Prieur’s readings (June 29, 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.

• IBD Editorials: Financial deform, June 25, 2010.
The financial reform bill that’s about to be passed is reform in name only. It does little to correct the problems that led to our meltdown, and may do more harm by giving people a false sense of security. The media have called this “compromise” legislation the most sweeping change in U.S. financial regulation since the 1930s. Which is saying a lot. The two sponsors, Rep. Barney Frank and Sen. Chris Dodd, are as much responsible for the financial crisis as any two people in America.

• John Hussman (Hussman Funds): Recession warning, June 28, 2010.
Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.

• John Mauldin (Thoughts from the Frontline and Investors Insight): The risk of recession, June 25, 2010.

• Sewell Chan and Jackie Calmes (The New York Times): World leaders agree on timetable for cutting deficits, June 27, 2010.
Leaders of the world’s biggest economies agreed Sunday on a timetable for cutting deficits and halting the growth of their debt, but also acknowledged the need to move carefully so that reductions in spending did not set back the fragile global recovery. The action at the Group of 20 summit meeting here signaled the determination of many of the wealthiest countries, after enacting spending programs to counter the worldwide financial crisis, to now emphasize debt reduction. And it underscored the conviction of European nations in particular that deficits represented the biggest threat to their economic stability.

• Clive Crook (Financial Times): Fiscal disarray is the least of the G20’s sins, June 27, 2010.
The first Group of 20 summit in November 2008 proclaimed a new era of “global solutions to global problems”. Less than two years later, with the economic crisis barely contained, the partners are at odds. Reaching agreement was not the main challenge in Toronto this weekend. They knew that was not going to happen. Mainly, they hoped to put the best face they could on disunity.

• Wolfgang Münchau (Financial Times): Only a closer union can save the eurozone, June 27, 2010.
I was speaking recently to a group of investors who forced me – all but at gunpoint – to tell them how long I thought the euro would last. I normally prefer conditional forecasts but, in this case, I was asked to make an unqualified prediction. And so I yielded. My answer was that the eurozone would probably not survive the decade in its current form. As it turned out, I was the most optimistic person in the room, by far.

Reading break:

Considering the short-term technical picture of the euro, Adam Hewison (INO.com) provides a video analysis, expecting some ranging before a resumption of the downtrend (i.e. euro down; dollar up). Click here to access the presentation.

• Ambrose Evans-Pritchard (Telegraph): Soros tells Germany to step up to its responsibilities, or leave EMU, June 24, 2010.
Legendary investor George Soros has called on Germany to leave the euro unless it is willing to embrace a growth strategy, describing Berlin’s austerity doctrine as a threat to democracy and political stability in Europe.

• John Authers (Financial Times): Spectre of deflation is back to haunt investors, June 26, 2010.
Something odd happened this week. The US Federal Reserve, the world’s most powerful central bank, volunteered that inflation was coming down. This was not the week’s most dramatic event. Only Fed-watchers, used to parsing every word, will have noted that the words “underlying inflation has trended lower” appeared in the Fed’s communiqué this month, having been absent when it last pronounced on monetary policy in April. Those five words had an impact on markets, and crystallised a concern that has been growing during the past few months.

• Paul Krugman (The New York Times): The renminbi runaround, June 24, 2010.
Last weekend China announced a change in its currency policy, a move clearly intended to head off pressure from the United States and other countries at this weekend’s G-20 summit meeting. Unfortunately, the new policy doesn’t address the real issue, which is that China has been promoting its exports at the rest of the world’s expense. In fact, far from representing a step in the right direction, the Chinese announcement was an exercise in bad faith – an attempt to exploit U.S. restraint. To keep the rhetorical temperature down, the Obama administration has used diplomatic language in its efforts to persuade the Chinese government to end its bad behavior.

• The Economist: Repent at leisure, June 24, 2010.
Man is born free but is everywhere in debt. In the rich world, getting hold of your first credit card is a rite of passage far more important for your daily life than casting your first vote. Buying your first home normally requires taking on a debt several times the size of your annual income. And even if you shun the temptation of borrowing to indulge yourself, you are still saddled with your portion of the national debt.

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