Prieur’s readings (December 24, 2009)

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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.

• Caroline Baum (Bloomberg): “New Normal” tops 2009 list of overused phrases, December 23, 2009.

As a way of describing the US economy, the new normal has merit. ObamaNation is looking at bigger government, more regulation and an aging population commanding more resources. Unfortunately, overuse has rendered new normal meaningless.

• Martin Wolf (Financial Times): How the noughties were a hinge of history, December 23, 2009.

The rest of the world was inclined to believe that the west, whatever its faults, knew what it was doing. But then the teacher failed the examination.

• Doug Kass (The Populism will unclog the beltway, December 23, 2009.

A tidal wave of populism in 2010 has weaved its way through many of my surprises for 2010 and is at the core of many of my concerns about the non-traditional headwinds (e.g., higher sales, state, local and federal tax rates) facing the domestic economy and the US stock market. The effects of populism, in the year ahead, will be valuation-deflating.

• Global CFO Survey: Employment outlook bleak, but business prospects improve, December 16, 2009.

Chief financial officers expect business conditions to improve in 2010, but US and European chief financial officers say their companies will continue reducing their workforces in the coming months. In another sign of a weak recovery to come, nearly half of companies that recently cut capital spending, employment, and training say these cuts have permanently hurt their company’s long-term growth prospects. And tight credit markets continue to constrain economic growth, especially for small firms.

• Larry Kudlow (Real Clear Markets): The yield curve signals bigger growth, December 23, 2009.

Well, the curve itself measures Treasury interest rates, by maturity, from 91-day T-bills all the way out to 30-year bonds. It’s the difference between the long rates and the short rates that tells a key story about the future of the economy. Right now, the difference between long and short Treasury rates is as wide as any time in history. With the Fed pumping in all that money and anchoring the short rate at zero, investors are now charging the Treasury a higher interest rate for buying its bonds. That’s as it should be.

• David Goldman (Seeking Alpha): Top ten reasons why the yield curve will flatten (hint: this is a different sort of recession), December 23, 2009.

The yield curve is at record steepness. I think that’s an overreaction. In fact, the steep yield curve in the present environment is NOT a harbinger of recovery – it’s a brake on recovery because it encourages banks to own Treasuries rather than risky assets.

• Steve Eder (Reuters): Banks with political ties got bailouts, study shows, December 22, 2009.

US banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

• Richard Rahn (The Washington Times): Tempting the tipping point: Can the US escape a fiscal death spiral? December 23, 2009.

If governments continue to pile on more and more debt, when will they reach the tipping point? The Greeks appear to be close to the tipping point, and it is only a matter of time before other European countries, and eventually even the United States, begin their fiscal death spiral.

• Patrick Chovanec (An American Perspective of China): China goes wrong way on property taxes, December 18, 2009.

China’s leaders are becoming increasingly alarmed that a bubble may be forming in the country’s booming real estate sector.  That’s why, late last week, they announced the reimposition of a nationwide property sales tax in an effort to rein in speculative buying.  But while their intentions are sound, the new tax takes China in entirely the wrong direction, and is more likely to make the problem worse rather than better.

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