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  • The United States: Are the Seeds Already Sown for the Next Macro-Market Deflation Crisis?

    Greg Weldon has long been my favorite slicer and dicer of data – his charts and insights on charts really help me keep my eyes peeled. But in order to get across to us the drastic state of the economy as we plunge headlong into 2014 – a year that we all know will be pivotal – Greg has felt it necessary to resort to a rather trenchant metaphor from the year just past. Yes, says Greg, the economy is... Breaking Bad.

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  • Knowledge and Power

    In last week’s Thoughts from the Frontline I talked about the Age of Transformation, attempting to refute Robert’s Gordon rather stark and gloomy view of the future growth potential of the economy. That letter generated a rather significant amount of reader response, both pro and con, as not everyone agrees with my decidedly optimistic long-term view of the future. It might be fun and thought-provoking, in fact, to do a letter that deals with some of the issues you raised. I really do have some of the smartest readers of any economics and investing letter out there.

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  • WTF?

    It is a regular ritual for major US businesses: the end-of-the-quarter conference call in which the CEO dissects what just happened and gives us some insight on what to expect for the future of the company. My good friend Rich Yamarone, the chief economist at Bloomberg, is the creator of the Bloomberg Orange Book, a compilation of macroeconomic anecdotes gleaned from the comments CEOs and CFOs make on their quarterly earnings conference calls. He not only sits and listens to them present their views, he also picks up the phone and talks to them. He is very clued in on what's happening in the real world of business.

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  • Euthanasia of the Economy?

    Today's Outside the Box comes to us from my good friend and business partner Niels Jensen of Absolute Return Partners in London. Niels gives us an excellent summary of how QE has affected the global economy (and how it hasn't). I have found myself paraphrasing Niels all week.

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  • Life-Extending Biotechnologies: Creating and Solving Our Economic Problems

    Straightforward solutions to complex problems: they're nice in theory, but they're rare. Think of the Affordable Care Act, or Obamacare, for instance. It tries to address the complex problems of expanding access to healthcare while simultaneously controlling its skyrocketing costs. But, sadly, there is no simple solution, and certainly not one that is not contentious in the extreme.

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  • Default?

    David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors (and our host at "Camp Kotok" for the annual "Shadow Fed" fishing expedition), leads off today's Outside the Box by meticulously dissecting the roadkill that is our federal government's process for deciding whether they will continue to pay their bills and federal employees' wages.

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  • Bad Omens

    We have clearly been in a recent run of higher interest rates, with a looming "threat" that there might be less quantitative easing before the end of the year. It would appear now that Bernanke wants to leave his successor to implement what everyone knows must be coming at some point: a return to a normal interest-rate environment. While rising interest rates are bad for me personally (for another four months), a return to normalcy would be good for our future – though the transition is likely to be bumpy.

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  • A Message from Lord Vader

    As long-time readers know, I have a very eclectic group of friends and associates. Colorful, opinionated, generally both fun and funny, they make for interesting times and discussions wherever I go. I am not certain why they associate with such a mild-mannered, soft-spoken, Muddle-Through Texan like me, but most agree that I am at least good for comic relief. Next week I will be in the midst of some unabashed bulls, but today I offer up for your reading pleasure a note from a friend who is on the Dark Side of the fence, though he is hardly what you could call a conventional bear. He is Rich Yamarone, Chief Economist for Bloomberg.

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  • Cyprus Has Finally Killed Myth That EMU Is Benign

    This piece from Ambrose Evans-Pritchard is about as hard-hitting an analysis of Cyprus as I have read and really makes an interesting introduction to this week’s Outside the Box. No messing around:

    Capital controls have shattered the monetary unity of EMU. A Cypriot euro is no longer a core euro….

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  • The Crisis of the Middle Class and American Power

    Thinking about the long term is all too rare a talent these days and one I really appreciate. When you take a longer view, it is easier to see how all the moving parts, the bits and pieces, fit together. And you can see other streams of action impacting your original line of thought.

    In today’s Outside the Box, my (and our) old friend George Friedman thinks about the future of employment and how it impacts the expression of American social order and geopolitical power. Sitting here in Stockholm tonight, that was the very point we were making in our dinner conversation with the management team of the Skagen funds. It is not just a US problem, although George looks at the US. This is a global issue as the gulf between the middle class and the upper income classes is widening, and it is widening for structural reasons. There are no easy answers. Dennis Gartman quotes PJ O’Rourke, who basically launched a shot from the right. It speaks for itself:

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  • Looming Crisis: State Budgets Soon to Be Under Siege

    Today in Outside the Box we explore the very sad fact that once again I was unduly optimistic. My good friend Ed Easterling shows that it is quite likely that the pension shortfalls are approaching $4 trillion. And the longer we wait to deal with the problem, the worse it will get.

    The biggest part of the problem, as I wrote back in 2003, is unrealistic assumptions about future investment returns. That has not changed. You can find consultants who will tell you there is “only” a $1 trillion problem. However, if you assume that interest rates will remain low and equity returns will look like they did the last ten years, then the underfunding might look more like $4.6 trillion.

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  • Popular Delusions: The bull case for safe havens

    I am sending this OTB from the Lindbergh Terminal of the Minneapolis–St. Paul Airport, on my way back from Bismarck, ND. I have now been to 49 states, with only South Dakota to go. The Bakken oil field is amazing and the helicopter tour was eye-opening. I am going to write about it this weekend as part of looking at the larger picture of energy and change.

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  • Four More Years

    The American electorate may share the same national bed, but they have vastly different dreams. In this report, our take on the election’s significance is similarly bifurcated. Anatole see it as a cathartic political cleansing allowing for a deal on the fiscal cliff, but Charles as a disaster. Arthur asks whether the Republican Party can win nationally without reconciling itself to America’s changed demographics and the realities of the new knowledge-intense economy. Will Denyer contends that an Obama win is probably bad for the dollar and gold – but he doubts that would have been different with Romney.

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  • The Role of Risk in Asset Allocation

    Diversification of your investments is the only real free lunch, or so we are told. But how do we go about deciding what to diversify into? In this week’s short Outside the Box, my friend Jason Hsu of Research Affiliates argues that the real basis for diversification should be risk. And given that risk seems to be rising everywhere we look, thinking about how to deal with risk in our portfolios makes a great deal of sense.

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  • Hoisington Investment Management Quarterly Review and Outlook Third Quarter 2012

    The Hoisington Quarterly Review and Outlook is one of the cornerstones of my reading on where the economy is headed. Van Hoisington and Lacy Hunt do a masterful job of turning data points into cogent, well-argued themes.

    This month they waste no time in dissecting the Fed’s recent move to QE3 and similar efforts in Europe, arriving at the conclusion that “While prices for risk assets have improved, governments have not been able to address underlying debt imbalances. Thus, nothing suggests that these latest actions do anything to change the extreme over-indebtedness of major global economies.”

    Their expectation: global recession. The only issue left to sort out, they say, is How deep will the downturn be?

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