February 2010 - 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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  • A Five-Step Guide to Contagion

    We were all assured by Ben Bernanke that the subprime problem would be contained. In this week's Outside the Box, my good friend Todd Harrison, founder and CEO of Minyanville (www.minyanville.com) wonders about what contagion from Greece and sovereign debt crisis would look like. Todd is a very thoughtful investor and trader, and someone who I pay attention to. He has created a community of analysts and traders at www.minyanville.com that is quite unique. They graciously post my work each week as well as that of a lot of really interesting people from all over. Plus, they offer running commentary by dozens of analysts on what's happening in the markets real time. There is something for everyone, even a place to help teach your kids about money and finance. Check it out.

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  • The Meaning of Marjah

    There is no lack of discussion about where we are right now - in terms of jobs, real estate, global economy, etc. Few get it right, and even fewer actually understand where we're headed. Once you find an information source that correctly predicts what's coming up, you hold on to it. For me, it's STRATFOR. It's not often that you find a news source with such a solid methodology.

    Today I'm including a piece from STRATFOR on the Afghan war. It strikes me as one of their best pieces recently, and I encourage you to pay close attention to the candor of their analysis style. We all need to know what to expect from this conflict area, and though we might think we have a decent idea, there's always something at play behind the scenes.

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  • Is the Recession Over?

    There is some debate about whether the recession is over. The National Bureau of Economic Research (NBER), a non-governmental organization made up of economists, has a committee that meets and decides after the fact when recessions begin and when they end. Martin Feldstein, the former president of the NBER, focusing on the job market, said last November that 'the current downturn is likely to last much longer than previous downturns ... We will be lucky to see the recession end in 2009.'

    I have called this recovery a Statistical Recovery, in that some of the normal metrics are only getting better in comparison to very bad numbers a year ago. It is likely that we will still have not recovered to the level of economic activity we enjoyed at the peak of the last cycle over two years ago on a nominal basis. This is highly unusual and lengthy for a recession.

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  • February Economic Report

    Before we get to this week's Outside the Box, a quick note about my writing on Greece in last Saturday's letter. I made the point that if Greece defaults it does not necessarily mean they have to leave the EU, any more than if Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on. EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate. Greece would be forced to balance its budget. Since they are part of the euro, devaluing the currency is not an option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for Greece. But in the long run, it is a better option than default.

    Further, and more important to the rest of Europe and the world, the results of a Greek default would be financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis. And the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime problem....
  • A Defensive Buildup in the Gulf

    Sometimes when I read a newspaper article, it strikes me as a 'He said, she said' game. If I'm going to make an informed decision, I need analysis - not opinions from two sides, each with their own motive. You can find quotes from 'experts' anywhere, but they usually don't offer much insight, except into the agenda of the person quoted. For deeper insight, I turn to my friend George Friedman at STRATFOR. STRATFOR publishes intelligence, not news. No journalists, no politicians - just analysts.

    I'm sending you a peek at the type of intelligence they provide for decision-makers like you and me.

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  • If PIIGS Could Fly

    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.

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