It really does seem to be All Spain All the Time, but there is a reason. Unlike Greece, Spain makes a difference to the eurozone. It may be both too big to allow to fail and too big to save. Last week I came across a very informative 50-page PowerPoint on the situation in...
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Lacy Hunt and Van Hoisington of Hoisington Investment Management Company have published their latest commentary on the US economy. This quarter they look at how public and private debt levels have stunted our economy's ability to grow.
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This week we look at a report called “Working Out of Debt,” from the McKinsey Global Institute. It is one of the best, most definitive pieces on the topic I have read. For those trying to understand how the deleveraging process will affect their particular world it is a must-read. Deleveraging is the critical...
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We have two bits of commentary from Kyle Bass today. First he gave his usual straight forward views to CNBC this morning. Second his latest letter. Unfortunately I cannot find a version of the letter that can be printed or downloaded, so you will need to read it online.
From the Interview
“If you get out a blank piece of paper and have a look at it, that’s the plan they’re working from right now. Everything is an agreement in principle. There are no details. It’s very difficult to arrange such a disparate group of people, and get them all to cede their fiscal sovereignty to call it a central taxing authority, and in the absence of that, it won’t work.
…I think that if you look at this last agreement, from the last summit, it’s somewhat of a doomsday machine. What they’re talking about, are the ECB and governments guaranteeing the debts of the banks which in turn buy the debts of their country that’s making that guarantee, pledging it at that central bank and getting more money to go buy more debt of those countries.
It’s somewhat sophomoric if you ask me. It is a circular reference that I don’t think institutional investors around the world are going to buy, they might hoodwink some retail investors into buying these things. When you look at the periphery today, there are no buyers of peripheral bonds.”
We have come to the end of yet another European Summit that was supposed to be the one to fix the problem. If you are confused as to what happened then you are not alone. There are two main points to be taken away from this week's meetings. First, the Germans really took control....
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As everyone knows the EU is meeting today and tomorrow in what is being billed as a last-ditch effort to save the Euro Zone. It is, of course, impossible to come up with a lasting solution in two days after almost two years of a patchwork series of conferences that have spurred short market...
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Despite markets having more moves than a MLB shortstop hitting .200, not all that much has changed in the past three weeks. We are still awaiting the latest iteration of a "plan" out of Europe, coincident economic data for the US remains ok, though leading indicators continue to forecast that a recession is already...
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This week we saw a coordinated effort by central banks to use their bazookas to head off another 2008-style credit disaster. The market reacted as if the crisis is now over and we can get on to the next bull run. Yet, we will see that it wasn't enough. Something more along the lines...
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Investors should recognize that Euroland’s problems are global and secular in nature, reflecting worldwide delevering and growth dynamics that began in 2008. It will be years before Euroland, the United States, Japan and developed nations in total can constructively escape from their straitjacket of high debt and low growth.
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Germany is roundly seen as the obstacle to saving the Euro by refusing to allow massive bond purchases and refusing to consider Eurobonds. The real obstacles however are poor options, not Germany.
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Long-time readers will be familiar with Michael Lewitt, one of my favorite thinkers and analysts. John Mauldin has permission to use the first half of this most recent letter as today’s Outside the Box as he examines the empire of debt the world creaks under.
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When the Greek crisis started to emerge in early 2010 we recognized the possibility of contagion and the potential threat to the global economic and financial system, although it was generally dismissed as a manageable problem by the investment community.
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The trade deficit improved last month, falling to -$43.1 billion. Sadly, the improvement comes largely from gold purchases, which isn’t a sign of confidence or hope. It’s a sign of a panicked flight to safety, based on a growing financial terror about the Euro Zone.
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Niels Jensen looks at the debt situation in the developed world, the implications for Europe and the potential opportunity in European equities and corporate bonds.
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John Mauldin looks into whether the European debt crisis is solved. Looking deeply there is more to the market "melt-up" than simple euphoria and relief. What you find is a very disturbing unintended consequence that will come back to haunt us.
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Like us Howard Mark’s doesn’t know what the economy will do, but does believe the prudent thing to do is assume the economic environment will be sluggish and fragile:
For our purposes, it suffices that we have operated since the financial crisis under the assumption that the recovery would be sluggish, rather than V-shaped. We still feel that way.And that feeling is inconsistent with moving out on the risk curve or down in credit quality, investing more in cyclicals or taking on leverage. Our enthusiasm regarding the macro economy has been muted for a number of reasons, including:
- conviction that it was largely the growing use of credit that enabled consumption to grow faster than sluggish incomes over the last 20-30 years, and that in the future credit will not be equally available or equally employed,
- the potentially counter-stimulative effect of austerity as government spending shrinks and taxes rise relative to GDP, and of delevering in general on the part of over-indebted governments, businesses and individuals,
- concern (thus far unfounded) over the potential for rising interest rates and their depressant effect on the economy,
- continuing challenges regarding manufacturing competitiveness due to our status as a high-cost location, and
- belief that unemployment will remain a persistent problem due to the above-mentioned decline in manufacturing, our problems in education, and the shift to an information-based and more productive economy (read: fewer hours of labor per dollar of output).
Howard Marks on What’s Behind the Downturn 09-07-11
Comstcok Partners believes that the market rhythm described in this report is forecasting an economy that is heading for a "double dip" recession and a stock market test of the March 2009 S&P 500 low of 670. They believe any attempted rallies probably will not exceed the resistance at 1250 and should be...
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We will point out that growth has never slowed as much as we have seen over the last year and not resulted in a recession. Maybe this time will be different, but some allowance in your planning should be made for if it is not. Doug Short has several posts and his usual wonderful illustrations...
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For the second straight year we have seen the old saw about selling in May work out. Selling July 22nd would have been wonderful as the market has been down almost every day since. Good things come from every crisis however and we welcome investors...
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