May 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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  • Learning from the Bank of Dad

    This week we visit an essay from an old friend of Outside the Box, Paul McCulley, the Managing Directpr of PIMCO. This is a speech he did at the Minsky Conference sponsored (I believe) by the Levy Institute. It was also the same speech he gave at my conference mid-April that was quite well received.

    Essentially Paul argues that the cause of the recent crisis was the creation of the Shadow Banking System outside the purview of regulation. And while he did not use the line in this speech, he did at my conference, which is one of the truly great lines I have heard this year.

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  • Germany, Greece and Exiting the Eurozone

    The cause célèbre these days is the potential reconstitution of the eurozone: ie, Germany leaving it, or Greece getting kicked out. To look a little deeper, today I'm sending you STRATFOR's take on these two scenarios. STRATFOR explores the geography of the continent and the historical context of the EU to understand what a German exit or a Greek expulsion might mean for the rest of the region....
  • The Commodities Con

    A quick introduction for this week's Outside the Box. This is from my London Partner Niels Jensen, talking about the problems with long only commodity funds. This is something I discuss frequently but have not written about in some time. Quite simply, many of the commodity ETFs do not deliver what they promise and in fact many of the inverse funds can lose you money even when you make the right macro call.

    Niels gives us a very good explanation of why this is so. So for those of you who have 'diversified' into commodity ETFs (not actively managed funds!) or are thinking about it you might really want to read this.

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  • The Death of Capital

    Was it only last week I was expressing outrage that US taxpayers would have to pick up the check for Greek profligacy in the form of IMF guarantees? This morning we wake to up the sound of $250 BILLION in IMF guarantees for a European rescue fund, most of which will go to countries that are eventually (in my opinion) going to default. That is $50 billion in US taxpayer guarantees. Not sure what that translates into for Britain or Canada or Australia.

    I can swallow the Fed dollar swaps to the ECB. Don't really like it, but I can deal with it, as I don't think it will ultimately put US tax-payers at risk, as long as the swaps are in dollar terms. But the IMF bailout is just wrong.

    Interestingly, the euro shot up on the announcement in what was now clearly short covering. As I write this, it is almost back down to where it started. That seems to me to be a vote of 'I don't believe you.' We will see. But if the ECB actually goes ahead and floods the market with liquidity, that will be very good for all types of risk assets....
  • The Global Crisis of Legitimacy

    From my friend George Friedman, founder & CEO of STRATFOR, here's my newest favorite quote concerning economic recessions: 'Like forest fires, they are painful when they occur, yet without them, the forest could not survive. They impose discipline, punishing the reckless, rewarding the cautious.' The thin line of where risky becomes reckless is something I'd like to focus us on today. No matter the risk-level of your portfolio, if you are reading this you are probably smart enough to know that when you play with fire you may get burned. You have to know how to look for smoke, or signs of a potential catastrophe, so you know not to grab the doorknob with both hands.

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  • Was the Demise of the USSR a Negative Event?

    Let's have a thought game. What if the Eurozone breaks up? My friend and very serious philosophical thinker Charles Gave (of GaveKal) thinks that would be a positive event. To quote his conclusion:

    'But we return to the most simple of questions, namely: Was the end of the USSR a negative event? When Americans stopped wasting capital building empty condos in Florida or Arizona, was that bad news? If, like us, our reader answers 'no' to the above questions, then the Greek crisis should be seen as a reason for hope, rather than despair.'

    Now, that is a truly Outside the Box proposition and one which I found very compelling. His partner, Anatole Kaletsky, elsewhere argues that the ECB will enlarge their mandate to try and save the day by printing enormous sums of money, ultimately making things worse....
  • The Great Reflation

    Let me start this week's Outside the Box by venting a little anger. It now looks like almost 30% of the Greek financing will come from the IMF, rather than just a small portion. And since 40% of the IMF is funded by US taxpayers, and that debt will be JUNIOR to current bond holders (if the rumors are true) I can't tell you how outraged that makes me.

    What that means is that US (and Canadian and British, etc.) tax payers will be giving money to Greece who will use a lot of it to roll over old bonds, letting European banks and funds reduce their exposure to Greece while tax-payers all over the world who fund the IMF assume that risk. And does anyone really think that Greece will pay that debt back? IMF debt should be senior and no bank should be allowed to roll over debt and reduce their exposure to Greek debt on the back of foreign tax-payers.

    I don't think I signed on for that duty. Why should my tax money go to help European banks? This is just wrong on so many levels and there is nothing seemingly we can do. Oh, well. Thanks for listening.

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