Prieur’s readings (July 21, 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.

•  Pat Regnier (CNN Money): What the bond guru sees coming, July 20, 2010.
Bill Gross, co-chief investment officer of Pimco and manager of the planet’s biggest bond mutual fund, has some so-so news and some bad news. First, the so-so: Inflation and higher interest rates aren’t a huge threat in the near future, so all those U.S. government bonds you may have been investing in recently are okay for now. The bad news? The world economy is still in lousy shape. At best, investors can expect a “new normal” era of slow growth and lower returns on stocks, bonds, and everything else.

•  Michael Pettis (China Financial Markets): Do sovereign debt ratios matter? July 20, 2010.
Although I am not smart enough to tell you who will or won’t default (I have my suspicions however), based on my historical reading and experiences, I think there are two statements that I can make with confidence. First, we have only begun the period of sovereign default. The second statement I think I can make with some confidence is that there is no threshold debt level that indicates a country is in trouble. Many things matter when evaluating a country’s creditworthiness.

•  Calculated Risk: Sovereign debt series summary, July 17, 2010.

•  Kenneth Rogoff (Financial Times): No need for a panicked fiscal surge, July 20, 2010.
The austerity debate: It is folly to ignore the risks of debt accumulation. The debt burden will ultimately weigh on growth.

•  John Taylor (The Daily Beast): Cutting national debt = stimulus, July 20, 2010.
The current slowdown in the U.S. economy is a serious concern. After growing at 5.6 percent in the fourth quarter of last year, the economy slowed to 2.7 percent in the first quarter of this year and likely to only 2 percent in the second quarter. It’s not the V-shaped recovery it should have been, and as a result the economy is not generating enough jobs to bring down unemployment from tragically high levels. Some argue that we need more deficit spending – another stimulus package – to boost the economy. I agree that the economy needs a boost, but not in the form of increased deficit spending.

•  Jeremy Warner (Telegraph): Krugman versus Ferguson: Round Two, July 20, 2010.
Not since Ken Rogoff’s famous attack on Joe Stiglitz has the dismal science of economics provoked such pompous, self-important, personalised squabbling. Professors Paul Krugman and Niall Ferguson, of course, have form; they’ve been at it on and off for nearly a year now over the efficacy of deficit spending in fighting the downturn, and today they return to the fray.

•  José Viñals (iMFdirect): A marriage made in heaven or hell: Monetary and financial stability, July 20, 2010.
Price stability has long been enshrined as the main objective of monetary policy, and, with that, gone are the days of high and volatile inflation. Monetary stability seems almost a given today. However, the global financial crisis revealed that, by focusing on price stability, monetary policy frameworks might not always sound the alarm when financial stability comes under threat. In his latest blog, José Viñals reflects on the monetary policy lessons that emerged from the global financial crisis and the need for a “happy marriage” between the goals of price stability and financial stability.

•  Rick Newman (U.S.News): 4 Reasons to fear deflation, July 20, 2010.
When the price of cars or sweaters or iPods declines, it’s a break for consumers and a welcome sign that economic productivity is improving. That helps drive up living standards. But when the price of everything drops, it’s an alarming development that portends stagnation. There hasn’t been sustained deflation in America since the early 1930s. Now, we may be on the verge of yet another unnerving economic adventure.

•  Doug Kass ( My Q&A with Nouriel Roubini, July 19, 2010.

•  Doug Kass ( Growth is giving way to value, July 20, 2010.
The key question that market participants must come to grips with, however, is whether growth is slowing at a rate that jeopardizes the consensus expectations for employment growth in the last half of 2010 and for corporate profit growth in 2011. We are now clearly in a soft patch; its duration and depth is uncertain.

• Interview with Mr. Jack Schwager, July 20, 2010.

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