The Big Thinkers Round-upcasts a net far and wideto share with readers some ofthe more trenchant perspectives onglobal financial and economictrends. Here is the installment for June 6, 2010.
Europe
The most encouraging news on the E.U. is that Germany will now do whatever it takes. But solving the debt problem in a low-growth environment depends on the social and political fabric holding together. Beware of the lag in public reaction. Boeckh Investment Letter
U.S.
A key measure of future U.S. economic growth, the Weekly Leading Index, fell to a 43-week low on June 3. Economic Cycle Research Institute
Do expect slower U.S. real GDP growth over the remainder of 2010 mainly because of continued restricted credit creation by private-sector financial institutions and secondarily because of marginally weaker export growth because of [the eurozone troubles]. Do not, however, expect a double-dip. Northern Trust
Put aside European and Chinese worries. Buy when there is blood in the streets. U.S. inflation remains subdued enough to allow the Federal Reserve to continue pumping liquidity into the banking system and economy. Treasury bonds, the dollar, and corporate-bond spreads are also well behaved. Boeckh Investment Letter
Commodities
Commodities will come back from their correction but it may take several more months for policy reflation to overcome deflationary forces. Look for signs of a policy shift i.e. eurozone willingness to monetarize debt and/or Chinese easing as property market cools. Bank Credit Analyst
China
In our view, the biggest threat to the continuation of the global economic recovery would be some policy mistake by the Chinese economic policymakers resulting in a rapid deflation of the Chinese real estate bubble. Northern Trust
The property boom in China wont cause a banking crisis because asset prices are already cooling (e.g. stocks down -35% over year) with modest policy restrictions (e.g. 10-year bonds under 4%). And much borrowing goes into fixed investment. Even if banks falter, China has trillions in U.S. dollar reserves to rescue them. Boeckh Investment Letter
General
The best place to have your money is in either sound currencies or real assets . real assets are a better place to be because, throughout history, when governments have started printing a lot of money, the money has gone into real things whether thats silver, or cotton, or natural gas Jim Rogers media interview.
A double-dip recession is unlikely because central banks have not tightened monetary policy to the point where short-term rates are above long-term rates (i.e. an inversion of the yield curve, which normally leads recessions) Buttonwoods Notebook
The recent G-20 meeting makes no meaningful progress in providing a unifying magnet for increasingly disparate and uncoordinated national policy approaches, so portfolios overexposed to equities are likely to be caught off-guard by still festering global imbalances. Pimco CEO Mohamed A. El-Erian guest post in Financial Times’ Alphavilleblog.
Blogs & Comment
Big Thinkers Round-up
By Larry MacDonald
The Big Thinkers Round-upcasts a net far and wideto share with readers some ofthe more trenchant perspectives onglobal financial and economictrends. Here is the installment for June 6, 2010.
Europe
The most encouraging news on the E.U. is that Germany will now do whatever it takes. But solving the debt problem in a low-growth environment depends on the social and political fabric holding together. Beware of the lag in public reaction. Boeckh Investment Letter
U.S.
A key measure of future U.S. economic growth, the Weekly Leading Index, fell to a 43-week low on June 3. Economic Cycle Research Institute
Do expect slower U.S. real GDP growth over the remainder of 2010 mainly because of continued restricted credit creation by private-sector financial institutions and secondarily because of marginally weaker export growth because of [the eurozone troubles]. Do not, however, expect a double-dip. Northern Trust
Put aside European and Chinese worries. Buy when there is blood in the streets. U.S. inflation remains subdued enough to allow the Federal Reserve to continue pumping liquidity into the banking system and economy. Treasury bonds, the dollar, and corporate-bond spreads are also well behaved. Boeckh Investment Letter
Commodities
Commodities will come back from their correction but it may take several more months for policy reflation to overcome deflationary forces. Look for signs of a policy shift i.e. eurozone willingness to monetarize debt and/or Chinese easing as property market cools. Bank Credit Analyst
China
In our view, the biggest threat to the continuation of the global economic recovery would be some policy mistake by the Chinese economic policymakers resulting in a rapid deflation of the Chinese real estate bubble. Northern Trust
The property boom in China wont cause a banking crisis because asset prices are already cooling (e.g. stocks down -35% over year) with modest policy restrictions (e.g. 10-year bonds under 4%). And much borrowing goes into fixed investment. Even if banks falter, China has trillions in U.S. dollar reserves to rescue them. Boeckh Investment Letter
General
The best place to have your money is in either sound currencies or real assets . real assets are a better place to be because, throughout history, when governments have started printing a lot of money, the money has gone into real things whether thats silver, or cotton, or natural gas Jim Rogers media interview.
A double-dip recession is unlikely because central banks have not tightened monetary policy to the point where short-term rates are above long-term rates (i.e. an inversion of the yield curve, which normally leads recessions) Buttonwoods Notebook
The recent G-20 meeting makes no meaningful progress in providing a unifying magnet for increasingly disparate and uncoordinated national policy approaches, so portfolios overexposed to equities are likely to be caught off-guard by still festering global imbalances. Pimco CEO Mohamed A. El-Erian guest post in Financial Times’ Alphavilleblog.