Prieur’s readings (July 26, 2010)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• John Hussman (Hussman Funds): Betting on a bubble, bracing for a fall, July 26, 2010.
If you exclude the bubble valuations of 1995-2007, the current valuation of the S&P 500 is near the highest level ever observed in history. To expect valuations to expand from here is to rely on the sustained resumption of bubble valuations that have ultimately been devastating to investors.
• Paul Murphy (FT Alphaville): Rosenberg’s 17 reasons to be bullish (seriously), July 23, 2010.
Count ‘em! We’d better capture these bullish talking-points from Gluskin Sheff’s David Rosenberg, just in case they disappear…
• John Mauldin (Thoughts from the Frontline and Investors Insight): Some thoughts on deflation, July 24, 2010.
It seems that not everyone is ready to join the deflation-first, then-inflation camp I am currently resident in. So in this week’s letter we look at some of the causes of deflation, the elements of deflation, if you will, and see if they are in ascendancy.
Ambrose Evans-Pritchard (Telegraph): The death of paper money, July 26, 2010.
There is a clear temptation for the West to extricate itself from the errors of the Greenspan asset bubble, the Brown credit bubble, and the EMU sovereign bubble by stealth default through inflation. But that is a danger for later years. First we have the deflation shock of lives. Then — and only then — will central banks go to far and risk losing control over their printing experiment as velocity takes off. One problem at a time please.
• John Authers (Financial Times): Investors face a world of correlation, July 23, 2010.
The world trades in unison. Many bright people spend many long hours pondering which stocks, sectors or countries to buy but, of late, it scarcely seems to matter.
• Felix Salmon (Reuters): The silver lining to the lenient stress test, July 23, 2010.
There’s a certain amount of relief in the markets that there’s absolutely nothing in the way of bad news coming out of the European bank stress tests. Essentially, the tests could be tough or they could be lenient; and there could be significant failures or no significant failures. The outcome, in the end, was that the tests were lenient and that there were no significant failures. Clearly, a tough test with no significant failures would have been better news – but at the same time, a lenient test with significant failures would have been worse news. So we’re somewhere in the middle, and muddling along: in the CDS market, most banks have seen their spreads tighten modestly, by single-digit amounts, according to Markit.
• Michael Snyder (Seeking Alpha): The one economic chart that really matters, July 22, 2010.
The truth is that by almost any measure, we are in worse economic condition than we were right before the beginning of the Great Depression. We have been living way beyond our means and the debts we have been piling up are clearly not anywhere close to sustainable.
• •Robert Shiller (Project Syndicate): Who should safeguard financial stability? July 22, 2010.
Central bankers around the world failed to see the current financial crisis coming before its beginnings in 2007. Martin Čihák of the International Monetary Fund reported in July 2007 that, of 47 central banks found to publish financial stability reports (FSRs), “virtually all” gave a “positive overall assessment of their domestic financial system” in their most recent reports. And yet, although these central banks failed us before the crisis, they should still play the lead role in preventing the next crisis. That is the conclusion, perhaps counterintuitive, that the Squam Lake Group, a think tank of 15 academic financial economists to which I belong, reached in our recently published report, “Fixing the Financial System”.
• Laurence Kotlikoff (Financial Times): Uncle Sam has worse woes than Greece, July 25, 2010.
During the past half-century, the US has sold tens of trillions of unofficial IOUs, leaving it with liabilities to pay Social Security, Medicare and Medicaid benefits that total 40 times official debt.