Prieur’s readings (August 10, 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.

•  Arabianmoney: Marc Faber lectures Abu Dhabi on asset allocation and tips gold, August 8, 2010.
If Marc Faber had to choose one asset class for the next 10 years it woud be gold. Cash and US treasuries would be be his least preferred decennial investment. US equities would be a reasonable choice for wealth protection, though not necessarily grow much when adjusted for inflation. This was the broad message that the author of The Gloom, Boom and Doom Report delivered to a CPA Institute meeting in Abu Dhabi, home of the world’s biggest sovereign wealth fund the Abu Dhabi Investment Authority.

•  The Economist: The S-word, August 9, 2010.
I’ve been hearing the S-word a lot lately. Unemployment is stubbornly sticking above 9%, despite the government’s attempts to lower it. Meanwhile the Fed has pumped lots of money into the economy and maintained zero interest rates. Unless the Fed changes its policy, which is unlikely with high unemployment, high inflation seems inevitable. It suggests stagflation is our future.

•  Jonathan R. Laing (Barron’s): Time to print, print, print, August 7, 2010.
Fed chairman Ben Bernanke’s recent testimony before Congress was fairly pallid.  He described the current economic outlook for the U.S. as “unusually uncertain”. (When isn’t it?) Growth in gross domestic product seems to be flagging some, but Bernanke implied the Federal Reserve wouldn’t be reaching into its bag of monetary tools unless the economy were to double dip into recession or financial markets turn unruly again as in 2008. That’s a mistake. The Fed should, and probably will change its tune by the fall and fire up the printing presses.

Robert Reich (The Huffington Post): The jobs emergency, August 9, 2010.
Washington’s latest answer to the worst jobs crisis since the Great Depression is $26 billion in aid to state and local governments. This still leaves the states and locales more than $62 billion in the hole this fiscal year. And because every state except Vermont has to balance its budget, the likely result is 600,000 to 700,000 more state and local jobs vanishing over the next 12 months (including private contractors and other businesses that depend on state and local governments) according to the Center on Budget and Policy Priorities. Say goodbye to even more of the teachers, firefighters, sanitary workers, and police officers we depend on.

•  John Tamny (Forbes): Make the 2003 tax cuts permanent, then curb enthusiasm, August 9, 2010.
The stock markets have shown some strength in recent weeks as word has come out that some Democrats in the Senate aren’t eager to see the 2003 tax cuts (including those enjoyed by top earners) expire. This shift in Washington signals increased rationality within the political party possessing the power to make the cuts permanent, plus markets are perhaps also cheered by this development signaling an end to the Obama legislative plan. Here’s hoping Congress does in fact make the ’03 reductions law, but if so, investors and citizens more broadly would be wise to curb their enthusiasm. In no way would permanency be a sign that the U.S. economy is set to roar.

•  Clive Crook (Financial Times): Obama has to cut – and raise taxes, August 8, 2010.
It is delusional to think the US can achieve a sustainable fiscal balance with spending cuts alone, yet this is exactly what many conservatives do think. Such a plan involves dismantling Medicare and social security. If Republicans adopted such a platform they might never be in power again. They know it, so they will not.

•  Paul Krugman (The New York Times): America goes dark, August 8, 2010.
The lights are going out all over America – literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation, from Philadelphia to Fresno. Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

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