October 2008 - John Mauldin's Outside the Box

John Mauldin reads hundreds of articles, reports, books, newsletters, etc. and each week he brings one essay from another analyst that should stimulate your thinking. John will not agree with all the essays, and some will make us uncomfortable, but the varied subject matter will offer thoughtful analysis that will challenge our minds to think Outside The Box.

John Mauldin's Outside the Box

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  • Fourth Quarter Forecast 2008

    Really hear what I'm about to tell you. The center of gravity of the world economic system has moved from New York to Washington. Let me illustrate what I mean so you understand just how profound this is. Banks used to compete against banks. US carmakers competed against each other and the Japanese. And the New York financial markets told you how they're doing against each other. Understand what's happening now. The US Treasury has become the only "customer" that matters. The Treasury is now the customer—and investor -- with the $750+ billion checkbook. The Treasury is now the "investment banker" of last resort, arranging and financing mergers. Banks are competing against insurance companies for their slice of the bailout pie. Chrysler and GM (and the Michigan Congressional delegation) are looking to Washington, not Goldman or Merrill, to facilitate a merger. This is a seismic shift....
  • Where is My Swap Line?

    The G-7 countries now have what amounts to access to the US Fed's window for dollars for their banks. But what of the rest of the world? Brad Setser, an analyst who writes a blog for the Council on Foreign Relations, ask some very interesting questions and points out some big holes in the world economic landscape. If you can't get dollars what does that do to your currency? This contributes to the rise in the dollar against some emerging market currencies. Setser asks: 'Where is my swap line? And will the diffusion of financial power Balkanize the global response to a broadening crisis?' You can read some of his other material at http://blogs.cfr.org/setser/. Setser is an applied international economist with experience at the U.S. Treasury and the International Monetary Fund. Currently examining central bank reserve growth, sovereign wealth funds, and the political implications of emerging market financing of the United States. Author of the recent Council Special Report, Sovereign Wealth and Sovereign Power....
  • The International Economic Crisis and Stratfor's Methodology

    Exhale for a moment, forget your losses for the time being, and try to appreciate the fact that you're living through the single most important development in global finance since Bretton Woods. This is a "tell the grandkids about it" moment, when governments all around the world have essentially decided in unison that it's time to rewrite the rules, the very framework, in which financial transactions take place. Stock trading, interbank lending, commercial paper, the very concept of private sector ownership are all up in the air right now. The only thing I can tell you with certainty is that if you try to evaluate your investments using the same metrics you've always relied on - P/E ratios, market share, interest rates, etc. - you're going to be as successful as a football-turned-baseball coach evaluating a pitcher by the number of touchdowns he throws. The rules are changing, gentle reader, changing at least for awhile from market-driven inputs to government-driven inputs. If you try to apply what you know from the "old game" without understanding that you're playing a "new game," the rules might not make sense. I'm sending you today a piece from my friend George Friedman on how his company Stratfor looks at economics. More precisely, this piece explains how they look at Political Economy. And from here on out, it's political economy that's going to be driving markets. If the old rule was "Never fight the Fed." It's now, "Never fight the Fed. And the Treasury. And the ECB. And the Bank of England. And the Bank of Japan...." You get my point....
  • Why The Worst Will Soon Be Over

    The credit crisis is global. Interestingly, some of the more creative and straight forward solutions are coming from England. This week in Outside the Box I am presenting you with a very well written (even entertaining) letter from Bedlam Asset Management from London www.bedlamplc.com on their view of the crisis. It is always instructive to look at your problems from the point of view of another party, and even more some when they give you some thoughtful and cogent analysis. I have to admit, seeing green on my screen feels good, but we are in a recession that is global and is likely to get worse. What we need to do now is assess what our response will be. First, we need to avoid the pitfalls and then look around for the opportunities which will be presented us. I think this week's Outside the Box will help you think through your personal situation....
  • The International Currency Crisis

    Many of us in the US are focused on our own woes. But this is a global credit crisis. In today's Outside the Box, we take a look at the currency markets, which are in an historic upheaval and also look at what is going on in Europe. I suspect that Europe is in for a period of much distress, as the world begins to deleverage That is why one government after another will back the deposits of banks within their countries, for otherwise capital will flee to countries like Ireland and Germany which ARE guaranteeing the deposits for all banks in their borders. Many European banks are leveraged 50 to 1 (not a misprint). I suspect that more government will do like Belgium and the Netherlands and inject capital directly into their local banks deemed too big to fail....
  • The New President and the Global Landscape

    In times of crisis, those with psychological fortitude discover opportunities that most people miss. A friend of mine in Houston tells me of unending piles of tree limbs broken down by the hurricane. The homeowner laments his disaster; the tree trimmer and the roofer order a new Mercedes. Most of the world sees a Wall St. meltdown. Buffett takes the opening to deploy billions from his cash hoard. They're all seeing the same thing, but they're reacting differently based on different visions of the future. I've included a piece today from my friend George Friedman over at Stratfor about the landscape the next US President will face. This article is a perfect example of why I rely on Stratfor for my geopolitical intelligence. The newspapers and other media do better or lesser jobs of telling me about what's happening right now. But that's not what an investor needs. What I need - and I recommend for you - is an analysis of what we're going to be facing. That's where George and his team absolutely excel. For at least the next month, the public conversation is going to be completely dominated by the November election and the political maneuvering to address the financial crisis. There will be tremendous drama. There will be dizzying swings back and forth in emotions, expectations, and more than likely the markets. And if you focus on it, you'll miss the real opportunities to position yourself for the emergence....
  • Banking Crises Around The World

    Do government bailouts in times of banking crises work? Philippa Dunne & Doug Henwood of The Liscio Report highlight a major study of 42 fairly recent banking crises around the world. Result? Some types of government intervention works and some don't. One characteristic that is needed though is speed. Dithering, a la Japan, is a recipe for disaster. This is a brief summary of the report (to which they provide a link) and their conclusions as to the basic outlines of what the US should do. Given that Europe is already in the throws of its own bank crisis, and the rest of the world could experience problems, this should be useful reading. They also provide graphs of banking crises and comparisons with developed countries and the resulting market experience....