Prieur’s readings (July 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.
• Nick Schulz (Real Clear Markets): Jeremy Grantham: Contrarian, up to a point, July 22, 2010.
Jeremy Grantham is the wildly successful investor who writes entertaining quarterly letters to his fellow “die-hard contrarians”. Grantham struck it rich investing against herd mentality and his missives usually sparkle with insights. I’ve been a fan for a long time. But there is one issue on which Grantham has jettisoned his contrarian impulses: global warming. He has joined the fashionable crowd of alarmists and doom-and-gloomers.
• Gregory Zuckerman (The Wall Street Journal): A mid-year bull vs. bear investing smackdown, July 18, 2010.
Investors are dazed and more than a bit confused. The first week of July was the best week for stocks this year; the previous week was the second worst of 2010. Bears and bulls are torn about the direction of earnings and the global economy, the health of consumers and how attractive stocks are. To get a better understanding of where the market is headed and what investors should look out for, we called on two thoughtful investors, David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, a noted bear, and James Paulsen, chief investment strategist at Wells Capital Management, a leader of the bull camp.
• Robert Reich (The Huffington Post): We’re in a one-and-a-half dip recession, July 21, 2010.
We’re not in a double-dip recession yet. We’re in a one and a half dip recession.
• Caroline Baum (Bloomberg): Bernanke’s Fed exit door now swings two ways, July 21, 2010.
On March 25, 2010, Federal Reserve Chairman Ben Bernanke went before the House Financial Services Committee to outline exit strategies, or tools the central bank could use to drain the $1 trillion of excess reserves held by the banking system. At the time, financial markets were focused on whether the Fed would be able to bottle up those reserves, once the economy improved, to prevent an inflationary expansion of credit. Yesterday, Bernanke was back on Capitol Hill to deliver the Fed’s semiannual report on monetary policy and the economy. There is to be no exit, at least in the near-term. There is no new exit strategy other than the one previously disclosed.
• Robert Lenzner (Forbes): Economic quagmire for the U.S., July 20, 2010.
The quagmire this time is not Vietnam. It’s not Iraq or Afghanistan. It’s the economy, stupid. The Federal Open Market Committee puts it bluntly: It will be five to six years–half a decade–for a complete recovery from the financial meltdown of 2008. Can you wait until 2015 for the stock market to get back to its old peak while you earn a paltry 3% a year on 10-year Treasury notes while you wait?
• Brian Wesbury and Robert Stein (Forbes): “New Normal” nowhere in sight, July 20, 2010.
There have been three distinct, and very diverse, sets of economic forecasts circulating in the past year. First, the end of the world forecast – call it, Depression II. Second, the “new normal” forecast of weak and anemic growth. And third, our expectation of a V-shaped recovery and relatively strong 4% real gross domestic product growth. With GDP scheduled for release next week, our estimate for annualized second- quarter real GDP growth is 3.5%.
• Trader’s Narrative: Yield curve model: Zero probability of new recession, July 19, 2010.
Returning to the continuing debate about a “Double Dip” recession, I thought we would look at one of the most basic models of the business cycle: the yield curve. Put simply, the yield curve theory says that if long term rates are lower than short term rates, then the central bank is forcing the economy to slow down. And if short term rates are lower than long term rates, as we they are now, then the central bank is reliquifying the economy and priming future growth. So within the yield curve we have a simple but effective economic indicator.
• Jean-Claude Trichet (Financial Times): Stimulate no more – it is now time for all to tighten, July 22, 2010.
Without the swift action of central banks, we would have experienced a major depression. But now is the time to restore fiscal sustainability.
• Jeffrey Sachs (Financial Times): Sow the seeds of long-term growth, July 21, 2010.
The austerity debate: The striking feature in the current debate has been the lack of attention to investment. Consumers will not provide the engine of recovery, nor should they after overspending for a decade. Instead, the US and Europe should be using the recent corrective boost in saving rates to promote long-term investments in physical and human capital as the proper way back to sustained growth.
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