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John Mauldin's Outside the Box

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  • What's the point of macro?

    I am back in Tuscany and will head to Milan tomorrow early, give a speech at the Bloomberg offices and then back home. But it is Monday and that means it is time for another Outside the Box. And I have found a most excellent offering. Dylan Grice from Societe Generale in London wrote on value for an OTB a few weeks ago, and he follows that up with more thoughts on the use of macro trends versus value investing. This is a real think piece, and worthy of more than one read.

    I have to hit the send button, as my last dinner in Italy awaits (and real Italian food has been a revelation, and the wines! I am something of a chardonnay snob, and usually turn my nose up at Italian and French whites, but I found some local Tuscan chardonnays that were up to the best in California. And at reasonable costs.).

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  • The Uncomfortable Dance Between V'ers and U'ers

    'Why' many ask, 'is the stock market going up when the bond market is telling us the recovery will be tepid? Isn't there a disconnect?' And the answer is that there is, and this week good friend and fishing buddy Paul McCulley of PIMCO fame discusses that very topic with his usual insight and wit. He poses the conundrum that those expecting a 'V' shaped recovery have pushed risk assets up quite high, and that the real risk to their position is that they in fact get a 'V' shaped recovery. And yet, they could go higher and into bubble territory....
  • Just Desserts and Markets Being Silly Again

    My long time readers are familiar with Jeremy Grantham of GMO as I quote him a lot. He is one of the more brilliant and talented value managers (and I should mention very successful on behalf of his clients). He writes a quarterly letter which I regard as a must read. I have excerpted parts of his recent letter, where the chief investment strategist really takes the current financial system follies to task. Typical of his great writing and thinking is the quote from this week's Outside the Box selection:

    'I can imagine the company representatives on the Titanic II design committee repeatedly pointing out that the Titanic I tragedy was a black swan event: utterly unpredictable and completely, emphatically, not caused by any failures of the ship's construction, of the company's policy, or of the captain's competence. 'No one could have seen this coming,' would have been their constant refrain. Their response would have been to spend their time pushing for more and improved lifeboats. In itself this is a good idea, and that is the trap: by working to mitigate the pain of the next catastrophe, we allow ourselves to downplay the real causes of the disaster and thereby invite another one. And so it is today with our efforts to redesign the financial system in order to reduce the number and severity of future crises.'

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  • Zen Lessons in Market Analysis

    'Everything, including the market, is ultimately empty of a separate self. One market can only be understood and analyzed in the context of other markets and conditions. Supply and demand, in particular, should not be considered in isolation.'

    Long time Outside the Box readers are quite familiar with Dr. John Hussman, as he is a frequent choice for this column. But this week I think he has written one of his bests essays ever. He cleverly weaves in quotes from a Zen master who is his friend and gives us a very fresh look at market analysis. This is a thought piece and you should set aside some time to absorb the lessons. You will be well rewarded.

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  • A Tale of Two Depressions

    This week's Outside the box looks at some very interesting research done by two economic historians, Barry Eichengreen of the University of California at Berkeley and Kevin O'Rourke of Trinity College, Dublin They give us comparisons between the Great Depression and today's downturn. They continue to update their data from time to time, the link to their work is at http://www.voxeu.org/index.php?q=node/3421. I have not previously heard of www.voxeu.org, but it is a collection of the work of well regarded international economists that seems quite interesting for those who enjoy readings in the dismal science.

    This week's OTB will print long, but it is primarily charts. Please note that I have re-arranged some of the new charts to cut down on space because of some duplications. Word count is not all that much and it reads well. I will be referring to their work in future letters as well. Have a great week!...
  • Quarterly Review and Outlook - First Quarter 2009

    There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter does just that. I have made the comment more than once that is it unusual for two major bubbles to burst and for the conversation and our experience to be rising inflation and not a serious problem with deflation.

    Van Hoisington and Dr. Lacy Hunt give us a seminar on why they think it is deflation that will ultimately be the problem and not inflation we are dealing with today. This week's letter requires you to think, but it will be worth the effort.

    Now, if you put all of the various inputs together, Hoisington and Hunt show that theory suggests we will soon be dealing with deflation. It's counter- intuitive to what we hear today, which is why the Bank for International Settlements used the stagflation word in a recent report. The transition that is coming will not be comfortable....
  • A Value Investor Looks At China

    China is all the rage for the next few weeks as the Olympics are going on. Many are calling this China's time to showcase itself to the world. I have a lot of friends and analysts who are big China bulls, believing that the next few years will see continued high growth in China, although less than the above 10% of the past few years. In Outside the Box, we like to look at some contrarian analysis from time to time. Value Investor Vitaliy Katsenelson gives us some reasons why the outlook for China might not be so bright. This has implications for lots of markets that are driven by Asian demand....
  • A Kind Word for Inflation

    This week's Outside the Box will challenge a few of your base assumptions. Paul McCulley, the managing director at PIMCO, offers us a kind word for inflation and the reasons that the Fed will be on hold for a lot longer than the markets currently think. And part of that is to avoid a real recession or even a depression. Getting this debate right is important. These are indeed interesting times we live in. I look forward to being with Paul at the end of July on our Maine fishing expedition, where he can defend his proposition to the group of economists and analysts gathered there. Have a great week....
  • Five Delectable Examples of "Stein's Law"

    This week we look at a remarkable and important essay by my friend Dr. Woody Brock who is one of my favorite "Outside the Box thinking" economists. I seriously look forward to Woody's quarterly insights and devour them as soon as the come...