Prieur’s readings (August 11, 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.

•  Caroline Baum (Bloomberg): Economy lost momentum while I was pulling weeds, August 10, 2010.
The post-mortems on the July employment report made me realize I’d missed the recovery. While I was watching my garden grow, the U.S. economy “lost momentum,” according to every news report I read or heard over the weekend. Somewhere between the budding of the peonies and the blooming of the rudbeckia, private-sector job growth downshifted.

•  Pragmatic Capitalism: Oil prices say: 100% chance of a new recession, August 10, 2010.
No, that headline is not a typo.  This interesting fact comes to us courtesy of The Global Macro Investor: “Oil prices are always a precursor to recessions. We hit the magic 100% YoY rise in November 2009 and went on to hit the third highest YoY% rise in the history of oil markets… The magic 100% level in the YoY change in oil gives us a 100% chance of a recession in the succeeding twelve months. This indicator suggests that ISM will fall to 40, or even 35, in the coming months before recovering …”

•  Nin-Hai Tseng (CNN Money): Five ideas to stimulate the economy, August 10, 2010.
Despite the $787 billion stimulus plan Congress passed in 2009 following the financial crisis, it’s been a painfully weak economic recovery. With unemployment staying at an unnervingly high 9.5%, economists expect growth to continue slowing later this year. This has only fueled talk of the need for another round of government spending. But how should government spend, or should it be spending more at all? Fortune lists five stimulus plans – some bold, some borrowed, some borderline wacky, but all worth considering.

• Still oblivious to meltdown’s cause, August 9, 2010.
Big Government: One of the tragic ironies of the financial meltdown is that it was caused by well-meaning politicians who didn’t know what they were doing – and ended up hurting the very people they intended to help. Monday’s Los Angeles Times carried a timely and melancholy piece on how the economic downturn that resulted from the housing crash three years ago has taken down entire regions in California – places that once hummed with businesses and people but have now become industrial wastelands.

•  Zeke Faux and Jody Shenn (Bloomberg): Structured notes are Wall Street’s “next bubble,” Whalen says, August 9, 2010.
Wall Street banks are creating the “next investment bubble” by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen, managing director of Institutional Risk Analytics. Using the same “loophole” that allowed over-the-counter sales of collateralized debt obligations and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates, Whalen wrote today in a report.

•  Francesco Guerrera (Financial Times): US regulators tighten control over Wall St risk, August 11, 2010.
US regulators have increased their scrutiny of the country’s largest banks in recent months, digging deeper into riskier activities and pushing institutions to conduct more rigorous “stress tests” of their financial health.

•  Yukon Huang (Financial Times): Eye China’s coasts, not its currency, August 10, 2010.
Forces are beginning to reshape China’s economic landscape in ways that may resolve the controversial role that China is accused of playing in shaping global trade imbalances.

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