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  • It’s All Greek To Me

    Long-time readers will be familiar with Michael Lewitt, one of my favorite thinkers and analysts. He has gone off on his own to write his letter, and I am encouraging him to write even more. I call Michael a thinker because he really does. He reads a lot of thought-provoking tomes and then thinks about them. And then writes, making his readers think. The world needs more Michael Lewitts.

    Today, he roams the world, commenting as he goes, starting of course with Europe. I have permission to use the first half of this most recent letter as today’s Outside the Box, leaving off the investment recommendations that he shares with his subscribers. If you are interested you can subscribe at www.thecreditstrategist.com.

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  • Converging On The Horizon

    This week’s Outside the Box is with an old friend to long-time readers, Ed Easterling of Crestmont Research. Ed is usually on the bullish side, but his research of late points to a few warning signs that say some cycle convergences may be pointing to problems. And that coincides with my macro concerns. As usual, lots of charts and data, but easy to read and understand. And, for those with stock market investments, very thought-provoking and timely.

    I write this at 34,000 feet on the way back to Dallas. I met with a few Congressmen this morning and then ten Senators (!) this afternoon. It seems that some of them had read Endgame and rounded up a rather impressive group to come hear me speak for about 90 minutes. No Powerpoint, just off the cuff, with lots of very pointed questions, and they were taking notes (mostly). Some have been my long-time readers (go figure). It was bipartisan. Actually tripartisan, as independent Joe Lieberman was there, and asked some very hard questions. They cut me no slack and I gave no quarter. It was a very frank discussion. This is a group that is quite worried (I should say seriously worried) about our future, and they let me know there were more like them. On both sides of the aisle. It was actually somewhat encouraging, except that they are not optimistic. There was a sense of palpable concern that nothing might be done until we have a crisis, and so they realize the need to act. They are working to get their fellow Senators on board. Maybe there is hope. Without naming names, I was particularly impressed with the questions from a “Tea Party” Senator when I talked about the “glide-path option” and what going too fast would mean – as in a depression. I think he got it. We’ll see. He took the most notes, although Portman (who ran OMB so has a serious resumé and credibility on budgets) was going through paper rather fast as well.

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  • Three Competing Theories

    Long-time readers are familiar with the wisdom of Lacy Hunt. He is a regular feature of Outside the Box. He writes a quarterly piece for Hoisington Asset Management in Austin, and this is one of his better ones. Read it twice.

    “While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern …”

    As I write, Europe is starting to unravel. This is going to be much worse than 2008, at least as far as Europe is concerned, and odds are high that it will be very bad for the US. And the markets are still acting as if the problems in Europe can be resolved. The recent bank stress tests were a joke, as they assumed no Greek or Irish defaults. This simply can’t be. There is a banking crisis of massive proportions in our future.

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  • The 3-D Hurricane and the New Normal*

    Today’s Outside the Box is from an old friend, but one who is new to my readers. Jason Hsu is a partner at Research Affiliates and helped create the Fundamental Indexes with Rob Arnott. Starting at Cal Tech, he went on to a PhD in economics, and is now a professor at UCLA and teaches in China and Taiwan. Wins all sorts of awards and has won the Rising Star of Hedge Funds award. In short, he is really smart.

    He sent me this piece last week, and I asked if I could use it. He graciously acceded. It is on what Jason and Rob call “the 3-D Hurricane of Debt, Deficits and Demographics.”

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  • The Stark Choice for Europe

    This will be one of the more controversial Outside the Box posts in a great long time. Indeed, I debated with myself at some length. It will make some readers mad, but I decided it is more important to make most readers think. And, as it happens, there are parts of this week’s essay that I rather aggressively disagree with. That being said, there is a great deal of truth here. This represents a serious body of thought that is being debated, and we need to hear all sides, rather than just the ones we like.

    Michael Hudson is a research professor of economics at the University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College, which is a serious place, so this is no ill-informed screed. I generally like their stuff.

    Hudson first lays the European crisis at the feet of banks and the institutions (ECB, IMF, and the EU) that are taking the Greek (and other) bank debt and putting it into public hands. He has a very real point. Then he points out that Greece is far better off just walking away, a la Iceland (at least read the last part of this post, on Iceland). And in polls he cites, 85% of the Greek people are against taking on the debt and paying the banks.

    As I wrote last week, there is a revolution going on all over Europe, slowly building up as people realize that the “solution” being offered benefits banks and not German taxpayers or Greek creditors. Ireland will be watching. There is no easy way out. If there is a referendum on this new “troika” proposal, it is likely to lose. This is not over.

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  • Macro E.U. — D.O.A.

    I am attending the Global Interdependence Center’s latest conference here in Philadelphia, writing you from the Admiral’s Club on my way to Boston. The chatter last night at dinner and between sessions was focused on the risks in Europe. I did an interview with Aaron Task on Yahoo’s Daily Ticker, where I noted that European leaders are starting to use the word containedwhen they talk about Greece. Shades of Bernanke and subprime. This too will not be contained.

    And that brings us to this week’s Outside the Box. Greg Weldon has graciously allowed me to use his latest missive on Europe’s woes. A teaser:

    “The EU, like the US, suffers from what we might call the 'Cyrenaic Syndrome', a dynamic linked to the ancient Greek philosophers Aristippus and Hegesias of Cyrene, who, in 3rd and 4th Centuries BC, hypothesized that the goal of life was the avoidance of pain and suffering. Addicts accomplish this thru substance abuse. The EU is trying to accomplish this thru pure denial, and an outright refusal to accept that austerity, like sobriety, is the ONLY way to actually deal with the problems it faces.”

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