Prieur’s readings (May 2, 2010)

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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.

• Barry Ritholtz (The Big Picture): Macro overview – economy & markets, April 29, 2010.
The economic backdrop seems to be confusing quite a few people. Perhaps it’s the psychology of the moment. I keep hearing weak, data free analysis. Here is our seven point overview …

• Ben Steverman (BusinessWeek): Fixed-income pros fear “bond fund bubble”, April 30, 2010.
Seeking safety, inexperienced investors have poured record volumes of assets into bond funds. That’s risky – especially if interest rates rise. Good news for the economy could be very bad news for bond investors this year.

• Jonathan Weil (Bloomberg): Goldman death fight may explain Lloyd’s words, April 29, 2010.
If we are to take Lloyd Blankfein’s word for it, and that’s always a big if, then there must be a lot worse behavior by Goldman Sachs that has yet to be discovered, beyond what was publicly unearthed at this week’s Senate hearing.

• Charlie Savage (The New York Times – DealBook): Justice department said to open Goldman inquiry, April 29, 2010.
Federal prosecutors have opened an inquiry into trading at Goldman Sachs, raising the possibility of criminal charges against the Wall Street giant, Louise Story and Michael de la Merced of The New York Times reports, citing people familiar with the matter. While the investigation is still in a preliminary stage, the move could escalate the legal troubles swirling around Goldman. The Securities and Exchange Commission, which two weeks ago filed a civil fraud suit against Goldman, referred its investigation to prosecutors for the Southern District of New York, which has now opened its own inquiry.

• John Tamny (Real Clear Markets): Market “speculators” are the economy’s health, April 29, 2010.
It didn’t take long for the non-scandal that allegedly threatened the reputation of Goldman Sachs to die of its own contradictions. As a public company whose sole constituent is its shareholders, evidence quickly revealed that Goldman was serving its owners well through investment vehicles meant to match the needs of both its bullish and bearish customers. Unfortunately, the non-controversy surrounding Goldman dredged up other, more dangerous notions about market speculation itself. To believe the naïve musings of commentators on the left and right, the oft-mentioned trades engineered by Goldman Sachs, along with others of the “speculative” variety, don’t serve any economic purpose other than lining the pockets of the market actors who participate in them. Nothing could be further from the truth.

• Simon Kennedy, Niklas Magnusson and Fabio Benedetti-Valentini (BusinessWeek): Now it’s a European banking crisis, April 29, 2010.
For months the top leaders of the European Union resisted the idea of a bailout for Greece, wringing their hands over the estimated $61 billion cost. While the jawboning continued, the infection took hold. Bond vigilantes drove the Greeks’ borrowing costs into the double digits. Investors, fearing a contagion in Europe’s southern tier, dumped the stocks and bonds of Portugal and Spain. As it spread, markets started to pummel European banks and insurers for their exposure to what could prove to be one of the worst sovereign debt disasters ever.

• Paul Krugman (New York Times): The euro trap, April 29, 2010.
Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. “On the whole,” declared an article published just this past January, “the euro has, thus far, gone much better than many U.S. economists had predicted.” Oops.

• Mark Gilbert (BusinessWeek): Junking Greece may be beginning of end for euro, April 28, 2010.
Greece cheated its way into the single-currency club, lied about its deficit for years, and now brings the shame of becoming the first junk-rated member after losing investment-grade status at Standard & Poor’s this week.

• Severin Weiland (Spiegel Online): Greek Bailout could push German debt through the roof, April 28, 2010.
When Chancellor Angela Merkel’s current government came into power, Germany was just emerging from the economic crisis. But despite pledges to curb deficit spending, Merkel’s administration has been running up debt at a record pace – and bailing out Greece will only exacerbate the situation. In the autumn of 2008, German Chancellor Angela Merkel stated clearly: “In the long term, people cannot live beyond their means.” At the time, the economic and financial crisis appeared to have reached its peak. Since then, though, the chancellor has lost her iron budget discipline.

• Mark Gongloff (The Wall Street Journal): Warning signal on U.K. debt? April 30, 2010.
As investors scramble to protect themselves from the next credit flare-up in Europe, their worries are spreading to the U.K. Investors bought a net $443 million of credit-default swaps to insure against a U.K. default last week, according to data compiled by the Depository Trust and Clearing Corp., taking the total outstanding to $8.2 billion. That was easily the biggest gain among sovereign borrowers. The size of protection on the U.K. has roughly doubled since the year began, a move that far outpaces the run-up in Greek CDS last fall.

• Martin Wolf (Financial Times): Britain’s historic general election, April 29, 2010.
The UK has a huge fiscal deficit, a bloated state and soaring public debt. Adjustments must be made. The question is whether the country drives those adjustments or is driven by them. Yet both politicians and the public are denying the choices.

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