This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.
• Robert Reich (The Huffington Post): Why the Dow is hitting 10,000 while everyone else is cutting back, September 22, 2009.
So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.
• David Weidner (MarketWatch): The three pseudo bulls on Wall Street, September 22, 2009.
There’s a big difference between the good times of, say, 2007 and now. What some take for a recovery these days is a market that is being hyped like a multi-family apartment for sale in Las Vegas. After a period in which the IPO, debt and M&A markets were silent, the whispers of new deals are deafening. It all very well could be the beginning of the long road back. We may well be moving, but we can’t trust these gauges.
• Paul Vigna (MarketTalk): The Pinocchio recovery, September 22, 2009.
I see a recovery that looks like Pinocchio: it wants to be a real little boy, but it’s really just a wooden toy that moves only when somebody pulls its strings. But everywhere, we hear people talking up the recovery as if the economy is sprinting into a new bull market.
• Brad de Long (Grasping reality with both hands): Henry George Lecture I: Recent Macroeconomic Thought as an Interrupted Three-Cornered Cage Match: Greenspanists, Producerists, Punchbowlers – and Nihilists, September 22, 2009.
• Simon Johnson (The Baseline Scenario): You cannot be serious: US strategy for the G20, September 22, 2009.
… top ten list of pressing issues for this G20 summit … should include: much tougher financial regulation, substantially raising capital standards, workable cross-border rules for handling failed banks, a timetable for downsizing our biggest banks, how credit rating agencies are paid, and reforming – top to bottom – financial sector compensation.
• Anatole Kaletsky (Times Online): Economic policymakers should sit tight until 2011, September 22, 2009.
The Obama Administration’s hopes of legislating a second fiscal stimulus next year have been thwarted by opinion polls.
• Martin Wolf (Financial Times): Why China must do more to rebalance its economy, September 22, 2009.
Remember how poor hundreds of millions of Chinese still are. Then consider that the net transfer of resources abroad was equal to a third of personal consumption. China needs to increase consumption, and that means revaluing the currency.
• Pivot Capital Management (via Fullermoney): China’s Investment Boom: the Great Leap into the Unknown, September 2009.
In this report Pivot Capital Management describes the background to and the extent of the capital spending bubble in China and identifies factors that will precipitate its deflation. They focus on Chinese capital spending firstly because it is the single most important driver of current Chinese and global growth expectations and, secondly and more importantly, investment-driven growth cycles tend to overshoot and end in a destructive way. Pivot concludes that the capital spending boom in China will not be sustained at current rates and that the chances of a hard landing are increasing. Given China’s importance to the thesis that emerging markets will lead the world economy out of its slump, they believe the coming slowdown in China has the potential to be a similar watershed event for world markets as the reversal of the US subprime and housing boom. The ramifications will be far-reaching across most asset classes, and will present major opportunities to exploit.
