Prieur’s readings (March 1, 2010)
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.
• William Hester (Hussman Funds): Bond yields, earnings yields and inflation, Fenruary, 2010.
Credit risks are likely to be of concern to investors until the economy gains a better footing, and these risks can move stocks and bonds in different directions. Longer-term, investors should be alert for rising inflation. At that point, stock investors may want to be particularly sensitive to any changes in the level of bond yields, because the correlation of the changes in bond yields and stock yields will likely rise along with inflation. Most importantly, stock valuations generally suffer through the entire process of rising inflation, rather than simply responding to the end result.
• Charles Stein (BusinessWeek): Grantham’s “horrifically early” calls challenge GMO, February 26, 2010.
• Bill Fleckenstein (MSN Money): Why the Fed won’t stop printing money, February 26, 2010.
Bernanke can do all the tough talking he wants. But he’s not going to take much action to reduce liquidity, given that the economy does not appear to be in a self-sustaining mode.
• Andrew Scott (Financial Times): US and UK can handle decades of debt, February 28, 2010.
Increases may appear unsustainable. But, over decades, fiscal adjustment cuts the level of debt.
• Wolfgang Münchau (Financial Times): Time to outlaw naked credit default swaps, February 28, 2010.
Since naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.
• David Beim (Columbia Business School ideas @ work): The spirit of Glass-Steagall, February 26, 2010.
David Beim examines the assumptions behind the proposed adaptation of a new Volcker Rule and offers a solution for a more appropriate return to the spirit of Glass-Steagall: focus on asset quality.
• Floyd Norris (The New York Times): Banks out of the woods? Maybe not, February 26, 2010.
More than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled.
• Alan Abelson (Barron’s): Here come the put-backs, March 1, 2010.
Investors in flawed mortgages are starting to force financial institutions to repurchase bad loans.
• Michael Pettis (China Financial Markets): What the PBoC cannot do with its reserves, February 22, 2010.
It is a real toss-up as to which generates more bizarre comment in the international press: Beijing’s long-feared dumping of US Treasuries, or the use and value of the PBoC’s central bank reserves.
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