less liquidity, which accelerates the rise.

• Rachel Sanderson and Gillian Tett (Financial Times): Concerns grow over sovereign debt risk, December 27, 2009.
Sovereign debt risk is emerging as an important concern for senior bankers, risk consultants and auditors following financial woes in Dubai and Greece. After two years of worrying about mortgage and corporate risk, attention is now shifting to managing the risk of country defaults and bankruptcies of heavily indebted regional governments and city administrations, say bankers.

• Insead Knowledge (Emirates Business): Do we need a new reserve currency? December 27, 2009.
A new global currency should replace the US dollar as the international reserve currency, as the long-term deterioration of America’s economy and the greenback is fuelling a “currency-regime crisis”, says Martin Wolf, associate editor and chief economics commentator of the Financial Times.

• Andy Kessler: Put down that shovel! December 26, 2009.
Forget old-fashioned infrastructure. Here are six government projects to foster a lasting economic recovery.

• John Koza (Global Research): The long decline of the American economy, December 21, 2009.
The ultimate cause of America’s collapse is the entrenched, rigid, faulty ideologies that our nation’s leaders have adopted. These ideologies placed America on the road to ruin. Foreign policies, especially wars paid for by borrowing, have increased the speed of travel on this road. And as incomes decrease, so do our freedoms. Future historians will someday ask, who lost America? The answer will be the American business community, its economists, and its politicians who have adopted rigid ideologies. That answer will serve as America’s epitaph.

• Douglas McIntyre (24/7 Wall St): China is now the world’s second largest economy, December 27, 2009.
China became the world’s second largest economy in 2009, passing Japan, which has held this distinction for decades. The CIA Factbook, a source of data that many experts use to compare national economies, reported that China’s 2008 GDP was $4.6 trillion and Japan’s was $4.9 trillion. The 2009 numbers are likely to be $4.75 trillion for China and $4.6 trillion for Japan.

• Robin Goldwyn Blumenthal (Barron’s): Shorting the economic recovery, December 28, 2009.
Perhaps one of the greatest failings in the run-up to the financial meltdown was a lack of perspective – an inability by many market participants to see the big picture. Not so with Kevin Duffy and Bill Laggner, principals of the Dallas-based hedge fund Bearing Asset Management. With the help of their proprietary credit-bubble index, developed in 2004, the managers sounded early warnings on housing and credit excesses, and capitalized handsomely on their forecasts by shorting Fannie Mae, Freddie Mac, money-center banks and brokers, builders, mortgage insurers and the like.

• Gretchen Morgenson (The New York Times): What iceberg? Just glide to the next boardroom, December 26, 2009.
You might think that board members overseeing businesses that cratered in the credit crisis would be disqualified from serving as directors at other public companies. You would, however, be wrong.

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