Prieur’s readings (April 23, 2010)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• Editorial (The New York Times): After Goldman, April 21, 2010.
After the government sued Goldman Sachs for fraud, a lot of politicians vowed to finally clean up the system. In an important committee vote on Wednesday, 13 senators — including one Republican for a refreshing change — approved a measure that would go a long way toward regulating derivatives, the complex instruments at the heart of the bubble, the bust, the bailouts and the Goldman case. It is still not tough enough to avoid another catastrophe. While the bill rightly calls for most derivatives deals — currently private contracts — to be traded on regulated exchanges, it has too many loopholes. And it doesn’t ban the sort of excessive speculation that characterized the Goldman deal.
• Michael Lewis (Bloomberg): Bond market will never be the same after Goldman, April 22, 2010.
If you happen to be sitting on the Goldman Sachs bond-trading floor life must feel horribly unfair. You did nothing worse than live by the ethical assumptions of your market – any money-making event short of obviously illegal is admirable – and now your own grandfather thinks you’re some kind of monster. Your world feels upside down: What was right is now wrong; what was good is now bad; what once felt like winning now feels like losing.
• Brian Wesbury and Robert Stein (Forbes): Higher inflation, not hyperinflation, April 20, 2010.
Some analysts have proposed inflating/devaluing our way out of this debt crisis. These arguments have increased the fear of hyperinflation.
• Caroline Baum (Bloomberg): Honey, I lost the house. Now it’s time to party, April 22, 2010.
By now you’ve probably seen the analysis, if you can call it that, on how mortgage defaults are driving consumer spending.
• Mark Hulbert (MarketWatch): A very friendly trend, April 21, 2010.
If the trend is your friend, as the Wall Street cliché goes, then the stock market has been an incredibly friendly place of late. What I have in mind is a rare buy signal that was generated a couple of weeks ago by a trend-following indicator with a good long-term record. Prior to the recent buy signal, there had been only 12 of them since 1967. And two of those 12 prior buy signals occurred in the last 12 months alone.
• Randall Forsyth (Barron’s): Failed German bond auction: An evil portent? April 22, 2010
What if they gave a bond auction and nobody came? That is the ultimate doomsday scenario with the unprecedented fiscal deficits around the world – that governments’ credit lines could run out and they couldn’t raise the cash they needed in the bond markets. At that point, after bailing out banks that had faced the same dilemma, who’s there to bail out the governments? That hasn’t happened in Greece, ground zero in the European debt crisis. Earlier this week, Greece found ready and willing buyers for its short-term bills, albeit at yields twice what the government had to pay just a few months ago.
• Garfield Reynolds (Bloomberg): Greece problems spreading on credit-risk selloff, El-Erian says, April 23, 2010.
Greece’s debt problems are worsening and affecting the rest of Europe as long-term holders of the nation’s bonds dump the securities because of “persistently high and volatile spreads,” according to Mohamed El-Erian. The volatility represents a “technical factor” that will gain momentum unless there is massive official funding for the nation or Greek spreads widen far enough to attract sufficient buyers of distressed debt, said El-Erian, co-chief investment officer at Pimco.
Barry Hatton (BusinessWeek): Concern builds over Portugal’s debt load, April 21, 2010.
Investors are sizing up whether Portugal will be the next victim of Europe’s government debt crisis, just as the poorest of the 16 countries that use the euro has to make good on bonds worth euro 5.6 billion ($7.57 billion) that come due next month. Market speculation that Portugal could be “the next Greece” – the hardest-hit euro zone country which is struggling to lighten its debt burden – has been “very strong” in recent days.
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