Prieur’s readings (February 27, 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.

• Randall Forsyth (Barron’s): After lost decade, it’s still tough to find returns, February 26, 2010.
Low yields, rich valuations point to continued paltry returns from stocks and bonds.

• Lara Crigger (IndexUniverse): Dennis Gartman: The euro is “doomed”, February 24, 2010.
IndexUniverse Associate Editor Lara Crigger sat down with Dennis Gartman to discuss his thoughts on the fate of the euro, including how Greece could doom the dollar, why you should dump dollar-denominated gold and whether inflation or deflation is yet in store.

• Michael Shuman (Time): Will China dump US debt? February 26, 2010.
One of the big worries Americans have about China’s rising economic power concerns its immense holdings of U.S. government debt. The fear is that Chinese actions regarding these holdings could end up destabilizing the U.S. economy, or that they could be used as a political tool to influence American policy. If China, let’s say, got angry at Washington over its support for Taiwan or the Dalai Lama, Beijing could retaliate by dumping U.S. Treasury bills. Or perhaps China would sell Treasuries as part of a no-confidence vote on the future of the U.S. economy. By selling American debt, China would weaken the value of the dollar, damage investor sentiment towards the U.S. economy and make it harder for Washington to finance its giant budget deficits. Very scary stuff indeed. But how realistic is such a scenario?

• Simon Johnson (The Huffington Post): Should we fear China? February 25, 2010.
If China stops buy foreign assets altogether, this would of course be equivalent to ending foreign exchange intervention. This is exactly the policy change that we should be seeking.

• JS Kim (Zero Hedge): Why China’s rumored IMF gold purchase, if true, would be of huge significance, February 25, 2010.
A yet to be verified story from Rough & Polished, a Moscow based website, reported that China had “confirmed its decision to acquire 191.3 tons of gold auctioned by the International Monetary Fund.” Of course, until official confirmation comes from China, no one will really know if this story is true or not. However, if true, this story would be hugely significant to the gold market …

• Chan Akya  (Asia Times): Asia’s permanent advantage, February 27, 2010.
… Asia with its apparently permanent advantage on infrastructure and operating efficiency leaving Europe and North America ever further behind. Nothing appears to have the ability to reverse this trend.

• John Mauldin (Thoughts from the Frontline via Investors Insight): The multiplication of money, February 26, 2010.
The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend. An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?

• Renae Merle (The Washington Post): FDIC to test principal reduction for underwater borrowers, February 26, 2010.
The Federal Deposit Insurance Corp. is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from foreclosure.

The program would be aimed at a growing population of homeowners who are underwater on their loans, estimated at more than 20 percent of borrowers, or 11 million homeowners.

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