Tuesday, August 18, 2009

Reading Links 8/17/2009

A brief summary of what I've been reading this past week :

The Confidence Game by Kenneth Rogof : Asia may be willing to sponsor the west for now, but not in perpetuity. Eventually Asia will find alternatives in part by deepening its own debt markets. Within a few years, western governments will have to sharply raise taxes, inflate, partially default, or some combination of all three. As painful as it may seem, it would be far better to start bringing fundamentals in line now. Restoring confidence has been helpful and important. But ultimately we need a system of global financial regulation and governance that merits our faith. (Project Syndicate)

Doug Kass: A Summary of My Bearishness. (TheStreet.com)

RBS uber-bear issues fresh alert on global stock markets : Three-month slide could hit record lows, Royal Bank of Scotland chief credit strategist Bob Janjuah predicts. (Telegraph)

Slow Long-Term Growth, And Government's Response (Investor Insight): A chronic 1 percentage point annual rise in the consumer saving rate for the next decade or so will knock around 1 percentage point off real GDP growth after its effects work their way through the economy. That's a big contrast with 0.5 annual percentage point declines in the saving rate over the previous quarter century that added around 0.5 percentage points to growth. That total swing of 1.5 percentage points will reduce real GDP growth from 3.6% per year in the 1982-2000 salad days to 2.1%.

So with the five other inhibitors to growth in coming years -- financial deleveraging, weak commodity prices that will retard spending by producing countries, more government regulation and involvement in the economy, rising protectionism and deflation -- our forecast of 2.0% real GDP growth is probably even optimistic.

With 2% to 3% deflation, nominal GDP might not gain at all. And with slower growth in the years ahead, economic expansions are likely to be shorter and less robust while recessions will probably be deeper and more frequent.

All Eyes on Chinese Equities. (Investment Postcards)

Bob Prechter "Quite Sure" Next Wave Down Will Be Bigger and March Lows Will Break (Yahoo)

Roubini : A “jobless” and “wageless” recovery? (Forbes)

“For the labor market to stabilize, job losses need to slow to 100,000 to 150,000 per month, and jobless claims need to fall to around 400,000. Payrolls alone don’t reflect the strength of the household sector. Labor compensation and work hours also function as indicators, and both of these have slowed sharply in recent months. Even as borrowing conditions remain tight and home prices continue to fall, the dip in labor compensation will continue to constrain consumer spending, notwithstanding any fiscal stimulus.

“In a severe, consumer-led recession like this one, the labor market is a leading (rather than lagging) indicator of economic recovery, and the consumer still drives the US economy (private consumption still makes up over 70% of GDP). A slowdown in the pace of job losses from 650,000 to 250,000 is welcome, but in no way offers comfort about a prompt comeback of the US consumer. This raises concerns about the strength and sustainability of any economic recovery that most people are expecting in the second half of 2009, and beyond.”

A rally with troubling aspects (FT)

One troubling aspect of the rally is that, from a historical perspective, equity volatility remains elevated, with the CBOE’s Vix volatility index showing a reading of about 25. Before the credit squeeze in the summer of 2007, the Vix rarely rose to more than 20.

There is also concern that the strong run has largely reflected short sellers reversing bearish bets on stocks.

Low summer trading volumes are a cause for concern. Daily share volume on NYSE Euronext has not been above 2bn since June 25 and, in recent weeks, is behind April and May.

Between 1,100 and 1,150 [on the S&P] is where we think this rally will top itself out.”

For more, visit the news site, http://news.fundamentalinsights.slinkset.com/ .You can also follow me @fundinsights on Twitter for real time updates.

blog comments powered by Disqus