Prieur’s readings (December 31, 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 Merkal (Aleph Blog): One dozen or so books on economics, December 30, 2009.

• Tom Petruno (Los Angeles Times): The most memorable financial stories of 2009, December 30, 2009.
A spectacular market crash, a dramatic rebound, a financial system and economy pulled back from the brink of collapse – who writes this stuff, Hollywood? The most riveting reality TV of 2009 was what emanated regularly from Wall Street and Washington.

• Antonia Oprita (CNBC): Volatility will increase, US will lead in 2010 – Marc Faber
Markets are likely to be more volatile and US markets are likely to outperform emerging markets in 2010, Marc Faber, author of the Gloom, Doom and Boom Report, told CNBC.

• Scott Grannis (Calafia Beach Pundit): Predictions for 2010, December 29, 2010.

• Matthew Lyn (Bloomberg): Next decade will be good one for stock investors, December 29, 2009.
It’s hard enough to know what will happen in the markets in January 2010, never mind December 2019. The main thing investors need to know about the coming decade can be summed up in one of those pithy Twitter updates. Will it be good or bad for stocks? Everything else is extraneous. The answer? Good. A shortage of capital from any source other than the stock market; moderate but persistent inflation; and the probability that economic growth will be stronger than many economists expect means that “the 10s” will be a time when equities start to have some rocket fuel in their engine again.

• Mark Congloff (The Wall Street Journal): Profit outlook leaves high hurdle for stocks, December 30, 2009.
Wall Street has formed a fairly solid consensus that corporate earnings will spike in 2010. The problem for stock investors is that the market may be priced for it already.

• James Kwak (Baseline Scenario): The power of conventional wisdom, December 29, 2009.
For me, the worrying thing about investing in stocks is not specifically the high price-earnings ratio. It’s the fact that in the 1990s, everyone started saying that stocks were the best long-term investment, because “over any thirty-year period ever stocks do better than any other asset class.” That’s not a direct quote, but I’m sure you can find hundreds that are virtually the same. There are two problems with this statement. The first is that it’s assuming the future will be like the past. But the bigger problem is this: if everyone thinks that X is the best long-term investment, then it probably isn’t, in part because enthusiasm about X will drive the price of it up. I believe people were saying roughly the opposite in the late 1970s, and look what happened in the next twenty years.

• Brad DeLong (Project Syndicate): The fairness of financial rescue, December 29, 2009.
Perhaps the best way to view a financial crisis is to look at it as a collapse in the risk tolerance of investors in private financial markets. Maybe the collapse stems from lousy internal controls in financial firms that, swaddled by implicit government guarantees, lavish their employees with enormous rewards for risky behavior. Or perhaps a long run of good fortune has left the financial market dominated by cockeyed optimists, who have finally figured that out. Or perhaps it stems simply from unreasoning panic.

• Viral Acharya & Matthew Richardson (Forbes): A price tag for systemic risk, December 30, 2009.
Banks should pay a fee for the guarantees they receive during meltdowns.

• Deniz Igan, Prachi Mishra, and Thierry Tressel (IMF): A fistful of dollars: Lobbying and the financial crisis, December 2009
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question.

• Dave Livingstone (Llinlithgow Associates): Vicious cycle risks: Instabilities, upsets and the ME outlook, December 27, 2009.
The most important issue we face over the next several decades is adapting the architecture of the world system to the rise of rapidly emerging countries to accommodate the rise of the new powers, incorporating them constructively into that system, supporting their continued growth and responding to collective challenges, e.g. energy, water, environment, et.al. The most important and urgent right now and for at least the rest of this decade, and beyond, is establishing stability and security in the ME and encouraging the socionomic development of that region. Within that broad umbrella, despite the on-going challenges of Is/Palestine, Iran, Afghanistan and Iraq, the central issue is the stability and survival of Pakistan.

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1 comment to Prieur’s readings (December 31, 2009)

  • Prieur -thanks for listing my essay on the ME. It’s based on some other work, that given the number of folks who’re interested (clicked thru), might serve as useful background.

    On the “theoretical” framework ala the EMH and investment theory (puns intended – hopefully this works)the question is what is good government and how to get it:
    Good Government for a Stable World

    On asset allocation, portfolio design and active management (to continue the analogies for investment/market types) the application of Good Gov’t theory to foreign policy “investment” would be:
    Brave New World: Constructive Engagement and US Foreign Policy

    And for specific asset class, in this case the ME, applications using the theory and the broader portfolio strategies they might be interested in:
    Middle East Solutions: Issues, Relationships, Frameworks and Approaches

    Forgive me for loading things up here, if necessary. One of my major lessons from 2009 is that we can’t, as investors or citizens, ignore politics or governance. Not in crisis but especially not in the long-term either. The lesson that Stratfor, Friedman and Mauldin try to teach us. I hope this is helpful.

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