Prieur’s readings (January 4, 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.

• Tyler Cowan (The New York Times): Fruitful decade for many in the world, January 2, 2010
It may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe.

• Edmund Conway (Telegraph): The economic “experts” who stopped making sense, December 31, 2009.
If there is one thing this crisis ought to have taught us, it is that those apparently “in the know”, and in power, often have just as little clue about what is going on as the rest of us. The public looked to the politicians; the politicians looked to the economists; the economists looked to their mathematical models. The upshot was the financial crisis.

• David Wilson (Bloomberg): Goldman makes “call of decade” by promoting BRICs, December 31, 2009.
Goldman Sachs Group Inc.’s forecast that Brazil, Russia, India and China would eventually eclipse the Group of Seven countries economically has been described as “the biggest market call of the decade”.

• Mark Hulbert (New York Times): What the past can’t tell investors, January 2, 2010.
A stock that builds momentum in one year often carries it over into the next. Might that momentum effect work for the overall stock market? It’s an especially tantalizing prospect right now, after the market’s surge over the last nine months of 2009. Investors would love to see that trend continue into this year. Unfortunately, though, there is precious little statistical support for it.

• John Authers (Financial Times): Three scenarios chart potential hazards ahead, January 2, 2010.
There is no point in forecasting the S&P 500 or the FTSE 100 for 12 months hence to the last digit. Instead, we need to look at broader scenarios. What are the most likely courses of events or narratives for the 12 months ahead, and what do they imply for investments? And what probability, roughly, do we put on each one occurring?

• John Hussman (Hussman Funds): Timothy Geithner meets Vladimir Lenin, January 4, 2010.
Last week, while Congress and the nation were preoccupied with the holidays, the Treasury made a Christmas eve announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years. The Treasury’s action last week completes this circle. It provides a surprise pledge of public resources to make these mortgage loans whole, and an unlegislated commitment to make the “implicit” backing of Fannie Mae and Freddie Mac explicit. All without debate, and without the force of public will. Even as the homeowners underlying these mortgages lose their property to foreclosure.

• James Turk (Free Gold Money Report): The Federal Reserve needs more money, December 30, 2009.
The US government doesn’t pay its bills with ‘cash currency’, the green paper Americans carry around in their pocket. So the Fed cannot crank up the printing press like central banks did in Weimar Germany in the 1920s, or in recent years, in Zimbabwe. The US government needs ‘deposit currency’ – or ‘electronic’ currency, to put it into Mr. Bernanke’s terms – so that it can pay its bills by check or wire transfer. Payment for goods and services by deposit currency are made through the banking system, and nearly all commerce in the United States is conducted in this way. So where will the Federal Reserve get enough deposit currency to enable it to continue purchasing US government debt?

• Jason Deparle (The New York Times): Living on nothing but food stamps, January 2, 2010.
About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50% over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

• Richard Barley (The Wall Street Journal): Gentlemen prefer corporate bonds to sovereign debt, December 31, 2009.
After a blistering 2009, corporate-bond markets are set for a more sedate 2010. No longer obviously cheap, the market faces a number of hurdles. But that doesn’t mean investors should write off corporate bonds as last year’s fad. Technical and fundamental forces suggest corporate bonds could keep running a while longer.

• Jim Wallis (The Washington Post): A religious response to the financial crisis, January 3, 2010.
The banks say they are “too big to fail”. So let’s make them smaller. We might finally get Wall Street’s attention.

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