John Mauldin

Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can't know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, 'How could I have known?'

Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There's a lot of very interesting, and important, material to cover.

I wrote about Greece in last week's letter. Then I ran across this column in the Financial Times by my friend Mohammed El-Erian, chief executive of Pimco, and someone who qualifies to be introduced as one of the smartest men on the planet. It is short and to the point. (www.pimco.com)

Then, somehow my London partner, Niels Jensen of Absolute Return Partners found the time to write a letter while we were running around Europe. As we had a lot of conversations with some very key players, and a lot of debate, the letter reflects a lot of what we learned, as well as further documents the serious straits that European nations face in the coming years due to their debt and deficits. It is not just a US or Japanese problem. I have worked closely with Niels for years and have found him to be one of the more savvy observers of the markets I know. You can see more of his work at www.arpllp.com and contact them at info@arpllp.com.

I have been writing for a very long time about the coming debacle that the commercial real estate problem is going to be. This week's Outside the Box is an interview that my good friend David Galland did with Andy Miller, a man on the inside of the coming commercial real estate crisis. I thought it was very revealing, as there are so many nuances to the problem. For instance, in some cases, if you default and walk away from the loan you may trigger huge taxes as the loan loss to the bank is now considered income to you. Ouch! So many strings to unravel as you figure this one out.

China has long been a mystery to foreign investors. Deeply involved in trade and commerce since the ancient days of the Silk Road, China has continued to maintain the appearance of closed economic borders and, even past these hardened gates, undeniable risk. Like any investor, you've probably been tempted to look at the prospects, and you've probably been met with a barricade of warnings about corruption and internal strife that quickly bounces you away. In the case of this sleeping dragon, knowing isn't half the battle, the battle is in knowing.

Last week we delved into the problems of uncertainty that face us, and make forecasting for 2010 problematical. Will the government actually increase taxes as much as they say with unemployment still likely to be at 10%? Or will cooler heads prevail? Will such an increase cause a recession? Will the markets anticipate the affect of such a major increase in advance? How will the mortgage market react when the Fed stops buying mortgage securities at the end of March? There are so many things in the air, and today we explore more of them, as I continue to (perhaps foolishly) try and peer into what is a very cloudy crystal ball.

This will be my tenth annual forecast issue. Time has flown by as I enter a new decade of writing Thoughts from the Frontline. And even as I write about the high level of uncertainty of the current times, I am optimistic that at the beginning of the next decade we will look back and realize that there has been an enormous amount of progress made. None of us will want to revisit the pleasures of the past ten aught years in some nostalgic dream. I am so ready for a new decade.

Let me welcome you to a new year of Outside the Box. I doubt we will have trouble finding interesting commentary this year, as there are many things that could happen that demand our attention. We start with a short column by Ambrose Evans-Pritchard of the London Telegraph giving us a quick run down of the problems faced around the globe. He thinks the #1 problem is Japan, and I more or less agree. I have written about Japan many times in the past few years. In my speeches I refer to Japan as a bug in search of a windshield. I am not so sure about the timing, however, as the economic and fiscal insanity that is Japan may be able to go on for longer than many think possible. But to me it is not a question of whether there will be a crisis, but when there will be one. This year? 2011? 2012? I doubt Japan makes it to the middle of the decade with a very serious and sad day of reckoning.

The downside to the continuation of running massive deficits is that when the break does come, it will be all the more painful and difficult to deal with as the debt mounts. If there is an upside, it is for the rest of the world to see what can happen to a developed country like Japan when massive deficits are allowed to pile up one after another. It will be a morality play writ large upon the walls, which cannot be dismissed.